Garry and Sandhu are partners in a firm. They have not entered into partnership deed but had agreed that interest will be allowed on capitals @10 % p.a. Will interest on capital allow to partners?

Yes

The correct answer is option 1- Yes.

Partnership comes into existence as a result of agreement among the partners. The agreement can be either oral or written. The Partnership Act does not require that the agreement must be in writing. But wherever it is in writing, the document, which contains terms of the agreement is called ‘Partnership Deed’.

As the partners have agreed for the interest @ 10% p.a. So, interest is provided with this rate as oral agreement is equally valid.