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Effect on Partnership by Introduction, Retirement, Expulsion, and Insolvency of a Partner

             


Sneha Verma

Section 31 to 35 of the Indian Partnership Act, 1932 deals with the effect of and the extent of liability on introduction, retirement, expulsion, and insolvency of a partner in a partnership firm.

Section 31: Introduction of a Partner

A new partner to a partnership firm can only be introduced with the consent of all the existing partners. In consideration with the general rule, a new partner to the firm could not be made liable for such debts, which are incurred before he joined the firm. However, such a partner can assume liability for previous debts of the firm by novation or a tripartite agreement between the creditor, new partner and all the existing partners of the partnership firm.

Section 32: Retirement of a Partner

A partner to a partnership firm may retire by:

  • consent of rest of the partners;

  • express agreement between the partners; and

  • giving notice in writing to all the other partners communicating his intention to retire, in case of partnership at will.

However, the retiring partner has certain liabilities even after his retirement. He is still liable for the partnership debts contracted during the course of him being the partner. By novation of the contract, he may be discharged.

In case he allows his name to remain the firm name then also he is liable.

An express notice of retirement has to be served by the retiring partner to protect himself from liabilities, before his retirement or as prescribed under Section 72 of the Act.

Section 33: Expulsion of a Partner

A partner cannot generally be expelled from a firm by the majority of the partners. A partner can be expelled by a majority of partners only in good faith or based on a contract between the partners. An expelled partner has the same liability as a retired partner.

Section 34: Insolvency of a Partner

When a partner becomes insolvent, his estate is not liable for partnership debts contracted after the date of insolvency. However, he will be liable for all debts that were incurred before his insolvency.

Section 35: Liability of estate of deceased partner

When a firm cannot be dissolved by the death of a partner as per the contract, on death of one of the partner, his estate is not liable for partnership debt after his death.


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