You will come across times in business when one of your partners cheats on the other. When such a situation occurs, you must contact a consultant who can assist you in resolving business disputes. The end of a partnership can result in animosity and even loss of assets, so you need to choose the right consultant who can assist in making the right decision.
A legal partnership, where individuals collaborate in business and share profits and losses, is a common business arrangement. Although a partnership agreement doesn’t always need to be in writing to be enforceable, having a written agreement is advisable for easier enforcement. If a business partner breaches (Business Partner Cheats) the contract outlined in the partnership agreement, various legal remedies can be pursued.
If the business partner is found committing a fraudulent act, which may involve embezzlement or transfer of business assets for his own use; engagement in revealing the intellectual property of the business, or stops performing his obligations, legal actions can be taken against him.
Things to Be Done During Business Partner Cheats
- Collecting Evidence: The business partner who cheated cannot be directly expelled from the business, or the others cannot dissolve the firm. Mere suspicion cannot be enough to file a suit against him. First, the business partner has to collect evidence against the cheating business partner for his act of violation of the agreement. Once it is confirmed, all the cash transactions involving the partner need to be stopped immediately
- Filing a Suit: For filing a suit, it has to be proved that the particular business partner is untrustworthy and could harm the business with his fraudulent act. The evidence collected has to show the accounting errors like missed entries in an accounting book, credit list mismatch, etc., along with the proof of withdrawal receipt he made through credit/ debit card and cash register entries. Apart from the fraud in money, if the partner reveals the details or secrets of the firm to the other third party, he would have committed a breach of trust. The other person can sue for the breach of trust
Generally, a criminal suit will be filed under Sec 420 of IPC if the business partner cheats or acts dishonestly and under Sec 406 of IPC for criminal breach and a civil suit for recovery of money and will be arrested and penalized under the respective section.
- Expulsion: Unless the partnership agreement specifically addresses expulsion, removing a partner, even for a breach, may necessitate dissolving the partnership. Many agreements, however, permit the expulsion of a breaching partner while the partnership continues without them. Expulsion should be done in good faith, responding to a serious breach, and following protocol to avoid potential legal consequences.
- Liability for Breach: A partner breaching the agreement can be sued, irrespective of expulsion. If a partner leaves before the agreement’s specified duration (if provided), the departing partner may avoid liability with a valid reason. Breaches like misappropriation of partnership assets can lead to compensatory damages, calculated by subtracting the departing partner’s investment from the partnership’s actual damages.
- Seeking Compensatory Damages: Some partnership agreements have liquidated damages clauses, specifying monetary damages for a partner’s breach. Courts enforce these clauses if deemed reasonable. If declared invalid, the court may award compensatory damages to the aggrieved partner, who must then seek enforcement of the judgement.
- A settlement between the Partners:Negotiated settlements can restore the business relationship, avoiding costly legal battles. Written settlement agreements are binding, offering a compromise without the uncertainties of court proceedings. Settlements, though requiring compromise, are often more practical, considering the escalating court costs and the unpredictability of legal outcomes.
- Dissolution of a Partnership Firm: If the partner finds the other business partner is cheating, he may get liquidation from the company/firm. First, he should notify the partner of his willingness to dissolve the firm.
The court may order the dissolution under Section 44 of the Indian Partnership Act. If the firm is dissolved, the partner will be held liable to third parties for the actions done.
Which Legal Action Would Be Appropriate?
Business Partner Cheats – Among all the activities that a partner may be engaging in that fall under the category of fraud, several things can be considered fraud, including:
- Taking money from the company or misusing its assets in any other way
- Theft or disclosure of the intellectual property or trade secrets that belong to the company
- Fraudulent activity on financial statements
Commercial conversion is the civil equivalent of theft, in which the perpetrator either steals the business’s property or prevents it from possessing it. Fraud can either be a criminal or civil offense.
FAQs
What to do if your business partner cheats on you?
● Gather evidence of the cheating.
● Consult a legal professional.
● Consider mediation or negotiation.
● Review partnership agreements.
● If necessary, explore legal actions.
What should I do if a company cheated me?
● Document all evidence of the cheating
● Contact the company and express your concerns
● Seek resolution through customer service
● Consider legal action or reporting to consumer protection agencies.
What if a person cheats in business?
● Collect evidence of the cheating
● Confront the person professionally
● Discuss the issue with a supervisor or manager
● Involve legal assistance if necessary.
Conclusion
Nonetheless, legal options are available to a business partner who steals from another partner or the business, including civil or criminal charges. A wronged partner can sue for breach of fiduciary duty when it comes to theft, such as taking money from a business account. Each party has to act in the best interests of the other in a fiduciary relationship.
A breach occurs when the business partner cheats from the company without benefiting the business or the partner. Such action may also be grounds for embezzlement, a criminal offense against the business partner. Stealing assets in a position of trust or responsibility within a business violates that duty of trust and could result in embezzlement charges. Don’t hesitate to get in touch with us if you need further guidance or doubt regarding legal action against your partner.
