A partner having 90% profit/shareholding does not, merely because of holding 90%, have an automatic right to freeze the partnership firm's bank account. A partnership firm is governed by the Partnership Deed and the Indian Partnership Act, 1932; the percentage of profit/share is not the same thing as unilateral control over the firm's banking operations. Under Sections 18–20, a partner is an agent of the firm, but the partners' mutual rights and authority can be regulated by the partnership deed.
If there is a genuine dispute between the partners and there is a reasonable apprehension that a partner is likely to withdraw, divert or misappropriate firm funds, the appropriate remedy is not simply to write to the bank asking it to freeze the account. The bank ordinarily cannot freeze the firm's account merely because one partner sends a unilateral complaint, particularly where that partner is not legally entitled to override the firm's banking mandate. The bank will normally act on the existing mandate, a valid resolution/authority, a court order, an attachment/freezing direction from a competent authority, or other legally recognised basis.
Can the 90% partner ask the bank to freeze the account?
He can certainly request the bank to restrict transactions and place the dispute before the bank, but his 90% share by itself does not compel the bank to freeze the account.
You should first examine the partnership deed, particularly the clauses concerning:
- operation of bank accounts;
- signing authority;
- voting/decision-making rights;
- withdrawal of funds;
- retirement/expulsion of partners;
- settlement of disputes;
- arbitration;
- authority of individual partners; and
- restrictions on dealing with firm property.
Section 20 of the Partnership Act expressly permits partners to extend or restrict a partner's implied authority by contract.
Can you approach the civil court despite an arbitration clause?
Yes, but the correct route is important.
If the partnership deed contains an arbitration clause, a substantive suit for adjudication of the partnership dispute may ordinarily have to be referred to arbitration, subject to the Arbitration and Conciliation Act, 1996.
However, where there is an urgent threat to the firm's money, you can consider an application under Section 9 of the Arbitration and Conciliation Act seeking interim protection from the competent court. Section 9 expressly permits the court to grant interim measures, including an interim injunction, preservation/security of property and appointment of a receiver, where appropriate.
Thus, instead of simply filing a civil suit asking the court to permanently decide the partnership dispute, the more appropriate urgent relief may be:
Section 9 application seeking protection of the firm's bank funds and restraining unilateral withdrawal/diversion of the firm's money pending arbitration.
The court will not ordinarily freeze the entire account merely because there is a partnership dispute. You would need to establish a prima facie case, urgency, apprehension of dissipation/misappropriation and balance of convenience.
If arbitration has already commenced and the arbitral tribunal has been constituted, Section 17 of the Arbitration Act also permits the tribunal to grant interim measures, including injunctions and other protective orders.
An important distinction
I would not seek an indiscriminate “freeze” of the entire bank account if the firm is continuing its business. Such an order could itself paralyze the firm's legitimate operations and payments.
A more practical prayer may be to seek an order that:
neither partner shall withdraw, transfer or appropriate funds from the firm's bank account except for ordinary-course business expenses, statutory payments, salaries and other authorised expenditure, without the consent of the other partners or further orders of the court/tribunal;
or, depending upon the circumstances, that withdrawals above a specified amount require joint signatures, or that a neutral person/receiver supervise the account.
This is often more proportionate than asking the court to completely freeze the firm's banking operations.
If the bank is refusing your request
That is not, by itself, surprising. The bank may be correct in refusing to freeze the account merely on the basis of your unilateral letter.
You should therefore send the bank a formal dispute notice enclosing the partnership deed and clearly identify the disputed transactions or threatened withdrawals. But simultaneously, if there is an immediate risk to the firm's funds, move the competent court under Section 9 of the Arbitration and Conciliation Act for interim protection rather than expecting the bank to adjudicate the partnership dispute.
If there is already evidence of actual diversion or misappropriation of firm funds, the relief can be framed more specifically around the particular transactions and the persons responsible.
Also remember that 90% share does not mean 90% ownership of the money lying in the firm's bank account. The account belongs to the firm, and the firm's assets have to be dealt with according to the Partnership Act and the partnership agreement. Section 15 deals with application of partnership property, and the partners' contractual rights under the deed are important.
Therefore, on the facts presently given, do not rely on a bank letter alone. First review the partnership deed and banking mandate; if there is a genuine and immediate threat of withdrawal/diversion, the appropriate course is generally an urgent Section 9 application for interim protection, followed by arbitration in accordance with the partnership deed.
For detailed legal advise you may connect on https://share.google/jCbuYXivLzFBy0dSK
