Chapter V - Incoming and Outgoing Partners
Section 36
Section 36: Competing business by an outgoing partner
Section 36 distinguishes permissible competition by an outgoing partner from use of the firm's identity, solicitation and reasonable agreed restraints.
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Need advice on Section 36?
This article is for general information. Refer to the Indian Partnership Act, 1932 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not—
(a) use the firm name,
(b) represent himself as carrying on the business of the firm, or
(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.
(2) A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are reasonable.
Central rule and applicability
An outgoing partner may compete and advertise. Subject to a contrary contract, the person may not use the firm name, claim to carry on the firm's business or solicit those who dealt with the firm before the exit. A separate agreement restricting similar business within a specified period or local limits is valid under the stated exception to Contract Act Section 27 if its restrictions are reasonable.
Limits and related provisions
The section does not create an automatic complete ban on competition, nor does it validate every non-compete clause. The express reasonableness condition matters. Distinguish general advertising from targeted solicitation, and review the deed, goodwill arrangements and applicable state law before using the firm's name or customer relationships.
Hypothetical business example
Hypothetical: An outgoing partner opens a competing business under a different name and advertises generally. Before contacting the old firm's customers, the person checks the statutory solicitation limit and any reasonable agreed restraint rather than treating permission to compete as unrestricted permission to use the old firm's business connections.
Practical decision flow
Separate ordinary competition and advertising from firm-name use, claims of continuity and solicitation.
Read the exit agreement for any contrary terms or specified period and local limits.
Assess reasonableness and related goodwill provisions before implementing a restrictive clause or new marketing activity.
Check the applicable state law
This guide explains the central Section 36 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
Do
- Separate ordinary competition and advertising from firm-name use, claims of continuity and solicitation.
- Read the exit agreement for any contrary terms or specified period and local limits.
- Assess reasonableness and related goodwill provisions before implementing a restrictive clause or new marketing activity.
Avoid
- The section does not create an automatic complete ban on competition, nor does it validate every non-compete clause. The express reasonableness condition matters. Distinguish general advertising from targeted solicitation, and review the deed, goodwill arrangements and applicable state law before using the firm's name or customer relationships.
Glossary
- Outgoing partner
- A person who has ceased to be a partner in the firm.
- Restraint of trade
- An agreed restriction on carrying on the specified similar business, subject here to reasonableness.
Frequently asked questions
Is an outgoing partner automatically barred from competing?
No. The section permits competition and advertising subject to its stated limits and valid agreements.
Can the person freely use the old firm name?
The default rule prohibits this, subject to contract to the contrary.
Is every agreed restriction valid?
No. Subsection (2) expressly requires reasonable restrictions.
Need help applying this provision to your situation?
Contact BizeneedLast updated 10 October 2026