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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Kiran is a partner in a Delhi consulting partnership. Without telling the other partners, she uses firm information to win a side contract for a rival entity that she owns, and earns Rs 8 lakh. The partnership deed is silent on competing business. What is the most likely legal consequence under the Indian Partnership Act, 1932?

Kiran must account to the firm for the Rs 8 lakh and pay it over. Partners owe duties of good faith and a statutory duty not to compete in the firm's business without consent, and silence in the deed does not remove that duty.

  1. AShe may keep the profit because the deed does not prohibit it
  2. BShe must account to the firm for the profit and pay it over, as partners owe duties of good faith and must not compete in the firm's business without consentCorrect
  3. CShe need only pay half the profit, since the other partners shared no risk
  4. DThe other partners can only dissolve the firm and cannot claim the money
  5. She is liable only if the firm has a separate legal personality

Explanation

Partners owe each other duties of utmost good faith and to render true accounts. A partner who carries on a competing business must account for and pay to the firm the profit made, even if the deed is silent. The absence of an express clause does not remove the statutory duty, and personality is irrelevant.

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