Question

Under Section 37 of the Indian Partnership Act, 1932, when the amount due to an outgoing partner remains wholly or partly unpaid and there is no agreement regarding payment of interest or share of profit, the outgoing partner or his legal representative is entitled to:

• A. Interest @ 12% p.a. on the outstanding amount only
• B. Either interest @ 6% p.a. on the outstanding amount or share in profits attributable to the unpaid amount
• C. Share in profits only, irrespective of any agreement
• D. Neither interest nor share in profits until final settlement is made

Hint:

Remember the keyword for Section 37: \[ \boxed{6% \text{ interest OR profit share}} \] Whenever an outgoing partner's dues remain unpaid and there is no agreement, the law provides these two alternative remedies.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Section 37 of the Indian Partnership Act, 1932 deals with the rights of an outgoing partner (retiring or deceased) in cases where their capital remains in the business without a final settlement and in the absence of a specific contract to the contrary.
Step 2: Detailed Explanation:
In the absence of a specific agreement, the outgoing partner or their legal representative has the legal right to choose between:
1. Interest at the rate of 6% per annum on the amount of his share in the property of the firm.
2. Such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm.
The objective is to ensure the firm does not benefit unfairly from holding onto the outgoing partner's funds without compensation.
Step 3: Final Answer:
Thus, the outgoing partner is entitled to either 6% p.a. interest or a share in profits.