Question

Does the loan from an outsider have priority over the loan from a partner as to repayment?

Answer 1

According to Section 48 of the Indian Partnership Act, 1932:

The following order has to be followed for the discharge of liabilities:

1. Payment of loans provided by third parties;

2. Payment of loans and advances provided by the partners;

3. Payment of capitals of partners;

4. The residue will be divided among the partner's in the profit sharing ratio.

According to the above rules, a loan from an outsider is given priority over the loan from a partner.