An Act to define and amend the law relating to partnership.

WHEREAS it is expedient to define and amend the law relating to partnership; It is hereby enacted as follows:-

1. Short title, extent and commencement:
(1) This Act may be called the Partnership Act. 1932.

(2) It extends to the whole of Pakistan.

(3) It shall come into force on the 1st day of October, 1932, except section 69, which shall come into force on tile 1st day of October, 1933.

The Partnership Act is an Act to define and amend the law relating to partnership and extends to the whole of Pakistan. It came in to force on 1st October, 1932, except section - 69 relating to effect of non registration of firms, which came into effect on 1st October, 1933.

2. Definitions:
In this Act, unless there is anything repugnant in the subject or context, -

(a) an "act of a firm" means any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm.
(b) "business" includes every trade, occupation and profession;
(c) "prescribed" means prescribed by rules made under this Act;
(d) "third party" used in relation to a firm or to a partner therein means any person who is not a partner in the firm; and
(e) expressions used but not defined in this Act and defined in the Contract Act, 1872 (IX of 1872), shall have the meanings assigned to them in that Act.

3. Application of provisions of Act IX of 1872:
The unrepealed provisions of the Contract Act, 1872, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to firms.

4. Definition of "partnership", "partner", "firm" and "firm name".
'"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".

In story on Partnership, the term is defined as a voluntary contract between two or more competent person to place their money, effects, labour and skill, or some or all of them, in lawful commerce or business, with the understanding that there shall be a communion of the profits thereof between them.

Halsbury defines a partnership as "the relation which subsists between persons carrying on a business in common with a view of profit".

Partnership is a relation between individuals who have entered into agreement for the purpose of sharing profits of a business. (PLD-1985 Karachi-85 (90)).

'Partner', 'Firm', 'Firm's name'.- Individuals bound in relation of partnership are individually called 'Partners' and collectively 'a firm', and the name under which, their business is carried on is called the 'firm name'.

Proof of existence of Partnership'. Where appellant claimed to be a partner of a partnership firm and one of the alleged partners denied any such partnership, it was incumbent upon the appellant to have proved on record that there was an agreement between the alleged partners for carrying on business in partnership. Registration of firm disclosing that certain persons were its partners was not by itself the proof of execution of any such agreement between the said alleged partners to do business in partnership. (Muhammad Sharif Uppal V Akbar Hussain - PLD 1990 Lah 229).

Liability of Partners. The Defendant Establishment is a partnership Firm and other Defendants being Partners of that firm were, therefore, jointly and severally liable for the amount claimed in suit - (National Bank of Pakistan V M/s M.M. Agencies and 5 others-1991 CLC 1763)

Essential Elements of Partnership. There are four important elements necessary to constitute partnership.-

(i) There must be an association of two or more persons to carry on a business.
(ii) There must be an agreement entered into by all the persons concerned.
(iii) The agreement must be to share the profits of a business.
(iv) The business must be carried on by all or any of the persons concerned acting for all.

All the above elements must be present before a group of persons can be held to be Partners. Each of these elements are discussed below in their necessary details.

(i) There must be an association of two or more persons to carry on a business. A group of persons with no legal relations inter se, i.e. no mutual rights and liabilities between themselves would not be a partnership.
(ii) There must be an agreement entered into by all the persons concerned. This requirement emphasizes the fact that partnership can only arise as a result of an agreement, express or implied, between two or more persons there must be an agreement entered into by all the partners. Partnership is thus created by a contract; it does not arise by the operation of law. Joint ownership may arise by the operation of law, but not partnership. Thus on the death of a person, his children may inherit the family properly jointly together with the family business and may share the profits of the business equally; but they are not, for that reasons, partners.

Only lawful Agreement. The contract which is the foundation of partnership, must itself be founded on good faith, and must be for a lawful object and purpose and between competent persons. In short it is subject to the ordinary incidents and attributes of contracts.

(iii) The Agreement must be to share the profits of a business.-The object of the agreement or contract is to carry on a business. And the business which the partners carry on must, of course, be legal. Where there is no partnership. the mere fact that several persons own something in common which produces returns and that such person divide those returns according to their respective interests, does not make them partners.

For instance A and B are co-owners of a house let to a tenant and A and B divide the net rent between themselves. A and B are not partners, because receiving rent of a house let to a tenant is not a business.

(a) Term "Business". defined.- The term business has been defined (in S. 2) to include every trade, occupation and profession. This definition, which has been adopted from the English Act, is very general and affords very little assistance when dealing with border line cases. Under-hill has also criticized this definition of the term as being rather vague. It is submitted that in arriving at a conclusion as to when persons can be said to cam/on business, each case must be decided on its own merits, and the only practical guide seems to be dictum of James L.J. When he observed (in Smith V. Anderson) That this word is to be understood in any sense in which any man of business would use the word. Broadly speaking, it refers to any activity which, if successful, would result in profit.

Business may be temporary or permanent (i.e. indefinite). But it must be in existence. An agreement to carry on business at a future time does no result in present partnership (R.R. Sama V Reuben, AIR 1946 Oudh. 68).

(b) Sharing of profits. The sharing of profits is an essential element of a partnership agreement. The members of religious or charitable societies and clubs are not partners, as the idea of sharing, or even making of profits is not involved in these societies associations.

An agreement to share profit is essential but it should be noted that an agreement to share the losses is not essential. Where nothing is said as to sharing of losses it is implied in a partnership deed. It may, however be agreed that as between the partners any one or more of them shall not be liable for losses.

(c) Profits of business.- The term profits refers to net profits that is to say the excess of returns over advances, or in other words, the excess of what is obtained over the cost of obtaining it. The English Partnership Act expressly provides that sharing gross returns will not constitute a partnership. Thus, in one English case, the owner of a theatre allowed a travelling manager and his company to use the building, scenery, appliances, etc., in consideration of receiving half the money obtained from the spectators. The Court observed that this did not make the owner answerable as a partner of the travelling manager. (Lyon V Knowles, 1863, 3 B & S. 556).

(iv) Carrying of business.- The last element is that business must be carried on by all or by any of the persons concerned acting for all. This shows that the persons or the group who conduct the business do so as agents for all the persons in the group, and are, therefore, liable to account to all. In fact, the relation of principal and agent amongst the partners i.e. mutual agency, is the true test of partnership. A partner is both a principal and an agent. While the relation between partners inter se is that of principals, but in relation to third parties for the business of the firm, they are agents of the firm and also of one another. Thus each partner is regarded as an agent of the other partners, and as such, a partner acting in the course of the business of the firm, can bind his co-partners. But in order to bind his co-partners, it is necessary for the partner acting on behalf of the firm to contract in the firm name or in any other manner expressing or implying an intention to bind his co-partners. A partner contracting in his own name can create only a personal liability and not the collective liability of the firm. The mere fact that money borrowed by partner in his own name on security belonging to him personally, has been used for the purpose of the firm with the knowledge of his partners, does not render them liable.

Illustrations:

(1) A and B buy 100 bales of cotton, which they agree to sell on their joint account. A and B are partners in respect of such cotton.

(2) A and B buy 100 bales of cotton, agreeing to share the cotton between them. A and B are not partners.

(3) A and B agree to work together as carpenters. A is to receive all the profits and pay a salary to B,-A & B are not partners.

(4) A and B enter into a "partnership agreement whereby A is to have no share in either the profits or the loss of the business - A and B are not partners.

(5) A and B are joint owners of a ship. This, by itself does not make them partners.

PARTNERSHIP AND CO-OWNERSHIP DISTINGUISHED.- Very much akin to partnership is the legal conception of co-ownership. The distinction between the two is important. Now, partners enjoy common rights over and interest in, in firm's property; all co-owners of property are, however, not partners, co-ownership, therefore though an incident of partnership must be distinguished from it. Co-ownership of a property does not, in itself, constitute a partnership between the co-owners, whether they share any profits arising from it or not. Thus, A and B are co- owners of a house let to a tenant A and B divide the rents between themselves. B contends that A is his partner. Will he succeed? The answer is no. B will not succeed. A and B are not partners but co-owners. But if A and B use that house as a hotel, they would become partners in the business of hotel - keeping.

Similarly, co-owners of a ship are not necessarily partners. If, however, they employ the ship in trade or adventure on their account, they would become partners in such trade.

SUMMARY OF DIFFERENCE BETWEEN

7. Remedies which one co-owner has against the other are different from, and less extensive than, of a partner against his co-owners.

'PARTNERSHIP' AND 'COMPANY' DISTINGUISHED. The main points of difference between a partnership and a company are given in a tabular form as follows-

PARTNERSHIP AND CLUB DISTINGUISHED.- A club is entirely different from a partnership. Clubs are not association for gain and unlike partners, members of a club are not liable for acts of the other members. It is to be noted that no member of club is liable to a creditor of the club, unless he himself has also assented to such contract. Whereas there is no limit (generally speaking) to a partner’s liability, in clubs no member becomes liable to pay any money beyond the subscription amount required to be paid under the rules and regulations of the club. Unlike partners members of club have no implied authority to bind other members of the club.

PARTNERSHIP AND TRADE ASSOCIATION DISTINGUISHED.- Mutual Agency, which is the essential element of partnership, does not exist in a trade association.

In one case, an association of cloth dealers getting quotas of cloth allotted to it, and then distributing the quotas to its member firms, was held not to be a partnership, this was so despite the fact that the profit made by the Association by re-selling the cloth were divided amongst the member. There was no mutual agency, and no partnership in the circumstances. (Bhawamilal Lachchi Ram v Badri Dal AIR 1964 MP 153).

Working Partner.- A ‘working partner’ is not necessarily a partner in the business. He may be merely an employee under the capitalist partner although working partner gets a share in the net profits as remuneration for the service rendered by him.

Minor partner.- A person having capacity to contract can be a partner. Therefore, minor can not be full fledged partner in a partnership, though the may be admitted to the benefits of partnership.

5. Partnership not created by status:
The relation of partnership arises from contract and not from status;

and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.

Sec. 5, lays down that the relation of partnership arises from contract, and not from status. It also provides that the members of a Hindu undivided family carrying on a family business as such or a Burmese Bhuddhist husband and wife carrying on business as such, are not partners in such business.

"Partnership" Commencement.- Partnership deed comprising of business of constructing a Cinema as well as winding it up. Contended that partnership did not commence before carrying on of business of cinema contention repelled and Held, partnership business started when payment of first installment was given for carrying on construction of cinema. (Lt. Col. Mahmood Khan Durrani V Syed Naushab Ali-NLR 1981 UC 342).

JOINT HINDU FAMILY FIRM AND PARTNERSHIP DISTINGUISHED.- There are six important points of distinction between a partnership firm and a joint Hindu family firm, these are given in tabular form as follows--

Muhammadan law:- In view of the position stated above it is quite clear that a Hindu Joint family firm is not a result of an agreement or contract voluntarily entered into by persons, but one which arises by the operation of law, the moment a male child is born into a trading family, by the mere fact of its birth it becomes a member of the trading firm. But, the position in Muhammadan Law is quite different. Under Muhammadan Law, there is no family trading partnership, such as the one which exists under Hindu Law. Under the Muslim Law, unless it is proved that father and sons have entered into a contract of partnership, the sons do not become partners and they can not be sued in regard to transaction for which the father was responsible.

6. Mode of determining existence of partnership:
In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

Explanation 1.
The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.

Explanation 2.
The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by business, does not of itself make him a partner with the persons carrying on the business;

and in particular, the receipt of such share or payment -

(a) by a lender of money to persons engaged or about to engage in any business,
(b) by a servant or agent as remuneration,
(c) by the widow or child of a deceased partner, as annuity, or
(d) by a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof, does not of itself make the receiver a partner with the persons carrying on the business.

A, B and Co., carded on a business and incurred debts. E, a creditor of A, B and Co., sued A,B, and two other persons C and D as being members of the partnership C contributed labour only and used to receive one-third share in net profits. D. had deposited a certain amount and he also got one-third share in the profits. The remaining one third was taken by both A, and B, Discuss the respective liabilities of C and D to E?

The Answer to above problem is that from the facts given it is obvious that C is a servant and D is lender of money. The receipt by them of a share in the profits does not of itself make either of them a partner in the A, B and Co., Hence, C and D are not liable to E.

Test of Partnership. Although the right to participate in the profits of a business is a strong test of partnership, yet whether the relationship does or does not exist must depend on the real
intention and contract of the parties, the real test as whether such participation in profits constitutes the relationship of principal and agent between the persons taking the profits and those actually carrying on the business. (AIR 1946 Bom. 174 (DB) + AIR 1957 Mad 8 (DB) + AIR 1956 All. 136).

Existence of Partnership. Proof:- Where appellant claimed to be a partner of a partnership firm and one of the alleged partners denied any such partnership, it was incumbent upon the appellant to have proved on record that there was an agreement between the alleged partners for carrying on business in partnership Registration of firm disclosing their - in that certain persons were its partners was not by itself the proof of execution of any such agreement between the said alleged partners to do business in partnership. (Muhammad Sharif Uppal V Akbar Hussain PLD-1990 Lah 229).

Reciprocal promises formed Consideration of Partnership agreement: It is established law that for entering into a partnership agreement there is no necessity of consideration in cash, or advance of any amount, and that the reciprocal promises of the parties form the consideration for an agreement of partnership Held - Courts below fell in error of law in determining the controversy between the parties on the basis that since no payment has been proved to have been made by the appellants, consequently, the deed of partnership between them was invalid or ineffective (Noor Muhammad V Sabz Ali- PLD 1976 B.J. 22).

Partner on fixed Profits. The fact that one partner is paid a fixed amount per month in lieu of profits is not inconsistent with a partnership.- (AIR 1927 Born 187 51 Bom 342 (DB).

Persons who may share in profit without being liable as Partners.- Explanation 1&2 to Sec. 6 of the Act lay down that the participation by a person in the profits of a business either by receiving a share therein or a payment dependent upon, or varying with the profits is not enough of itself, to warrant the inference that such a person is a partner with those who are engaged in carrying on the business. The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner but this is not a conclusive test. Clauses (a) to (d) of explanation-2 of (seen above) state the particular cases of persons who share in profits of a business without being liable as partners.

6A; Act not to apply to certain, relationships:
Nothing contained in this Act shall apply to a relationship created by any agreement between a banking company and a person or group of persons providing for sharing of profit and losses arising from or relating to the provision by the banking company of finance to such person or group of persons.

Explanation.-
For the purposes of this section, "banking company" and "finance" shall have the same meaning as in the Banking Tribunals Ordinance, 1984.

7. Partnership at will:
Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is "partnership at will".

According to Sec. 7 the "Partnership at will" is a partnership agreement between the partners where by neither any definite period of partnership nor a provision. for the determination of the partnership has been provided, and its duration is left to the discretion or will of the partners themselves.

8. Particular Partnership:
A person may become a partner with another person in particular adventures or undertakings.

Particular partnership duration of.- Partnership Deed clearly stating formation of Partnership, to run agency acquired by plaintiff at a particular station from a particular company. Partnership, held formed for a single venture and could continue only as long as agency lasted. Partners if wishing to carry on partnership on expiry of agency for running some other business, could do so only by a fresh agreement. (Hussain Bhai V Mohd Iqbal PLD 1976 Quetta 9).

Single transaction.- Under section 8 a partnership can be for one transaction or one adventure only. The words ‘adventure’ or ‘undertaking’ in the section do not cannot matters of very short duration, the transaction though single may stretch over a short period the distinction between ‘single venture’ and a business is that a single venture finishes immediately after the purchase and sale. There is no continuity or "Carrying on" of the business in the senses that one or move partners continue to have the responsibility and so apply their discretion in buying storing, selling and keeping charges of moneys over a length of period.

9. General duties of partners:
Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

Sec. 9 imposes the following two paramount duties and liabilities on a partner.-

1. Duty of good faith and common advantage.
2. Duty to render true accounts and full information.

1-Duty of good faith and common advantage provides that partners are bound-

(a) to carry on the business of the firm to the greatest common advantage; and

(b) to be just and faithful to each other. This duty is very widely and generally worded. In practice, it means that all the endeavours of partner must be directed towards securing maximum profit for the firm, thus, where a partner was authorised to sell property of the firm for 6000 pound and he sold it for a much higher price and concealed the excess price, he was held bound to share it with his co-partner. (Dunne V English, 18 eq 524).

This is a fundamental duty imposed upon partners by the Act, and can not be excluded by a mutual agreement to the contrary.

Fiduciary obligation. This duty also introduces the element of a fiduciary obligation on a partner. Commenting on this fiduciary relationship Bacon V.C. observed in (Helmore V. Smith, (1886) 35 ch. D. 436 as follows:-

"If fiduciary relationship means anything, I cannot conceive a stronger case of fiduciary relations than that which exists between partners. Their mutual confidence is the life blood of the concern. It is because they trust one another that they are partners in the first place; it is because they continue to trust one another that the business goes on."

Likewise, a partner cannot make secret profit at the expense of the firm. In one english case a partner of a firm of sugar refiners was entrusted to buy sugar for the stock (which he had bought earlier at a lower price) at the prevailing market price, making a considerable profit on the transaction. In a suit filed by other partners, it was held that he was bound to account for such profit and that the firm was entitled to that profit. Bentley V Craven, 1853, 18 Beav 75).

2-Duty to render true accounts and full information is also imposed upon a partner by Sec. 9 This duty of a partner is based on the principle of Uberriance fidei (utmost good faith), and calls upon partners to make full and frank disclosures of all facts affecting the affairs of the firm.

Thus, when a partner is in possession of vital information about the affairs or assets of the firm, and concealing such information, if he makes a contract with his Co-partners, the contract can be avoided by the co-partners (Law V Law (1905) 1 ch. 140).

10. Duty to indemnify for loss caused by fraud:
Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

11. Determination of rights and duties of partners by contract between the partners:
(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be express or may be implied by a course of dealing.

Such contract may be varied by consent of all the partners, and such consent may be express or may be implied by a course of dealing.

(2) Agreements in restraint of trade: Notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

Section-11 of the Act provides for the determination of rights and duties of partners by agreement between them. But no such agreement can override or contravene the provisions of the partnership Act. Section-32 and 44 of the partnership Act being both independent provisions of law, one can not override the other and hence the argument that an agreement entered into between the partners, permitting one of them to retire, would take away the power of the court to dissolve such a partnership under section-44 of the Act, has no force. (PLD-1961 Lah. 468).

12. The conduct of the business:
Subject to contract between the partners-

(a) every partner has a right to take part in the conduct of the business;
(b) every partner is bound to attend diligently to his duties in the conduct of the business;
(c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partners shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and
(d) every partner has a right to have access to and to inspect and copy any of the books of the firm.

1. Right to take part in business. Under sub-clause (a) of this Section every partner has the right to take part in the conduct of the business of the firm. If, therefore a partner is wrongly prevented from taking part in the firm's business he can obtain an injunction from the Court against the erring partner.

However, it is not un-usual to provide in the partnership deed, for an exclusion of this right as regards some of the partners.

2. Right to have access to books.- Under sub-clause (d) of the Section every partner has a right to have a access to, and inspect and copy, any of the books of the firm. A partner need not exercise this right personally, but may have the accounts inspected by his agent, as for instance, by his accountant.

In one English case, a sleeping partner wished to sell his interest to the other partners. He therefore authorised a valuer to inspect the accounts and to ascertain the value of his interest. the other partners objected, and the court held that they could not have any objection, unless, of course there was reasonable ground for objecting, as for instance, the protection of trade secrets. (Bevan V Webb, 1900-3 A.I.E.R. Rep.206)

13. Mutual rights and liabilities:
Subject to contract between the partners -

(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;
(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;
(c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits;
(d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum;
(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him-

(i) in the ordinary and proper conduct of the business, and
(ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and

(f) a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.

Sec. 13(a)- Expressly provides that a partner is not entitled to receive remuneration in the conduct of partnership business. But the partnership agreement may provide for payment of any amount of remuneration to the working partners. However, in the absence of such a provision, partners are not entitled to any salary or remuneration.

S. 13(b).Subject to contract to the contrary between the partners, they are entitled to share equally in the profits earned by the firm. In such a case, they are likewise also liable equally to the losses. However, a partner ship deed may provide that any one or more of the partners will not be liable to bear the losses of the firm.

S. 13(c) (d)- If a partner has advanced for the purposes of the business of the firm, a sum of money over and above the capital which he has agreed to subscribe, he is entitled to interest on such amount at the rate of six per cent per annum.

Entitlement to interest. Not every amount which on proper accounting was found due to the partner as in excess of his share, would get assimilated to or could be treated as advance made by the partner for the purposes of business within the meaning of S.13(d) of Partnership Act so as to entitle the partner to interest there on. (Pakistan shipping corporation V Rustam F. Cowasjee 1989 SCMR 1332)

S.13(e)- of the Act provides dual indemnity to a partner. The first indemnity is based on the general rule of an agent's right to be indemnified in respect of lawful acts done by him in the exercise of his authority.

The second indemnity covers out goings which are in the nature of emergency or salvage expenses incurred by a partner personally on behalf of the firm in circumstances of emergency. Thus, in mining business a partner may incur expenses to sink a new shaft immediately to reach un-ex-hausted minerals.

14. The property of the firm:
Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

Partnership property.- The property of the firm, as stated above in the section itself, also includes its goodwill. The term goodwill is not defined by the Act, and may be said to be "the whole advantage, whatever it may be, of the reputation and connection of the firm". It is something more than the mere chance or probability of old customers maintaining their connection with the firm.

Exparte Hinds (1849) 3 De 4.2/Sm. 603- One partner in a firm buys railway share in his own name without the authority of the other partners, but with money and on account of the firm. Are these shares partnership property? Yes- Section-14 governs such case.

Partnership between A and B.- Machinery purchased by A and brought by him in partnership business as his further investment and receiving profit in lieu thereof in form of hire. Dissolution of partnership and B purchasing partnership business to-gether with all machinery. A after dissolution of firm and purchase of assets by B can not claim machinery as his own property- (Abdul Karim V Usman PLD- 1976- Kar 479)

Partnership property.- Premises held on lease by one partner, allowed to be used for partnership business. No written agreement Oral, agreement confined to sharing profits and allowing partnership to disputed promises. Held no further agreement should be implied or inferred with regard to lease of premises. Mere use of such premises by partnership would not make premises part of partnership property. Such premises after dissolution of partnership should be treated as being properly of partner who brought into partnership. - (Khuda Bux V Badrul Hassan PLD 1968 Kar 657).

Licence for Mining - Whether property of Partnership. Prospecting licence for mining issued on the application to plaintiff. Plaintiff subsequent to making such application entered into partnership with defendants for prospecting the mine. Prospecting mining Licence whether to be regarded as property of the firm. Property of the firm would include all property, rights and interests in property originally brought into the stock of the firm. Partnership deed clearly showed that plaintiff having to get sanctioned the mining lease had made one of the defendants a partner in it. Intention to bring prospecting licence into stock of the firm or make it property of the firm was thus clear. Such position was not changed in the subsequent partnership deed inducting therein other defendants as partners. Every partner thus became equally interested in the whole of partnership assets.- (Fazal Hussain V Barkat Ali-1980 SCMR 1901).

15. Application of the property of the firm:
Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

Section-15 stipulates the rule subject to a contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business of the firm.

16. Personal profits earned by partners:
Subject to contract between the partners,-

(a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the properly or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;

(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.

S. 16(a)- If a partner derives any profit for himself, which profit is the result of the condition given
in the section, in that case he must account for such profit and pay it to the firm.

In Gardener V Mecutecheon (1842 Beav. 534) a ship belonged to two partners, one of whom was also the captain of the ship, whilst the ship was operating under charter parties, the captain made considerable profits by making certain contracts. The Court held that he was liable to account for such profits.

Accounts of Partnership. Accounts of firm had not been settled between parties and appellant instead of settling accounts and distributing assets had started new business. Courts decision for appointing Nazir as Receiver for taking over books of accounts (w/o xxvi, R. 11 of CPC ) of appellant and handing over their photo-copies to respondent was up-held by High Court. (Ahmad Raz V Zarina 1989 ALD 518 (1)).

S. 16(b) lays down that if a partner carries on any business of the same nature as, and competing with that of firm, he must account for and pay to the firm all profits made by him in that business.

In one case, a partnership was entered into for the business of importing salt into India and for re-selling the same in Chittagong. One of the partners in the course of the operations, bought some quantity of salt for himself and re-sold the some on his own account. The Calcutta High Court held that the partner was liable to account for this profit to his co-partners, as the opportunity to make such a profit came his way while he was on the business of this firm. (Pulin v Mahendra, (1921) 34 cal. L.J. 405).

Competing business. Partners during subsistence of partnership, cannot carry on competing business with that of firm, unless there was a contract to contrary and if, in absence of such contract, a partner carried on a business of same nature as and competing with that of firm, he would be liable for and pay to firm all profits made by him in that business. Not necessary to prove that rival business had been set up with income of profits of partnership. (Zarina V Ahmed Raza 1989 ALD 296).

Attracting Provisions of section. 16(b). Not necessary to establish rival business as having been set up with income or profits of parties partnership firm.- (Abdul Rahim V Abdul Aziz 1970 SCMR 750).

17. Rights and duties of partners after a change in the firm:
Subject to contract between the partners, -

(a) where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be;

(b) after the expiry of the term of the firm, and: where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will; and

(c) where additional under takings are carried out: where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

Problems.- (1) X and Y are partners for seven years, x taking no active part in the business. After the expiry of seven years, y continues the business in the same name and with the property of the firm, without giving any account to X. Is x entitled to a share in the profits of the business.

Ans.-In the above circumstances, the partnership is not dissolved and X is entitled to participate in the profits on the same terms as those of the original agreement. (Parson v Hayward - (1862) 4 D.F.J. 474).

(2) An agreement of partnership between P, Q and R for one year contains an arbitration clause. The partnership is continued beyond one year. Is the arbitration clause binding on the partners after one year has expired.

Ans.- An arbitration clause is not inconsistent with a partnership at will (See clause (b)) and therefore arbitration clause continues to bind the partners even after the expiry of one year. (Gillett V Thomton 1875 L.R. 19).

(3) X and Y were partners in a business with 60% and 40% shares respectively. On the death of X his son, Z, stepped into his shoes, and continued the business with Y without and express agreement. What is the share to which Z is entitled.

Ans.- Applying clause(a) of Section, Z will be entitled to the same share as his father was entitled namely 60% (Dawood Sahib V Sheikh Mohideen - 1937-2 M.L.J. 760).