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Section 243: Sections 239 to 266 [Repealed by the Indian Partnership Act, 1932]

Indian Contract Act • Official Statutory Text & Practice Guide

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Act 1872
Section 75 All 266 Sections of Indian Contract Act Section 77

Legal Commentary & Landmark Judgments: Section 243

Section 243 historically provided that a person receiving a share of profits in consideration of the sale of the goodwill of a business does not of itself become a partner, now reenacted as Section 6, Explanation 2(d) of the Indian Partnership Act, 1932.

  • Goodwill Sale with Deferred Profit Considerations: Historically enabled the vendor of a commercial undertaking or brand goodwill to receive consideration via a royalty or profit percentage without incurring partnership liabilities.
  • Severance of Control and Agency: The goodwill seller retains no ownership over the ongoing business assets and possesses no implied authority to bind the buyer or the firm.
  • Modern Codification in IPA 1932: Repealed by Act 9 of 1932 and reenacted as Explanation 2(d) to Section 6 of the Indian Partnership Act, 1932, anchoring modern business transfers and earn-out mechanisms.
Key Landmark Precedents:
  • Pratt v. Strick (1932) 17 TC 459: Held that a professional who sold his medical practice and goodwill for a consideration payable partly out of future profits did not become a partner in the practice.
  • Hawksworth v. Hawksworth (1876) 24 WR 444: Affirmed that receipt of an annuity or profit percentage by the seller of a business goodwill does not create mutual agency or render the vendor liable to trade creditors.
  • Trego v. Hunt [1896] AC 7: The House of Lords laid down the definitive rights of a vendor of goodwill, establishing that sale of goodwill does not imply continuing partnership obligations.
Courtroom Practice & Strategic Litigation Guidance:

In asset purchase and business sale agreements featuring earn-out structures linked to future profits or turnover, rely on Section 6 Explanation 2(d) of IPA 1932 to ensure that the selling founders or promoters cannot be held liable as partners for post-closing liabilities of the buyer.

Section 75 All 266 Sections of Indian Contract Act Section 77