Indian Partnership Act, 1932

Q1. A partner of a trading firm, without consulting other partners, borrows money from a bank in the firm's name to purchase stock for the business. Are the other partners bound?

1. No, because borrowing money requires all partners' consent
2. Yes, because borrowing money to purchase stock is an act done in the ordinary course of a trading firm's business
3. No, because a partner has no implied authority to approach banks on behalf of the firm
4. Yes, but only if the other partners are informed within 30 days

Q2. A partner refers a dispute between the firm and a contractor to arbitration without consulting the other partners. Is the firm bound by the arbitration?

1. Yes, because a partner has authority to act for the firm in all matters
2. No, because submitting disputes to arbitration is specifically listed as outside a partner's implied authority
3. Yes, because arbitration is a method of dispute resolution within the ordinary course of business
4. No, because only a court, not an arbitral tribunal, can bind a firm

Q3. A firm owes Rs. 10 lakh to a creditor. There are three equal partners. The creditor demands the full Rs. 10 lakh from Partner A alone. Partner A argues their liability is only Rs. 3.33 lakh (one-third). Who is correct?

1. Partner A, because each partner is liable only for their proportionate share
2. The creditor, because the liability of partners is unlimited and joint and several, meaning the creditor may proceed against any partner for the full amount
3. Partner A, because joint and several liability only applies when all three partners are sued simultaneously
4. The creditor, but they must first exhaust claims against the firm's assets before proceeding against individual partners

Q4. A 16-year-old is admitted to the benefits of an existing partnership and receives a share of the firm's profits. The firm subsequently incurs a large debt. The creditors attempt to hold the minor personally liable. Is this permissible?

1. Yes, because the minor accepted the benefits of the partnership
2. Yes, because all persons admitted to a partnership share in its liabilities
3. No, because a minor may be admitted to the benefits of a partnership but cannot be held personally liable for the firm's losses or debts
4. No, because a minor cannot enter any legal relationship, including partnership, under Indian law

Q5. A partner, acting in the ordinary course of business, enters into a fraudulent contract that benefits the partner personally and harms a third party. Is the firm liable to the third party?

1. No, because the partner acted fraudulently, which is outside the firm's business
2. No, because fraud is a criminal act for which only the individual partner can be held liable
3. Yes, because a partner's acts in the course of the firm's business bind all partners, including wrongful acts done within that scope
4. Yes, but only if the other partners had prior knowledge of the fraud