PANJAB UNIVERSITY,

CHANDIGARH

A PROJECT ON:

MODES OF DISSOLUTION OF
PARTNERSHIP FIRM

SUBMITTED TO: PROF. AMITA VERMA

SUBMITTED BY: VIKRANT

B.A.LL.B. (HONS)

SECTION- C

SEMESTER- 7TH

ROLL NO.: 147/20

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 ACKNOWLEDGEMENT

This project became reality with the kind support and help of many individuals. I would
like toextend my sincere thanks to all of them.

Foremost, I want to offer this endeavour to our god almighty for the wisdom he
bestowed uponme, the strength, peace of my mind and good health in order to finish this
research.

I would like to express my gratitude towards my family for encouragement which helped
me incompletion of this project.

I am highly indebted to my department, University Institute of Legal Studies, Panjab

University, Chandigarh for providing me with opportunity to undertake this project work.

I would like to express my special gratitude to my subject professor, Prof. Amita

Verma, forimparting knowledge and expertise in this study. His guidance was
valuable for me.

Further, I recognize the fact that material I used in this project is not entirely mine. I reserve
aspecial thanks to the sources I referred and collected material facts from there.

VIKRANT(147/20)

2
 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 As a result, Chapter XI of the Contract Act was repealed and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 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 good will. 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.

3
 WHAT IS PARTNERSHIP?
The Indian Partnership Act, 1932 lays down the provisions for partnership among a group
of people who wants to run a business or company together. According to section 4 of the
Indian Partnership Act, 1932; “‘Partnership’ is the relation between persons who have
agreed to share the profits of a business carried on by all or any of them acting for
all. Persons who have entered into partnership with one another are called
individually, ‘partners’ and collectively ‘a firm’, and the name under which their
business is carried on is called the ‘firm-name’.”

Illustration: A is a goldsmith who promises to provide B with gold to make ornaments.

They both enter into a contract to sell the ornaments and share the profit equally. Here A
and B are partners and they are in a partnership for selling gold ornaments.

ESSENTIALS ELEMENTS OF A PARTNERSHIP

There are 5 essential elements who must exist to form a partnership. These 5 essentials
are explained here under;

1. Contract for Partnership – Partnership arises because of a contract made

between the partners with their consent. It does not arise because of inheritance or
by status like HUF cannot be regarded as a result of partnership as it arises because
of status and inheritance. Example- if a father dies who is a partner in a firm, then
his son can claim share in the partnership property but cannot become a partner.
To become a partner, he will have to enter into a contract with all the other partners
of the firm.
2. Purpose of carrying on a business – The purpose of partnership firm should be
to carry on a business. The term ‘Business’ can be defined as any trade, occupation
or profession carried on by a company or firm in order to make profit. Thus, any
charitable work or company will not be included under partnership.
3. Two or more people – There must be minimum of 2 people to constitute a
partnership. The Indian Partnership Act, 1932 does not specifies any upper limit
on the number of members in a partnership. However, according to the Companies
Act, 2013 the maximum number of members in a partnership firm should not be
more than 100.
4. Sharing of profits – The contract between the partners of a firm must be in order
to share equal profits arising out of the business activities. However, the partners
may decide upon the ratio of sharing of profit.
5. Mutual agency – The most essential element of partnership is to carry on the
business by all the partners or by anyone of them acting on behalf of all i.e., every
partner has a dual role which is of an agent and a principle.

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

4
 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
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. 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.

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

DISSOLUTION BY AGREEMENT
“A firm may be dissolved with the consent of all the partners or in accordance with a
contact between the partners” 2
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. 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

1
CIT. West Bengal v. M/s AW Figgis & Co. AIR 1953 SC 455
2
Sec. 40 of The Indian Partnership Act 1932

5
 intervention of the court. 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.
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. 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. In the matter of P. Venkateswarlu v.
Lakshmi Narshima Rao3, 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
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. As regards insolvency

3
AIR 2002 AP 62

6
 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. A firm is dissolved by the adjudication of all the partners or of all the
partners but one as insolvent. 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
be 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 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 atleast 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.

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. In the English case of Esposito v. Bowden4, 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. Watson
5
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. 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 of itself cause the dissolution of the
firm in respect of its lawful adventures and undertakings. 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.

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

4
(1857) 7 E&B 763
5
(1978) QB 451

7
 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. 6
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 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. 7
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.
In Mann v. D’Arcy8, 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.9
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. 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.

6
Sec 42(a) of The Indian Partnership Act 1932
7
Sec 42(b) of The Indian Partnership Act 1932
8
(1968) 1 WLR 893
9
Sec 42(c) of The Indian Partnership Act 1932

8
 Nandlal Sohanlal, Jullandar v. CIT, Patiyala 10thus 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.

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.”

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
Kashiram11 held this. 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 plaint does not arise. Thus plaint cannot be deemed to be as
a notice under section 43(2).

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

10
AIR 1977 P&H 320
11
AIR 1963 SC 1165

9
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.
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. 12
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.13
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.
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.14
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. Tenant15 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

12
Sec 44(a) of The Indian Partnership Act 1932
13
Sec 44(b) of The Indian Partnership Act 1932
14
Sec 44(c) of The Indian Partnership Act 1932
15
(1856) ALL ER 945

10
 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.
In Snow v. Milford 16, 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.

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
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.17
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 examplaees 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. 18
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

16
(1868) 18 LT 142
17
Sec 44(d) of The Indian Partnership Act 1932
18
Sec 44(e) of The Indian Partnership Act 1932

11
 this ground. Such a third party or transferee does not thereby become a 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. 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. In Commissioner of Income Tax v. Sunil J. Kinariwala 19 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.

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. 20
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. 21
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.
Under section 44(f), the 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.

19
AIR 2003 SC 668
20
Sec 44(f) of The Indian Partnership Act 1932
21
Sec 44(g) of The Indian Partnership Act 1932

12
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.

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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.

BIBLIOGRAPHY
 Avtar Singh, Business Law (EBC Publication, 11TH edn.)
 K.R. Bulchandni, Business Law for Management (Himalaya Publication House,
5th edn.)
 Kennan, Davis, Business Law ( Pitman Publication, London, 3 rd edn. 1996)
 Nirmal Singh, Business Law (Deep & Deep Publication, New Delhi, 6th edn 2003)
 Moshal, Modern Business Law ( Ane Books Pvt. Ltd, New Delhi, 7 th edn, 2009)

WEBLIOGRAPHY
 https://blog.ipleaders.in/dissolution-of-a-partnership/
 https://www.toppr.com/guides/accountancy/dissolution-of-partnership-
firm/dissolution-of-partnership-dissolution-of-firm-and-settlement-of-
accounts/
 https://www.wonder.legal/in/modele/deed-of-dissolution-of-partnership-firm
 https://byjus.com/commerce/dissolution-of-partnership/
 https://www.yourarticlelibrary.com/accounting/partnership-
account/dissolution-of-partnership-firm-accounting-procedure/52439

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