When a person is represented (held out) as a partner and he does not deny this even after becoming aware of it, he becomes liable to third parties who lend money or grant credit to the firm on the basis of such representation.
Suppose Shipra tells Sohan in the presence of Mohan that Mohan is a partner in the firm ‘Shipra Enterprises’. Mohan is not a partner and does not deny Shipra’s statement.
Sohan grants a loan of Rs 50,000 to Shipra Enterprises on the impression that Mohan is a partner. Later on the firm is unable to repay the loan. Mohan becomes liable to Sohan and here Mohan is a partner by holding out.