When both the debts of the firm and private debts of a partner co-exist, the Property of the firm as per Section 49 of the Indian Partnership Act, shall apply:
(A) Payment of debts of the firm first.
(B) The surplus, if any, shall be divided among the partners as per their claims, which can not be utilised for payment of their private liabilities.
(C) The surplus, if any, shall be divided among the partners as per their claims, which can be utilised for payment of their private liabilities.
(D) Payment of private debts of the partners first.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) and (C) only
Section 49 of the Indian Partnership Act keeps the firm’s property for the firm’s creditors first; a partner’s private creditors come in only on what is left for him.
(A) Payment of debts of the firm first. Correct. The property of the firm is applied first to the debts of the firm.
(B) The surplus, if any, shall be divided among the partners as per their claims, which can not be utilised for payment of their private liabilities. Incorrect. The surplus reaches the partners as their own money, so it can be used for their private liabilities.
(C) The surplus, if any, shall be divided among the partners as per their claims, which can be utilised for payment of their private liabilities. Correct. Once the firm’s debts are paid, each partner’s share of the surplus is available to his private creditors.
(D) Payment of private debts of the partners first. Incorrect. Private debts have the first claim on a partner’s private property, not on the property of the firm.
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