Sections 25 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 25 makes every partner liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner. Section 26 makes the firm liable for a partner's wrongful act or omission in the ordinary course of business, and section 27 makes the firm liable to make good money or property misapplied by a partner.
Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner (section 25). Where a partner's wrongful act or omission, in the ordinary course of business or with his partners' authority, causes loss or injury to a third party or a penalty, the firm is liable to the same extent as the partner (section 26). Where a partner within apparent authority receives a third party's money or property and misapplies it, or the firm receives it and a partner misapplies it while in the firm's custody, the firm must make good the loss (section 27). The text opens none of these sections with "subject to contract between the partners".
Section 25: liability of a partner for acts of the firm
Section 25 is one sentence. Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.
| Element | Text |
|---|---|
| Who | Every partner |
| Liable for | All acts of the firm (see section 2(a)) done while he is a partner |
| Nature of liability | Jointly with all the other partners and also severally |
What "jointly and severally" means
- Jointly: all the partners together are liable for the firm's acts.
- Severally: each partner is liable on his own as well, so a creditor may claim against one partner, several, or all.
The text does not set any cap, so a partner's liability under this section is not limited to his capital in the firm. The section does not say how partners share the burden among themselves; that depends on their contract, such as the loss-sharing rules in section 13.
"While he is a partner"
The liability attaches to acts done while he is a partner. The text of section 25 does not deal with acts before a person joined or after he left; those points are covered elsewhere in the Act, for example section 45 on dissolution.
"Acts of the firm" has the meaning in section 2(a): an act or omission by all the partners or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm. See sections 1 to 3.
Example. The firm of Lokesh, Meera and Nitin buys machinery on credit for Rs 6 lakh and fails to pay. The seller can claim the full Rs 6 lakh from the firm, and may also proceed against Lokesh alone, even though Meera and Nitin are also liable. How the three then adjust the burden between themselves depends on their deed.
If a creditor has claimed against you personally for your firm's dues, or you are the creditor and want to recover, our legal dispute resolution service can help you plan the next steps.
Section 26: wrongful acts of a partner
Section 26 reads: where by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.
| Element | Text |
|---|---|
| Wrongful act or omission | By a partner |
| Capacity | Acting in the ordinary course of the business of the firm, or with the authority of his partners |
| Result | Loss or injury to a third party, or a penalty is incurred |
| Consequence | The firm is liable to the same extent as the partner |
Points to note:
- Two routes. Either the partner was acting in the ordinary course of the firm's business, or he acted with his partners' authority. Either is enough on the wording.
- Penalty included. The section covers a penalty incurred as well as loss or injury to a third party.
- Same extent. The firm's liability matches the partner's. The text sets no cap and does not say how it is shared among partners.
- Third party has the meaning in section 2(d): anyone who is not a partner in the firm.
Example. Omkar, a partner in a courier firm, carelessly damages a customer's goods while loading them in the course of the firm's business, causing a Rs 70,000 loss. The firm is liable to the customer to the same extent as Omkar.
Section 27: misapplication by partners
Section 27 makes the firm liable to make good the loss in two situations:
| Clause | Situation |
|---|---|
| (a) | A partner acting within his apparent authority receives money or property from a third party and misapplies it |
| (b) | A firm in the course of its business receives money or property from a third party and the money or property is misapplied by any of the partners while it is in the custody of the firm |
In either case, the firm is liable to make good the loss.
Points to note:
- Apparent authority in clause (a) is how the partner looks to the outsider. The text does not define it further.
- Clause (b) covers money or property already in the firm's custody, which a partner then misapplies.
- Misapplication is not defined in the text; its ordinary meaning is using the money or property for something other than its proper purpose.
Example. A customer hands over Rs 1 lakh to Parth, a partner in a travel firm, as advance for a tour package. Parth spends it on personal expenses. Under section 27(a), the firm must make good the Rs 1 lakh to the customer. As between the partners, Parth's duty to account and to indemnify for fraud, see section 10, is a separate matter.
What the deed can and cannot do
| Matter | Effect |
|---|---|
| Liability to outsiders under sections 25 to 27 | The text does not open these sections with "subject to contract between the partners"; an internal agreement is not stated to cut down an outsider's rights |
| Sharing the burden among partners | A deed can set loss-sharing and indemnity terms, which operate between the partners |
For tax matters concerning the firm and its partners, see our income-tax guides.
Practical points
- Know your exposure. A partner may be asked to pay the whole of a firm debt; the text sets no limit by capital.
- Choose partners carefully. The firm is liable for a partner's wrongful acts in the ordinary course of business.
- Control receipts. Money from customers should be received into the firm's account and recorded.
- Insurance and indemnities. Consider insuring against professional and operational risk, and put an internal indemnity in the deed.
- If you want limited liability, the LLP Act, 2008 governs LLPs; see LLP vs partnership firm.
Need help with a liability dispute?
If a creditor, customer or partner is claiming against your firm, early advice on who is liable and how to respond can save money. Our legal dispute resolution team can review the claim and your deed and suggest a way forward.
Key takeaways
- Every partner is jointly and severally liable for all acts of the firm done while he is a partner (section 25).
- The firm is liable to the same extent as a partner for his wrongful act or omission in the ordinary course of business or with his partners' authority (section 26).
- The firm must make good money or property misapplied under section 27(a) or (b).
- The text sets no cap on liability under these sections.
- Sharing of the burden among partners is a matter for the deed and the Act's internal rules.
Read next
- Sections 22 to 24: acts binding the firm, admissions and notice to a partner
- Section 28: holding out
- Liability after dissolution: section 45
- LLP vs partnership firm: key differences
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.