Corporate And Regulatory

Partnership Act, 1932 (Pt. 1 of 2)

Status: In force


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, extend and commencement:

(1)          This Act may be called the Partnership Act, 1932.

(2)          It extends to 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 the 1st day of 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The un-repealed provisions of the Contract Act, 1872, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to firms.

CHAPTER – II

The Nature of Partnership

4.            Definition of “partnership”, partner, “firm” and “firm name”:

“Partnership” is the relation between person who have agreed to share the profits of a business carried on by all or any of them acting for all.

Person 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”.

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.

6.            Mode of determining existence of partnership:

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

Explanation 1.

The sharing of profits or of gross returns arising from property by person 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 paying contingent upon the earning of profits or varying with the profits earned business, does not of itself, make him a partner with the person carrying on the business and in particular, the recept 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 a widow or child of a deceased partner, as annuity, or

(d)          by a previous owner or part owner of the business, as consideration the sale of the goodwill or share thereof, does not of itself, make receiver a partner with the person carrying on the business.

6-A.        Act not to apply to certain, relationships:

Nothing contained in this Act shall apply to a relationship created by agreement between a banking company and a person or group of person proved 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 Tribunal 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”.

8.            Particular Partnership:

A person may become a partner with another person in particular adventures or undertakings.

CHAPTER – III

Relations of Partners to one another

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.

10.          Duty to indemnity 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 for 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)          Agreement 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.

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)           and difference arising as to ordinary matters connected with the business may be decided by a majority of the partners and every partner 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.

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 a 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.

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.

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.

16.          Personal profits earned by partners:

Subject to contract between partners—

(a)          if a partner derives any profit 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;

(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 buinsess.

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 for 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 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.

CHAPTER – IV

Relations of Partners to third parties

18.          Partner to be agent of the firm:

                Subject to the provisions of this Act, a partner is the agent of the firm or the purposes of the business of the firm.

19.          Implied authority of partner as agent of the firm:

(1)          Subject to provisions of section 22, the act of 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 banking account on behalf of the firm in his own name,

(c)           compromise or relinquish any claim or portion of a 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 any liability in a sit or proceeding against the firm,

(g)          transfer immovable property belonging to the firm, or

(h)          enter into partnership on behalf of the firm.

20.          Extension and restriction of partner’s implied authority:

The partners in a firm may, by contract between the partner, extend or restrict the implied authority of any partner.

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.

21.          Partner’s authority in an emergency:

A partner has authority, in an emergency, to do all such act 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 act bind the firm.

22.          Mode of doing act to bind firm:

In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm.

23.          Effect of admissions by a partner:

An admission or representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is made in the ordinary course of business.

24.          Effect of notice to acting partner:

Notice to partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner.

25.          Liability of a partner for acts of the firm:

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.

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, o with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefore to the same extent as the partner.

27.          Liability of firm for misapplication by partners:

Where –

(a)          a partner acting within his apparent authority receives money or property from a third party and misapplies it, or

(b)          a firm in the course of its business receives money or property from a third party and the money or property is misapplied by any of the partners while it is in the custody of the firm, is liable to make good the loss.

28.          Holding out:

(1)          Any one by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

(2)          Where after partner’s death, the business is continued in the old firm name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.

29.          Rights of transferee of a partner’s interest:

(1)          A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.

(2)          If the firm is dissolved or if the transferring partners ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.

30.          Minors admitted to the benefits of partnership:

(1)          A person who is minor according to the law to which he is subject may not be a partner in a firm, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

(2)          Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon and he may have access to and inspect and copy any of the accounts of the firm.

(3)          Such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such act.

(4)          Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48:

Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and thereupon the Court shall proceed with the suit as one for dissolution and for settling accounts between the partners and the amount of the share f the minor shall be determined alongwith the shares of the partners.

(1)          At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm:

Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.

(2)          Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the person asserting that fact.

(3)          Where any person becomes a partner,---

(a)          his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also become personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and

(b)          his share in the property and profits of the firm shall be the share to which he was entitled as a minor.

(4)          Where such person elects not to become  a partner,---

(a)          his rights and liabilities shall continue to be those of a minor under this section upto the date on which he gives public notice.

(b)          His share shall not be liable for any acts of the firm done after the date of the notice, and

(c)           He shall be entitled to sue the partners for his share of he property and profits in accordance with sub-section (4).

(5)          Nothing in sub-section (7) and (8) shall affect the provisions of section 28.

CHAPTER – V

Incoming and outgoing Partners

31.          Introduction of a partner:

(1)          Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.

(2)          Subject to the provisions of section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.

Retirement of a partner:

(1)          A partner retire---

(a)          with the consent of all the other partners.

(b)          In accordance with an express agreement by the partners, or

(c)           Where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

(2)          A retiring partner may be discharged from any liability to any third party acts of the firm done before his retirement by an agreement made by him with the third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

(3)          Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of t he firm if done before the retirement, until public notice is given of the retirement.

Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

(4)          Notices under subsection (3) may be given by the retired partner or by any partner of the reconstituted firm.

32.          Expulsion of a partner:

(1)          A partner not be expelled from a firm by any majority of the partners, save in the exercise in good faith of powers conferred by contract between the partners.

(2)          The provisions of subsection (2), (3), and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.

33.          Insolvency of a partner:

(1)          Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.

(2)          Where under a contract between the partners, the firm is not dissolved b the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.

34.          Liability of estate of deceased partner:

Where under a contract between the partners the firm is not dissolved by the death of a partner, the state of a deceased partner is not liable for any act of the firm done after his death.

35.          Rights  of outgoing partner to carry on competing business:

(1)          An outgoing partner may carry on a business competing with that of the firm and eh may advertise such business, but subject to contract to the contrary, he may not ---

(a)          use the firm name,

(b)          represent himself as carrying on the business of the firm, or

(c)           solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

(2)          Agreements in restraint of trade: A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Contract Act, 1872 IX of 1872 such agreement shall be valid if the restrictions imposed are reasonable.

36.          Right of outgoing partner in certain case to share subsequent profits:

Where ay member of a firm has died or otherwise ceased to be partner, and the surviving or continuing partners carry on the business of the fir with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm:

Provided that where b contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case  may be, is not entitled to any further or their share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

37.          Revocation of continuing guarantee by change in firm:

A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.

CHAPTER – VI

Dissolution of a Firm

38.          Dissolution of a firm:

The dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”.

39.          Dissolution by agreement:

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

40.          Compulsory dissolution:

A firm is dissolved---

(a)          by the adjudication of all the partners or of all the partners but one as insolvent, or

(b)          by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership:

Provided that, where moiré than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not or itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.

41.          Dissolution on the happening of certain contingencies:

Subject to contract between the partners a firm is dissolved—

(a)          if constituted for a fixed terms, by the expiry of that term;

(b)          if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c)           by the death of a partner; and

(d)          by the adjudication of a partner as an insolvent.

42.          Dissolution by notice of partnership at will:

(1)          Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

(2)          The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

43.          Dissolution by the Court:

At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:-

(a)          that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by an other partner;

(b)          that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner;

(c)           that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;

(d)          that a partner other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

(e)          that a partner, other than partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provision of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure 1908, V of 1908 or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue due by the partner;

(f)           that the business of the firm cannot be carried on save at a loss; or

(g)          on any other ground which renders it just and equitable that the firm should be dissolved.

44.          Liability for act of partners done after dissolution:

(1)          Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution:

Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for act done after the date on which he ceases to be a partner.

(2)          Notices under subsection (1) may be given by any partner.

45.          Right of partners to have business wound up after dissolution:

On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

46.          Continuing authority of partners for purposes of winding up:

After the dissolution of a firm, the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:

Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent.

47.          Mode of settlement of accounts between partners:

In settling the account of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:-

(a)          Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital and lastly, if necessary by the partners individually in the proportions in which they were entitled to share profits.

(b)          The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-

(i)            in paying the debts of the firm to third parties;

(ii)           in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;

(iii)          in paying to each partner ratably what is due to him on account of capital and

(iv)         the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

48.          Payment of firm’s debts and of separate debts:

Where there are joint debts due firm the firm, and also separate debts due form any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.

49.          Personal profits earned after dissolution:

Subject to contract between the partners, the provisions of clause (a) of section 16 shall apply to transactions by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up:

Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to sue the firm name.

50.          Return of premium on premature dissolution:

Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term otherwise than by the death of a partner, he shall be entitled to repayment of the premium or of such part thereof as may be reasonable, regard being had to the terms upon which he became a partner any to the length of time during which he was partner, unless ---

(a)          the dissolution is mainly due to his own misconduct, or

(b)          the dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it.

51.          Rights where partnership contract is rescinded for fraud or misrepresentation:

Where a contract creating partnership is rescinded on the ground of the fraud or misrepresentation of any of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled—

(a)          to a lien on, or a right of retention of, the surplus or the assets of the firm remaining after the debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm and for any capital contributed by him;

(b)          to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm; and

(c)           to be indemnified by the partner or partners guilty of the fraud or misrepresentation against all the debts of the firm.

52.          Right to restrain from use of firm name or firm property:

After a firm is dissolved, every partner or his representative may, in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up:

Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

53.          Agreements in restraint of trade:

Partners may, upon or in anticipation of the dissolution of the firm, make an agreement the some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in section 27 of the Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.

54.          Sale of goodwill after dissolution:

(1)          In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or alongwith other property of the firm;

(2)          Rights of buyer and seller of goodwill: Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business, but, subject to agreement between him and the buyer, he may not ---

(a)          use the firm name,

(b)          represent himself as carrying on the business of the firm, or

(c)           solicit the custom of persons who were dealing with the firm before its dissolution.

(3)          Agreements in restraint of trade: Any partner may, upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits, and, notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such agreement shall be valid if the restrictions imposed are reasonable.

 

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