MODES OF

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DISSOLUTION
OF A FIRM
Submitted by:
Vivek Kumar Bansal
Roll No: 154/18
Section: C
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MEANING OF DISSOLUTION
• Dissolution of partnership firm means coming to an end
the relation between the partners of a firm.
• According to Section 39 of the Indian Partnership Act,
1932, when the dissolution of partnership between all
the partners of the firms occurs, it is known as the
dissolution of the firm.

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 MODES
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1. By Agreement
2. Compulsory Dissolution
3. On happening of certain event
4. By Notice
5. By the court

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1. DISSOLUTION
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The dissolution of a firm by an agreement has been

explained under Section 40 of the Indian Partnership Act,
1932.
According to the Section 40 , A firm may be dissolved
either:
• With the consent of all the partners;
• Or, in accordance with a contract between the parties.

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• With the consent of the partners: As partners can

form a firm with a consent similarly the they are also
free to end the partnership by mutual consent.

• In accordance with a contract between the parties:

When there exists the contract between the partners
indicating as to when and how a firm may dissolved, a
firm may be dissolved.

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2. COMPULSORY DISSOLUTION

Section 41 mentions certain events on the

happening of which there must be the compulsory
dissolution of the firm.
These circumstances are:
• If due to any event the business of the firm
becomes unlawful.

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• If the firm was carrying on one or more than
adventures, the illegality of one or more of them shall
not of itself result in the dissolution of the firm in
respect of those adventures which are still lawful.
Also,
• There is also a compulsory dissolution of the firm if
some event happens because of which it becomes
unlawful for the partners to continue as partners with
each other.

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 3. DISSOLUTION
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HAPPENING OF CERTAIN EVENTS

Section 42 mentions certain contingencies/events on the

happening of which the firm is dissolved, unless there
exists a contract to the contrary.
These events/contingencies are:
• Expiration of partnership term.
• Completion of the adventure.
• Death of the partner.
• Insolvency of the partner.
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 • Expiration
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the partnership term: When the
title style
partnership has been constituted for a fixed term, it
continues for the contemplated term and would be
dissolved one expiry of such a period.
• Completion of the adventure: Partnership created for
some specific adventure or undertaking comes to an
end on the completions of such an adventure or
undertaking.
In the of Dayalal v. Harijawandas, it was held by the
court that if there exists an agreement between the
partners that the partnership will continue to exist even
after the completion of the adventure, then the mutual
rights and duties of the partners will be the same and
continue to operate in the upcoming adventure also.
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• Death of a Partner: Death of a partner results in the

dissolution of the firm unless the remaining partners
agree to the contrary.

• Insolvency of the partner: When a partner is

adjudicated insolvent, he ceases to be a partner. The
firm is also dissolved unless there is an agreement
between the remaining partners to the contrary.

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Click4.toDISSOLUTION BY NOTICE
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Dissolution by notice is explained under Section 43.

When the Partnership is at will, the partners are not
bound to remain as partners or continue the partnership
for any fixed period.
As per Section 43, such a firm may be dissolved by any
partner giving notice in writing to all the other partners
of his intention to dissolve the firm.
In the case of Jenes v. Lloyd, it was held by the court
that dissolution by a notice will be valid even though
one of the partners to whom the notice is given is
insane.
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 • The notice must clearly and in unambiguous terms
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indicate Masteroftitle
the intention style giving notice to
the partner
dissolve the firm.
• The notice for dissolution is a statutory requirement
and therefore, the requirements of Section 43 have to
be satisfied.
• Also, a partnership at will is dissolved by a partner
giving notice, in writing, to all other partners of his
intention to dissolve the firm.
In the case of Sri Krishan Gupta v. Ram Babu Gupta,
it was held by the court that even though the partnership
at will is dissolved by notice, however nothing prevents
the dissolution of such a partnership by the mutual
consent of the partners, death of a partner or insolvency.
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 5. DISSOLUTION
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style

Section 44 mentions certain grounds on which a suit can

be filed for the dissolution of a firm.
This suit can be filed by the innocent partners and not
by the partner whose conduct is the subject matter of the
suit.
The grounds given under Section 44 are:
• Unsoundness of mind: When a partner becomes of
unsound mind, a suit for dissolution of the firm can be
filed

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• Permanent incapacity to perform the duties: When

a partner becomes permanently incapable of
performing his duties as a partner then that is a good
ground for applying to the court for the dissolution of
the firm. When the incapacity is not permanent, the
court would not grant relief.

• Conduct injurious to the partnership business:

When a partner is guilty of conduct which is likely to
effect prejudicially the carrying on the business of the
firm, the court may dissolve the firm on that ground.
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• Persistent breach of partnership agreement: When
a partner wilfully and persistently commits breach of
agreements relating to the management of the affairs
of the firm or so conducts himself in matters relating
to the firm’s business that it is not reasonably
practicable for the others to carry on the business in
partnership with him, a suit for dissolution may be
filed.

• Transfer of the whole of a partner’s interest: When

a partner has transferred the whole of his interest in
the firm to the third party, it can be a ground on which
the court may dissolve the firm.
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.
• When the business can be carried only at a loss: If
it appears that the business of the firm cannot be
carried on except at a loss, any of the partners may
apply to the court for the dissolution of the firm.

• When dissolution is just and equitable: Apart from

ordering the dissolution of the firm on the above
mentioned grounds, the court has the wide power of
dissolving the firms on any other ground which
renders it just and equitable that the firm should be
dissolved.
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In the case of Harrison v. Tenant, it was held that the
conduct of one of the partners being destructive of
mutual confidence, which could not be restored was a
valid ground for dissolution of firm.

Also, in the case of Abbot v. Crump, it was held by the

court that adultery by one of the partner with another
partner’s wife was held to be the good ground for the
dissolution of the firm by the court.

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LIABILITIES FOR ACTS DONE
AFTER DISSOLUTION

As per Section 45,The parties continue to be liable to

the third party for any acts done by them which would
have been an act of the firm if done before the
dissolution, until a public notice is given of the
dissolution.

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 CONCLUSION
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• Thus, a firm may be dissolved by any of the given

modes under the Indian partnership act, 1932.
• These grounds are given under Section 39-44 of the
act.
• A firm dissolved by any of the modes given by the act
discontinues to operate its operations in future.

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