Q.On the death of a partner, the total amount due to the deceased partner's executor is Rs 1,50,000. The partnership deed is silent on the rate of interest payable on any unpaid balance. The firm pays Rs 50,000 to the executor immediately, and transfers the balance to the Executor's Loan Account, to be repaid in equal annual instalments of Rs 25,000 (principal) over four years, together with the interest that the executor is legally entitled to on the outstanding balance. Compute the total amount payable to the executor in the first two years.

Whatever the partnership deed does not fix, the law itself supplies a default: when there is no agreement on interest, the deceased partner's executor is entitled under the Indian Partnership Act, 1932 to interest at 6% p.a. on the unpaid balance from the date of death until it is paid.

Step 1 — Balance transferred to the Executor's Loan Account. Total due = Rs 1,50,000. Paid immediately = Rs 50,000. Balance = Rs 1,50,000 − Rs 50,000 = Rs 1,00,000.

Step 2 — Rate of interest. Since the partnership deed is silent, Section 37 of the Indian Partnership Act, 1932 entitles the executor to interest @6% p.a. on the amount remaining unpaid (or, alternatively, a proportionate share of subsequent profits — the executor may choose whichever is more beneficial; here we are told to compute on the interest basis).

Step 3 — Year 1. Interest on the opening balance of Rs 1,00,000 @6% p.a. = Rs 6,000. Total paid at the end of Year 1 = principal instalment Rs 25,000 + interest Rs 6,000 = Rs 31,000. Balance carried forward = Rs 1,00,000 − Rs 25,000 = Rs 75,000.

Step 4 — Year 2. Interest on Rs 75,000 @6% p.a. = Rs 4,500. Total paid at the end of Year 2 = Rs 25,000 + Rs 4,500 = Rs 29,500. Balance carried forward = Rs 75,000 − Rs 25,000 = Rs 50,000.

Step 5 — Dual-solve check. Since the principal reduces by an equal Rs 25,000 each year, the average balance over the two years is (Rs 1,00,000 + Rs 75,000) ÷ 2 = Rs 87,500, and Rs 87,500 × 6% × 2 years = Rs 10,500 — exactly matching the sum of the two years' interest calculated separately (Rs 6,000 + Rs 4,500 = Rs 10,500), confirming both figures.

A common mistake is assuming the statutory rate is the same 5% or 12% used in other Partnership Act contexts (such as interest on a partner's loan to the firm during its life) — the specific default under Section 37 for a deceased/retired partner's unsettled dues is 6% p.a. Another error is failing to reduce the principal before computing the following year's interest.