Can a partner start a competing business while partnership exists?

Under Indian partnership law, a partner is generally prohibited from carrying on a competing business while the partnership is active. This duty exists to protect the interests of the firm and all its partners. If your partner has started a similar business without the consent of the other partners, this is likely a breach of their legal obligations.

Key points

• The Indian Partnership Act, 1932 imposes a duty on every partner not to carry on any business that competes with the firm while they remain a partner, unless all other partners consent.
• Any profit earned by the competing partner from such a business can be claimed by the firm — you have a right to those profits.
• This restriction applies during the existence of the partnership, not after dissolution (post-dissolution rules differ).
• The partnership deed may contain additional or stricter non-compete clauses, which would also be enforceable.
• Consent of the other partners, if given in writing, can make such competing activity permissible — so check your partnership deed carefully.

Relevant law

Section 16(b) of the Indian Partnership Act, 1932 specifically states that if a partner carries on any business of the same nature and competing with that of the firm, they must account for and pay over to the firm all profits made in that business. The general duty of good faith among partners is also reflected in Section 9 of the same Act.

What you can do

• Review your partnership deed immediately to check for any non-compete or consent clauses that may apply.
• Send a formal legal notice to the erring partner through a lawyer, demanding they cease the competing activity and account for profits earned.
• If no resolution is reached, file a civil suit before the District Civil Court in Noida (Gautam Buddha Nagar) seeking an injunction and recovery of profits.
• Consider consulting a business disputes lawyer — you can find registered lawyers in Noida through LegalFirms.