Section 27: Firm liability for misapplied money or property

Central rule and applicability

The first route concerns receipt by a partner acting within apparent authority, followed by misapplication. The second concerns receipt by the firm in the course of its business, followed by misapplication by any partner while the money or property is in the firm's custody. These are distinct receipt and custody conditions.

Limits and related provisions

A private receipt outside apparent authority is not automatically covered by the first route. The second requires firm receipt in its business and misapplication during firm custody. A claim should identify the applicable route and loss rather than treating every dispute over funds as interchangeable. State law and related liability provisions remain relevant.

Hypothetical business example

Hypothetical: A customer pays money to the firm for a business order. While it remains in firm custody, a partner diverts it. The second route is considered using the receipt and custody records; it is not necessary to pretend the customer paid the diverting partner personally.

Practical decision flow

Identify whether receipt was by an apparently authorized partner or by the firm in its business.

Trace the money or property, custody period and the partner's misapplication.

Document the resulting loss and the facts supporting the selected statutory route.

• India Code: central Partnership Act, section 27

Check the applicable state law

This guide explains the central Section 27 baseline. State amendments, notifications and rules can affect its application. Confirm the law applicable to the firm's location and the relevant partnership agreement before acting.

Practical checklist

Glossary

Apparent authority

The authority relevant to the partner's receipt under the first route.

Firm custody

The possession or control condition at the time of misapplication under the second route.

Frequently asked questions