Question

Prabhakar and Ratnakar are partners. Prabhakar advanced a loan of ₹ 8,00,000 to the firm on 1st November, 2025 without any agreement regarding rate of interest. At the end of the year they agreed interest @ 9% p.a. Should interest on loan from Prabhakar be allowed @ 6% p.a. or 9% р.а.?

Answer 1

According to the Indian Partnership Act, 1932, if there is no agreement regarding the rate of interest on a partner’s loan, a default rate of 6% p.a. is allowed. However, the partners have the right to mutually change or decide any rate they agree upon later.

Since Prabhakar and Ratnakar mutually agreed at the end of the year to pay interest @ 9% p.a., this subsequent agreement overrides the statutory default rate. Therefore, the agreed rate of 9% p.a. will be valid and allowed.