HIDAYATULLAH NATIONAL LAW

UNIVERSITY

A PROJECT REPORT ON
Retirement of Partner-Overview

SUBMITTED TO:
Ms. BALWINDER KAUR
(Faculty of CONTRACTS-II)
Submitted By:
Ajay Lakra
Roll No. - 09
Semester- III

Acknowledgements
I, AJAY LAKRA, feel myself highly elated, as it gives me tremendous pleasure to come
out with work on the topic RETIREMENT OF PARTNER.
First and foremost, I take this opportunity to thank Ms. Balvindar Kaur, Faculty, Law of
Contracts-II, Hidayatullah National Law University, Raipur for allotting me such topic to work
on. He has been very kind in providing inputs for this work, by way of his suggestions.
I would also like to thank my dear colleagues and friends in the University, who have
helped me with ideas about this work. Last, but not the least I thank the University
Administration for equipping the University with such good library and I.T. facilities, without
which, no doubt this work would not have taken this shape in correct time.

AJAY LAKRA,
BATCH -XII,
B.A. LL.B. (HONS.).

Table of Content
ACKNOWLEDGEMENTS ....................................................................................................................2
TABLE OF CONTENTS ......................................................................................................................3

1. Objectives.................................................................
................................4
2. Research
Methodology..............................................................
..............4
3. Introduction..............................................................
...............................5
4. Definition

of

Partnership...............................................................
..........6
5. Ancient
Partnership...............................................................
...................7
6. Essentials

of

Partnership...............................................................
............8
7. Liability

of

Retired

Partner......................................................................
...8
8. Conclusion ................................................................
..............................13
9. Bibliography .............................................................
.............................13

Objective

To study about the concept of Retirement of partner and related provision,

To study the cases related to the Retirement of partner.

Research Methodology
This work is descriptive and analytical in nature. Secondary and Electronic resources have been
largely used to gather information and data about the topic.
Books and other references as guided by Faculty of Sociology have been primarily helpful in
giving this project a firm structure. Websites and articles have also been referred.
Footnotes have been provided wherever needed, either to acknowledge the source or to point to a
particular provision of law.

Introduction
A partnership is an arrangement in which parties agree to cooperate to advance their mutual
interests. A Partnership is an arrangement in which parties agree to cooperate to advance their
mutual interest. Since humans are social beings, partnership between individuals, business,
interst based organizations, school, governments and varied combination. thereof, have always
been and remain commonplace. In the most frequently associated instance of the term, a
partnership is formed between one or more businesses in which partners (owners) co-labor to
achieve and share profits and losses.
Partnerships present the involved parties with special challenges that must be navigated unto
agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority
and succession, how success is evaluated and distributed, and often a variety of other factors
must all be negotiated. Once agreement is reached, the partnership is typically enforceable
by civil law, especially if well documented. Partners who wish to make their agreement
affirmatively explicit and enforceable typically draw up Articles of Partnership. It is common for
information about formally partnered entities to be made public, such as through a press release,
a newspaper ad, or public records laws.

While partnerships stand to amplify mutual interests and success, some are considered ethically
problematic. When a politician, for example, partners with a corporation to advance the latter's
interest in exchange for some benefit, a conflict of interest results; consequentially, the public
good may suffer. While technically legal in some jurisdictions, such practice is broadly viewed
negatively or as corruption.

Definition of partnership
As per Kent and Story, Partnership is a voluntary contract between two or more persons for
joining together their money, goods, labour and skill or either all of them and having for its
object the advancement and protection of fair and open trade.
As per Sir Fredrick Pollock, Partnership is a relation which subsists between the persons who
have agreed to share the profits of a business carried on by all or any of them on behalf of all of
them.
As per Dixom, Partnership is a voluntary unincorporated association of individuals standing to
one another in a relation of principles for carrying out a joint operation or undertaking for the
purpose of joint profits.
Section 4 of the Indian Partnership Act has adopted the definition of Sir Fredrick Pollock as
given below:
"Partnership is defined as the relation between two or more persons who have agreed to share
the profits according to their ratio of business run by all or any one of them acting for all".
Persons who have entered into partnership with one another are called individually partners
and collectively a firm, and the name under which their business is carried on is called the
firm name.

The definition of the Partnership contains three elements:

1. There must be an agreement entered into by all the persons concerned,
2. The agreement must be to share the profit of a business and,
3. The business must be carried on by all or any of the persons concerned acting for all.
All these elements must be present before a group of associates can be held to be partners. These
three elements may appear to overlap, but they are nevertheless distinct. The first element related
to the voluntary contractual nature of partnership. The second gives the motive which leads to
the formation of firm i.e. the acquisition of gain and the third shows that the person of the group
who conduct the business do so as agents for all the person in the group and are therefore liable
to account to all.

Ancient Partnership:
Manu provided the earliest rules governing partnership type arrangements in the context
of priests jointly officiating at a sacrifice1Among a number of priests officiating at a sacrifice, the
chief men shall receive half of the fee, those belonging to the second grade shall receive half of
that, those of the third grade, the third part of that; and those of the fourth grade, the fourth part. 2
Manu's sharing rule is somewhat ambiguous. Kane3 understands the rule to imply that the total
fee, usually of cows, was to be given to the chief priests to be shared out in such a way that the
second, third and fourth grade of priests received, respectively, one-half, one-third and onefourth of what the chief priests received. Thus a fee of a hundred cows would be shared between
the four ranks of priests: forty-eight, twenty-four, sixteen and twelve cows respectively.4
The basic definition of commercial partnership was provided by Narada 5, When traders
and others carry on business jointly it is called a partnership (sambhuya samutthanam). The
1 Sacrifices to the gods were widely practised in Vedic India involving offerings of food, drink, sheep,
and goats.
The ceremonies had to be performed in strict accordance with the Vedas by suitably
qualified priests.
2 Manu 8.210
3 Kane, 1941, pp. 1188-1189.
4 Derrett (1975), p. 158.

profit- seeking objective was emphasised by Narada where he indicated the importance of capital
and the desirability of each partner having a financial stake in the enterprise, When several
partners are jointly carrying on business for the purpose of making profits, the supplying of
capital forms the basis of such business, each should therefore contribute his proper share
towards the capital.6 Capital appears to have been considered the most, if not the only, significant
input as it was the sole determinant of the profit sharing ratio: The expenses, the loss and the
profit of all the partners are either equal or more or less, in accordance with the share of capital
contributed by each.7 Later on katyayana had later added the contributions by partners of
capital, skill or labour as the basis of distribution of Profit and Loss among partners.

Essentials of Partnership
This has been described to be most business like definition of the term. It is quite clearly portrays
the following fours essential features of a partnership namly(1) That it is the result of an agreement.
(2) That it is organised to carry on a business.
(3) That the person concerned agreed to share the profit of the business.

Retirement of a partner
(1) A partner may retire
(a). with the consent of all the otter partners,
(b). in accordance with an express agreement by the partners, or
(c). where the partnership is at will, by giving notice in writing to all the other partners of
his intention to retire.
(2). A retiring partner may be discharged from any liability to any third party for acts of the
firm done before his retirement by an agreement made by him with such third party and the
5 Narada, 3.2
6 Ancient law
7 Narada, 3.3

partners of the reconstituted firm, and such agreement may be implied by a course of dealing
between such third party and the reconstituted firm after he had knowledge of the retirement
(3). Notwithstanding the retirement of a partner from a firm, he and the partners continue to
be liable as partners to third parties for any act done by any of them which would have been
an act of the firm if done before the retirement, until public notice is given of the retirement
(4). Notices under sub section (3) may be given by the retired partner or by any partner of the

reconstituted firm.8

Modes of Retirement
A partner may retire from the firm in any of the following ways:
1. By Consent[S.32(1)(a)]
A partner may retire at any time with the consent of all his partner.
2. By Agreement[S.21(1)(b)]
Where there is an agreement between the partners about retirement, a partner my retire in
accordance with the terms of the agreement. The Supreme Court regarded an agreement
to be valid which permitted a partner to retire by one months notice 9
3. By Notice[S.32(1)(c)]
Where the partnership is at will, a partner may retire by giving to his partner a notice of
his intention to retire. A partnership at will as defined by the section 7, means a
partnership where no contract has been made between the partner for its duration or
determination. The duration of the firm is left uncertain and it survives as long as each
and every partner is willing.
Section 7 says.
In Vishnu Chandra v. Chandrika Parsad Agarwal,(1983) 1 SCC 22 it was held that in a twomembers firm, there is no question of retirement of partner either by agreement or by notice, the
dissolution being inequitable

7. Partnership at will.- Where no provision is made by the contract between the

partners for the duration of their partnership, or for the determination of their
partnership, the partnership is partnership at will
A partner can retire by notice only when the firm is at will as so defined. A clause held that a
partner who wants to retire should give six months notice will prevent the firm from being
regarded as a firm at will10, particularly where the firms has only two partners and the retirement
of one will mean inevitable dissolution. An agreement of partnership provided that the death or
8 Indian Partnership Act 1932
9 Vishnu Chandra v. Chandrika Parsad Agarwal,(1983) 1 SCC 22

retirement of a partner would not terminate the firm and a partner guilty of such contract as
would justify dissolution by court would stand retired. It was held that the firm was not at will,
for it could be dissolved only by the court or by some other events11
Notice should be in writing, signed by the partner and should be severed upon all the partners12.
As between the partners, the retirement becomes effective from the date mentioned in the notice
or, if no date is mentioned, from the date of service
In Walter v. Bingham, The Times, Dec 29 1987 it was held by the court that where notice was
given to some partners in writing and to the others who were away by telephone and the same
was held to be effective

Liability of retired partner

Liability for act done before Retirement [S.32(2)]
A retired partner remains liable to the creditors for the acts of the firms done before and
up to date of his retirement13. However, Section 32(2) suggest a way out.

(2) A retiring partner may be discharged from any liability to any third party for acts
of the firm done before his retirement by an agreement made by him with such
third party and the partners of the reconstituted firm, and such agreement may be
implied by a course of dealing between such third party and the reconstituted firm
after he had knowledge of retirement.

10 See Underhill, LAW OF PARTNERSHIP, 39(9th Edn, 1971)

11 Abbott v. Abbott, [1936]3 All ER 823
12 But see Walter v. Bingham, The Times, Dec 29 1987
13 Syndicate bank v. RSR Engg. Works,(2003) 6 SCC 265

The continuing partners may agree to release him from such debts. But, notwithstanding any
agreement between the partners, the retired partner remains liable to a creditor14 a complete
novation has to be proved and this requires two things: Firstly, the remaining partners must
have agreed with the retired partner to release him from the existing debts and liability, and
secondly the creditors should be informed of the retirement and the new agreement and then
the retired partners will be discharged from his liability to a creditor who has expressly or
implied agreed to release the retired partners and to accept the reconstitution firm as his
debtor15. An implied agreement arises when a creditors continues a deal with the
reconstituted firm after he has knowledge of retirement.
In case of Syndicate bank v. RSR Engg. Where it was held that in absence of any agreement
discharging the retired partners, they would remain liable towards pre-retirement liability and
an implied agreement may arise from the course of dealing between the third party and
reconstituted firm. If the creditor takes a new security for the debts from the continuing
partners, it would show the intention to deal with them for the existing debts.
A partner who has committed a tort or an infringement of a trademark remains liable to the
injured party even through he had retried before the suit was filed16
And in case of Court v. Berlin it was held that the dormant partners were held liable for act
done before their retirement.

Liability for act done after Retirement of Partner [S.32(3)]

A public notice of retirement should be given.17 The notice may be given either by the ritired
partner or by any partner of the reconstituted Firm.18 It is in the interest of both. The
consequences of default in giving public notice are twofold, namely, holding out of the
retired partner and estoppels against the firm
(3) Notwithstanding the retirement of a partner from the firm, he and the partner

continue to be liable as partners to third parties for act done by any of them which
14 Court v. Berlin, [1897] 2 QB 396
15 Jayaantilal v. Narandas & Sons, AIR 1983Born 226, 231
16 Thomas Bears and Sons v. Rulia Ram, Air 1934 Lah625
17 C.Assiamma v. State Bank of Mysore, AIR 1990 Ker 157
18 Section 32(4) Pamnru Vishna Vinodh Reddy v. Chillankurru Chandrasekhara Reddy (2003) 3 SCC
445

would have been an act of the firm if done before the retirement, until public
notice is given of retirement:
Provided that a retired partner is not liable to any third party who deals with a firm without
knowing that he was partner.
In case of Shivaraj v. Patil and K.G. Balakrishanan, It was held that the bank was allowed
to implead the partners who have taken the loan through the entire liability of the firm had
been taken over by another person whom the bank had obtained a decree the bank had not
agreed to discharge the liability
The Retired partner shall continue to be liable by holding out for any act of remaining
partners which would have been the act of the firm if done before retirement. Such liability
continues up to the date of public notice but is confined only to customers who dealt with the
firm under the assumption that the retired partners was still a partner. It also does not extend
to torts committed by the reaming partners after the retirement of the partners after the
retirement nor to act of insolvency committed by the continuing partners. In two successive
cases before Madras High Court, long after a partners retirement without public notice, other
partners committed acts of insolvency, for which the retired partner was also sought to be
declared an insolvent. The court rejected partner was also sought to be declared an insolvent.
The court rejected the plea in both cases19
No public notice is however, necessary in case of a deceased partner, insolvent partner and a
dominant partner20 The provision to sub-section (3) of section 32 clearly says that a retired
partner is not liable to any third party who dealt with the firm without knowing that he was a
partner. In any case before the Bombay High Court21, a partner retired and some three years
later the continuing partner incurred liability on a bill of exchange, the retired partner was
held not liable for the same because that party suing him did not know that he ever was a
partner in the firm. It was not material that no notice of retirement was given either to the
Registrar of the firm or through publication. Retirement of an unknown partner requires no
publicity. The Court said.22
The rule laid down in the proviso engrafts an important exception upon the general rule
contained in sub-section (3). A person who is not known to be partner in a firm cannot be
19 P.V. Gandhi v. Gitanjali, AIR 1973 Mad 115
20 Section 35, 34 and 28 respectively.
21 Glorious Plastics Ltd. v. Laghate Enterprise, AIR 1993 Born 224
22 Vinayak Keshav Pranjape v. Dena Bank, AIR 1998 Born 356

said to owe any duty to give notice of his retirement to person who do not know that he
has been a partner. The proviso is to the effect that even when there is a failure to give
public notice a retired partner will not be liable to a third party who did not know of such
person being a partner and deals with the firm after such retirement"
In the case of Vinayak Keshav Pranjape v. Dena Bank It was held that no liability came to a
retired partner under the acknowledgment of debts by the continuing partners because the party
to whom the acknowledgment was made was aware of the fact of retirement.
The court cited the following passage from one of its earlier decision23 No liability would attach
to the retiring partners as he retired before the transaction and was unknown to the plaintiff when
he transacted with the firm24
The significance of the expression estoppel of the firm is that if the retired partner takes credit
from a customer of the firm representing that he is still a partner of the firm, the firm would be
liable if the act of the rejected partner would have been an act of the firm if done by him before
retirement.

23 Bhaishanker Motiram v. Lakshmi Dyeing Works, AIR 1930 Born 449(DB).

24 Jwaladutt R. Pilliani v. Bansilal Motilal, AIR 1929 PC 132

Conclusion
Sec 32 of Indian Partnership Act 1932 deals about the Retirement of Partner the concept of
retirement of partner can be considered to be a distinct feature of Indian Contract Act because
it only topic which is there in India Law, The concept of Retirement of partner is not covered in
English law, Partnership under English law say about dissolution of partnership either by death
of partner, Judicial decree etc but it does not speak about retirement of partner.

Bibliography
AWTAR SINGH, LAW OF PARTNERSHIP (9th ed. 2007)
BARE ACT INDIAN CONTRACT ACT 1932
S.C. TRIPATHI, PARTERNERSHIP ACT(1st ed. 2011)
H.P. Gupta, INDAIN PARTNERSHIP ACT(3rd ed. 2011)