IMPLIED AUTHORITY OF A PARTNER: A COMPARATIVE STUDY

3.1 LAW OF CONTRACT

SUBMITTED TO:
Dr. Manish Yadav
Assistant Professor of Law

SUBMITTED BY: -
Himanshu Indise
UG 2017-43
2017-18, Semester 3

Maharashtra National Law University, Nagpur

i
Table of Contents

Table of Contents ...................................................................................................................... ii

Introduction .............................................................................. Error! Bookmark not defined.

Research Objectives ..................................................................................................................iv

Research Questions ...................................................................................................................iv

Research Methodology .............................................................................................................iv

Implied Authority of a Partner (Indian Context) ....................................................................... 0

S.19 of The Indian Partnership Act, 1932: ............................................................................ 0

Pakistan Context .................................................................................................................... 8

German Context ..................................................................................................................... 9

Head II of The German Commercial Code - Mutual Rights and Liabilities of Partners: .. 9

Conclusion ..............................................................................................................................xiv

ii
Introduction

The law of partnership is contained in the Indian Partnership Act, 1932, which came into force
on 1st October, 1932. This is based on the English Law on the subject as contained in the
Partnership Act, 1890. According to section 4 of the Indian Partnership Act, “Partnership” is
the relation between persons who have agreed to share the profits of a business carried on by
all or any 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 English Partnership Act defines Partnership
as “the relation which subsists between persons carrying on business in common with a view
of profit”. If we elaborate we find this definition points out the following essential elements of
partnership:
1. There must be at least two persons.
2. That is the result of an agreement.
3. That is organized to carry on a business.
4. That the persons concerned agree to share the profits of the business.
5. That the business is to be carried on by all or anyone of them acting for all.
In a partnership, all the elements mentioned above must be present. Thus, although sharing of
profits is a strong evidence of existence of partnership, yet the true test is the element of agency.
For this reason, creditor who advances money on the understanding that he would have a share
in the profits as a part of his remuneration, or the seller of goodwill of the business receiving a
portion of the profits, is not a partner. In all these cases, the third element of partnership,
namely, agency is absent. A creditor or an employee or seller of the goodwill cannot bind the
firm by their actions, can be called partners. Thus, in the absence of definite partnership
agreement, the Court, in order to determine the existence of partnership, must take into account
all the relevant circumstances, such as, the conduct of parties; the mode of doing business; who
controls the property; etc. authority of a partner is of two types: Express and Implied. Section
19 of the Indian Partnership Act defines ‘implied authority of a partner as an agent of the firm’.
The word implied authority denotes the authority to bind the firm which arises by implication
of law from the fact of partnership. With the presence of implied authority, a partner binds the
firm with any of his act done in connection with the business. In this project, the researcher
will give a comparative study on ‘implied authority of a partner’ with reference to Indian
Partnership Act, 1932.

iii
Research Objectives

 To analyse in detail, the implied authorities of a partner in a partnership.

 To study the detailed related provisions for the implied authorities of a partner in context
of three different countries, viz. India, Germany and Pakistan.
 To derive a summarized conclusion for the conducted doctrinal research.

Research Questions

 What do you mean by the term “implied authority”?

 What are the provisions related to implied authority of a partner in the Indian law?
 What provisions are followed by Germany and Pakistan in context to “implied authorities
of a partner”?
 What do you derive from the research conducted?

Research Methodology

The research methodology used for conducting this research is known as the doctrinal
approach.
A doctrinal research means a research that has been carried out on a legal proposition or
propositions by way of analysing the existing statutory provisions and cases by applying the
reasoning power.
The sources used for the research mainly included primary as well as secondary sources of
data; primary sources mainly included books whereas the secondary sources of data consisted
of internet hyperlinks and research articles uploaded by various authors about related subjects
to the research at hand.

iv
Implied Authority of a Partner (Indian Context)

S.19 of The Indian Partnership Act, 1932:

1. Subject to the provisions o section 22, the act of a partner which is done to carry on , in the
usual way, business of the kind carried on by the firm, binds the firm.
The authority of a partner to bind the firm conferred by this section is called his ‘implied
authority’.
2. In the absence of any usage or custom of trade to the contrary, the implied authority of a
partner does not empower him to:
a. submit a dispute relating to the business of the firm to arbitration,
b. open a banking account on behalf of the firm in his own name,
c. compromise or relinquish any claim or portion of claim by the firm,
d. withdraw a suit or proceeding filed on behalf of the firm,
e. admit any liability in a suit or proceeding against the firm,
f. acquire immovable property on behalf of the firm,
g. transfer immovable property belonging to the firm, or,
h. enter into partnership on behalf of the firm.

Implied authority, also known as “usual authority” is the authority of an agent acting on behalf
of another person or entity. The person acting with implied authority does what is reasonably
necessary in order to effectively perform his duties. The acts undertaken surrounding the use
of implied authority depends on the circumstances and the case. To explore this concept,
consider the following definition of implied authority definition.
Authority that is not specifically expressed or defined in writing, but which an employee or
agent assumes to possess in order to conduct business on behalf of an agency.
Section 19(1)1 provides that subject to the provisions of s. 22, the act of a partner which is done
to carry on, in the usual way, the business of the kind carried on by the firm binds the firm. It
further states that the authority of a partner to so bind the firm conferred b the said section is
called his ‘implied authority’. Subsection 2 enumerates the various matters, which a partner
cannot do under the implied authority, in the absence of any usage or custom of trade to the
contrary2.

1
The Indian Partnership Act, 1932
2
K.D Kamath & Co. V. CIT, (1971) 2 SCC 873, p 882

0
The Contract Act3 provided that a partner has such authority as he would have if he were an
expressly appointed agent of the firm. Section 18 has adopted the more direct method of the
English Act and lays down that he is an agent. This is a clear improvement. The generality of
a partner’s authority as an agent is not affected by the fact that two Hindu partners are brothers
or otherwise members of a joint Hindu family. They are on an equal footing for the purposes
of partnership law4.
Implied authority in Indian situations arose for consideration by the Supreme Court and by the
High Courts of Madras and Andhra Pradesh.
One of the partners entered into a contract for supply of dal, a purpose not specifically
enumerated as a business of the firm. The Supreme Court noted ‘it was not the case of partners
that the firm was not carrying on the business of dal.’ Another fact found by the court was that
the partner was authorised to do business on behalf of the firm. In that factual setting, the apex
court held that contract for supply of dal, though entered into by only one of the partners, would
be binding on the other partners of the firm. In addition to the facts already found, the court
held that a subsequent conduct of the partners also constituted ratification of the contract.5
The Andhra Pradesh High Court in Kadiyala Seshagiri Rao V. Kanneganti Desaiah & anor,6
distinguished the above decision. In that case, the firm had as its objects, trade in rice, paddy
and groundnut with the usual processing of those articles. There was an express provision in
the partnership deed authorizing them ‘to deal in any other commodity as may be agreed pon
by partners.’ The Court held that dealing in turmeric was beyond the implied authority under
section 19 (2), particularly in the view of the agreement by partners visualised under the deed,
and when the express agreement pleaded as found as not established.
A partner of a non-trading firm, as distinguished from trading one, has no implied authority to
bind the firm by his individual act7. On the other hand, the managing partner of a trading firm
has every right to borrow moneys for the purposes of the firm. 8 Other illustrations of the
principle are in Porbandar Commercial Co-op Bank Ltd. V Bhanji Lavji & ors9.
The positive statement in s. 19, sub-s (1), is as plain as words can make it, but its negative
aspect, namely that a partner’s implied authority extends inly to the firm’s usual business and
not to anything unusual, needs the regards proceedings under Arbitration Act has been

3
The Indian Contract Act, 1872
4
supra note 2
5
Sanganer Dal & Flour Mills V. FC & ors., AIR 1992 SC 481
6
AIR 2000 AP 263, (2000) 2 Andh LT 234
7
Raghava Veera Sons & ors V. Padmavati AIR 1978 Mad 81.
8
KA Kona v. Dada Ibrahim Hilari & Co., AIR 1981 Ker 86.
9
AIR 1985 Guj 106.

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discussed in National Small Industries Corpn V. Punjab Time Painting and Metal Industries
& ors10, and in Kaveru Water Well Drllers V. P Duraiswamy Gounder & ors.11, where one of
the partner defendant files the written statement against the wishes of the other defedendant
partners, it would constitute a step in proceedings. A prayer for stay of proceedings under s 34
of the Arbitration Act would be unavailable despite the incorporation of an arbitration clause
in the partnership deed. If one of the partners takes step in the proceedings, then the same would
be deemed to be a request on behalf of other partners as well. Partners are agents of one another
and acts done in the ordinary course of business bind the partnership. Section 21, cl 2 of the
Limitation Act by which one of several debtors cannot keep the debt alive and subsisting
against the others by reason only of a written acknowledgement signed or payment made by
him was not intended to apply to transactions conducted by partners in the ordinary course of
partnership business.12 A firm always operates through its partners, one or more. There is no
restriction laid down by the law that a partner cannot acknowledge the subsisting debt of the
firm in favour of its creditor. Such acknowledgement of the liability of the firm neither amounts
to compromising or relinquishing a claim or a portion thereof, nor does it amount to admission
of any liability in a suit or proceeding as against the firm 13. In a running trading firm an
authority to acknowledge can be presumed.14 Section 20 adds an important protection for
customers; they are entitled to presume that any partner has the usual implied authority; and to
rely on it as binding the firm, notwithstanding any restriction agreed on among partners, unless
they have notice of that restriction. This is, in principle, well settled law; previous judicial
statements do not, of course, add anything to the force of the Act itself, but they may still be
found instructive and some of them are quoted here:
Generally speaking, a partner has full authority to deal with the partnership property for
partnership purposes15.
Ordinary partnerships are by the law assumed and presumed to be based on the mutual trust
and confidence of each partner in the skill, knowledge and integrity of every other partner. As
between the partners and the outside world (whatever may their private arrangements between
themselves), each partner is the unlimited agent of every other in every matter connected with

10
AIR 1979 Del 58.
11
(1999) 1 Kant LJ 23.
12
Ratan Lal v. The Commercial & Industrial Bank, AIR 1965 AP 349.
13
Firm of Sarabhai Hathising & anor v. Shah Ratilal Nathalal AIR 1979 Guj 110, p 113.
14
Premji v. Dossa (1886) ILR 10 Bom 358.
15
Lord Westbury in ex p Darlington & Bankin Co.; Re Reches 4 De GJ & S 581, p 585, 46 ER 1044, 146 RR
466, p 469.

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the partnership business, or which he represent as partnership business, and not being in its
nature beyond the scope of the partnership16.
The general powers of partners as agents of the firm are summed up by a story in a passage,
which has been adopted by the Judicial Committee of the Privy Council:17
Every partner is in contemplation of law the general and accredited agent of the partnership, or
as it is sometimes expressed, each partner is praepositus 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; 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, cheques and other negotiable paper in the name and on account of the
partnership.
The usual authority of a partner in a trading partnership18 also enables him to receive, and give
receipts for debts due to the firm19, engage employees for the firm20, and retain a solicitor to
conduct an action for recovering debts due to the firm.21

Limits On Implied Authority

The operations of ss 18 and 19(1) is subject to the exceptions engrated in sub-s (2) of s 1922.
As to the limits on a partner’s implied authority specified in s 19, sub-s (2), the words make a
general exception in favour of usage or custom of trade derive from the Select Committee,
whose information showed that special usages of this kind are common: ‘in Calcutta
particularly it is a trade custom that partners make contracts of sale containing a clause referring
disputes to arbitration.’

16
James LJ, in Baird’s case (1870) LR 5 Ch 733.Merchantile Credit Co Ltd v. Garrold (1962) 3 All ER 1103, p
1105 where sale of car by a partner of a firm carrying on a garage business mainly concerned with repairing cars
was treated as ‘an act for carrying on in usual way business of the king carried on by the firm’. Such questions
necessarily depend upon particular circumstances of the case; Re Bell’s Indenture (1980) 1 WLR 1217.
17
Story on Agency, s 124; Bank of Australasia v. Breillat (1847) 6 Moo PC 193, 13 ER 657, 79 RR 53. One
partner alone cannot, by notice, affect the rights of another to act on behalf of the firm as in Sri Gopal Jalan & Co.
v. Singhania Bros AIR 1965 Cal 531.
18
It is said that business of a trading partnership must consist in buying and selling goods as in Wheatley v.
Smithers (1906) 2 KB 321 and Higgins v. Beauchamp (1914) 3 KB 1192.
19
Porter v. Taylor (1817) 6 M&S 156.
20
Beckham v. Drake (1843) 11 M&W 315.
21
Court v. Berlin (1897) 2 QB 396.
22
Sangener Dal and Flour Mill v. FCI (1992) 1 SC 145

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No substantial innovation is made by the Select Committee’s amendment, for the existence of
a well-known usage in any trade carried on by a firm suffices, on the general principle
governing the recognition of such usages, to raise a presumption that the partners intended to
embody it tacitly as a part of their contract, especially where, as often happens there are no
formal partnership articles. Indeed, the whole sub-section is a matter of presumptions, for the
most part already well-settled by judicial authority and common practice, for the purpose of
narrowing the inevitable margin of disputes as to the burden of proof. Any underlying dispute
of substance must always be in itself a dispute of fact.
The question whether a given act can or cannot be said to be done in carrying on a business in
the way which it usually is carried on must evidently be determined by the nature of the
business and by the practice of persons engaged in it. Evidence on both of these points, is
therefore necessarily admissible.23
In Mann v. D’Arcy it is observed:
Moreover, what is ‘usual’ may vary from time to time. Commercial expedience of a particular
method of operation may be considered for deciding as to whether such method was usual.24
It must not be assumed that the list of matters not included in a partner’s implied authority is
exhaustive. Nothing is said about giving a guarantee in the name of the firm, but in English
law it is certain that, even if it is, in fact, a reasonable and convenient thing in the particular
case, no partner can bind the firm in this manner unless he is authorised by special agreement
or it is allowed by the general usage of firms engaged in that kind of business.25 No reason is
known why it should be otherwise in India.26 A guarantee may become binding upon other
partners as a result of doctrine of estoppel.27 Where it was found that it was not the usual course
of business of the firm to execute any suretyship contracts for the benefit of third parties when
they become debtors, it was held that merely because the partner signed as a surety on behalf
of the firm or the firm itself for the purpose of answering the claim of the creditor.28 A partner

23
Lindly on Partnership, fifteenth edn, p 288; Union of India v. Firm Vishyda Ghee Mandal AIR 1951 All 541
24
(1968) 1 WLR 893; Customs and Excise Commrs v. Evans (1982) STC 342; Re Bell’s Indenture (1980) 1 WLR
1217; Alagappa Cotton Mills, Rajapalayam v. Indo Burmah Trading Corpn AIR 1976 Mad 79, p 82.
25
Brettel v. William (1849) 4 Ex 623, 80 RR 276.
26
This point does not appear to have been raised in Suwalal v. Fazle Hussain (1939) 179 IC 771, AIR 1939 Nag
31 where the other partners were held liable on the ground that the managing partner executed a surety bond on
behalf of the firm.
27
For example, Amalgamated Investment & Property Co. Ltd (in liquidation) v. Texas Commerce Intnl Bank Ltd
(1982) QB 84; Lindley on Partnership, fifteenth edn, pp 306, 307.
28
Porbandar Commercial Co-operative Bank Ltd v. Bhanji Lavji & ors AIR 1985 Guj 106, 110; approvingly
citing Lindley on Partnership, fifteenth edn, p 306

4
will have no implied authority to bind the firm unless it can be shown that giving of guarantee
is necessary for carrying on the business of the firm in the ordinary way.
Still less, on the other hand, is it possible to enumerate the recognised and usual functions o
partners as agents of the firm. It may be useful; however, to give shortly the results of
authorities, including English decisions which presumably are applicable in India, with regard
to some ordinary matter of business.
Although a partner may do an act on behalf of the firm which he is not authorised to do, it is
open to other partners to ratify the act.29
They should, however, either ratify the whole transaction or disclaim the whole transaction and
cannot ratify a part of the transaction which best serves their interests and repudiate the
remainder.30if the other partners stand by after being aware of the arbitration proceedings, they
will be deemed to have ratified the act of their partners. A submission to arbitration may be
ratified by the conduct of the other partners.31 The award will, however bind the referring
partner.32
Section 19 (2)(a) provides that in the absence of any usage or custom of trade to the contrary,
the implied authority of a partner does not empower him to submit a dispute relating to the
business of the firm to arbitration. A contract containing an arbitration clause, which has not
been repudiated by the partners, is binding on them.33
The implied authority of a partner as regards proceedings under Arbitration Act has been
discussed in National Small Industries Corpn Ltd v. Punjab Tin Printing and Metaal Industries
& ors34 and in Kaveri Water Well Drillers v. P Duraiswamy Gounder & Ors 35. Where one of
the partner-defendant files the written statement against the wishes of the defendant partners,
it would constitute a step in proceedings under s 34 of the Arbitration Act, but would be
unavailable despite the incorporation of an arbitration clause in the partnership deed. If one of

29
Hanuman Chamber of Commerce v. Jassa Ram AIR 1949 Punj 46; SN Soni v. Taufiq Farooki AIR 1976 Del
63, holding that if an act is done by a partner in excess of his implied authority then all the partners of a firm can
ratify such an act provided the act could be legally done with the authority of all the partners given previously and
the ratification is with full knowledge of the facts. The restrictions contained in s 19(2) are not absolute and it is
open to the partners to relax or waive the restrictions.
30
Commercial Banking Co of Sydney v. Maun (1961) AC 1.
31
Thomas v. Artherton (1878) 10 ChD 185; Mohinder Kaur Kochhar v. Punjab National Bank Ltd AIR 1981 Del
106; SN Soni v. Taufiq Farooqi AIR 1976 d=Del 63, p 68; and SN Goenka v. Union of India & anor AIR 1981
NOC 44 (Del); Parameshwar Lal v. Jai Narain AIR 1952 Punj 373; Shankar Das Rup Lal v. Governor General in
Council AIR 1952 Punj 234; Ram Bahadur Thakur v. Thakurdas AIR 1958 All 522; International Coal Corpn v.
Pure Sitalpur Coal Concern Ltd AIR 1972 Cal 45; National Small Industries Corpn Ltd. V. Punjab Tin Printing
& Metal Industries AIR 1979 Del 58, p 60.
32
Krishna Kumar v. Knitting Inds & ors AIR 1973 Del 37
33
Sangener Dal and Flour Mill v. FCI (1992) 1 SCC 145, p 147.
34
AIR 1979 Del 58
35
(1999) 1 Kant LJ 23

5
the partners takes a step in the proceedings, then the same would be deemed to be a request on
behalf of other partners.
In Devi Prasad Rai v. Kanhaiyalal Mukharya,36 K who was the owner of the certain vacant site
entered into partnership with D and others. He agreed to allow his vacant land to be used by
the firm for raising cinema exhibition hall with an undertaking that he will not alienate the
property during the subsistence of the firm. Notwithstanding this restriction in the partnership
deed, he alienated the property by a registered sae deed to a third party. The Supreme Court
agreed with the finding of the high court that, i. K as the owner of the property had the right to
sell his property, but, ii. During the subsistence of the firm, the sale deed was not binding on
the other partners who can continue to remain in possession.

Negotiable Instruments

In trading firms every partner has implied power to bind the firm if there is no agreement to
contrary; but a non-trading firm is not bound unless the issue of negotiable instruments by one
partner is shown to be necessary or usual in the particular business.37 For this purpose, brokers
and commission agents are not traders38 nor are cinematographic theatre owners.39 Firms of
solicitors,40 quarry - workers41, auctioneers42 and engineering contractors43 ae instances of non-
trading partnerships. Partners of such firms cannot accept, make or issue negotiable instruments
other than ordinary cheques44 nor can they pledge the partnership property.45
When a negotiable instrument is regularly drawn by a partner in a trading firm in a transaction
incidental to the firm’s business, another partner is not less liable because his name does not
appear on the face of the instrument46. A specific conferment of power to contract debt on a
partner in a trading firm is unnecessary since every partner is an agent of the firm for the
purpose of its business. Where the partnership agreement contemplated raising of loans by the

36
(1986) 4 SCC 5.
37
Linley on Partnership, fifteenth edn. Pp 296-98
38
Yates v Dalton (1958) 28 LJ Ex 69, 118 RR 896.
39
Higgins v. Beauchamp (1941) 3 KB 1192.
40
Hedley v. Boimbridge (1842) 3 QB 316
41
Thicknesse v. Bromilow (1832) 2 Cr & J 425
42
Wheatley v. Smithers (1960) 2 KB 321, reversed on another point (1907) 2 KB 684 (CA)
43
Raghav Veera Sons & ors v. Pamavati AIR 1978 Mad 81, p. 84.
44
Blackhouse v. Charlton (1878) 8 Ch 444; Forster v. Mackerth (1867) LR 2 Ex 163.
45
Higgins v. Beauchamp (1941) 3 KB 1192, p. 1194.
46
Burnarsee Dass v. Gholam Hossein (1870) 13 MIA 358; Moti Lal v. Unnao Commercial Bank (1930) 32 Bom
LR 1571. Promissory note by managing partner of firm, endorsement by holder, suit by endorse on the note against
all partners, maintainability, Negotiabe Instruments Act 1881, s 16(2); G Subbarayadu v. MP Naraisimhan AIR
1974 AP 307

6
firm, the managing partner would have every right to borrow moneys for the purposes of the
firm. A firm will be bound under a negotiable instrument only if the partner ‘acts’ in the name
of the firm. It is necessary that the negotiable instrument must, in order to bind the firm be
made in the name of the firm47. It is held in the case of M Rajagopal & ors v. KS Iman Ali48,
in which the promissory notes were neither signed on behalf of the firm nor was there any other
material to infer having been executed for the firm, that when there is a conflict between s 19
and 22 of the Partnership Act, the latter Act should prevail. A claim against a firm based on a
written contract by one partner in the course of business with authority to act will be held to be
binding on the firm. However, when such a claim is made on the strength of a promissory note
or a bill of exchange, court will have to satisfied that the negotiable instrument discloses the
liability of the firm clearly. Where a partner made earlier endorsements acknowledging debt
for himself and on behalf of other partners and wherever he intended to represent the other
partners, he specified the same but in the last endorsement there was no such mention nor any
power of attorney referred to, it was held that the last endorsement did not amount to
acknowledgement of liability of the firm for the purpose of computing limitation in a suit for
recovery of money borrowed by the firm.49
Where a negotiable instrument has been drawn by a partner in his own name, the other partners
are not liable on the instrument in the absence of evidence that it was made for and on behalf
of the firm.50 A partner cannot, without the consent and knowledge of the other partners, enter
into contract with himself so as to bind the firm.51
Where the managing partner transferred a promissory note during dissolution in favour of
another partner, it was held that authority to transfer could be inferred from the fact that all the
partners were present when the transfer could be inferred from the fact that all the partners
were present when the transfer was effected and the question of subsequent ratification did not
arise in such a case.52

47
KA LOna v. Dada Haji Ibrahim Hilari & Co AIR 1981 Ker 86, pp 98, 101; Ringham v. Hackett (1980) 124 SJ
201; Re Riches (1865) 4 De GJ & S 581; MM Abbas Bros & ors v. Chetandas Fatehchand & anor AIR 1979 Mad
272, pp 275, 276; Ghisulal v. Hazi Mohammed AIR 1981 Raj 58.
48
AIR 1981 Ker 36, p 40
49
Mansa Ram & ors v. Janki Dass Om Prakash AIR 1984 All 267, p 270
50
Harbhogwandas v. Narayana AIR 1952 Mys 116; Sitaram Krishna v. Chimandas (1928) 52 Bom 640
51
Sunderdad v. Liberty Pictures AIR 1956 Bom 618
52
BV Narasimhulu Chetty v. Ratankonda Muthy & ors AIR 1986 AP 177, p182

7
Pakistan Context

Subject to the provisions of the Partnership Act, a partner is the agent of the firm for the
purposes of the business of the firm. Therefore, a transaction entered into by one partner on
behalf of the firm is binding on the firm and makes every partner liable, provided the following
conditions laid down in S. 19 (1) of the Partnership Act are satisfied. The authority of a partner
to bind the firm conferred by this section is called his “Implied Authority”.

1. The transaction must be related to the normal business of the firm. If A and B carry on
business as partners in a shoe shop, a contract signed by A in the firm name to supply books
would not be binding on the firm or B unless it is made with the express authority of B, for the
supply of books is not connected with the normal business of a shoe shop.
2. The transaction must be an act for carrying on business in the usual way. It is difficult to lay
down any criterion as to the usual way of carrying on any business. It is for the court to decide
from all the facts and circumstances of each case as to what is an act for carrying on business
in the usual way.
3. The transaction must be executed in the firm name, or in any other manner expressing or
implying an intention to bind the firm.

53
But in the absence of any usage of custom of trade to the contrary, the implied authority of a
partner does not empower him to:

1. Submit disputes relating to the business of the firm to arbitration;

2. Open a banking account on behalf of the firm in his own name;
3. Compromise or relinquish any claim or portion of a claim by the firm;
4. Withdraw a suit or proceeding filed on behalf of the firm;
5. Admit any liability in a suit or proceeding against the firm;
6. Acquire immovable property belonging to the firm;
7. Enter into partnership on behalf of the firm;
8. Acquire immovable property on behalf of the firm.

53
The Institute of Certified Public Accountants of Pakistan (ICAP)

8
It should be noted that the partners in a firm may, be contract between the partners, extend or
restrict the implied authority of any partner. But notwithstanding any such restriction, any act
done by a partner on behalf of the firm which falls within his implied authority binds the firm,
unless the person with whom he is dealing knows of the restriction or does not know or believe
that partner to be a partner.

A partner has also authority, in an emergency; to do all such acts for the purpose of protecting
the firm from loss as would be done by a person of ordinary prudence, in his own case, acting
under similar circumstances, and such acts bind the firm.

German Context

Head II of The German Commercial Code - Mutual Rights and Liabilities of Partners:

54
109. The mutual rights and liabilities of partners are regulated in the first place by the terms
of the partnership contract; the rules of sects. 110-122 only apply in the absence of any express
stipulation to the contrary contained in such contract.
110. If a partner while acting on behalf of the partnership incurs any outlay which under the
circumstances he was entitled to consider necessary, or while conducting partnership business
suffers any loss which is directly attributable to such business or to risks inseparably connected
therewith, he is entitled to be indemnified by the partnership.
Interest for such outlay or loss as from the date upon which it was incurred must be paid by the
partnership (b).
111. A partner who fails to pay in his contribution to the partnership capital at the proper time,
or to repay any moneys received from the partnership, or who draws money from the
partnership funds, without being authorised to do so, must pay interest as from the day on
which the money in question ought to have been pad in or repaid or was drawn.
His liability to pay further damages is not excluded by the foregoing paragraph.
112. A partner is not entitled, without the consent of the other partners, either to transact for
his own account business of the same description as that transacted by the partnership, or to

54
A. F Schuster, 1911, The German Commercial Code

9
become a full (c) partner in another mercantile partnership which transacts business of the same
kind.
A partner in a mercantile partnership shall be deemed to have obtained the consent of the
remaining partners to his participation in another partnership business as full partner, if such
participation was known to them at the time of the formation od the partnership, and yet no
stipulation was made as to the relinquishment of such participation.
113. Upon the breach by a partner of the obligations imposed on him by sect. 112, the
partnership may claim damages; alternatively, it may demand the transfer of the business
entered into by such partner for his own account to the partnership account and the surrender
to the partnership of the remuneration received by him for the business entered into for the
account of a third party or any claims he may have to such remuneration.
Claims arising under the foregoing paragraph may be enforced if a resolution in favour of such
enforcement is passed by the remaining partners.
Such claims become barred in three months from the date upon which the conclusion of
transactions for the partner’s private account or his participation in another partnership business
came to the knowledge of the remaining partners or irrespective of such knowledge within five
years of the date upon which the facts upon which the claims are based came into existence.
The provisions of this section are without prejudice to the right of the remaining partners to
demand the dissolution of the partnership.
114. Every partner has the right to conduct the business (d) of the partnership and is bound to
do so.
If in creating the partnership contract the conduct of the business is expressly given over to one
or more of the partners, the remaining partners shall be deemed to be excluded therefrom.
115. If all or several o the partners are authorised to conduct the business, each of them has the
right to enter upon transactions separately; but if any other of the partners so authorised requests
a partner to abstain from a particular transaction, the request must be complied with.
If it is stipulated by the partnership contract that the partners authorised to conduct business
may also do so collectively, all such partners must concur in every transaction entered upon,
unless delay involves risk.
116. The authority to conduct business extends to all transactions incidental to the ordinary
course of business of the mercantile trade carried on by the partnership.
The undertaking of transactions outside such ordinary course of business requires a resolution
by all the partners.

10
A power of procuration may not be conferred without the consent of all the partners authorised
to conduct the business unless delay involves risk. Powers of procuration may be revoked by
any partner authorised to grant them or to take part in the granting thereof.
117. The power of a partner to conduct the business of the partnership may be withdrawn
from him upon the application of the remaining partners by an order of the Court upon any
ground, e.g., in particular any grave breach of duty on the part of such partner or his
incapacity to conduct business in a proper manner.
118. Any partner, even when not authorised to conduct business, has the right to inform
himself personally of the affairs of the partnership, inspect the books of account and documents
of the partnership, and prepare himself a balance sheet therefrom.
Any agreement prohibiting or placing any limitation upon this right ceases to be operative if
there is any ground for assuming dishonesty in the conduct of the business.
119. Resolutions cannot be framed without the consent of all partners entitled to participate n
the framing of resolutions.
If by the partnership contract the majority of votes is to be decisive, such majority shall, if
nothing appears to the contrary, be deemed to be the numerical majority of the partners.
120. At the close of every business year the profit and loss of the year must be ascertained upon
the basis of the balance sheet, and apportioned between the partners.
The sum due to each partner must be credited to him on capital account, and the loss which
falls on him, as well as the sum drawn by him during the year, is debited to the same account.
121. Out of the profits of the year, each partner is in the first place entitled to interest upon his
contribution to the partnership capital at the rate of 4 per cent. Per annum, the rate of interest
to be paid is reduced accordingly.
In calculating the share of profits due to a partner in accordance with the foregoing paragraph,
payments made by a partner in increase of his contribution to capital during the course of the
business year must be taken into account to an extent proportionate to the time which has
elapsed since they were made. Amounts drawn by a partner from his contribution to capital
during the course of the business year must be taken into account to an extent proportionate to
the time which elapsed before they were drawn.
The balance (if any) of the year’s profits remaining after an apportionment thereof made in
accordance with paragraphs 1 and 2 of this section is to be divided between the partners in
equal shares; any loss that there may be is to be borne by the partners in equal shares.
122. Each partner has the right to draw upon the partnership funds up to n amount equal to 4
percent on the sum standing to his credit on capital account at the close of the last business

11
year, and he may also draw the amount credited to him as profit for the last business year over
and above the 4 per cent upon his capital if there is practicable without obvious injury to the
partnership business.
Subject to the above paragraph a partner may not reduce the sum standing to his credit upon
capital account without the consent of the other partners.

Analysis

According to paragraph 109 of the Commercial Code, this is regulated initially by the
partnership agreement; the provisions of paragraphs 110-122 are applicable only to The general
partnership in German law by Frank Wooldridge55 the extent that the agreement does not
otherwise provide. It is questionable how far the agreement may deviate from such provisions
without infringing mandatory legal concepts. The partners are required to make their
contributions, and to participate in the management of the business of the commercial
partnership in accordance with paragraph 114(1) of the Code. They are bound by a duty of
good faith to one another and the partnership which is not regulated in the Code. Paragraph
112(1) thereof provides for a prohibition on competition. It stipulates that partners may not,
without the consent of the other partners, conduct business in the partnership’s field of
activities or participate as a general partner in another similar commercial partnership. Such
participation is apparently permitted if the partner is excluded from involvement in the
management and representation of the other partnership.
Paragraph 114(1) provides that all the partners are authorised and obliged to manage the
partnership business. However, paragraph 114(2) of the Code provides that where the
management of the business is transferred to one or more partners by the partnership
agreement, the remaining partners may be excluded from management. Paragraph 118(1)
provides that where the partner is excluded from management he must remain informed as to
the partnership’s affairs, be able to examine the books and records of the partnership, and
prepare a balance sheet and annual financial statements thereform. According to paragraph
118(2) any agreement limiting or excluding such rights of inspection shall not prevent the
assertion thereof if there is reason to suspect dishonest management.
According to paragraph 115(1) of the Code, where all or several of the partners are entrusted
with management, each one of them is authorised to act alone; however, in the event that

55
Frank Wooldridge, “The General Partnership in German Law”

12
another managing partner objects to such an action, it shall not be taken. Paragraph 115(2)
provides that if the partnership agreement stipulates that the managing partners shall only act
jointly, every business transaction shall require the consent of all the managing partners, unless
there is a risk of delay.
By paragraph 116(1) of the Code, management authority extends to all acts connected with the
ordinary operation of the commercial partnership. Transactions which exceed this limitation
are required by paragraph 116(2) to be authorised by a resolution of all the partners. By
paragraph 116(3), the appointment of a Prokurist shall require the consent of all managing
partners, unless there is a risk in delay. Revocation of the Prokura may be effected by any of
the partners authorised to grant or participate in the granting of the Prokura. A Prokura is a
power of full commercial representation given to a person called the Prokurist. Management
authority may, according to paragraph 117, be revoked with respect to one partner for cause by
means of a judicial decision on the application of the other partners. Without limiting the
generality of the latter provision, such cause includes gross violation of duty, or inability to
properly manage the business. As the provisions of paragraph 117 are dispositive, and not
mandatory, they may be modified by the provisions of the partnership contract. Where
paragraph 117 is applicable the application to the court must be made by all the other partners.
According to paragraph 119(1) resolutions passed by the partners require the consent of all the
partners entitled to participate in them. By paragraph 119(2) of the Code, if a majority vote is
required by the partnership agreement, this majority is calculated, in cases of doubt, on the
basis of the number of partners. The relevant resolution does not require a specific form or
procedure; it may be passed by the exchange of correspondence, circulation thereof, or by
means of telephonic media. If a resolution is likely to have prejudicial consequences for a
partner if it is passed, for example by deciding that he shall lose his managerial or representative
power, the relevant partner is excluded from voting on it. The power contained in paragraph
119(2) of the Commercial Code permitting resolutions to be passed by a majority vote is not
intended to be understood as giving power to the partners to alter the partnership agreement by
such a vote, unless power to do so is expressly given therein. In the latter event such power
will not be treated as exercisable where the agreement was intended to provide for the increase
of a partner’s contribution, unless the agreement contains a rule excluding the provisions of
paragraph 707 of the Civil Code, which provides that the members of a personalistic company
are not required to increase their promised contributions thereto without their consent. If no
such exclusionary rule was contained in the partnership agreement, its amendment would have

13
to take place by a unanimous vote. Any of the partners is empowered to request the competent
court to annul a resolution passed by the partners.

Conclusion
Every partner has the implied authority to bind the firm and other partners by his acts done in
the name of the firm, in the ordinary course of the firm's business and with the intention to bind
the firm.
However, a partner has no implied authority, unless otherwise expressed in the partnership
deed, in the following matters:
(a) To submit a dispute relating to the firm to arbitration;
(b) To compromise or relinquish any claim or a portion of claim made by the firm;
(c) To withdraw a suit or proceedings filed on behalf of the firm; (id) to admit any liability in
a suit or proceeding against the firm;
(e) To open a bank account on behalf of the firm in his own name;
(f) To acquire or purchase immovable property for and on behalf of the firm;
(g) To transfer or sell immovable property belonging to the firm; and
(h) To enter into partnership with others on behalf of the firm.
Upon further study we come to the analysis that the implied authority of a partner that has been
laid down under the Indian Partnership Act remains to be the most lucid and well described
literature among the three counties that were compared in the research, viz. India, Pakistan and
Germany.

14
Bibliography

1. Pollock & Mulla, G Bharuka, Mulla – The Indian Partnership Act. LexisNexis, 2007.

References

1. http://icpap.com.pk/frontend/web/attachments/past%20papers/0848Mercantile%20La
w.pdf
2. https://archive.org/stream/cu31924025030150#page/n3/mode/1up

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