Question

Under Section 37 of the Indian Partnership Act, 1932, when the amount due to an outgoing partner remains wholly or partly unpaid and there is no agreement regarding payment of interest or share of profit, the outgoing partner or his legal representative is entitled to:

• A. Interest @ 12% p.a. on the outstanding amount only
• B. Either interest @ 6% p.a. on the outstanding amount or share in profits attributable to the unpaid amount
• C. Share in profits only, irrespective of any agreement
• D. Neither interest nor share in profits until final settlement is made

Hint:

Remember the keyword for Section 37: \[ \boxed{6% \text{ interest OR profit share}} \] Whenever an outgoing partner's dues remain unpaid and there is no agreement, the law provides these two alternative remedies.

Answer 1

The Correct Option is B

Concept: Section 37 of the Indian Partnership Act, 1932 deals with the rights of an outgoing partner or the legal representative of a deceased partner when the amount due to him has not yet been paid by the continuing partners. When a partner retires or dies, his capital and accumulated dues become payable to him or to his legal representative. However, many times the continuing partners continue the business without making immediate payment of the amount due. In such a situation, if there is no agreement between the partners regarding:
• payment of interest on the outstanding amount, or
• share of profit after retirement/death, then the law provides protection to the outgoing partner or his legal representative. According to Section 37: The outgoing partner or legal representative may claim:
• Either interest at the rate of \(6%\) per annum on the unpaid amount,
• OR such share of profits earned by the firm which is attributable to the use of his share in the firm's property. This provision ensures fairness because the continuing partners are still using the capital belonging to the outgoing partner in the business.

Step 1: Understanding the legal provision carefully. The question specifically mentions:
• amount due remains unpaid,
• no agreement exists regarding interest or profit sharing. Hence, the exact applicability of Section 37 arises. Under this section, the outgoing partner has a legal choice between: \[ \text{Interest @ } 6% \text{ p.a.} \] or \[ \text{Share in profits attributable to the unpaid amount.} \] The partner cannot claim both simultaneously unless specifically agreed.

Step 2: Evaluating each option one by one. Option (A): \[ \text{Interest @ 12% p.a.} \] This is incorrect because Section 37 clearly prescribes: \[ 6% \text{ per annum} \] and not \(12%\). Therefore, option (A) is wrong. Option (B): \[ \text{Either interest @ 6% p.a. or share in profits attributable to unpaid amount} \] This exactly matches the legal provision given under Section 37 of the Indian Partnership Act, 1932. Hence, this option is correct. Option (C): \[ \text{Share in profits only} \] This is incorrect because the law gives an alternative right:
• either interest,
• or profit share. Thus, limiting the entitlement only to profits is wrong. Option (D): \[ \text{Neither interest nor profit} \] This is completely incorrect because Section 37 specifically grants rights to the outgoing partner in such cases. Final Conclusion: Therefore, under Section 37 of the Indian Partnership Act, 1932, the outgoing partner or his legal representative is entitled to: \[ \boxed{\text{Either interest @ 6% p.a. or share in profits attributable to the unpaid amount}} \] Hence, the correct answer is: \[ \boxed{\text{(B)}} \]