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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Jatin, Kabir and Leela are partners. The deed has no clause on expulsion. Jatin and Kabir, by majority, pass a resolution expelling Leela, saying she has been careless in her work. No such power was given by the deed. What is the legal position?

The expulsion is invalid. A partner can be expelled only if the partnership contract confers that power, and it must be exercised in good faith for the firm's benefit. Since the deed is silent, a majority resolution, notice or repayment of capital cannot validate Leela's expulsion.

  1. AThe expulsion is valid because a majority of partners decided it
  2. BThe expulsion is valid if Leela gets one month's notice
  3. CThe expulsion is invalid because the power of expulsion must exist in the contract and be exercised in good faithCorrect
  4. DThe expulsion is valid if the firm repays her capital immediately

Explanation

A partner may be expelled only if the contract gives such power, and the power must be exercised by the majority in good faith for the firm's interest. Here the deed gives no such power, so the resolution is invalid. Majority vote, notice or repayment cannot create a power the contract lacks.

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