Sections 20 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 20 lets partners extend or restrict each other's implied authority by contract, but a restriction does not always protect the firm against outsiders. Section 21 gives every partner authority, in an emergency, to do what a person of ordinary prudence would do to protect the firm from loss, and such acts bind the firm.
The partners may, by contract between themselves, extend or restrict the implied authority of any partner (section 20). Despite a restriction, an act within the partner's implied authority done on behalf of the firm still binds the firm, unless the person dealing with him knows of the restriction or does not know or believe him to be a partner. In an emergency, a partner has authority to do all acts for protecting the firm from loss as a person of ordinary prudence would do in his own case in similar circumstances, and such acts bind the firm (section 21).
Section 20: extending and restricting implied authority
Section 20 has two paragraphs.
Paragraph 1: the partners' power
The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner.
Implied authority is what section 19 gives a partner automatically: authority to bind the firm by acts done to carry on, in the usual way, business of the kind the firm carries on. See sections 18 and 19. Under section 20, the partners can:
- extend it, for example by authorising a partner to buy or sell immovable property, which implied authority alone does not cover; or
- restrict it, for example by capping a partner's authority to sign contracts at Rs 2 lakh.
It can be done for "any partner", so the deed can treat partners differently. This is the main way the partnership deed controls who can do what for the firm. Our partnership deed drafting service covers authority and signing clauses.
Paragraph 2: the protection for outsiders
Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.
| Condition | Result |
|---|---|
| Act is within the partner's implied authority and done on behalf of the firm, outsider does not know of the restriction | Firm is bound, despite the internal restriction |
| Outsider knows of the restriction | Firm is not bound by this paragraph |
| Outsider does not know or believe the person to be a partner | Firm is not bound by this paragraph |
The reasoning follows from the text: an outsider who deals in good faith with someone who looks like a partner, doing the kind of act partners usually do, should not be hurt by a private limit he knew nothing about. But if he knew of the limit, he cannot rely on the apparent authority.
Example. The deed of a printing firm says no partner may order paper worth more than Rs 1 lakh without all partners' approval. Fatima, a partner, orders paper worth Rs 3 lakh from a supplier who has dealt with the firm for years and has never seen the deed. The order is within the usual way of the firm's business, so on the text of section 20 it still binds the firm, because the supplier did not know of the restriction. Between the partners, however, Fatima has broken the deed, and the firm may have remedies against her. If the supplier had known of the Rs 1 lakh limit, the position would be different.
What this means for deeds. A restriction in the deed is effective between the partners. To make it effective against outsiders, they must know of it, which is why many firms inform banks and key suppliers of signing limits.
Which part can the deed change?
| Matter | Can the deed change it? |
|---|---|
| The extent of a partner's implied authority | Yes, by contract between the partners (20, first paragraph) |
| The firm's liability to outsiders who do not know of a restriction | Not by internal contract alone; the second paragraph applies "notwithstanding any such restriction" |
Section 21: authority in an emergency
Section 21 reads: a partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm.
The elements:
| Element | Text |
|---|---|
| Occasion | An emergency |
| Purpose | Protecting the firm from loss |
| Standard | What a person of ordinary prudence would do in his own case, in similar circumstances |
| Effect | The acts bind the firm |
Points to note:
- Emergency is not defined. The text gives no definition or list. The test in the text is purpose (protecting the firm from loss) and the prudent-person standard.
- Wider than implied authority. Section 21 does not tie the authority to the usual way of the firm's business, so it can cover steps that section 19(2) would otherwise exclude, provided they meet the purpose and standard in the text.
- Link with indemnity. Section 13(e) says the firm indemnifies a partner for payments made and liabilities incurred in such an emergency; see section 13.
- Extent. The text does not set a monetary limit. The standard of ordinary prudence is the test.
Example. The godown of a partnership firm trading in cloth floods during a storm at night. Gopal, one of the partners, hires a tempo and labourers for Rs 15,000 to shift the stock to a nearby warehouse before the water rises. He could not reach the other partners. Such an act is what a person of ordinary prudence would do in his own case, and section 21 makes it bind the firm.
Practical points
- Put limits in the deed. Specify approval thresholds for purchases, borrowing and property dealings.
- Tell outsiders. Written notice of signing limits to the bank and key suppliers matters, because section 20 turns on what the outsider knows.
- Record emergencies. Keep a note of what happened, why there was no time to consult, and what was done.
- Do not rely on emergency for routine decisions. The section applies to protecting the firm from loss in an emergency.
- Next step. How an act must be done to bind the firm is in sections 22 to 24.
Need help drafting authority and signing limits?
A restriction that exists only in a verbal understanding will not help you against an outsider. If you want clear signing powers, approval thresholds and an emergency clause, our team can include them in your partnership deed and advise on notifying banks and suppliers.
Key takeaways
- Partners may extend or restrict implied authority by contract between themselves (section 20).
- A restriction does not prevent an act within implied authority from binding the firm, unless the outsider knows of the restriction or does not know or believe the person to be a partner.
- In an emergency, a partner may do what a person of ordinary prudence would do to protect the firm from loss, and the acts bind the firm (section 21).
- The text does not define "emergency" or set a monetary limit.
Read next
- Sections 18 and 19: partner as agent and implied authority
- Sections 22 to 24: acts binding the firm, admissions and notice to a partner
- Sections 25 to 27: liability of partners and firm for acts and wrongs
- Rights of partners under the Partnership Act
Disclaimer: Based on the text of the Indian Partnership Act, 1932 as consulted on 1 October 2026. Several States have amended the registration chapter and make their own rules, forms and fees for the Registrar of Firms. This article is general information, not legal advice; check the official text and your State's rules before acting.