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

Zoya, Aman and Bina are partners. The deed allows expulsion by majority. Aman and Bina, by majority, expel Zoya, because she once caused a small loss, without giving her any notice or hearing and without any real concern for the firm's interest. What is the legal position?

The expulsion is void. Even if the deed permits expulsion by majority, the power must be used in good faith for the firm's interest, after giving the partner notice and a chance to be heard. Having a majority clause alone is not enough.

  1. AThe expulsion is valid because the deed allows expulsion by majority
  2. BThe expulsion is valid because the firm lost money
  3. CThe expulsion is void because a power to expel must be exercised in good faith for the firm's benefit, after natural justice is followedCorrect
  4. DThe expulsion is valid only if the court approves it afterwards

Explanation

A partner can be expelled only if the power is given by contract, exercised by a majority, and used in good faith. Good faith needs notice to the partner and an opportunity to be heard, and the act must be for the firm's benefit. Here these were absent, so the clause alone does not save the expulsion.

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