Section 49, of the Indian Partnership Act 1932, deals with......

The correct answer is Option (4) → Private Debts and Firm's Debts

Section 49 of the Indian Partnership Act, 1932 settles what happens when a firm owes debts and a partner also owes private debts: the firm’s property goes first to the firm’s debts, and a partner’s private property goes first to his private debts. The rules on treatment of losses and application of assets are in Section 48.

Note: In the original question, both Option (2) and Option (4) were correct as per the NTA Answer Key. The paper printed Option (2) as Application of Assets and Option (4) as Private Debts and Firm's Debts. For the benefit of students and to ensure a single answer, Option (2) has been changed to Application of liability.