DDIISSSSOOLLUUTTIIOONN OOFF IINNDDIIAANN FFIIRRMMSS--

VVAARRIIOOUUSS MMOODDEESS

Raghvendra Singh Raghuvanshi & Nidhi Vaidya1

Table of contents

• Statement Of Purpose

• Introduction

• Meaning of Dissolution of a Firm

• Modes of Dissolution-

1. Dissolution by Agreement

2. Compulsory Dissolution

3. Dissolution on happening of certain contingencies

4. Dissolution by notice

5. Dissolution by Court

• Conclusion

1 The Authors are Lawyers practicing in High Court of MP, Indore, India and can be reached at

raghav_nliu@rediffmail.com.

2

STATEMENT OF PURPOSE

The paper aims to study how and under what circumstances a dissolution can be

affected in a partnership firm and what can be the aftereffects of dissolution of

firm on the partners of the said firm? It can be broadly divided in to two parts. The

first part of the study describes the meaning of dissolution of a firm and second

part focuses on the various important modes under which partnership firm can be

dissolved.

INTRODUCTION

The Indian law of partnership in India is based on the provisions of the English law of

partnership. Until the English Partnership Act of 1890 was passed, the law of partnership

even in England was largely based on legal decisions and custom. There were very few

acts of parliament relating directly to partnership. The Indian Partnership Act of 1932

(Partnership Act) was the result of a Report of a Special Committee.

Prior to the enactment of the Partnership Act, the law relating to partnership was

contained in Chapter XI (sections 239 to 266) of the Indian Contract Act, 1872 (Contract

Act). These provisions contained in the Contract Act were not found adequate. As a

result, Chapter XI of the Contract Act was repealed and replaced by the Partnership Act

of 1932. The Partnership Act is a comprehensive framework for contractual relationships

amongst partners, and the basis for a most popular form of organization for small

businesses. It is interesting to note that the Partnership Act has not been subject to any

significant amendment since its enactment.

The Indian Partnership Act enacted in the Year 1932 defining the law relating to

partnership the relation between the persons who have agreed to share the profits of a

business carried on by all or any of them acting for all -- makes it obligatory to have a

partnership registered with the Registrar of Firms, failing which the firm is prohibited

from enforcing any right in a Court of Law. This Act defines the relationship of partners

3

to one another and to third parties and lays down provisions as regards incoming and

outgoing partners, dissolution of a firm, etc. Under the Act partners are bound to carry on

the business of the firm to the greatest common advantage, to be just and faithful to each

other and to render true accounts and full information of all things effecting the firm to

any partner or its legal representative. A partner is liable to indemnify the firm for any

loss caused to it by his willful neglect in the conduct of the business of the firm. A

partner is the agent of the firm for the purpose of the business of the firm. The act also

provides for the sale of goodwill of the firm after its dissolution and the rights of the

buyer and seller of the goodwill.

The dissolution of partnership between all the partners of a firm is called the dissolution

of the firm. [Section 39]. - -. As per section 4, Partnership is the relation between persons

who have agreed to share profits of business carried on by all or any of them acting for

all. Thus, if some partner is changed/added/ goes out, the ‘relation’ between them

changes and hence ‘partnership’ is dissolved, but the ‘firm’ continues. Hence, the change

is termed as ‘reconstitution of firm’. However, complete breakage between relations of

all partners is termed as ‘dissolution of firm’. After such dissolution, the firm no more

exists. Thus, ‘Dissolution of partnership’ is different from ‘dissolution of firm’.

‘Dissolution of partnership’ is only reconstruction of firm, while ‘dissolution of firm’

means the firm no more exists after dissolution.

MEANING OF DISSOLUTION OF A FIRM

A firm is not said to be dissolved by the fact of one or more members ceasing to be

partners in it while others remain, but only when all and every one of the members of the

firm cease to carry on its business in partnership. The law with respect to retiring partners

as enacted in the Partnership Act is to a certain extent a compromise between the strict

doctrine of English Common Law which refuses to see anything in the firm name but a

collective name for individuals carrying on business in partnership and the mercantile

usage which recognizes the firm as a distinct person or quasi corporation.1

1 CIT, West Bengal v. M/s AW Figgis & Co AIR 1953 SC 455

4

Matters pertaining not only to the fact of dissolution and fixing the date thereof but also

matters arising out of the fact of dissolution which pertain to the winding up of the

partnership, settlement of accounts, taking over of the goodwill and assets of the

partnership, restrictions on the outgoing partners carrying on business in the case of

transfer of goodwill to one of them, are all matters dealt with under the subject

‘dissolution of a firm’.

A deed of dissolution must necessarily cover other matters, which arise directly out of

dissolution, such as settlement of accounts, payment of amounts found due on such

settlement, closing down or continuation of business collection of outstanding and

payment of liabilities. Notwithstanding such clauses in a deed of dissolution, it would be

liable to payment of stamp duty under art 47, Sch I of the Bombay Stamps Act 1958 and

would not be subject to separate duty on such matters.2

If a new firm is formed by agreement between some of the former partners, it will

nonetheless be new, however closely that agreement may follow on the dissolution of the

old firm. Whether a new firm is formed or not is a question of fact.3

MODES OF DISSOLUTION OF A PARTNERSHIP FIRM

A partnership firm can be dissolved by many modes like by agreement on the happening

of certain contingencies, or judicially. There are basically five modes of dissolution given

under Sections 40 – 44 of the Indian Partnership Act.

• Dissolution by Agreement – Sec. 40

• Compulsory Dissolution – Sec 41

• Dissolution on the happening of certain contingencies – Sec.42

• Dissolution by notice of partnership at will – Sec.43

• Dissolution by the Court – Sec.44

2 Santdas Moolchand Jhangiani & another v. Sheodayal Gurudasmal Massand

AIR 1971 Bom 237 (DB). 3 MM Valliamai Achai & ors v. KNPLV Ramanathan Chettiar & ors AIR 1969 Mad 257.

5

DISSOLUTION BY AGREEMENT

“A firm may be dissolved with the consent of all the partners or in accordance with a

contact between the partners”5

Contract between the partners-

Although this is new in terms, however it is a quite familiar law. ‘Contact between the

partners’ obviously mean a contact already made; the most likely case is that of a clause

in the partnership articles providing for dissolution in certain events. In addition to a

dissolution clause where in a partnership deed reference is made to the Partnership Act,

that where special provision is not made in the deed the provisions of the Act shall apply,

it cannot be said that a partner of the firm is not entitled to ask for dissolution of the firm

and that only course open him is to retire as provided by another clause in the deed.6

Any circumstance such as unsoundness of mind, physical incapability, incompatibility of

temperament, or dishonesty (even outside the business) may by an express clause, in the

articles, be a ground for dissolution of partnership without the intervention of the court.7

The principle is well settled that it is on the examination of relevant documents and

relevant facts and circumstances that the court has to be satisfied in each case as to

whether there has been a succession or a mere change in the constitution of the

partnership. It cannot be disputed that ‘dissolution’ and ‘reconstitution’ are two distinct

legal concepts, for, dissolution brings the partnership to an end while a reconstitution

means the continuation of the partnership under altered circumstances. In law, there

would be no difficulty in the dissolution of a firm being followed by the constitution of a

new firm by some of the erstwhile partners who may take over the assets and liabilities of

the dissolved firm.8

5 Sec. 40, Indian Partnership Act.

6 Sheonarain Jaiwal & ors v. Kripa Shankar Jaiswal & anor AIR 1972 Pat 75

7 Underhill’s Principles of the Law of Partnership 11

th edn. P 76; citing Peyton v. Mindham (1971) 3

All ER 1215. 8 CIT, West Bengal v. M/s Pigot Champan & Co. AIR 1982 SC 1085,1089

6

In cases of express agreement to dissolve the firm between all the partners barring

questions as to its construction and effect, no problem arises. However, circumstances

may also indicate existence of such agreement and consequential dissolution. It has now

been affirmatively decided that the doctrine of repudiation has the same applicability to

partnerships as in the case of other contracts. The repudiation of the partnership by one or

more of the partners, which is accepted by the others, would indicate an implied

agreement to dissolve. 9 Dissolution may also be inferred where the service by a partner

or his partners of an invalid notice to determine the partnership is accepted by the co-

partners as a valid notice or where the conduct of the partners is inconsistent with the

continuance of partnership. In a case where in a partnership at will, notice of dissolution

was given to the other partner who did not do anything in respect of the notice or

partnership business for about three years after the notice, it was held that failure to do

anything amounted to consent for dissolution.10

In the matter of P. Venkateswarlu v. Lakshmi Narshima Rao, AIR 2002 AP 62,

the court held that in case of dissolution of partnership, firm might be dissolved by any

partner giving notice in writing to all the other partners of his intentions to dissolve the

firm.

COMPULSORY DISSOLUTION

A firm is dissolved-

a) By the adjudication of all the partners or of all the partners but one as insolvent,

or

b) By the happening of any event which makes it unlawful for the business of the

firm to be carried on or for the partners to carry it on in partnership:

9 Hitchman v. Crouch Butlet Savage Associates (1983) 80 LS Gaz 550.

10 Kali Ram v. Ram Ratan AIR 1977 NOC 31 (Del)

7

Provided that, where more than one separate adventure or undertaking is carried on by

the firm, the illegality of one or more shall not of, itself cause the dissolution of the firm

in respect of its lawful adventures and undertakings.

Thus according to section 41, compulsory dissolution of a firm may take place on the

following two grounds -

a. All partners or all the partners but one becoming insolvent

Clause (a) is new as an express enactment. In substance it is necessary corollary to

Section 34, sub-section (1), under which a partner adjudged insolvent ceases from that

date to be a partner. If no partner or only one partner is left it is obvious that there can no

longer be a firm. The Supreme Court has held that where one of two partners dies, the

firm automatically comes to an end and there is no partnership for a third party to be

introduced therein. In deference to the wishes of the deceased partner, the surviving

partner may enter into a partnership with the heir of the deceased partner but it would be

a new partnership. An agreement that on the death of the partner in such partnership his

heir or nominee would take his place does not make the heir or nominee automatically a

partner.2

As regards insolvency proceedings in a foreign country the view appears to be that they

would cause dissolution, at any rate if taken in the country in which the insolvent partner

is domiciled.3

A firm is dissolved by the adjudication of all the partners or of all the partners but one as

insolvent4. Reference may also be made here to section 34(1) which provides, where a

partner in a firm is adjudicated an insolvent, he ceases to b e a partner on the date on

which the order of adjudication is made, whether or not the firm is thereby dissolved.

Thus a partner is adjudicated an insolvent; he ceases to be a partner. One of the main

2 CIT Madhya Pradesh v. Seth Govindram Sugar Mills AIR 1966 SC 24.

3 Lindley on Partnership, 15

th edn, pp 693-4.

4 Section 41(a).

8

reasons, inter alias, for this is that when he adjudicated an insolvent he becomes

incompetent to contract. Similarly when all the partners but one are adjudicated an

insolvent, the firm is compulsorily dissolved, because for partnership, there must be at

least two persons competent to contract. Similarly where there are only two partners in a

firm, and one of them dies, the firm is dissolved and it cannot be said to be in wishes of

deceased partner, the remaining partner admits a new partner, in law it is a new

partnership.5

b. Happening of any event making the business of the firm

unlawful

Clause (b) is in the same words as Section 34 of the English Act, and the illustrations and

comments to this section are taken, with some modifications, from Pollock on

Partnership.6

In the English case of Esposito v. Bowden 7 A and B charter a ship to go to a foreign

country and receive a cargo on their joint venture. War breaks out between England and

the country where the port is situated before the ship arrives at the port, and continues

until after time appointed for loading. The partnership between A and B is dissolved.

In another case of Hudgell Yeafes & Co. v. Watson8 where A is a partner with ten other

persons in a certain business. An Act is passed which makes it unlawful for more than

two persons to carry on that business in partnership. The partnership is thus dissolved.

A firm is dissolved by the happening of any event, which makes it unlawful for the

business of the firm to be carried on or for the partners to carry on in partnership.9

Proviso to section 41(b), however provides that, where more than one separate

adventure or undertaking is carried on by the firm, the illegality of one or more shall not

5 See Erach F.D. Mehta v. Minoo F.D. Mehta, AIR 1971 SC 1653; Commissioner of Income Tax, M.P. v.

Seth Govind Ram Sugar Mills, AIR 1966 SC 24. 6 15

th edn, pp 89-91.

7 (1857) 7 E&B 763.

8 (1978) QB 451.

9 Section 41(b).

9

of itself cause the dissolution of the firm in respect of its lawful adventures and

undertakings.10

The proviso is based on the doctrine of severability. According to this principle,

where there are several parts of the contract and one of the parts becomes illegal, then if

the illegal part can be separated from the legal part, only the part, which has become

illegal, shall be void and the legal part shall remain valid. Similarly where the business of

the firm consists of several undertakings or adventures and one of the undertakings

becomes illegal, the other undertakings shall remain valid if the said illegal undertaking is

severable from the other undertakings.

EFFECTS OF WAR

The first war brought the question of illegality based on alien enemy character back into

prominence after many years. Commercial relations involving subjects of a state which

has become hostile, or persons carrying on their business in the territory of such a state,

had to be considered in the light of two quite distinct rules of common law, one as to

personal disqualification, the other as to trading with enemies. There was considerable

doubt as to several doubts until the full court of appeal dealt with a group of cases early

in 1915.11

The result of that considered judgment, and of some others are as follows:

The term ‘alien enemy’ includes persons of any nationality voluntarily resident in a

hostile country.12

However, it does not include for the purpose of the common law rules,

a subject of an enemy state residing within the realm with the license of the Crown; and

registration of an alien under the Aliens Registration Act, 1914.

Transactions with a foreign company having a seat of business in England are

governed by the same rules as transactions with an individual alien. A company

10

Proviso to Section 41(b). 11

Porter v. Freudenberg & Co., [1915] KB 857. 12

Sovfracht v. Van Uden’s Scheepvaart, [1943] AC 203.

10

registered and having its place of business in a hostile country is treated in Prize Courts

as an enemy wi9thout regard to the nationality of its shareholders.13

In as much as a body corporate may be a partner, it has power to note that the friendly or

hostile character of such a body is not conclusively determined by the place of its

registration and its official seat, nor by the nationality of its members or the majority of

them. A company incorporated or registered here may be an enemy if it carries on

business in an enemy country, or if its business is under the control of persons resident in

an enemy country or adhering to or controlled by enemies; on which last question the

prevailing character of the shareholders is material though not conclusive.14

DISSOLUTION ON CERTAIN CONTINGENCIES

Subject to contract between the partners a firm is dissolved –

a) If constituted for a fixed term, by the expiry of that term;

b) If constituted to carry out one or more adventures or undertakings, by the

completion thereof;

c) By the death of a partner; and

d) By the adjudication of a partner as an insolvent.

According to section 42, subject to contract between partners, a firm is dissolved on the

following contingencies:

BY THE EXPIRY OF FIXED TERM

A firm is dissolved, if constituted for a fixed term, by the expiry of that term.15

It may be noted here that Sections 42(a) and 42(b) relating to completion of one or more

adventures or undertakings are subject to sections 42(c) relating to death of a partner and

42(d) regarding adjudication of a partner as an insolvent. If a partner dies or is

adjudicated as an insolvent, there in the absence of contrary contract between partners,

the partnership firm is dissolved. The term of the partnership being fixed is clearly not a

13

The Roumanian, [1915] 1 26. 14

Daimler Co’s case, [1916] 2 AC 307. 15

Section 42(a).

11

contrary provision under section 42. It may also be noted here that even after the expiry

of a fixed term, by mutual consent partners may continue the partnership. But if there is

no such mutual consent, the partnership is dissolved on the expiry of the fixed term.

ON COMPLETION OF ADVENTURES OR UNDERTAKINGS

Subject to contract between he partners a firm is dissolved if constituted to carry out

one or more adventures or undertakings, by the completion thereof.16

Section 42 (b) applies in such cases where the partnership firm has been

constituted for one or more adventures or undertaking although no period has been fixed.

In such cases the nature of the undertakings and the conduct of the partners are

considered. If it is found that the firm was constituted for one or more undertakings, the

firm is dissolved on the completion of one or more undertakings, as the case may be. But

when the partners install flourmill, oil mill etc, the question of completion of undertaking

does not arise and Section 42(b) will not apply.

Gheru Lal Parekh v. Mahadeo Das Maiya17

The partnership was constituted for the speculative transactions relating to sale and

purchase of wheat. Under it speculative transactions were to be entered for the sale and

purchase of wheat in future. After the supply of a part of goods, the contract was

terminated before time. The question for consideration before the Supreme Court was,

had the firm was immediately dissolved. The Supreme Court held that the firm was not

immediately dissolved. It would be dissolved only after the realization of the assets.

Where a firm was constituted for a specific undertaking to supply certain quantity

of grain and the contract was prematurely terminated after supply of a part of the goods,

it was held that the partnership did not come to an end and was dissolved only on the

final realization of assets.18

16

Section 42(b). 17

AIR 1959 SC 781. 18

Basanthlal Jalan v. Chiranjilal sarawgi & others, AIR 1968 Pat 96.

12

In Mann v. D’Arcy,19

the managing partner of a firm of produce merchants had

entered into a single venture co-partnership with the plaintiff for the purchase and resale

of a particular quantity of potatoes on the terms of equal share in the profits and the

validity of the co-partnership for the said venture was upheld.

BY THE DEATH OF A PARTNER

Subject to the contract between the partners a firm is dissolved by the death of a

partner.20

The main reason for this rule is that a law firm is not a “person”, it is only a group

of persons and the name of the firm is only the collective name of the persons who

constitute the firm. In other words, the name of the firm is a mode of describing the

persons who have agreed to carry on the business.21

Law also recognizes the distinction

between the continuation of business and member of the firm who carry on the business.

For limited purposes of section 37, the firm is dissolved on the death of a partner. If the

surviving or remaining partners, a new partnership comes into existence. So is the case

when a new partner is admitted into partnership or a partner retires or is allowed to retire.

In all such cases a new group and a new form comes into existence.

The above view has been expressed by the full bench of Punjab and Haryana

High Court in M/s. Nandlal Sohanlal, Jullandar v. CIT, Patiyala22

thus on the death of

a partner the firm is dissolved provided that there is no contract to the contrary between

the partners. If the remaining or surviving partners continue the business of the firm, it

will be deemed that they have constituted a new firm by mutual consent.

19

(1968) 1 WLR 893; J&J Cunningham v. Lucas, (1957) 1 Lloyd’s Rep. 416. 20

Section 42 (c). 21

Dulli Chand Lakshminarayan v. CIT, Nagpur, AIR 1956 SC 354. 22

AIR 1977 P&H 320 at p. 324.

13

Commissioner Of Income Tax, Madhya Pradesh, Nagpur v. Seth

Govindram Sugar Mills Ltd.23

Facts: After the death of Kalooram Todi, his two sons by name Govindram and

Gangaprasad constituted a joint Hindu family which owned extensive property in Jaora

State and a sugar mill called "Seth Govindram Sugar Mills" at Mahidpur Road in Holkar

State. In the year 1942 Bachhulal filed a suit for partition against Govindram and

obtained a decree therein. In due course the property was divided and a final decree was

made. We are concerned in these appeals only with the Sugar mills at Mahidpur Road.

After the partition Govindram and Bachhulal jointly worked the Sugar Mills at Mahidpur

Road. After the death of Govindram in 1943, Nandlal, the son of Govindram, and

Bachhulal as kartas of their respective joint families, entered into a partnership on

September 28, 1943, to carry on the business of the said Sugar Mills. Nandlal died on

December 9, 1945, leaving behind him the members of his branch of the joint family,

namely, the three widows and the two minor sons shown in the genealogy. After the

death of Nandlal Bachhulal carried on the business of the Sugar Mills in the name of

"Seth Govindram Sugar Mills".

For the assessment year 1950-51, the said firm applied for registration on the

basis of the agreement of partnership dated September 28, 1943. The Income-tax Officer

refused to register the partnership on the ground that after the death of Nandlal the

partnership was dissolved and thereafter Bachhulal and the minors could be treated only

as an association of persons. On that footing he made another order assessing the income

of the business of the firm as that of an association of persons. Against the said orders,

two appeals - one being the Appeal No. 21 of 1955-56 against the order refusing

registration and the other being Appeal No. 24 of 1955-56 against the order of assessment

- were filed to the Appellate Assistant Commissioner.

The Appellate Assistant Commissioner dismissed both the appeals. In the appeal

against the order of assessment, the Appellate Assistant Commissioner exhaustively

23

AIR 1966 SC 24.

14

considered the question whether there was any partnership between the members of the

two families after the death of Nandlal and came to the conclusion that in fact as well as

in law such partnership did not exist. Two separate appeals, being Income-tax Appeal No.

8328 of 1957-58 and Income-tax Appeal No. 8329 of 1957-58, preferred to the Income-

tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner were

dismissed.

Decision of High Court: The High Court held that in the assessment year 1949-50 the

status of the assessee was that of a firm within the meaning of s. 16(1)(b) of the Income-

tax Act and thus it was a partnership firm.

Clause (3) of the partnership deed provided, "The death of any of the parties shall not

dissolve the partnership and either the legal heir or the nominee of the deceased partner

shall take his place in the provisions of the partnership."

Section 31 of the Partnership Act reads:

(1) Subject to contract between the partners and to the provisions of section 30, no

person shall be introduced as a partner into a firm without the consent of all the

existing partners."

Converting the negative into positive, under s. 31 of the Partnership Act if there was a

contract between the partners, a person other than the partners could be introduced as a

partner of the firm without the consent of all the existing partners. A combined reading of

Ss. 42 and 31 of the Partnership Act, would lead to the only conclusion that two partners

of a firm could by agreement induct a third person into the partnership after the death of

one of them.

“Partnership,” under Section 4 of the Partnership Act, is the relation between

persons who have regard to share the profits of a business carried on by all or any of them

acting for all.

Section 5 of the said Act says that the relation of partnership arises from

contract and not from status.

15

The fundamental principle of partnership, therefore, is that the relation of partnership

arises out of contract and not out of status. Section 42 can be interpreted without doing

violence either to the language used or to the said basic principle.

Section 42(c) of the Partnership Act can appropriately be applied to a partnership where

there are more than two partners. If one of them dies, the firm is dissolved; but if there is

a contract to the contrary, the surviving partners will continue the firm. On the other

hand, if one of the two partners of the firm dies, the firm automatically comes to an end

and, thereafter, there is no partnership for a third party to be introduced therein and,

therefore, there is no scope for applying cl. (c) of s. 42 to such a situation. It may be that

pursuant to the wishes or the directions of the deceased partner the surviving partner may

enter into a new partnership with the heir of the deceased partner, but that would

constitute a new partnership.

In this light Sec. 31 of the Partnership Act falls in line with Sec. 42 thereof. That section

only recognizes the validity of a contract between the partners to introduce a third party

without the consent of all the existing partners. it presupposes the subsistence of a

partnership; it does not apply to a partnership of two partners which is dissolved by the

death of one of them, for in that event, there is no partnership at all for any new partners

to be inducted into it without the consent of others.

CONFLICT OF JUDICIAL DECISIONS

There is conflict of judicial decisions on this question. The decision of the

Allahabad High Court in Lal Ram Kumar v. Kishori Lal24

is not of any practical help to

decide the present case. There, from the conduct of the surviving partner and the heirs of

the deceased partner after death of the said partner, the contract between the original

partners that the partnership should not be dissolved on the death of any of them was

inferred. Though the partnership there was only between two partners, the question of the

24

AIR 1946 All. 259.

16

inapplicability of Section 42(c) of the Partnership Act to such a partnership was neither

raised nor decided therein.

The same criticism applies to the decision of the Nagpur High Court in Chinkaram

Sidhakaran Oswal v. Radhakisan Vishwanath Dixit25

This question was directly raised

and clearly answered by a Division Bench of the Allahabad High Court in Mt. Sughra v.

Babu26

against the legality of such a term of a contract of partnership consisting of only

two partners. Agarwala, J. neatly stated the principle thus:

"In the case of the partnership consisting of only two partners, no partnership remains on

the death of one of them and, therefore, it is a contradiction in terms to say that there can

be a contract between two partners to the effect that on the death of one of them the

partnership will not be dissolved but will continue…. Partnership is not a matter of

status; it is a matter of contract. No heir can be said to become a partner with another

person without his own consent, express or implied."

Ramachandra Iyer J. in Narayanan v. Umayal27

observed thus:

".......if one of the partners died, there will not be any partnership existing to

which the legal representatives of the deceased partner could be taken in. In such a case

the partnership would come to an end by the death of one of the two partners, and if the

legal representatives of the deceased partner joins in the business later, it should be

referable to a new partnership between them."

But Chatterjee J., in Hansraj Manot v. Messrs. Gorak Nath Pandey28

struck a different

note. His reasons for the contrary view are expressed thus:

"Here the contract that has been referred to is the contract between the two

partners Gorak Nath and Champalal ... Therefore, it cannot be said that the contract

25

AIR 1956 Nag. 46. 26

AIR 1952 All. 506, 507. 27

AIR 1959 Mad. 283, 284. 28

[1961] 66 C.W.N. 262.

17

ceased to have effect because a partner died. The contract was there. There was no new

contract with the heirs and there was no question of a new contract with the heirs

because of the original contract, and by virtue of the original contract the heirs become

partners as soon as one if the partners died .......... As soon as there is the death, the heirs

become the partners automatically without any agreement between the original partners

by virtue of the original agreement between the partners while they were surviving. There

is no question of interregnum. As soon as the death occurs the right of somebody else

occurs. The question of interregnum does not arise. The heirs become partners not

because of a contract between the heirs on the one hand and the other partners on the

other but because of the contract between the original partners of firm."

Decision of the Supreme Court: It held that this Section does not apply to a partnership

of two partners. There cannot be a contract between the partners that on the d4eath of one

of them, the partnership will not be dissolved.

BY THE ADJUDICATION OF A PARTNER AS AN INSOLVENT

Subject to the contract between the partners a firm is dissolved by the adjudication of a

partner as an insolvent.29

DISSOLUTION BY NOTICE OF PARTNERSHIP AT WILL

According to section 43 of the Indian Partnership Act, 1932:

1. “Where the partnership is at will the firm may be dissolved by any partner

giving notice to all the other partners of his intention to dissolve the firm.”

2. “The firm is dissolved as form the date mentioned in the notice as the date of

dissolution or, if no date is so mentioned, as from the date of communication of the

notice.”

29

Section 42(d).

18

This again is familiar law, except that notice is required to be in writing, as can be seen in

the English Act, section 32 (c) . A notice contemplated under this provision must, in

order to be effectual, be explicit and be communicated to all the partners. If before such

notice becomes operative an event occurs which dissolves the partnership, the notice

would become redundant since there would then exist no partnership on which it can

operate. If however there is an agreement that the partnership shall be terminated by

mutual agreement only, this right stands excluded.

Under section 43(1), if the partnership is at will, any partner may dissolve the firm by

giving notice. But in order to dissolve the firm the following conditions must be fulfilled:

A. Notice must be in writing;

B. Notice must express the intention of the partner to dissolve the firm; and

C. Written notice must be given to all the other partners.

Filing a suit in a court is not deemed to be a notice under Section 43(1). The Supreme

Court in Banarsi Das v. Seth Kashiram held this.30

In this case the earlier suit filed at

Lahore by one of the partners for dissolution of partnership and accounts was dismissed

for default, the parties having migrated to India, consequent on the partition of the

country. Later on, in another suit a declaration was sought by one of other partners that

the firm was dissolved on 13 May 1944 when the earlier suit was instituted. It was held

that analogy of suits for partition of joint Hindu family property with regard to which it is

settled law that if all the parties are majors, the institution of suit will result in the

severance of the joint status of the family was inapplicable under section 43(1) because

the rights of the partners of a firm to the property of the firm are of a different character

from those of members of a joint Hindu family.

The Supreme Court observed that under section 43(2), notice must contain the date from

which the firm will be dissolved. The question of writing the date of dissolution in a

30

AIR 1963 SC 1165; (1964) 1 SCR 316.

19

plaint does not arise. Thus plaint cannot be deemed to be as a notice under section 43(2)

31.

In Mc Leod v. Dowling,32

it was held that if before such notice becomes operative an

event occurs which dissolves the partnership, the notice would become redundant since

there would exist no partnership on which it can operate.

In Moss v. Elphick,33

it was held that if there is an agreement that the partnership shall be

terminated by mutual agreement only, this right stands excluded.

In Banarsi Das v. Seth Kashiram34

The plaintiff Kundanlal and the defendants 1 to 5

Banarsi Das, Kanshi Ram, Kundan Lal, Munnalal, Devi Chand and Sheo Prasad are

brothers and formed a Joint Hindu Family till the year 1936. Amongst other properties

the family owned a sugar mill at Bijnor in Uttar Pradesh called "Sheo Prasad Banarsi Das

Sugar Mills". After the disruption of the family the brothers decided to carry on the

business of the said sugar mill as partners instead of as members of a Joint Hindu Family.

The partnership was to be at will and each of the brothers was to share all the

profits and losses equally. The mill was to be managed by one of the brothers who were

to be designated as the managing partner and the agreement arrived at amongst the

brothers provided that for the year 1936-37, which began on September 1, 1936, the first

defendant Banarsi Das, who is the appellant was to be the managing partner.

The agreement provided that for subsequent years the person unanimously

nominated by the brothers was to be the managing partner and till such unanimous

nomination was made, the person functioning as managing partner in the previous year

must continue.

31

Pratap Singh J. had also upheld this position in Venugopal v. Jaya, (1993) 2 Mad LJ 434. 32

(1927) 43 TLR 665. 33

[1910] 1 KB 465. 34

AIR 1963 SC 1165

20

For the years 1941-44, Kundanlal was the managing partner. On May 13, 1944,

Sheo Prasad defendant No. 5 now deceased, instituted a suit in the court of the Sub-

ordinate Judge, First Class, Lahore, for dissolution of partnership and rendition of

accounts against Kundanlal and joined the other brothers as defendants to the suit. In the

course of that suit the court, by its order dated August 3, 1944, appointed one Mr. P. C.

Mahajan, Pleader, as Receiver but as the parties were dissatisfied with the order the

matter was taken up to the High Court in revision where they came to terms. In pursuance

of the agreement between the parties the High Court appointed Kanshiram as Receiver in

place of Mr. Mahajan as from April 5, 1945. In the meanwhile, the District Magistrate,

Bijnor took over the mill under the Defence of India Rules and appointed Kundanlal and

his son to work the mill as agents of the U.P. Government for the year 1944-45. The

Government for the year 1945-46 renewed this lease. On August 28, 1956, the parties,

except Devi Chand, made an application to the Court at Lahore praying that the Receiver

be ordered to execute a lease in favour of Banarsidas for period of five years. It may be

mentioned that this application was made at the suggestion of the District Magistrate;

Bijnor. The Subordinate Judge made an order in terms of the application. In September

1946, Banarsidas obtained possession of the mill. It may be mentioned that Sheo Prasad

had in the meanwhile applied to the court for distribution amongst the erstwhile partners

of an amount of Rs. 8,10,000/- (out of the total of Rs. 8,30,000/-) which was lying with

the Receiver and suggested that the amount which fell due to Kundanlal and Banarsidas

should be withheld because they had to render accounts. However, the aforesaid amount

lying with the receiver was distributed amongst all the brothers and Devichand

acknowledged receipt on November 14, 1946. On October 11, 1947, the Lahore suit was

dismissed for default, the parties having migrated to India consequent on the partition of

the country.

On November 8, 1947, Sheo Prasad instituted a suit before the court of Civil Judge,

Bijnor against his brothers for a permanent injunction restraining Banarsidas from acting

as Receiver. The suit, however, was dismissed on March 3, 1948. On July 16, 1948, Sheo

Prasad transferred his 1/6th share to Banarsidas and since then Banarsidas has been

21

getting the profits both in respect of his own share as well as in respect of that of Sheo

Prasad.

On July 30, 1949, Banarsidas filed his written statement but none of the other

defendants put in an appearance. On December 18, 1950, an application, which had been

made for the appointment of a Receiver, was dismissed on the ground that Kanshi Ram

who had been appointed as Receiver by the Lahore High Court continued to be the

Receiver. It may be mentioned that during the pendency of this suit the appellant

Banarsidas entered into an agreement with Devichand and Kanshi Ram where under he

took over all their rights and interests in the said mill for a period of five years

commencing from July 1, 1951. On February 19, 1951, he made an application to the

court for directing Kanshi Ram to give a lease of the mill to him for a period of five years

commencing from July 1, 1951. It may be mentioned that under an earlier arrangement

Banarsidas had obtained a lease for a similar term, which was due to expire on June 30,

1951. On April 26, 1951, one Mr. Mathur was appointed Receiver by the court and in

July 1951, he granted a lease for five years to Kundanlal on certain terms, which would

be settled by the court. It may be appropriate to mention here that issues in the suit

instituted by Kundanlal were framed on December 7, 1951, and one of the important

issues was whether the lease dated September 12, 1946, granted to Banarsidas was void

ab initio or was voidable and in either case what was its effect.

Contentions of Banarsidas:

(1) Under the Partnership Act, the partners are entitled to have the business of the

partnership wound up even though a suit for accounts is barred under Art. 106 of the

Limitation Act.

(2) Kanshi Ram having been appointed a Receiver by the Court stood in a fiduciary

relationship to the other partners and the assets, which were in his possession, must be

deemed to have been held by him for the benefit of all the partners. Therefore,

independently of any other consideration, he was bound to render accounts.

22

(3) The question of limitation was not raised in the plaint or the grounds of appeal

before the High Court and as it is a mixed question of fact and law, it should not have

been made the foundation of the decision of the High Court. If it was thought necessary

to allow the point to be raised in view of the provisions of s. 3 of the Limitation Act, the

courts should at least have followed the provisions of O. 41, r. 25, Code of Civil

Procedure, and framed an issue on the point and remitted it for a finding to the trial court.

(4) The Court was wrong in holding that limitation for the suit commenced on May

13, 1944.

(5) The High Court was wrong in resorting to the provisions of O. 41, r. 33, of the

Code of Civil Procedure.

RATIO DECIDENDI:

“Even assuming, however, that the term "notice" in the provision is wide enough to

include within it a plaint filed in a suit for dissolution of partnership, the sub-section itself

provides that the firm will be deemed to be dissolved as from the date of communication

of the notice. It would follow, therefore, that a partnership would be deemed to be

dissolved when the summons accompanied by a copy of the plaint is served on the

defendant, where there is only one defendant, and on all defendants, when there are

several defendants. Since a partnership will be deemed to be dissolved only from one

date, the date of dissolution would have to be regarded to be the one on which the last

summons was served.”

DECISION:

The Supreme Court held that the High Court's decision must be set aside and that of the

trial court restored. We may, however, mention that some of the parties including the

appellant Banarsidas and the plaintiff-respondent, Kundanlal as well as the defendant-

respondent Kanshi Ram were agreeable to certain variations in the decree. But as there

23

were other parties besides them to whom these variations are not acceptable, we are

bound to decide the appeals on merits. For the aforesaid reasons, we allow the appeals of

Banarsidas and Kundanlal and restore the decree of the trial court.

DISSOLUTION OF FIRM & JOINT HINDU FAMILY: DISTINCTION

Joint Hindu Family Partnership Firm

It is settled law that if all the

parties are majors, the institution of a suit

for partition will result in the severance of

the joint status of the members of the

family.

While the rights of the partners of a

firm to the property of the firm are of a

different character from those of the

members of a joint Hindu family.

While the members of a joint Hindu

family hold an undivided interest in the

family property,

2. But on the other hand, the partners of

a firm hold interest only as tenants-in-

common.

Now as a result of the institution of a

suit for partition, normally the joint status

is deemed to be severed, but then, from that

time onwards they hold the property as

tenants-in-common i.e., their rights would

thenceforth be somewhat similar to those

of partners of a firm.

3. In a partnership at will, if one of the

partners seeks its dissolution, what he

wants is that the firm should be wound up,

that he should be given his individual share

in the assets of the firm (or may be that he

should be discharged from any liability

with respect to the business of the firm

apart from what may be found to be due

from him after taking accounts) and that the

firm should no longer exist.

He can call for the dissolution of the

24

firm by giving a notice as provided in sub-

s. (1) of s. 43 i.e., without the intervention

of the court, but if he does not choose to do

that and wants to go to the court for

effecting the dissolution of the firm, he

will, no doubt, be bound by the procedure

laid down in O. 20, r. 15, of the Code of

Civil Procedure.

Order 20, Rule 15, of CPC35

reads thus:

"Where a suit is for the dissolution of a partnership or the taking of partnership

accounts, the Court, before passing a final decree, may pass a preliminary decree

declaring the proportionate share of the parties, fixing the day on which the

partnership shall stand dissolved or be deemed to have been dissolved, and directing

such accounts to be taken, and other acts to be done, as it thinks fit."

This rule makes the position clear. No doubt, this rule is of general application,

that is, to partnerships at will as well as those other than at will; but there are no

limitations in this provision confining its operation only to partnerships other than those

at will.

Section 43(1) of the Partnership Act does not say what will be the date from

which the firm will be deemed to be dissolved. For ascertaining that, we have to go to

Sub –Section (2).

35

Code of Civil Procedure, 1908.

25

Sub –Section (2), which reads thus:

"The firm is dissolved as from the date mentioned in the notice as the date of dissolution

or, if no date is so mentioned, as from the date of the communication of the notice."

Now, it will be clear that this provision contemplates the mentioning of a date

from which the firm would stand dissolved. Mentioning of such a date would be entirely

foreign to a plaint in a suit for dissolution of partnership and therefore such a plaint

cannot fall within the expression "notice" used in the sub-section. It would follow

therefore that the date of service of a summons accompanied by a copy of a plaint in the

suit for dissolution of partnership cannot be regarded as the date of dissolution of

partnership and s. 43 is of no assistance.

In Devi Textiles v. S. Suganthi36

there was a partnership at will and both the partners

(plaintiff and defendant) had 50% shares in the firm and both agreed to have the firm

dissolved and thereafter partners did not have good relationship, but the defendant

continued the business of the firm as if nothing happened and it is still in existence.

Decision: In such circumstances, it was held that the appointment of a receiver would be

proper for rendition of accounts and for completing winding up process.

DISSOLUTION BY COURT

This declaration of the grounds for judicial dissolution corresponds, with verbal variation

and additional provision adapted to Indian procedure, to section 35 of the English Act,

which was itself a somewhat enlarged version of section 254 of the Contract Act . The

section confers a right to pray for dissolution on any of the grounds specified therein

notwithstanding any term of the partnership deed.

36

AIR 2000 Mad. 62, at p. 65.

26

According to Section 44, Indian Partnership Act, 1932, the court may dissolve a firm on

any of the following grounds, namely:

a. A PARTNER BECOMING OF UNSOUND MIND

At the suit of a partner, the court may dissolve a firm on the ground that a partner has

become of unsound mind, in which case the suit may well be brought as well by the

next friend of the partner who has become of unsound mind as by any other partner.37

Since a person of unsound mind cannot perform the works of a partnership firm, it is

in the interest of such a person as well as other partners that the firm be dissolved. Hence

the next friend of unsound partner or any other partner may through a suit request the

court to dissolve the firm.

b. A PARTNER BECOMING PERMANENTLY INCAPABLE

At the suit of a partner, the court may dissolve a firm on the ground that a partner,

other than the partner suing, has become in any way permanently incapable of

performing his duties as partner.38

If the incapacity is temporary or is such that does not affect the duties of a partner, the

firm cannot be dissolved on this ground. For example there is fracture of the bone of leg

or hand and there is every likelihood of it being rectified or where a partner suffers from

paralysis or he is improving speedily by treatment, the firm cannot be dissolved on this

ground. In order to dissolve the incapacity must be permanent.39

37

Section 44(a), The Indian partnership Act, 1932. 38

Section 44(b), The Indian Partnership Act, 1932. 39

Whitewell v. Arthur, (1865) 147 RR 73, 55 ER 848.

27

c. PARTNER GUILTY OF CONDUCT LIKELY TO AFFECT

PREJUDICIALLY THE CARRYING ON OF THE BUSINESS

At the suit of a partner, the court may dissolve a firm on the ground that a partner, other

than the partner suing, is guilty of conduct, which is likely to affect prejudicially the

carrying on of the business regard being had to the nature of the business.40

TWO ASPECTS OF SECTION 44(C):

• The first thing to be noted in section 44(c) is that if the partner filing the suit

himself is guilty of conduct which is likely to affect prejudicially the carrying on of the

business, the court will not order the dissolution of the firm.

As remarked by Lord Romilly in Harrison v. Tenant41

as:

“No party is entitled to act improperly and then to say that the conduct f the partners and

their feelings towards each other are such that the partnership can no longer be

continued and certainly this court would not allow any person so as to act and thus to

take advantage of his own wrong.”

• The second important thing to be noted in section 44 (c) is that in order to

dissolve the firm on this ground, it is necessary that the partner must be guilty of a

conduct which keeping in view the nature of the business is likely to affect prejudicially

the carrying on of the business. If the partner is guilty of wrongful act willfully, the mere

fact that his continuance in the partnership firm will be detrimental for the firm will not

be sufficient to dissolve the firm.

Nature of the Business-

It may also be noted that much depends on the nature of the business.

40

Section 44(c), The Indian Partnership Act, 1932. 41

[1856] ALL ER 945.

28

In Snow v. Milford,42

a partnership firm carried on the business of the bankers. A partner

of the firm named Milford was guilty of living in adultery with several women and as a

result of this his wife had deserted him. Other partners filed as suit for dissolution of the

firm on the ground of the said bad conduct of Milford.

Reasoning + Decision: The court dismissed the suit holding that it cannot be said that a

customer’s money is not safe because one of the partners of the firm is guilty of adultery.

Though the court condemns the act of adultery of a person but this cannot be a ground for

the dissolution or expelling the partner.

Undoubtedly in some cases the moral conduct of a person may prejudicially affect

the business of a firm. For example, if a doctor enters into a partnership with another

doctor to run the clinic and it is found that he is immoral towards some patients,

partnership firm may be dissolved on this ground. But this is not so in the case of

business of bankers because in tit he moral conduct of a partner is not likely to affect

prejudicially the business of the firm.

But if the moral conduct of a partner is likely to affect prejudicially the business of the

firm even though the crime is less serious, keeping in view the business of the firm the

court may dissolve the firm. For example, if a partner in a firm of drapers is found

without ticket and is convicted, the firm may be dissolved.43

Similarly, if the conduct of a

partner is such that partners may lose faith in each other the firm may be dissolved.44

d. WILLFUL OR PERSISTENT BREACH OF AGREEMENT RELATING

TO THE BUSINESS OR MANAGEMENT OF THE AFFAIRS OF THE FIRM.

At the suit of a partner, the court may dissolve a firm on the ground that a partner,

other than the partner suing, willfully or persistently commits breach of agreements

42

(1868) 18 LT 142. 43

See Carmichael v. Evans, (1904) 90 LJ 573; (1904) 1 Ch. 486. 44

Supra note 18.

29

relating to the management of the affairs of the firm or the conduct of its business or

otherwise so conducts himself in matters relating to the business that it is not reasonably

practicable for the other partners to carry on the business in partnership with him.45

Under section 44(d) it is necessary that there is willful or persistent breach of

agreements relating to the business of the firm or the conduct of the partner is such that it

is not reasonably practicable for other partners to carry on business with him. If the

breach of agreement is not willful, a single breach shall not be sufficient to dissolve a

firm. Constant or continuous behavior of enmity between the partners making the

cooperation between them impossible, persistent refusal by one partner to perform his

duties, one partner habitually accusing the other partner pf gross misconduct in the

business, and to maintain wrong accounts and not to enter the receipts, are the

4examplaees of some of the grounds on which the firm may be dissolved under this

section. In the end it may be noted that the firm may be dissolved by the court on the suit

of a partner other than the one who is guilty.

e. TRANSFER OF THE WHOLE INTEREST IN THE FIRM BY A

PARTNER TO A THIRD PARTY

At the suit of a partner the court may dissolve a firm on the ground that a partner

other than the partner suing has in any way transferred the whole of his interest in the

firm to a third party, or has allowed his share to be charged under the provisions of Rule

49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, or has

allowed it to be sold in the recovery of arrears of land revenue or of any dues

recoverable as arrears of land revenue due by the partner.46

If a partner transfers whole of his interest to a third party he will have no interest

left in the firm and therefore, any other partner can get the firm dissolved by filing a suit

in court on this ground. Such a third party or transferee does not thereby become a

45

Section 44 (d), The Indian Partnership Act, 1932. 46

Section 44 (e), The Indian Partnership Act, 1932.

30

partner in the firm. It does not entitle the transferee, during the continuance of the firm to

interfere in the conduct of the business, or to require account or to inspect the books of

the firm, but entitles the transferee only to receive share of profits of the transferring

partner and the transferee shall accept the account of profits agreed to by the partners.47

If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee

is entitled, as against the remaining partners, to receive the share of the assets of the fir to

which the transferring partner is entitled, and for the purpose of ascertaining the share, to

an account as from the date of the dissolution.48

In Commissioner of Income Tax v. Sunil J. Kinariwala49

the Hon’ble Supreme Court

held that when the partner assigns 50 % of his share in a partnership firm in favour of

trust, the case of such assignment couldn’t be treated as one of sub-partnership.

In A.Chinna Ramanatham Naidu v. B. Subbarami Reddy50

the court held that under

section 44 if grounds for dissolution of the firm sought by a particular party are

numerous, it could be open to such party to approach a competent civil court, so that a

entire matter could be decided by that court on the basis of oral and documentary

evidence. Even if one of the clauses of partnership deed envisages referring the disputes

to the named arbitrators, then also the fact that arbitrators are chosen by both the parties

and a date was also fixed for arbitration proceedings, cannot be ground for a seeking stay

of further proceedings in a regular suit filed for a comprehensive relief.

f. PERPETUAL LOSS

At the suit of a partner, the court may dissolve a firm on the ground that the business of

the firm cannot be carried on save at a loss.51

47

Section 29(1), The Indian Partnership Act, 1932. 48

Section 29 (2). 49

AIR 2003 SC 668. 50

AIR 1994 AP 26 51

Section 44(f).

31

According to the definition of the partnership as given in Section 4, the chief

objective of partnership is to acquire profit. If the circumstances are such that this chief

objective cannot be attained and the business of the firm cannot be carried on the court on

this ground may dissolve save at loss, firm. Every partnership firm is established to attain

a particular objective and if the circumstances are such that it is not possible to attain that

objective, the remedy in such cases is to dissolve the firm.

For example, in a case partnership firm was established for the exploitation of mica

from mines, one of the partners filed a suit for the dissolution of the firm on the ground

that the firm is suffering loss continuously. Other partners opposed the suit on the ground

that the partnership was for a fixed period and that the plaintiff had no valid treasons to

resolve the firm before the expiry of the period. The court held that Section 44(f) will

apply in this case and that the plaintiff is entitled to sue for dissolution and accounts.

g. JUST AND EQUITABLE

At the suit of partner, the court may dissolve a firm on the ground that it is just and

equitable that the firm should be dissolved.52

Section 44(g) gives very wide powers to the court. Whenever a case is brought to the case

under section 44(g), the court has to decide whether it would be ‘just and equitable’, to

dissolve the firm and such matters cannot be left for decision or award of the

arbitration.53

Under section 44(f), 6the court has to decide according to its discretion but this discretion

cannot be restricted by rigid or inflexible rules. The court has to use its discretion on the

basis of facts and circumstances of the case. For example, in one case 4 out of 9 partners

wanted dissolution of the firm and their shares in the firm were 7/9. There was no co-

operation and mutual faith between the partners. There were many and long-persisting

disputes among them. The court held that it would be just and equitable to dissolve the

firm.

52

Section 44(g). 53

Nainder Singh Randhava v. Hasrdial Singh Dhillon, AIR 1985 P&H 41; See also Kalpana Kothari v.

Sudha Yadav, (2002) 1 SCC 203; AIR 2002 SC 89.

32

But where the management of the firm was in the hands of the defendants and they were

running the business properly and in profit, the court would not order the dissolution on

the mere ground that the plaintiff was violating the agreement and was creating

obstructions in the management of the business by the defendants. Besides the court will

order dissolution on the suit of a partner who himself is guilty of misconduct.

Under Section 44(g), the court possesses very wide powers. To arrive at the inference that

it would be just and equitable to dissolve the firm the court may consider the events

subsequent to the filing of the suit.

Last but not least, it may be noted that Section 44 is not subject to contract between

partners. It confers right on the partners to file suit for the dissolution of the firm on the

ground mentioned in the Section.

STAY OF ARBITRATION

Although the arbitration clause in a partnership agreement may be sufficiently

wide to include the question whether the partnership should be dissolved, the court in its

discretion may not stay a suit for dissolution, if dissolution is sought under Section

44(g).54

Whenever dissolution of partnership is sought under Section 44(g), then it is for

the court to decide, whether it would be just and equitable to dissolve the partnership or

not and such a matter cannot be left to be gone into and decided by the arbitrator in

pursuance of the arbitration clause contained in the partnership deed.

Last but not least, it may be noted that Section 44 is not subject to contract between

partners. It confers right on the partners to file suit for the dissolution of the firm on the

ground mentioned in the Section.

54

Oliver v. Hillier, [1959] 2 All ER 220.

33

CONCLUSION

The firm is dissolved when all the partners of a firm is called the “dissolution of the

firm”. Thus we can conclude that the firm is dissolved when all the partners stop carrying

on the partnership business. If some partners dissociate from the firm and the remaining

partners continue the business of the firm, the firm is not dissolved. The dissolution of a

firm is distinct from the retirement of a partner because in latter situation others or

remaining partners continue the business of the firm and the firm is not dissolved. Thus

dissolution of partnership between all the partners of a firm is called dissolution of the

firm.

The dissolution of the partnership brings about a change in the relations between partners

but partnership between them does not completely end. The partnership continues for the

purpose of realization of assets or properties of the firm.

Further, after the dissolution of a firm the authority of each partner to bind the firm, and

the other mutual rights and obligations of the partners, continue notwithstanding the

dissolution, so far as may be necessary to wind up the affairs of the firm and to complete

transactions begun but unfinished at the time of the dissolution, but not otherwise.