Skip to content

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

Rekha, Salim and Tejas are partners in a firm. After Tejas retires, he starts a business of the same kind as the firm. The retirement agreement says he will not carry on a similar business within 3 years in the city of Indore, where the firm operates. Under the Indian Partnership Act, 1932, how does the law treat this agreement?

The agreement is valid provided the restrictions on time and place are reasonable. The Act creates an exception to the general bar on restraint of trade, letting an outgoing partner agree not to run a similar business within specified limits and period.

  1. AIt is void because every restraint on trade is void
  2. BIt is valid if the time and place restrictions are reasonableCorrect
  3. CIt is valid only if Tejas receives a separate payment
  4. DIt is valid but only if it applies throughout India

Explanation

The Act allows an outgoing partner to agree with his partners not to carry on a similar business within a specified period or local limits. Such an agreement is valid if the restrictions are reasonable. A 3-year restriction limited to Indore, where the firm operates, fits this exception. Separate payment or all-India coverage is not required.

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