A Partnership firm opened a bank account. The account was to be operated by 'A' and another partner jointly. No authority was given to 'A' to act as an agent of the firm. 'A' executed an acknowledgement in favour of the bank. Is the firm bound by the acknowledgement given by 'A'? Discuss.

Question: A Partnership firm opened a bank account. The account was to be operated by 'A' and another partner jointly. No authority was given to 'A' to act as an agent of the firm. 'A' executed an acknowledgement in favour of the bank. Is the firm bound by the acknowledgement given by 'A'? Discuss. [DJS 2011]

Find the answer to the mains question of the Law of Partnership only on Legal Bites. [A Partnership firm opened a bank account. The account was to be operated by 'A' and another partner jointly. No authority was given to 'A' to act as an agent of the firm. 'A' executed an acknowledgement in favour of the bank. Is the firm bound by the acknowledgement given by 'A'? Discuss.]

Answer

Under the provisions of the Indian Partnership Act, 1932, the liability of a partnership firm is governed by the principles of agency law and the specific provisions outlined in the Act. In the given scenario, where 'A' operated a bank account jointly with another partner, but without the specific authority to act as an agent of the firm, and subsequently executed an acknowledgement in favor of the bank, the question arises as to whether the firm is bound by this acknowledgement.

According to Section 18 of the Indian Partnership Act, every partner is considered an agent of the firm and the other partners for the purpose of the business of the partnership. However, the Act does not explicitly mention the operation of a bank account as an implied act of partnership business.

In the absence of specific provisions regarding bank account operations, we must consider the general principles of agency law. Section 19 of the Partnership Act states that acts done by a partner in the ordinary course of business bind the firm unless the partner has no authority to act for the firm in that particular matter.

In this case, if operating a bank account is deemed to be within the ordinary course of business for the partnership firm, 'A' would have implied authority to act on behalf of the firm. However, it is stated that 'A' was not given the authority to act as an agent of the firm.

Based on this information, it can be inferred that the firm did not grant actual authority to 'A' to operate the bank account or act as an agent. Consequently, 'A' would not have implied authority to execute acknowledgements on behalf of the firm.

Therefore, the firm would not be bound by the acknowledgement given by 'A' unless it can be established that the bank reasonably believed that 'A' had the authority to act as an agent of the firm and execute acknowledgements on behalf of the firm. This would require demonstrating the concept of apparent authority, where the bank reasonably relied on the representation that 'A' had the authority to act on behalf of the firm.

In conclusion, as per the provisions of the Indian Partnership Act, the firm would generally not be bound by the acknowledgement given by 'A' unless it can be proven that the bank reasonably believed that 'A' had the authority to act as an agent of the firm and execute acknowledgements on behalf of the firm. The determination of the firm's liability in this situation depends on whether apparent authority can be established.