Cheated in Business Partnership
8 months ago
Me and my friend started a partnership firm 4 years ago, We had a current account and all transactions were done using that account, i had blind beliefs on my friend and he used to handle all the account transactions, every year audit of the firm was conducted but that too was handled by my friend, now after 4 yerars i got to know that he used to give me only 20% profit and kept 80% with himself. can i take any legal action towards him or any mutual settlement? Was it my fault that i trusted him blindly? I never bothered to look into any bank statements as I trusted him.
A.Dear Client,
Partners of a partnership firm is governed by the contents of the Deed of Partnership executed between the partners stating therein all the terms including initial investment of capital in the business by the respective partners and the ratio of sharing the profit and loss of the firm by the partners apart from others obligations and responsibilities of the partners. If the share of ratio in profit and loss of the business is mentioned as 80:20 then in that case you can not claim a share in the profit of the business more than your assigned limit. So, go through the point in the deed of partnership and react accordingly with your partner. If the partnership agreement doesn't provide a clause of the arbitration to resolve the disputes or differences between the partners as per the provision of the Arbitration and Conciliation Act, 1996, then you may file a suit against your partner for criminal breach of trust u/s.406 IPC and also for cheating u/s.420 IPC for appropriate relief in the matter. Consult with an Advocate for guidance and steps.
Partners of a partnership firm is governed by the contents of the Deed of Partnership executed between the partners stating therein all the terms including initial investment of capital in the business by the respective partners and the ratio of sharing the profit and loss of the firm by the partners apart from others obligations and responsibilities of the partners. If the share of ratio in profit and loss of the business is mentioned as 80:20 then in that case you can not claim a share in the profit of the business more than your assigned limit. So, go through the point in the deed of partnership and react accordingly with your partner. If the partnership agreement doesn't provide a clause of the arbitration to resolve the disputes or differences between the partners as per the provision of the Arbitration and Conciliation Act, 1996, then you may file a suit against your partner for criminal breach of trust u/s.406 IPC and also for cheating u/s.420 IPC for appropriate relief in the matter. Consult with an Advocate for guidance and steps.
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A.Dear client,
Please follow the below steps
Collecting evidence: The partner who cheated cannot be directly expelled from the business, or the others cannot dissolve the firm. Mere suspicion cannot be enough to file a suit against him. First, the business partner has to collect evidence against the cheating partner for his act of violation of the agreement. Once it is confirmed, all the cash transactions involving the partner need to be stopped immediately
Filing a suit: For filing a suit, it has to be proved that the particular business partner is untrustworthy and could harm the business with his fraudulent act. The evidence collected has to show the accounting errors like missed entries in an accounting book, credit list mismatch, etc., along with the proof of withdrawal receipt he made through credit/ debit card and cash register entries. Apart from the fraud in money, if the partner reveals the details or secrets of the firm to the other third party, he would have committed a breach of trust. The other person can sue for the breach of trust
Generally, a criminal suit will be filed under Sec 420 of IPC if the partner commits cheating or acts dishonestly and under Sec 406 of IPC for criminal breach and a civil suit for recovery of money and will be arrested and penalized under the respective section.
Seeking compensatory damages: Suppose the partnership deed registration includes the compensatory damages clause. In that case, the partner, who breached the agreement, has to compensate for the money he has agreed to. The court will determine the amount to be compensated if the amount is not mentioned. If the court finds the clause invalid, the court will award damages to the firm
The settlement between the partners: If the partner finds the other cheating, they may sit for negotiation and settle the problems, thereby restoring the business relationship between them. After the negotiation is done, the settlement agreement should be drafted, binding the terms and conditions. The partners should duly sign it. This might reduce the court’s time and the legal cost
Dissolution of a partnership firm: If the partner finds the other partner is cheating, he may get liquidation from the company/firm. First, he should notify the partner of his willingness to dissolve the firm.
The court may order the dissolution under Section 44 of the Indian Partnership Act. If the firm is dissolved, the partner will be held liable to third parties for the actions done.
Please follow the below steps
Collecting evidence: The partner who cheated cannot be directly expelled from the business, or the others cannot dissolve the firm. Mere suspicion cannot be enough to file a suit against him. First, the business partner has to collect evidence against the cheating partner for his act of violation of the agreement. Once it is confirmed, all the cash transactions involving the partner need to be stopped immediately
Filing a suit: For filing a suit, it has to be proved that the particular business partner is untrustworthy and could harm the business with his fraudulent act. The evidence collected has to show the accounting errors like missed entries in an accounting book, credit list mismatch, etc., along with the proof of withdrawal receipt he made through credit/ debit card and cash register entries. Apart from the fraud in money, if the partner reveals the details or secrets of the firm to the other third party, he would have committed a breach of trust. The other person can sue for the breach of trust
Generally, a criminal suit will be filed under Sec 420 of IPC if the partner commits cheating or acts dishonestly and under Sec 406 of IPC for criminal breach and a civil suit for recovery of money and will be arrested and penalized under the respective section.
Seeking compensatory damages: Suppose the partnership deed registration includes the compensatory damages clause. In that case, the partner, who breached the agreement, has to compensate for the money he has agreed to. The court will determine the amount to be compensated if the amount is not mentioned. If the court finds the clause invalid, the court will award damages to the firm
The settlement between the partners: If the partner finds the other cheating, they may sit for negotiation and settle the problems, thereby restoring the business relationship between them. After the negotiation is done, the settlement agreement should be drafted, binding the terms and conditions. The partners should duly sign it. This might reduce the court’s time and the legal cost
Dissolution of a partnership firm: If the partner finds the other partner is cheating, he may get liquidation from the company/firm. First, he should notify the partner of his willingness to dissolve the firm.
The court may order the dissolution under Section 44 of the Indian Partnership Act. If the firm is dissolved, the partner will be held liable to third parties for the actions done.
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