DISSOLUTION OF INDIAN FIRMS-

VARIOUS MODES
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.

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result, Chapter XI of the Contract Act was repealed and replaced by the Partnership Act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

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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

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 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.

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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 11th 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

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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)

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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, 15th edn, pp 693-4.
4
Section 41(a).

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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
7
In the English case of Esposito v. Bowden 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
15th edn, pp 89-91.
7
(1857) 7 E&B 763.
8
(1978) QB 451.
9
Section 41(b).

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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.

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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).

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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.

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 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.

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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.

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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.

14

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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.

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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.

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 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).

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 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.

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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

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 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

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 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.

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(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

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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

While the rights of the partners of a

It is settled law that if all the firm to the property of the firm are of a
parties are majors, the institution of a suit different character from those of the
for partition will result in the severance of members of a joint Hindu family.
the joint status of the members of the
family.

While the members of a joint Hindu 2. But on the other hand, the partners of
family hold an undivided interest in the a firm hold interest only as tenants-in-
family property, common.

Now as a result of the institution of a 3. In a partnership at will, if one of the

suit for partition, normally the joint status partners seeks its dissolution, what he
is deemed to be severed, but then, from that wants is that the firm should be wound up,
time onwards they hold the property as that he should be given his individual share
tenants-in-common i.e., their rights would in the assets of the firm (or may be that he
thenceforth be somewhat similar to those should be discharged from any liability
of partners of a firm. 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

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 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.

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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.

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 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.

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 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.

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 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.

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 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.

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 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).

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 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.

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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.

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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.

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