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Ishaan was induced to join a partnership firm by the fraud of partners Jai and Kamal. He paid Rs 4,00,000 for a share, contributed Rs 2,00,000 as capital, and later paid Rs 50,000 towards firm debts. He rescinds the contract. Which set of rights does he hold?

Ishaan has a lien or retention right over surplus assets after debts for Rs 6,00,000 (share price plus capital), may rank as a creditor for the Rs 50,000 paid towards firm debts, and is entitled to indemnity from Jai and Kamal against all firm debts.

  1. AOnly the right to be indemnified by the guilty partners, with no claim against the firm's assets
  2. BA lien or retention right over the surplus assets after debts are paid for the Rs 6,00,000, a right to rank as creditor for Rs 50,000, and indemnity by Jai and Kamal against all firm debtsCorrect
  3. CA right to rank as a creditor for the whole Rs 6,50,000 and nothing else
  4. DA lien over the surplus assets for Rs 6,50,000, but no indemnity because he already paid a debt

Explanation

On rescission for fraud, the innocent party gets a lien on the surplus after debts for sums paid for the share and for capital contributed (Rs 4,00,000 + Rs 2,00,000 = Rs 6,00,000). He ranks as a creditor for payments made towards firm debts (Rs 50,000). He is also indemnified by the guilty partners against all firm debts, without prejudice to other rights. The lien does not cover the debt payment, so the Rs 6,50,000 lien is wrong.

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