Skip to content

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

Pranav allows a supplier, Quick Traders, to believe that he is a partner in Rathi & Co., and he does not contradict the statement when it is made in his presence. Relying on this, Quick Traders supplies goods on credit worth Rs 60,000 to the firm, which fails to pay. Pranav has not invested anything in the firm and receives no share of profits. What is Pranav's position?

Pranav is liable to Quick Traders as a partner by holding out. He knowingly allowed himself to be represented as a partner, and the supplier gave credit relying on it. Liability under holding out arises from the representation, not from capital contribution or profit sharing.

  1. ANot liable, because he neither invested nor shared profits
  2. BLiable to Quick Traders as a partner by holding out (estoppel)Correct
  3. CLiable only if he later receives a share of profits
  4. DLiable only for half of the amount, as a sleeping partner

Explanation

A person who represents himself, or knowingly allows himself to be represented, as a partner is liable to anyone who gives credit relying on that representation. Investment or profit share is not needed for this liability. Option A ignores the rule of holding out.

Did you get it right without looking?

One question tells you little. A timed set on The Indian Partnership Act, 1932 shows your real accuracy, how long you take and where you lose marks.

Practise The Indian Partnership Act, 1932Free diagnostic mock

More The Indian Partnership Act, 1932 questions