The propositions are: I. Where a partner of a professional business partnership borrows money in the…
Under section 19 of the Indian Partnership Act, 1932, a partner binds the firm only by acts done in the usual way of business of the kind carried on by the firm; borrowing…
Choose your answer
The propositions are:
I. Where a partner of a professional business partnership borrows money in the usual and regular course of business stating that the money is to be used for partnership business but misappropriates it, the other partners shall be liable.
II. Where money has been borrowed by a partner without authority, but has been applied to the legitimate business needs of the firm, the firm is liable.
III. Where the act is within the scope of the implied authority of a partner, but it has been done by him, to the knowledge of the third party, not for the firm but for his own purposes, the firm is liable.
Which of the following is true in accordance with the Indian Partnership Act, 1932, as to these propositions?
Answer and explanation
Correct answer C
Under section 19 of the Indian Partnership Act, 1932, a partner binds the firm only by acts done in the usual way of business of the kind carried on by the firm; borrowing is within the implied authority of a partner in a trading firm but not in a professional (non-trading) partnership, so proposition I is incorrect. Proposition II is correct, because where money borrowed without authority is actually applied to the legitimate needs of the firm, the firm must repay it, while proposition III is incorrect, since a third party who knows the partner is acting for his own purposes cannot hold the firm liable. The answer is therefore "(II) is correct, (I) and (III) are incorrect".
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