Thread: Partnership Act Duties & rights conflict
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Old Sunday, February 17, 2013
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Originally Posted by ahmedali29 View Post
While going through rights and duties of partners, I see a conflicts of ideas between section 36 and Section 16b regarding right of partner to run similar business. Please explain if he can or cannot carry on similar business. Please help
Section 16
PERSONAL PROFITS EARNED BY PARTNERS.

(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.

Section 36:

Section36 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 he 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) AGREEMENT 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 Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.


Difference
Section 16 is for the existing partners who run the partnership business. They are forbidden to carry on any business in individual capacity which is of same nature and competing one to their partnership business. If they carry on such business in individual capacity then profit earned from that business needs to be paid to the partnership.

Whereas: Section 36 is not for existing partners rather it is for the outgoing partners. Outgoing partner/one who leaves the partnership can carry on similar business after ceasing to be the partner of that firm. However; in some circumstance he may not commence any business which he has already agreed with the partners as stated in section 36(2) if the conditions are of specific period, specific locality but that should not be in conflict with section 27 of the Indian Contract Act, 1872.

So existing partner can not carry on similar/competing business but outgoing can.
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