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Acts outside the implied authority

Sometimes, a partner assumes a little too much about his implied authority and tries to misuse the facility. Such misuse may take place even without an intention to do any wrong. Therefore, law has found it necessary to put some restrictions on this authority. These restrictions may be discussed under the following two sub-heads:
  • Statutory restrictions
  • Restrictions imposed by the partnership deed

Statutory restrictions

Sec. 19(2) of the Act provides that in the absence of any usage or custom of trade to the contrary, the implied authority of a partner would not empower him to do certain things. If a partner still does any such things without express authority, the firm will not be liable for those acts.
The following are the restrictions:
  • To submit a dispute relating to the business of the firm to arbitration (settlement)
  • To compromise or surrender any claim or portion of claim by the firm
  • To withdraw a suit or proceedings filed on behalf of the firm
  • To admit any liability in a suit or proceedings against the firm
  • To acquire immovable property on behalf of the firm
  • To transfer immovable property on behalf of the firm
  • To enter into a partnership on behalf of the firm

Restrictions imposed by a partnership deed

The restrictions on the implied authority may also be imposed by a partnership deed. This provision is contained in the first paragraph of Sec. 20 of the Indian Partnership Act, which states that β€œthe implied authority of the partners may also be restricted by an agreement between them. However, the firm will be liable for such restricted acts, if the person dealing with the firm has no knowledge of such restrictions.”


Note: The firm will not be liable to a third party, if the third party knew about the restrictions. The firm is also not liable when the third party believes that he is not dealing with a partner of the firm but dealing with a person in individual capacity.

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