DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

SABBAVARAM, VISAKHAPATNAM, AP, INDIA

TOPIC:

SECTION 26 OF Partnership Act, 1932

SUBJECT:

Contracts

NAME OF THE FACULTY:

P.Jogi Naidu

H.Simran

LLB2018034

3rd Semester

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to our lecturer P.Jogi Naidu Sir who
has given me the golden opportunity to do this wonderful project on the topic “SECTION 26
OF PARTNERSHIP ACT” which also helped me in doing a lot of research and through
which I came to know so many new things. I am really thankful to him.

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 CONTENTS

TOPICS PAGE NO.

1) ABSTRACT………...………………………………………………………. 4
2) INTRODUCTION……………………………………………………………6
3) LLOYD VS GRACE, SMITH & CO………………………………………...8
4) SAREMAL PUNAMCHAND VS PUNAMCHAND………...……………..10
5) NARCINVA V. KAMAT AND ANR. ETC VS
ALFRED ANTONIO DOE MARTINS AND ORS………...………………..14
6) NILESH SHIPPING AGENCY VS.
COLLECTOR OF CUSTOMS…………………….…………………………17
7) DUBAI ALUMINIUM COMPANY LIMITED
V SALAAM ………………………………………..………………………..21
8) CONCLUSION……………………………………………………………….26
9) REFERENCE………………………………………………………………….28

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 ABSTRACT

TOPIC: SECTION 26 OF PARTNERSHIP ACT,1932

DESCRIPTION: The Indian Partnership Act, 1932 defines partnership as “the relation

between persons who have agreed to share the profit of the business carried on by all or any
one of them acting for all.”

The inherent disadvantage of the sole proprietorship in financing and managing an expanding
business paved the way for partnership as a viable option. Partnership serves as an answer to
the needs of greater capital investment, varied skills and sharing of risks. The persons who
own the partnership business are individually called ‘partners’ and collectively they are called
as ‘firm’ or ‘partnership firm’. The name under which partnership business is carried on is
called ‘Firm Name’. In a way, the firm is nothing but an abbreviation for partners.

One partner might see the opportunity to create a new product. Another partner might know a
better way to distribute it. A third partner might provide the logistics expertise or industry
connections to get the business producing revenues in half the time. Businesses started by
teams tend to have more unique product offerings and the ability to execute faster.

One of the important aspect of Partnership is

Mutual agency: The business is carried on by all the partners or any (one or more) of them
acting on behalf of the others. Thus, every partner is both an agent as well as a principal for
himself and the other partners, i.e. he can bind by his acts the other persons and can be bound
by the acts of the other partners. The importance of this element of mutual agency lies in the
fact that it enables every partner to carry on the business on behalf of others.

Thus this paves a way for the liability of the firm for the acts of the partners. Any partner
acting on his behalf for the firm makes the whole firm liable as he is acting like a agent to the
firm.

The section 26 of Indian Partnership Act reads as follows:

26. Liability of the firm for wrongful acts of a partner.—Where, by the wrongful act or
omission of a partner acting in the ordinary course of the business of a firm, or with the
authority of his partners, loss or injury is caused to any third party, or any penalty is incurred,
the firm is liable therefor to the same extent as the partner.

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In this project I would like to discuss the various case laws related to Section 26 of Indian
Partnership Act, 1932. The cases are as follows:

 LYOLD vs. GRACE SMITH AND CO,1912

 SAREMAL PUNAMCHAND VS KAPURCHAND PUNAMCHAND (1923) 25
BOMLR 1093
 NARCINVA V. KAMAT AND ANR. ETC VS ALFRED ANTONIO DOE
MARTINS AND ORS ON 25 APRIL, 1985
 NILESH SHIPPING AGENCY vs. COLLECTOR OF CUSTOMS 1994
 DUBAI ALUMINIUM vs. SALAAM 2003

The above mentioned cases will be discussed in detail and the essence of the Section 26 of
the Indian Partnership Act will be bought out.

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 INTRODUCTION
There is no better approach to solving challenges than the famous saying "two heads are
better than one." Whether creating internal partnerships between colleagues or departments,
to larger partnerships between businesses, harnessing the strengths and abilities of others
from different corners of your ecosystem is one of the most strategic ways for businesses to
scale their innovation and solve complex challenges. In today's fast-paced environment, a
"do-it-alone" approach is not the best strategy for growth. Companies that initially grew
organically need to look for new ways to drive collaborative innovation that delivers on what
their customers need today – and in the future.

For a layman, a partnership is an association of people who have common objectives and
goals. Even a business owned or managed by two or more people is termed as partnership.
The idea of a partnership or such collaboration is that every member or partner contributes
something which helps achieve an aim and is beneficial to all the members. A member may
contribute money, skill or labour which in turn makes it easier to achieve the common
objective. Thus, partnership is an arrangement where people consent to work together and
advance their mutual interests. For example, two doctors may decide to work together on the
same case as partners and share the fees.

Collaboration and strategic partnerships are fundamental to improving business outcomes.

Strategic partnerships benefit everyone: businesses, employees and customers. Businesses

can broaden their relevance and increase their addressable market; customers benefit from the
strengths and offerings each organization brings to the table; and employees can expand their
development opportunities by being exposed to new perspectives and expertise. Plus,
deepening ties between complementary businesses fosters collaboration and longevity, and
allows companies to offer services and solutions that help their customers and other
businesses become more successful.

The fintech ecosystem has seen this happen over the past few years. Traditional organizations
such as big banks and government agencies are partnering with newer players, startups and
entrepreneurs.

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Some organizations may be resistant to partnering with a company that competes with them
for customers or profits, and some employees may not feel the need to collaborate internally
in new or unexpected ways. The reality of today's business landscape, however, means that
partnerships are key to better serving customers by merging talent, expertise, technology and
purpose. While the rewards are great, strategic partnerships require thoughtful consideration
to ensure success is achieved.

And with such advantages we also have to come across few liabilities in the working of the
partnership. One such is the liability of the firm for the wrongful acts of the partner. As
defined in Section 26 of the Partnership Act, 1932.

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CASE NAME: LLOYD VS GRACE, SMITH & CO1

CITATION: [1912] AC 716

BENCH:  LORD MACNAGHTEN, EARL LOREBURN LC

BRIEF FACTS:

 Here the appellant was a widow who purchased 2 freehold cottages at Ellemere port.
The respondents were a firm of Liverpool solicitors in the name of Grace, Smith and
Co. who had great reputation and had lots of experience.
 The appellant became acquainted with the respondents as they had acted as solicitors
for the seller of the same property she had bought.
 After the purchase was made, in a few days the appellant grew doubtful of the income
she had been receiving from the property. So the called the respondent firm to discuss
the same with them.
 She visited the office and met one Sandles who was the firm’s conveyancing and
managing clerk. He was given the authority to arrange and negotiate the sales of the
property and had the authority to keep the deeds for the safe custody.
 During the meeting he told the appellant that her property was not getting enough
money and asked her to call back and get the property deeds next time.
 Again on January 12th the appellant came back to the office with the necessary deeds
and had another meeting with the respondent. Then on this advice she asked him to
sell the cottage and call in for the mortgage money.
 The respondent came in with a clerk and handed the appellant two documents which
she was asked to sign. The documents were not read out to the appellant nor the
details were explained to her. She signed the same without reading believing that it
had something to do with the sales proceeds.
 The documents were in fact the conveyance by the appellant to the respondent by
which he received the Ellesmere property and also the transfer of the mortgage
property.

1
[1912] AC 716

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  The next day the respondent mortgaged the Ellesmere property at a bank and got a
loan for himself.

ISSUES:

 Whether the firm Grace, Smith and Co. be made liable for the wrongful acts of their
agent.

REASONING:

As stated by Earl Loreburn, the firm had given the clerk the authority to carry on certain
amounts of the business on his own. It was clearly stated by on of the partners of the
company that the clerk had a second authority but he had a supreme authority in his
department. This clearly shows that the clerk was acting as an agent to the principal. The
clerk was the conveyance manager of the firm and thus had the authority for interact with the
clients and carry on the duty of proving the necessary advice. The appellant in good faith
believed that the clerk was the member of the firm and acted based on his advice.

Though the clerk had acted for the benefit of his own, this doesn’t absolve the principal from
the liability. In the case of Barwick v. English Joint Stock Bank 2, a passage containing the
doubt on the word ‘benefit’ had various interpretations. But as Willes J. clarified; the word
benefit did not only mean that it should also benefit the firm to make it liable. Any person
causing fraud must intend to do it for the sake of his own benefit. Thus if the benefit was not
for the firm but for the particular individual, the firm cannot take the defence of the principal
of benefit. So the fraud committed in the ordinary course of employment for the benefit of the
individual or the firm will make the principal liable.

As stated by Lord Macnaghten, the clerk as a manager had the authority to carry out the
conveyancing of the business without any supervision. Also he had represented the firm in all
interests as if he had been the partner of the firm. Many of the judges have commented that a
innocent principal must not be held liable for the fraudulent acts of the agent though he had
benefitted from such acts. Here the words of Willes J. had been misunderstood. What he
actually meant was “The general rule is, that the master is answerable for every such wrong
of the servant or agent as is committed in the course of the service and for the master's
benefit, though no express command or privity of the master be proved.” 3. From the above
2
L. R. 2 Ex. 259, at p. 265.
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said facts it is clear that it was with in the scope of employment of the manger to advise
clients who came to the firm to sell property as to the best legal way to do it and the
necessary documents to execute. Hence it can be held that the principal firm is liable for the
same.

CONCLUSION:

Here the firm can be made liable as the manager was given an ostensible authority.

Here and active partner also known ostensible partner 4, actively participates in the conduct
and the management of the business. Such partners act as agents to the other partners and
carry on the work on their behalf. Thus it is clear that the clerk was given the authority to
honestly carry out the work designated to him. During this course of work, he had embezzled
the property of the client of the firm. Hence we can conclude that the action took place in the
ordinary course of business and this clearly makes the firm liable for the wrongful acts of its
agents.

CASE NAME: SAREMAL PUNAMCHAND VS KAPURCHAND

PUNAMCHAND

CITATION:  (1923) 25 BOMLR 1093

BENCH: MULLA, J.

BRIEF FACTS:

 The plaintiff carried on business at Belgaum as shroff and commission agent. Vajingji
Onkarmal are his Bombay agents and he has an account with them. Whenever the
plaintiff comes down to Bombay he lives in rooms attached to the firm of Vajingji
Onkarmal. One Ganeshmal was the munim of that firm in 1920.

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  The defendants at all times material to this suit carried on business in partnership in
Bombay in the name of Kapurchand Sheshmal. The partnership was formed on March
11, 1920, and it was dissolved on May 28, 1920.
 The business of the partnership consisted in buying brass and copper utensils and
selling them. The capital brought in by the second defendant was Rs. 671. Some
capital was also brought in subsequently by the first defendant. It transpired at the
hearing that there were two other partners. The share of each of the two defendants
was six annas in the rupee, the share of the other two being two annas each.
 The plaintiff knew both the defendants before the date of the loan. On April 27, 1920,
the defendants borrowed Rs. 3,000 from Ganeshmal at interest at the rate of six per
cent, per annum, This sum was borrowed by the firm admittedly for the partnership
business. The loan was repaid on May 26, 1920.
 The plaintiff had come down to Bombay and that he had taken quarters with Vajingji
Onkarmal. On May 22, the first defendant saw the plaintiff at the pedhi of Vajingji
Onkarmal, and told him that he had borrowed Rs. 3,000 from Ganeshmal and asked
for a loan of Rs. 6,000, saying that he would repay the loan within two or three
months.
 The next day the first defendant went to the pedhi of Vajingji Onkarmal. The plaintiff
directed his munim Dipchand to give Rs. 6,000 to the plaintiff. Dipchand paid Rs.
6,000 to the plaintiff and the plaintiff was debited with Rs. 6,000-6-0 in Vajingji's
cash-book, Rs. 9-6-0 being the commission charged by Vajingji on the loan.
 Three chithis were then written out by Ganeshmal each for Rs. 2,000, and they were
signed by the first defendant in the name of Kapurchand Sheshmal. The plaintiff then
paid the Rs. 6,000 to the first defendant.

ISSUES:

 Whether the plaintiff advanced Rs. 6,000 to the firm of Kapurchand Sheshmal on
May 23, 1920.
 Whether the second defendant is liable for the loan or any part thereof.

CONTENTIONS OF THE PLAINTIFF:

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  The plaintiff contended that the amount of money transferred by him was clearly
noted in the books of accounts of both the parties.
 The plaintiff contended that when he had given the loan to the defendants, the firm
was still running under Partnership. Thus it makes the whole firm liable for the
misappropriation of money by 1st defendant.

CONTENTIONS OF THE DEFENDANT:

 The defendant 2 contended that he had no knowledge of the loan so taken by the
1st defendant and hence cannot be made liable for the same.
 It is also contended that the activity done by the 1 st defendant was outside the
scope of business and was an individual act for which the firm could not be made
liable.

REASONING:

Every partner is, in contemplation of law, the general and accredited agent of the partnership,
or, as it is sonic times expressed, each partner is prpositus negotiis societatis, and may,
consequently, bind all the other partners by his acts, in all matters which are within the scope
and objects of the partnership. Hence, if the partnership be of a general commercial nature, he
may pledge or sell the partnership property; he may buy goods on account of the partnership;
he may borrow money, contract debts, and pay debts on account of the partnership; he may
draw, make, sign, indorse, accept, transfer, negotiate, and procure to be discounted,
promissory notes, bills of exchange, checks, and other negotiable paper, in the name and on
account of the partnership.

Reliance was placed on Section 251 of the Indian Contract Act, 1872. The section is as
follows:

Each partner who does any act necessary for, or usually done in, carrying on the business of
such a partnership as that of which he is a member binds his co-partners to the same extent as
if he were their agent duly appointed for that purpose.

The above case is an authority for the proposition that any partner in a trading firm has an
implied authority to borrow money for the purposes of the business on the credit of the firm.

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But the firm must be a trading firm; a firm would be a trading firm if its business consists in
buying and selling Where a firm is a trading firm, so that one partner can borrow money for
the purpose of the business on the credit of the firm no duty is cast on the person advancing
the money to make any further inquiries

The partnership business in the present case consisted in buying copper and brass utensils and
selling them. It was a partnership of a commercial nature, and the first defendant had, I
therefore, an implied authority to borrow money for the firm, I, therefore, hold that the
second defendant is liable for the loan.

Also the proccesd of the loan were adequately sunstanted by the evidence. Entries were
produced both by the plaintiff and by Kundunmal from their respective books of account.

CONCLUSION:

Every partner in a firm is liable jointly with the other partners, and in Scotland severally also,
for all debts and obligations of the firm incurred while he is a partner; and after his death his
estate is also severally liable in a due course of administration for such debts and obligations,
so far as they remain unsatisfied, but subject in England or Ireland to the prior payment of his
separate debts.

Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the firm, or with the authority of his co-partners, loss or injury is caused to any
person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to
the same extent as the partner so acting or omitting to act.

In the following cases; namely—

(a)Where one partner acting within the scope of his apparent authority receives the money or
property of a third person and misapplies it; and

(b)Where a firm in the course of its business receives money or property of a third person,
and the money or property so received is misapplied by one or more of the partners while it is
in the custody of the firm;

the firm is liable to make good the loss.

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CASE NAME: NARCINVA V. KAMAT AND ANR. ETC VS ALFRED
ANTONIO DOE MARTINS AND ORS5

CITATION: 1985 AIR 1281

BENCH: D.A. DESAI AND RANGANATH MISRA, JJ.

BRIEF FACTS:

 On the Praca de Jorge Barrete Road, Margo an accident took place where one Sita
Gomes and her sister-in-law Ida Menezes were injured. While Sita recovered, Ida
succumbed to injuries. The offending vehicle belonged to Narcinva V. Kamat which
was a firm carrying out the business in Margo, Goa.
 The firm was insured by a insurance company. The injured parties came to file two
petitions for the compensation. The Motor Accident Claims Tribunal held the driver
of the van responsible for rash and negligent driving and awarded 75,000 for heirs of
Ida and 3,000 for Sita.
 In the Tribunal the insurance company contended that they had a contract with the
firm which stated that: ‘the vehicle can be driven either by a driver in the
employment of the insured or with the permission of the insured by one who holds a
valid driving licence.’
 It was stated that the driver was a partner of the firm and the vehicle and also did not
provide the necessary licence, which makes the insurance company free from liability.
The High Court also confirmed the findings of the tribunal and dismissed the appeals
by the partner of the firm.
 Thus the firm has appealed in the Supreme Court.

ISSUES:

 Whether the insurance company under the contract of insurance is liable to satisfy the
award.

5
1985 AIR 1281

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CONTENTIONS OF THE PETITIONER:
 As the vehicle belonged to the firm and was driven by the partner of the firm, the firm
will be liable to the injured party. But the firm was insured against such activities and
the insurance must compensate the injured party.
 As per the policy of the insurance company, the vehicle was driven by the firm’s
partner and also did have a valid driving license. Thus it satisfies the clauses and the
insurance company can not escape the lability.

CONTENTIONS OF THE DEFANDENT:

 The Insurance company contended that according to the terms of the contract of
insurance as evidenced by the policy of insurance, the vehicle can be driven either
by a driver in the employment of the insured or with the permission of the insured but
was driven by the partner who can not be called as person employed by insured.
 They also contended that the partner did not have a valid driving licence which is
required by their policy. Thus it is dissolved from liability.
REASONING:
The insurance company has failed to prove that there was a breach of the term of the contract
of insurance as evidenced by the policy of insurance on the ground that the driver who was
driving the vehicle at the relevant time did not have a valid driving licence. Once the
insurance company failed to prove that aspect, its liability under the contract of insurance
remains intact and unhampered and it was bound to satisfy the award under the
comprehensive policy of insurance.
Where the pick-up van belonging to the firm is being driven by a partner, it can be said that it
is done with the permission of the owner of the firm or with its implied authority.
If a breach of a term of contract permits a party to the contract to not to perform the
contract. The burden is squarely on that party which complains of breach to prove that the
breach has been committed by the other party to the contract 6. The test in such a situation
would be who would fail if no evidence is led. Here Appellant No.1 is the owner of the firm
and Appellant No. 2 is the partner of the firm driving the car.
In the high court the learned counsel for the Insurance company contended that a driver
according to their policy meant:
"Driver: Any of the following;
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(a) (deleted in type)

(b) any other person provided he is in the Insured's employ and is driving on his order or with
his permission.

Provided that the person driving holds a licence to drive the Motor Vehicle or has held and is
not disqualified for holding or obtaining such a licence."

Now would the insurance company be discharged from the liability under the contract of
insurance if as contended by it, at the relevant time, appellant No. 2 was driving the vehicle.
Appellant No. 2 is the partners of the firm. All the partners of the firm if they have a valid
driving licence would be entitled to drive the vehicle. Each partner of the firm is an agent of
the firm as well as the other partner as provided by Sec. 18 of the Partnership Act. Every
partner is entitled to attend diligently to his duties in the conduct of the business as provided
in Sec. 12 of the Partnership Act. Sec. 26 provides that where by the wrongful act or omission
of a partner acting in the ordinary course of the business of a firm, or with the authority of his
partners, loss or injury is caused to any third party, or any penalty is incurred, the, firm is
liable therefor to the same extent as the partner.

The High Court took no notice of the fact that the van belonged to the firm and every partner
for that reason would be the owner of the property of the firm because the firm is not a legal
entity in the sense in which the company under the Companies Act has a juristic personality.
Firm is a compendious name for the partners. And the High Court limited its enquiry to
ascertain whether the first part of the condition is satisfied viz. whether the driver was in the
employ of the insurer. It completely overlooked the second clause that the driver appellant
No. 2 was driving with the permission of the insured, the firm in this case.

Two clauses are disjointed by a disjunctives 'or'. On a proper analysis and interpretation of
the term of contract of insurance, the insurance company cannot escape the liability if (a) the
insured himself was driving the vehicle or (b) the driver is in the employment of the insurer
and is driving on the order of the insurer or (c) he is driving with his permission. The words
with his permission does not qualify the expression 'is in the insurer's employ'. The clause can
be properly read thus: 'any other person with insurer's permission.' This ought to be so
because a friend can always be permitted if he has a valid driving licence to drive a friend's
car. If in every such situation where the person driving the vehicle is not shown to be the
insurer himself or someone in his employment, the contract of insurance would afford no

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protection and the insurance company having collected the premium would wriggle out of a
loophole.

CONCLUSION:

Thus in this case the insurance company was made liable to compensate the injured parties as
per the contract of insurance.

The insurance company has failed to prove that there was a breach of the term of the contract
of insurance as evidenced by the policy of insurance on the ground that the driver who was
driving the vehicle at the relevant time did not have a valid driving licence. Once the
insurance company failed to prove that aspect, its liability under the contract of insurance
remains intact and unhampered and it was bound to satisfy the award under the
comprehensive policy of insurance.
The award of the Tribunal as well as the judgment of the High Court are modified. The
Insurance Company is to satisfy the award with interest at 12 per cent from the date of the
accident till payment.
Where the pick-up van belonging to the firm is being driven by a partner, it can be said that it
is done with the permission of the owner of the firm or with its implied authority. This can be
seen based on Section 26 of Indian Partnership Act,1932. While dealing with the question
whether the partner had a valid driving licence at the relevant time, both the Tribunal and the
High Court fell into an error which resulted in giving a clean chit to the insurance company,
Admittedly this pick up van could be used as a private carrier and the insurance company had
issued a comprehensive insurance policy in respect of this van and at the relevant time it was
in force.

CASE NAME: NILESH SHIPPING AGENCYVS. RESPONDENT:

COLLECTOR OF CUSTOMS

CIATATION: MANU/CM/0088/1994

BENCH: P.K. DESAI (J) AND R. JAYARAMAN (T)

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BREIF FACTS:

 One consignment of Ball Bearing, imported by Greaves International, Bombay, and

warehoused vide Section 59 of the Customs Act, was lying unclaimed for a long time,
and that three Ex-Bond Bills of Entry for Home Consumption, were filed by one firm
M/s. Arvind Engineering Co., claiming themselves to be the purchasers at the High
Sea Sale, for the part of the said consignment, where the goods were also misdeclared
as Koya-Bushes/Bushers, and the major part of the consignment so got released under
those three Ex-Bond Bills of Entry, was already removed on payment of requisite
duty payable on Bushes and other charges.
 The investigations revealed that the firm M/s. Arvind Engineering Co. was a fictitious
firm and no High Sea Sale transaction was effected with them, and that one Mr. Desh
Deepak Gupta had signed and had filed those three Ex-Bond Bills of Entry and had
misdeclared the goods, and that Mr. Bhupendra Adatia of M/s. Nilesh Shipping
Agency, a licensed CHA firm had, without obtaining any authorisation from said Mr.
Gupta, assisted him in processing those Bills of Entry, and in making payment of duty
and other charges.
 Both Mr. Bhupendra Adatia and Mr. D.D. Gupta, however, appeared before the DRI
Officials on 4.1.1991, and in their preliminary interrogation, both of them reportedly
admitted acts of misrepresentations, misdeclaration and removal of certain quantity
from the goods, thereby got released by them.
 Mr. Desh Deepak Gupta, in his statement, inter alia stated that he came in contact
with Mr. Bhupendra Adatia and it was Bhupendra who briefed him about one
unclaimed consignment of Ball Bearings lying in CWC warehouse and suggested to
float a bogus firm and claim the part of the goods on the plea of High Sea Purchase
and file Ex-Bond Bills of Entry.
 Mr. Gupta further stated it was only Mr. Bhupendra Adatia who managed to fabricate
the documents and drew the Bills of Entry, initially in January 1989, and got them
endorsed for release subject to verification but no further action thereon was taken,
and in May 1990 Bhupendra suggested that Bill of Entry could be filed on
misdeclaration of goods as Bushes as thereby they could save substantial amount from
the duty payable.

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  Bhupendra prepared four Ex-Bond Bills of Entry and induced him (Mr. Gupta) to sign
them as Proprietor of M/s. Arvind Engineering Co., assuring him payment of about
Rs. 35,000/- and took them for noting in the Bond Department Register etc
 Mr. Gupta admitted the documents to be bogus, as also to have received some
amount from Mr. Bhupendra Adatia. In his statement recorded, said Mr. Bhupendra
Adatia, admitted his acquaintance with Mr. D.D. Gupta, and also admitted to have
handled four Ex-Bond Bills of Entry, which were filed on 'self' basis by said Mr.
Gupta and to have taken them to the Assessment Group. He however stated that he
had done so in his personal capacity and not as an official representative of the CHA
firm, as those Bills of Entry were never handed over to the CHA firm. He further
stated that he had handed over those Ex-Bond Bills of Entry to Mr. Gupta and was in
no way concerned with the clearance of the goods, and that it was only at the time
when certain goods were put on auction sale by the Department and found those
goods in the list of goods to be auctioned that he suspected the fraud committed by
Mr. Gupta.

ISSUES:

 Whether the acts of Bhupendra Adatia in his individual capacity can be segregated
from his acts as a partner of the firm and whether the firm is liable for the acts of its
partner.

CONTENTIONS OF THE PLAINTIFF:

 The firm Nilesh Shipping agency contended that though Bhupendra Adatia was a
partner of the firm, he had acted in an individual capacity and worked with D.D.
Gupta. So the firm cannot be made liable for this individual acts as the firm had no
knowledge of the same.
 The fraud committed by Bhupendra did not in any way benefit the firm and so it
cannot be brought under the liability for his acts.

CONTENTIONS OF THE DEFENDANT:

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  Here the Collector of Customs contended that the fraudulent act was committed in the
usual course of business of the firm as Bhupendra was only the sole partner of the
firm having a CHA license and thus he misused the same for the benefit.
 Apart from Bhupendra his wife was a sleeping partner which clearly shows that he
was the working partner of the firm and his actions would surly make the firm
vicariously liable.

RESONING:

Of the two partners of the firm, Bhupendra Adatia and his wife, he alone is qualified under
CHA Regulations. The firm is a one-man show. According to Section 26 of the Partnership
Act, 1932 a firm is liable for the wrongful acts of its partner done in the ordinary course of
business. This provision also covers acts done by a partner by wrongful and illegal means and
even acts of tort committed by a partner in the course of business. The partner in this case
undisputedly acted in a manner unbecoming of a Custom House Agent. His acts in his
individual capacity cannot be segregated from his acts as the partner of the firm, and the same
render the firm liable. The findings of the Collector of Customs are therefore correct and
sustainable. "The firm comprises of only two partners, namely Mr. Bhupendra Adatia and his
wife Mrs. Hansa Adatia,.

Mrs. Hansa Adatia is merely a sleeping partner. Thus Mr. Bhupendra Adatia is the only
working partner of the firm. He is the only person from amongst the partners of the firm who
is qualified under the CHA Regulations, to transact the work at the Custom House for and on
behalf of the firm, and it is only he who holds the pass.

The circumstances thus, clearly indicate that the working at the CHA firm is virtually a one
man show of Mr. Bhupendra Adatia, and it is not possible to accept the plea that he was, for
the purpose of subject transaction, working in his individual capacity distinct from his
capacity as a partner of the firm. Drawing of a demarcating line is practically impossible.

Section 26 of the Indian Partnership Act, 1932, provides for the liability of the firm for the
wrongful acts of the partner, done in the ordinary course of business of the firm.The said
provision would also cover the cases where the acts so done by the partner were by wrongful
or illegal means. The case law on the interpretation of this Section, also lays down that even

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the acts of tort committed by the partner in the course of business, which he was authorised to
do as a partner, on behalf of the firm; would render the firm liable for the same.

No further deliberation appears necessary to hold that all acts of Mr. Bhupendra, which even
otherwise cannot be segregated from his acts as the managing partner of the firm, would,
even by virtue of the provisions of Section 26 of the Indian Partnership Act, render the firm
liable for the same.

Mr. Bhupendra Adatia has undisputedly attended to the works of getting the three Ex-Bond
Bills of Entry assessed, and as such undertaken the work of CHA without obtaining proper
authorisation, and has aided, abetted, and participated in a way unbecoming of a Custom
House Agent, and hence the findings arrived at by the Collector of Customs in exercise of his
powers under Section 23(7) of the CHA Regulations' cannot be held to have been not correct
or that the findings arrived at by him are not sustainable."

CONCLUSION:

Here the firm was held liable for the acts of its partner.

The firm consisted of only two partners which included Bhupendra and his wife. Here only
Bhupendra was the working partner and was the holder of the CHA license. This clearly
shows that he had the authority to carry on the business on behalf of his wife. Though he had
acted in individual capacity, the money which he promised to Mr. Gupta were proceeded
from the firms name. Hence it can clearly be seen that his individual actions cannot be
separated from the actions that connected to the firm.

The firm as a whole, under Section 26 of the Indian Partnership Act, 1932 will be held liable
for the acts of is partner. This was also done under the usual course of business as he was
given the required authority to transact the proceeds of the business.

CASE NAME: DUBAI ALUMINIUM COMPANY LIMITED V

SALAAM7

7
[2002] UKHL 48

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CITATION: [2003] 1 BCLC 32

BENCH: LORD NICHOLLS OF BIRKENHEAD

BRIEF FACTS:

 The proceedings arose out of a complex fraud by which Dubai Aluminium Company
Limited paid out $50m under bogus consultancy agreements. Dubai company brought
claims against recipients of money from the scheme, a solicitor who was alleged to
have assisted in the scheme ("the Solicitor") and two firms in which the Solicitor had
been a partner.
 It was common ground that the Firm was innocent of any wrongdoing, so the only
basis on which the Firm could be liable to Dubai was if it was vicariously liable for
the alleged acts of the Solicitor.
 During the course of the trial, Dubal’s claims against all the defendants were settled,
and withdrawn in respect of the Solicitor, leaving outstanding a number of
contribution claims. The contribution claims included the Firm’s claim against two of
those found to be part of the dishonest scheme, Mr Salaam and Mr Al-Tajir (the
"Defendants"), for recovery of the sum paid by it in settlement of the claim. For the
purposes of the proceedings, it was assumed, pursuant to section 1(4) of the Civil
Liability (Contribution) Act 1978 ("the Contribution Act"), that the Solicitor had been
dishonest as was pleaded against him by Dubal.
 There was no finding of dishonesty against the Solicitor and in his judgment Lord
Nicholls stated that "the case has proceeded on the assumption that [the Solicitor] was
guilty of dishonesty as alleged. He has always denied this allegation.
 This issue has never been tried, and there has never been any finding that he acted
dishonestly in any respect".
 Mr Justice Rix found in favour of the Firm at first instance, and ordered that the
Defendants give a full indemnity for the $10m paid in settlement of the claim by the
Firm.
 Mr Salaam was ordered to pay $7.5m and Mr Al Tajir $2.5m. They were held jointly
and severally liable for $5m to protect the Firm against insolvency.

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  However, the Court of Appeal accepted the Defendants’ argument that the Firm was
not vicariously liable for the Solicitor’s allegedly wrongful acts as they were outside
the ordinary course of the Firm’s business. 
 The firm now gets this appeal saying that both Mr. Salaam and Mr. Al Tajir are
responsible for the loss of Dubai company.

ISSUES:

 Whether the Firm was vicariously liable for the alleged dishonest participation of the
Solicitor in the bogus consultancy scheme in which case the Firm could claim a
contribution to its settlement.

CONTENTIONS OF THE PLAINTIFF:

 The claim is that he committed the equitable wrong of dishonest participation in a

breach of trust or fiduciary duty. Mr Amhurst dishonestly procured or assisted Mr
Livingstone in the breach of the fiduciary duties he owed to Dubai Aluminium.
Although fault-based, this species of equitable wrong is not a 'wrongful act or
omission' within the meaning of section 10.

CONTENTIONS OF THE DEFENDANT:

 They contended that the Amhurst firm is not entitled to make any contribution claim
against them. Their case is that the Amhurst firms was not liable vicariously
responsible for Mr. Amhurst’s alleged misconduct, on two grounds.
 The two grounds are that first the cause of action asserted by Dubai Aluminium does
not fall within the scope of section 10 of Partnership act. Second is that the firm will
not be liable for the acts of an individual partner as it was outside the scope of
business.

REASONING:

Dubai Company alleged that the Firm should be liable for the drafting of the agreements
which formed the basis of the bogus consultancy scheme. Other allegations were also made
against the Solicitor but were not pleaded against the Firm. The House of Lords had to decide

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whether the Solicitor’s actions were legally capable of being performed by a solicitor acting
in the ordinary course of his firm’s business and whether the Firm was therefore vicariously
liable for them. 

Section 10 of the Partnership Act 1890, which provides that "where by any wrongful act or
omission of any partner acting in the ordinary course of business of the firm … loss or injury
is caused to any person…the firm is liable therefore to the same extent as the partner so
acting or omitting to act."

Meaning Of "Wrongful Act"

The House of Lords agreed with Mr Justice Rix and the Court of Appeal that "wrongful act"
was not limited to claims in tort and other common law claims and, in particular, covered
claims for dishonest assistance in breaches of trust and fiduciary duty. Both Lord Millett and
Lord Nicholls, who wrote the leading judgments, held that Section 10 was written in the
widest terms and that it would be nonsensical to restrict it as contended for by the
Defendants8.

 Lord Nicholls concluded that in this context, "acting in his capacity as a partner" could only
mean that the Solicitor was acting for and on behalf of the Firm, as distinct from on his own
behalf. On this basis, the Solicitor in this case had, on the assumed facts, been acting in the
ordinary course of business. Drafting commercial agreements for a proper purpose would be
within the ordinary course of the Firm’s business. Drafting the consultancy agreements, even
for an allegedly dishonest purpose, was so closely connected with the acts the Solicitor was
authorised to do that for the purpose of vicarious liability they could be regarded as done by
him whilst acting in the ordinary course of the Firm’s business.

The fact that the Solicitor was alleged to have drafted the agreements which formed the basis
of the scheme was sufficient to make the Firm vicariously liable. The fact that the Solicitor
may allegedly have done some other acts which may not have been performed in the ordinary
course of business was irrelevant because those acts had not been pleaded against the Firm.

The House of Lords agreed with Mr Justice Rix’s conclusion that the fact that the
Defendants, despite their individual settlements with Dubal, had retained some of their profits

8
http://classic.austlii.edu.au/au/legis/nsw/consol_act/pa1892154/s10.html

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from the fraud should be taken into account in assessing the level of contribution recoverable
from them.

The Lords rejected the Defendants’ argument that "responsibility" for damage as set out in
section 2(1) did not cover undistorted receipts, and concluded instead that a "just and
equitable" distribution of the financial burden of meeting the claim required the court to take
into account the net contributions each party had made. This included taking into account the
amount of Dubal’s money which each party retained. The Firm had retained nothing, having
only ever received a modest sum for their professional fees, whereas the Defendants had
retained large sums of money which the House of Lords required them to disgorge.

Joint And Several Liability

The House of Lords also held that Messrs Salaam and Al-Tajir should be jointly and
severally liable in the same sums as ordered by Mr Justice Rix. Lord Millet thought it fair that
Messrs Salaam and Al-Tajir should bear the risk of the other’s insolvency to the extent of
their undistorted receipts.

CONCLUSION:

Here the firm was held vicariously liable for the actions of the senior partner of the firm.

The impact of the decision of the House of Lords is that it is no longer possible to conclude
that a firm will not be held to be vicariously liable for the acts of a partner simply because he
has been dishonest. The judgment has made it clear that a firm can, in the right
circumstances, be responsible for dishonest actions of their fellow partners. However, that
will not always be the case. If the acts complained of are closely enough connected to the
business of the firm then liability is likely to exist. When a claim of this type is brought the
firm and its insurers will have to consider carefully the acts pleaded against the firm in order
to determine whether vicarious liability is likely to be found.

In terms of contribution the decision is ground breaking because the House of Lords has
determined that in deciding what is a just and equitable contribution under the Contribution
Act the courts can consider the receipts of each party involved in a dishonest act or scheme.
Profit made will be taken into account in determining the amount that will be paid by each of
the parties. In this case, this meant that the insurers of the Firm were entitled to recover from

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 the Defendants the full amount which they had paid in settlement of the claim,
notwithstanding the individual settlements which the Defendants had reached with Dubal.

CONCLUSION:

Partnership is a very convenient way of starting a venture and doing business. Often a couple
of friends, siblings or even colleagues, jump into the entrepreneurial world bound together as
‘partners’.

Legally speaking, a partnership is an association of two or more persons, known as general

partners, who act as co-owners of a business and operate it for profit.

While you are not legally required to have a written partnership agreement, an oral agreement
may suffice, it is still good business to put everything (the details of ownership, including the
partners’ rights and responsibilities and their share of profits) down on paper to avoid
potential misunderstandings and disagreements.
Partners are bound to carry on the business of the firm:

 To greatest common advantage

 Be just and faithful to each other

 To render true accounts and full information of all things affecting the firm to any
partner, his heir or legal representative.

• If he derives any profits for himself from any transaction of the firm, or from the use of the
property or business connection of the firm or the firm-name, he shall account for that profit
and pay it to the firm

 In unlimited partnership, every partner is liable, jointly with all the other partners and also
severally, for all acts of the firm done while he is a partner.

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You can be held personally responsible for another partner’s negligence or carelessness. This
means that if your partnership firm is insufficient to meet its financial obligations, you may
have to use your personal assets to pay off debtors, even though you personally may not be at
fault.

The last-mentioned clause can be a big dampener for entering into a partnership, especially if
you have insufficient capital. In such a scenario, you might be better served by a limited
partnership.

Unlike a general partner, who is personally responsible for all debts and obligations of the
partnership, a limited partner can lose only the amount of capital he has invested in the
business.

On the down side, he has relatively little power within the partnership because he is not
allowed to be actively involved in the management of the business; he is merely a financial
contributor.

Nevertheless, he has the right to be informed of all business matters relating to the company
and to share in its profits.

Before entering into a partnership, weigh all the pros and cons. Also, since each state has
specific laws on the formation and dissolution of partnerships, as well as laws regarding the
legal responsibilities of each partner, business owners are well advised to consult an attorney
and a tax accountant before establishing a partnership.

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 REFERENCES
BOOKS:

 Pollock And Mulla, The Indian Partnership Act, 8th Editiond, Devashish Bharuka
 P C Makarand, The Law Of Partnership, 2010 Edition

WEBSITES:
 https://quickbooks.intuit.com/in/resources/legal/forming-partnership-rights-liabilities/
 https://www.legislation.gov.uk/ukpga/Vict/53-54/39/crossheading/relations-of-
partners-to-persons-dealing-with-them?view=plain
 http://www.mondaq.com/uk/x/20591/Corporate+Commercial+Law/Solicitors+Liabilit
y+
 MANUPATRA
 SCC ONLINE

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