Legal Principle: Every partner shall indemnity the firm for any loss caused to it by his fraud in the conduct of the business of the firm.
Factual Situation: Harish and Karan entered into a partnership to run a manufacturing unit. They decided to split the profits 50-50. Karan entered into several dealings with suppliers of raw material. Unknown to Harish, Karan had pocketed a part of the money allocated for procuring raw material subsequently the raw material supplied was of a much inferior quality. The Bureau of Standards inspected the factory and found the finished product to sub-standard due to which the factory was shut down and a hefty fine was imposed on the partnership. Harish comes to know about Karan's dealings and subsequently demands that Karan pay for all the losses incurred.
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