Module 4 (B) - Understanding The Doctrine of Holding Out

MODULE 4[B]: UNDERSTANDING THE
DOCTRINE OF HOLDING OUT

(The Indian Partnership Act, 1932)
1. INTRODUCTION
When a person is represented (held out) as a partner and he does not deny this even after
becoming aware of it, he becomes liable to third parties who lend money or grant credit to the
firm on the basis of such representation.
A Partner by Holding Out is a person who is not a partner in a firm but intentionally or
deliberately allows himself/herself to be represented as a partner of the firm. Such partners
are held liable to the outsiders for any credit or debts extended to the firm on the basis of such
representation. Such a partner can refuse to be a partner of a firm immediately by issuing
his/her denial and describing his/her position that he/she is not a partner on such
representation. But if he/she remain silent on such representation then he/she would be held
liable to the third parties.
The doctrine of holding out has been provided under Section 28 of the Indian Partnership
Act, 1932:
“Holding Out - (1) Anyone who by words spoken or written or by conduct represent 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.
Indian Partnership Act (Module 4B)

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(2) Where after partner's death the business continued in the old firm-name, the continued
use of that name or of the deceased partner's name as a part thereof shall not of itself make
his legal representative or his estate liable for any act of the firm done after his death.”[1]
For example, Suppose, Mr.X tells Mr.Y in the presence of Mr.Z that Mr.Z is a partner in his
partnership firm. Mr. Z does not deny it. Later on Mr.Y gives a loan to the firm (where
Mr.Xis a partner) on the basis of the belief that Mr.Z is a partner in the firm. If the firm fails
to repay the loan to Mr.Y then in such a case Mr.Z becomes liable to pay the loan amount to
Mr.Y. Here, Mr.Z is a partner by holding out.
2. ESSENTIALS OF DOCTRINE OF HOLDING OUT
The two essentials of this doctrine are as under:
2.1.REPRESENTATION
It may be noted that the person sought to be charged with the liability for holding out must
have represented himself to be a partner in the firm. Representation may be made either by
words, written or spoken, or by conduct. An express representation takes place when a person
allows his name to be used in the affairs of the firm. For Example- In the name, title or
signboard of the firm.
In the case of Bevan v. National Bank Ltd.[2] Mr. MW was the manager of one Mr. B’s
business. The business was carried on in the name and style of MW and Co. The Plaintiff
who had supplied the goods sued MW to recover his money as one of the partners of the firm,
but B contended that he should not be held liable because the style of the firm carried the
name only of MW. Court held that he was liable and laid down that where a person carries a
business in the name of an individual with the addition of the words “and Co.” and employ
that individual as manager of the business to whom the entire management of the business is
left, that doesn’t amount to holding out that person as sole owner of the business, it may
amount to holding out that he is partner in the business. MW was also liable because by

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permitting his name to be used in the title of the firm he made a representation that he was a
partner and responsible to those who had given credit to the firm on the faith of that
representation.
4.2.KNOWLEDGE OF REPRESENTATION
The second requirement of liability for holding out is that a person seeking to charge another
with liability has to show that he had knowledge of the representation and did the act under
the belief that the facts represented were true.
To charge the defendant with liability as a partner on the ground of representation of himself
as a partner, it must be proved either that he has represented himself as a partner to the
plaintiff or has made such a public representation of himself in a character as to lead the court
to conclude that the plaintiff knowing of the representation and believing that the defendant
to be a partner gave him credit under that belief.
Scarf vs. Jardine[3] is an important case for the principle of holding out wherein the
importance of notice of retirement was highlighted. The court, in this case, stated that the
retiring partner must give notice of his retirement from a firm in the same manner as a notice
of appointment is given, so that the people can know about his status with regard to the
company. Or else, he might be treated as a partner by holding out no matter how long back he
retired from the firm without notice.
The court further stated that such notice can be given either by the retiring partner or the
existing partners of the company. Unless such notice of retirement is given, the liability of a
retired partner to old creditors or customers subsists, and the firm would also be liable for the
acts of the retired partner.
3. EXCEPTIONS

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There are “Exceptions” to the rule established in the Scarf v. Jardine & cases where Doctrine
of Holding Out do not apply:
1. Deceased Partner- Since it was held in K. Venkata subbamma AndOrs. vs K. Subba

Rao Nuna Venkatarami[4], that death of a partner is a notice by itself hence the estate of a
deceased partner is not liable for any act of the firm done after his death even if the
business is continued by the surviving partners in the same style and place and even if his
name appears in the name and affairs of the firm
2. Insolvent Partner- It may be noted that a person ceases to be a partner from the date
of his insolvency and his estate is no more liable for any act of the firm done after his
insolvency whether notice has been given or not[5].
3. Dormant Partner- A dormant or sleeping partner means a partner who has never
taken part in the conduct of business as a partner. If one has been a dormant or sleeping
from beginning to end, notice can be dispensed with as neither the customers nor the
clients know of his participation in the firm.
[1]Section 28 of the Indian Partnership Act, 1932.
[2]Bevan v. National Bank Ltd., (1906) 23 T.L.R. 65.
[3]Scarf vs. Jardine, 1882 7 APP CAS 345.
[4] A.IR. 1964 AR 462
[5]Section 42 of the Indian Partnership Act.

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MODULE 4[B]: UNDERSTANDING THE

DOCTRINE OF HOLDING OUT

Indian Partnership Act (Module 4B)

2. ESSENTIALS OF DOCTRINE OF HOLDING OUT

The two essentials of this doctrine are as under:

Indian Partnership Act (Module 4B)

Indian Partnership Act (Module 4B)

1. Deceased Partner- Since it was held in K. Venkata subbamma AndOrs. vs K. Subba

[1]Section 28 of the Indian Partnership Act, 1932.

[2]Bevan v. National Bank Ltd., (1906) 23 T.L.R. 65.

[3]Scarf vs. Jardine, 1882 7 APP CAS 345.

[4] A.IR. 1964 AR 462

[5]Section 42 of the Indian Partnership Act.

Indian Partnership Act (Module 4B)

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