The Retiring Partner, the New Partner and the Packaging Supplier

A remains liable to Metro. Under Section 32(2) of the Indian Partnership Act, a retiring partner continues to be liable to third parties for acts done after retirement until public notice is given. The protection is limited to persons who had no dealings with the firm before retirement; Metro had dealt with the firm for six years and knew A as a partner. No public notice was published and Metro was not informed. A therefore cannot escape liability merely because he retired on 1 April 2024.

The firm is also likely to be liable. A signed on the firm’s letterhead, the goods were delivered to the firm’s godown and used in production. Even if A lacked actual authority after retirement, the firm accepted the benefit of the transaction and thereby ratified it. The firm’s failure to give notice also created an appearance of authority. A and the firm may be jointly and severally liable, and A may have a claim against the firm if he acted in the firm’s business. C, as a continuing partner, cannot avoid the firm’s liability simply because he was not consulted about this purchase; a purchase of packaging material is in the ordinary course of the firm’s business.

D is not validly admitted as a partner. Section 31 of the Partnership Act provides that a new partner can be admitted only with the consent of all existing partners, unless the partnership deed provides otherwise. The deed requires unanimous consent. B’s consent alone is insufficient, and C did not consent. D therefore does not become a partner as against C.

That does not leave D without remedies. D paid ₹5,00,000 as capital for an admission that failed. D can recover that sum from the firm or the partners as money advanced, subject to the firm’s accounts, but D is not entitled to a partner’s share of profits. If D held himself out as a partner, or the firm allowed him to do so, D may be liable to third parties under the doctrine of holding out. The cheque D signed raises a separate question: if D had no authority, the firm is not bound unless it ratified the cheque or held D out as a partner. C should promptly give notice to the bank and to third parties that D has no authority, and seek a declaration or injunction to prevent D from acting as a partner.

C should act quickly on several fronts. He should publish a public notice of A’s retirement, even though it is late, and give direct written notice to Metro and other known suppliers. He should call a partners’ meeting, record B’s unauthorised admission of D, inform the bank that D has no signing authority, and seek a declaration or injunction that D is not a partner. He should also secure the firm’s books and accounts to prevent further unauthorised transactions.

As a continuing partner, C remains jointly and severally liable for the firm’s debts. The packaging purchase was made in the firm’s ordinary course and the goods were used in production, so C is liable to Metro along with A and B under Section 25 of the Partnership Act, even though C did not personally approve the order. C’s remedy is internal: he may seek contribution from the other partners or complain of breach of the partnership deed. C cannot use the dispute among the partners as a defence against an innocent supplier who dealt with the firm.