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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Kiran Traders LLP has partners Kiran and Lata. Kiran, without Lata's knowledge, signs a contract with Zenith Ltd. on behalf of the LLP for a purpose outside the LLP's ordinary business. Zenith Ltd. knew Kiran had no authority to do so. Later the LLP refuses to honour the contract. As per the LLP Act, 2008, which statement is correct?

The LLP is not bound. A partner is the LLP's agent, but the LLP escapes liability for an act where the partner had no authority and the third party knew of that lack of authority or did not believe him to be a partner.

  1. AThe LLP is bound, because a partner is an agent of the LLP in every matter
  2. BLata alone is bound, because she is the other partner
  3. CThe LLP is not bound, because Kiran had no authority for that act and Zenith Ltd. knew thisCorrect
  4. DThe LLP is bound, but only up to the extent of Kiran's capital contribution

Explanation

A partner is an agent of the LLP, but the LLP is not bound by an act done by a partner in dealing with a person who knows the partner has no authority to act for the LLP in that matter. Since Zenith Ltd. knew of the lack of authority, the LLP is not bound. The option that treats a partner as agent in every matter ignores this exception.

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