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

Sunita, Tarun and Usha are partners in a firm. Tarun retires with the consent of the other partners. The firm's creditor Mr. Bose, who dealt with the firm before Tarun's retirement, was not informed of the retirement, and no public notice was given. Later the firm incurs a debt to Mr. Bose for goods supplied after the retirement. Mr. Bose knew Tarun as a partner earlier. What is Tarun's liability?

Tarun is liable to Mr. Bose. A retired partner continues to be liable for the firm's acts to persons who dealt with the firm before his retirement and who had no notice of it, since neither public notice nor notice to that creditor was given.

  1. ATarun is not liable because he has retired
  2. BTarun is liable to Mr. Bose as a retired partner continues to be liable to a person who dealt with the firm before retirement and had no notice of itCorrect
  3. CTarun is liable only for debts incurred before retirement
  4. DTarun is liable only if Mr. Bose obtains a court order

Explanation

A retired partner remains liable for acts of the firm done after retirement towards third parties who dealt with the firm earlier, until public notice of retirement is given or the third party otherwise learns of it. Mr. Bose had no notice, so Tarun stays liable. Option C ignores this rule on holding out.

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