Indian Partnership Act
Holding Out: Section 28
A man who is not a partner can still be made to pay a firm's debt, if he let the world believe he was one. That is the doctrine of holding out, also called partnership by estoppel, in Section 28. It needs two things: a representation, by words, writing or conduct, that he is a partner, made by him or knowingly allowed; and credit given to the firm on the faith of it. He then bears a partner's liability to that creditor, and gets none of a partner's rights. This note sets out the ingredients, the common situations, the exceptions, and the distinctions.
The two ingredients and the result, where holding out arises, who is not caught, and how it compares with related ideas
1. The Provision
§ Section 28 (1) Anyone who by words spoken or written or by conduct represents 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 a partner's death the business is continued in the old firm name, the continued use of that name or of the deceased partner's name as a part of it does not of itself make his legal representative or his estate liable for any act of the firm done after his death. |
2. The Essential Ingredients
Ingredient | What it requires |
|---|---|
A representation | That the person is a partner in the firm; it may be by words spoken or written, or by conduct |
Made or knowingly permitted | He made it himself, or he knew it was being made and allowed it to continue; silence with knowledge is enough |
Credit given to the firm | The third party dealt with the firm and gave it credit, money, goods or services |
On the faith of the representation | The credit was given because of the representation; someone who never knew of it cannot rely on it |
No knowledge of reach required | It does not matter that the person held out did not know the representation had reached that particular creditor |
3. Where It Arises
§ Three familiar situations • The retired partner who gave no public notice. Old customers continue to deal with the firm believing he is still in it. Sections 32(3) and 28 together make him liable for those dealings until public notice is given under Section 72. • The lent name. A person of standing allows the firm to use his name on its letterhead, signboard or prospectus. He takes no share and contributes no capital, but a supplier extends credit on the strength of his name. Holding out needs no sharing of profits. • Silence that speaks. He learns that the firm describes him as a partner and does nothing about it. Knowingly permitting the representation is enough; he need not have made it himself. |
4. Who Is Not Caught
Person | Position |
|---|---|
The estate of a deceased partner | Continued use of the old firm name, or of the deceased partner's name in it, does not by itself make his estate or legal representative liable for later acts: Section 28(2) |
An insolvent partner | Not liable for acts of the firm done after the date of adjudication: Section 34 |
A dormant partner who retires | Those dealing with the firm never knew him as a partner, so no public notice is needed and no holding out arises |
A minor | There is no estoppel against a minor; a minor admitted to the benefits of a firm is governed by Section 30, and his position on attaining majority is regulated by that section |
A person unaware of the representation | He cannot be liable where he neither made nor knowingly permitted it |
5. Distinctions
Compared with | Holding out | The other concept |
|---|---|---|
Actual partnership | No agreement, no share, no rights; liability only to those who gave credit on the representation | A real partner has rights, a share and mutual agency, with full liability |
Ostensible or apparent authority | Concerns whether a person who is NOT a partner can be made liable | Concerns how far a REAL partner can bind the firm: Sections 19 and 20 |
Nominal partner | Not a partner at all | A nominal partner IS a partner by agreement, though without capital or a share, and is liable to all creditors |
6. The Principle, and the Practical Lesson
i. The principle. The law protects a person who acted on appearances that the defendant created or allowed. It does not create a partnership; it imposes liability.
ii. On retirement, give public notice under Section 72, have the change recorded under Section 63 where the firm is registered, and write to the firm's regular customers and bankers.
iii. If your name is being used, object in writing at once, and tell those who might rely on it.
7. Frequently Asked Questions
What is the doctrine of holding out?
That a person who represents himself, or knowingly permits himself to be represented, as a partner is liable as a partner to anyone who gives credit to the firm on the faith of that representation: Section 28.
Does a person held out share the profits?
No. He gets no rights against the firm; holding out creates liability, not partnership.
Is a retired partner liable if he gives no public notice?
Yes, for dealings by those who continued to deal with the firm believing him to be a partner, until public notice is given.
Is the estate of a deceased partner liable if the firm keeps the old name?
No. Section 28(2) says the continued use of the name does not by itself make the estate liable for acts done after his death.