Thursday, 21 January 2016

Doctrine of Holding Out

Partnership by Holding Out is also known as partnership by estoppels. Holding out is merely application of the principle of estoppel which is a rule of evidence wherein a person is prevented or estopped from denying a statement he made or existence of facts that he makes another person believe. In simple terms, if a person represents that he is a partner of a particular firm, he is estopped from denying this representation later on. The doctrine of holding out has been provided under section 28 of the Indian Partnership Act, 1932. Section 28 reads as:

Holding Out - (1) Anyone who by words spoken or written or by conduct represent himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone 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 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.”

Example - A introduced B as his partner to C and B knowing that he was not a partner did not object to A's representation. Here B will be liable by holding out.

Essentials of holding out

To hold a person liable as a partner by holding out, it is necessary to establish the following:
        i.            that he represented himself, or knowingly permitted himself to be represented as a partner
      ii.            Such representation occured by words spoken or written or by conduct
    iii.            the other party on the faith of that representation gave credit to the firm

No holding out in certain cases
1.      Deceased partner
2.      Insolvent partner
3.      Sleeping or dormant partner

Retired Partner – Whether liable by holding out or not?

A retired partner of the firm is liable to third parties by the principle of holding out if he allows using his name in connection with the firm

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