S.N.D.T.

Women’s University
Law School
Contract Law
Subject:- Dissolution of partnership firm
Class :- LLB 1st Year
Name :- Pratiksha Tripal Bhagat
ROLL NO:-4
Submitted to: Mrs. Anaheeta Balsara

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 Index
SR. No. Topic Page No
1 Introduction 3-4
2 Meaning of Dissolution of a Firm 5
3 Modes of Dissolution 6-23
4 Liability for acts of partners done after dissolution 24-25
5 Right of partners to have business wound up after 25
dissolution
6 Continuing authority of partners for purposes of 25-26
winding up
7 Mode of settlement of accounts between partners 26-27
8 Personal profits earned after dissolution 27-28
9 Return of premium on premature dissolution 28-30
10 Rights where partnership contract is rescinded for 30-31
fraud or misrepresentation
11 Right to restrain from use of firm-name or firm- 31-32
property
12 Agreements in restraint of trade 32-33
13 Sale of goodwill after dissolution 33-34
14 Case Law 35-37
15 Conclusion 38

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 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repealed and replaced by the Partnership Act of 1932.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
3
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.

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 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 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, Schedule I of the Bombay tamps 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.

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 Modes of Dissolution

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 – Section 40

 Dissolution by notice of partnership at will – Section 43

 Compulsory Dissolution – Section 41

 Dissolution on the happening of certain contingencies – Section

42

 Dissolution by the Court – Section 44

The Indian Partnership Act, 1932 is an Act enacted by the Parliament
of India to regulate partnership firms in India. It received the assent of the
Governor-General on 8 April 1932 and came into force on 1 October 1932.
Before the enactment of this act, partnerships were governed by the provisions
of the Indian Contract Act. The act is administered through the Ministry of
Corporate Affairs. The act is not applicable to Limited Liability Partnerships,
since they are governed by the Limited liability Partnership Act, 2008.
In this paper, I will try to give an in-depth insight to the dissolution of a
partnership firms in India along with its comparison with the England
Partnership Act, 1890.
The part VI of the Indian Partnership Act, 1932 from Section 39 to
Section 55 which explains the meaning of partnership and different modes
through which the partnership firm can be dissolved.

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 Section 39: Dissolution of a firm

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

the ‘dissolution of the firm’.
The Act recognizes the difference between dissolution of a partnership
firm and a mere retirement of a partner. On dissolution each partner is paid his
share of profits, if any, whereas on the retirement, death or adjudication of one
partner, a dissolution does not necessarily follow, for it may be a term in the
partnership agreement that a firm should be continued by other partners. The
Supreme Court in the case C.I.T , W.B vs. A.W Figgis & co. 1 clarified that “
there is no dissolution of firm by mere incoming or outgoing of partners. A
partner can retire …… and a person can be introduced in partnership by
consent of the other partners”. Thus dissolution is something different from
retirement of a partner, because in retirement of a partner, the business is
continued by one or more of the partners. Where immediately after dissolution,
the firm is reconstituted and the business resumed by the partners, even if in
the same name and place, that remains dissolution. One out of four partners
unilaterally dissolved the firm and instructed the bank to freeze the account.
He was holding minority interest of 29%. The remaining partners with interest
of 71% decided to continue the business of the firm. As per the agreement the
bank can be operated by any of the partners. It was held that 29% holder could
not have dissolved the firm unilaterally nor the bank could freeze the account
at his instance. The Gujarat High Court also reiterated that in retirement a
partner withdraws from the firm without affecting the Jural relationship
subsisting between other partners. There is no severance of the jural relation
with the partnership inter se between all the partners.

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 Section 40: Dissolution by agreement.
A firm may be dissolved with the consent of all the partners or in
accordance with a contract between the partners.
(1) By Contract: A firm may be dissolved at any time at the consent of
all the partners. This applies to all the cases whether the firm is for a fixed
period or at will. A Dissolution was held to have taken place in the case of a
partnership at will when the partners decided not to carry on the business of
the firm from an agreed date.
(2) By Agreement: A firm may be dissolved in accordance with a
contract between the partners. The contract provided for dissolution may be
contained in the partnership deed itself or in a separate agreement.
Both the above kinds of dissolution are provided in the same section, but
they are different. Partners can consent to dissolution regardless of what their
previous agreements are. But in dissolution by contract they have to follow
their subsisting agreement, whether all the partners give their consent or not.
In the case law, Harish Kumar vs. Bachan Lal, the parties entered into a
partnership business at Barnala under the name M/s. Mehar Chand Bachan Lal
and a regular partnership deed was executed between them on 30-3-1954. The
business was carried on by them in equal shares in the assets and it was a
partnership at will and any party could retire from it on giving one months
notice in writing and on the retirement of any of the parties, the partnership
would be deemed to have dissolved. Both the parties were liable in respect of
the liabilities and entitled to the assets of the partnership in accordance with
their shares. It is the common case of the parties that firm worked up to 18-7-
1971 and after that it did not do any business. According to the plaintiff, the
firm was maintaining regular books of accounts and it was alleged that the
defendant was in possession of the same. Since the partnership was at will and
it was not carrying on any business, the plaintiff deemed it proper not to
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continue the partnership and served a notice dated 7-4-1974 under registered
A. D. cover on the defendant for dissolution of the firm, informing that he did
not want to continue the said firm and that he be deemed to be not partner
w.e.f. 10-7-1974 and firm be treated as dissolved from that date. He further
requested the defendant to settle all the accounts of the firm and whatever
amount is found due to him after rendition of accounts, he is entitled to interest
thereon at the rate of 12% per annum. This suit for rendition of accounts was
filed on 23rd August, 1974. In the case, it was held that refusal and neglect on
the part of any one partner to perform the duties undertaken by him would give
to any other partner the right to apply for dissolution or without legal
proceedings the partnership could by agreement be dissolved.
Section 41: 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.
Provided that, where more than one separate adventure or under-taking
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.
Compulsory Dissolution: The two events mentioned in the section, namely, the
insolvency of all, or all but one , partners, or illegality of business are known as
grounds of compulsory dissolution because they operate to bring about such
necessary dissolution that there can be no agreement to the contrary. No

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amount of clauses in the act can prevent the operation of Section 41. The 2
clauses mentioned in the Section are as follows:-
(a) Insolvency: The sub-Section is based upon the obvious principle that that
there must be at least 2 persons to constitute a firm. As already seen, on
adjudication as insolvent partner ceases to be a partner as from the date on
which he is adjudicated an insolvent5. Under Section 42(d), in the absence of a
contract to the contrary the adjudication of a single partner operates as a
dissolution of a firm. The case contemplated, however by this Section is where
the whole firm adjudged insolvent, or all the partner but one are adjudged
insolvent. It is clear that under circumstances, the firm is dissolved, there being
no question of a contract to the contrary.

(b) Prohibition of Business: where a partnership carrying a business in

British/Indian Territory is dissolved by 1 partner becoming an alien enemy and
the Indian profits made after the dissolution by the use of his capital, payment
being of course suspended during the war, an agreement may be void but not
illegal. An agreement by way of Wager is void but not illegal under Section
30 of the Contract Act. The Supreme Court has held that a partnership formed
for entering into wagering would not be illegal; though it would be void. A
firm, would not be illegal and its speculative business being void would not be
enforceable in the court of law. Where the business of a firm is illegal from the
very beginning, the agreement of partnership is itself unlawful under Section
23 of the Contract Act.
The proviso to the Section deals with cases in which the firm is carrying
on not one business, but more than one type of business. If in such a case, if
one activity remains lawful, the partnership escapes compulsory dissolution. In
the case R. vs. Kupfer partnership was declared unlawful simply because of a
war that broke into England and Germany. It survives for the business which

10
remains lawful, though it’s other business operation being now unlawful,
would have to be abandoned.
Section 42: Dissolution on the happening of 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.
A firm is dissolved on the happening of any of the following contingences,
provided above, that there is no agreement to the contrary:
(a) If the firm is constituted for a fixed period, by the expiry of that firm:
Where a partnership has entered into for a fixed term, the partnership is at the
end of the term dissolved by the expiry of that term, without any further act or
notice, even when there is a partnership for a fixed period, the death of a partner
taking place during the continuance of the partnership period dissolves the
partnership earlier.
(1) Expiry of a Term: where a firm is constituted for a fixed term, it becomes
dissolved on the expiry of that term, unless the dissolution is prevented by an
agreement between the partners. The Supreme Court held on the facts on the case
before it that, in the absence of an agreement to the contrary there was no
question of the survival of the firm after the expiry of the term of its term and the
fact that the partners, subsequent to the expiry of the term, consented to refer the
disputes to arbitration did not amount to an agreement to the contrary.

(2) Completion of Business: A partnership is dissolved by operation of law

when the business for which it was formed has been completed. The Section says
that when a firm is constituted to carry out one or more adventures or
undertakings, it is dissolved by the completion thereof. Where, in a case before
the Patna High Court, Ramnarayan vs. Kashinath, the firm was working a salt
11
license and control on salt being lifted, the firm became inoperative, the question
arose whether the firm had come into being only for working the licenses or to
carry on salt business whether, with or without control or license, Ramswamy,
the decision was, that the intention of the partners was that the partnership should
continue so long as the agency of salt continued or till separate agencies were
obtained.
(b) If the firm is constituted to carry out one or more adventures or
undertakings, when they are completed: This sub-section refers to the
dissolution of particular partnerships. Where a partnership was constituted only
for the purpose of exploiting a salt license, the partnership was dissolved on the
salt control being lifted and on the termination of the license. So where a
partnership was constituted to carry out contract with specified persons during
particular seasons and as the said contracts were closed, the partnership was
dissolved. However, the death of a partner dissolves earlier even a partnership for
a particular adventure. Completion of an adventure or undertaking does not mean
supply of or part or even substantial part of the agreed goods. It is completed
upon the realization of amount in respect of the said supply.

(c) By the death of a partner:The effect of clause (c) of Section 42 is that in the
absence of a contract to the contrary, a partnership is dissolved by the death of a
partner. Death of a partner means dissolution of partnership. In a case before the
Rajasthan High Court it was contended against a firm that it should not be
permitted to sue as one of the partners died and the firm became dissolved; if the
business was continued, it should be registered anew and that not having been
done it was not competent to sue. The court allowed the action. It is often
desirable, and in practice it is not uncommon to provide by agreement that the
death of a partner shall not dissolve the contract between others.
As to the effect of Death, I.N. Modi J. said: “it is true that the Section 42(c) of
the Indian Partnership Act provides that a firm is dissolved by the death of a
partner. It must be however be remembered that this would be subject to contract
12
between the parties as the opening words of the Section show. Again, it is not
necessary that a contract between the partners in this connection need be express,
but may be implied and it may be possible to spell out such a contract from the
subsequent conduct from the of the surviving partners and the heirs of the
deceased. Whether a firm, which should have been dissolved by the death of one
partner still continued to exist without being dissolved would depend on the facts
and circumstances of each case. The business in this case was continued by the
surviving partners along with the heirs of the deceased partner. There was held to
be automatic dissolution where one of the two partners die. There was a clause in
the partnership deed that the firm would be continued for a certain number of
years even after the death of one of the partners, the court said that the clasue did
not save the firm form dissolution because the legal heirs of the deceased partner
has expressed their unwillingness to the continuation of the firm. The above facts
were seen in the case of Jai Narayan Misra vs. Hashmathunnisa Begum,
2002.
(d) By the adjudication of a partner as an insolvent.: A partnership is
dissolved at the adjudication of a partner as an insolvent. 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 hereby dissolved. Where
under a contract between the partners the firm is not dissolved by the
adjudication of a partner as an insolvent, the estate of a partner so adjudicated is
not liable for any act of the firm and the firm is not liable for any act of the
insolvent, done after the date on which the order of adjudication is made.
This being subject to an agreement to contrary, the partners can agree that
the insolvency of a partner will not have any dissolving effect. Such an
agreement will be subject to the provision of the act relating to compulsory
dissolution namely that on the insolvency of all the partners or all but one, the
firm would stand compulsorily dissolved.
Section 43: Dissolution by notice of partnership at will.
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(1) Where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all the other partners of his intention to dissolve the
firm.
(2) 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.
Dissolution of partnership at will.
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 vs. Seth Kashiram 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. No particular formality is required but
the notice must be an unambiguous intimation of a final intention to dissolve a
partnership17. The notice must be explicit, precise and final. A mere proposal to
dissolve a partnership depending upon the result of an enquiry to be made and
information to be gathered would not amount o an unconditional expression of an
14
intention to dissolve under this section. A resolution passed at the meeting of the
partners would be a result of the deliberations; this may come under Section 40
but not under this Section as it is not a notice in writing by a partner to all other
partners as required by this section. The service of writ and plaint in a suit for
dissolution upon all defendants maybe a sufficient notice of an intention to
dissolve. The notice should be served on all the other partners. The notice once
given cannot be withdrawn unless all the other partners consent18. The fact that
one of the partner receiving the notice is of unsound mind does not affect the
validity of the notice. In a partnership at will it is open to a partner even if there
is no dispute between them to dissolve the firm. 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). In
Devi Textiles vs. S. Suganthi19there 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.
Section 44: Dissolution by the Court.
At the suit of a partner, the Court may dissolve a firm on any of the following
grounds, namely:—
(a) that a partner has become of unsound mind, in which case the suit may be
brought as well by the next friend of the partner who has become of unsound
mind as by any other partner;

(b) that a partner, other than the partner suing, has become in any way
permanently incapable of performing his duties as partner;

15
(c) 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;

(d) 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;

(e) 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 (5 of 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;

(f) That the business of the firm cannot be carried on save at a loss; or

(g) On any other ground which renders it just and equitable that the firm
should be dissolved.
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.
At the suit of a partner, the Court may dissolve the firm on the above
mentioned grounds.
(a) Insanity- Insanity does not dissolve the partnership ipso facto confirmed
lunacy provides a ground for dissolution by the court if other partners apply to
court for dissolution. It is now clear that in the case of insanity, a next friend on
behalf of the lunatic may sue for dissolution. The judge exercising jurisdiction in
lunacy is also empowered to dissolve a partnership in the case of a partner

16
becoming a lunatic(as per Section 52 of Indian Lunacy Act, 1912). It is not
necessary that the partner of unsound mind should be found a lunatic by
inquisition. The same was found in the case of Jones vs. Lloyd, where
dissolution was necessary to protect the interest of insane and the other partners.
On the application of any of the partner, court may order for the
dissolution of the firm if a partner has become of an unsound mind. Lunacy of a
partner does not itself dissolve the partnership but it will be a ground for
dissolution at the instance of other partners. It is not necessary that the lunacy
should be permanent. In the case of a dormant partner the court may not order
dissolution even on the ground of permanent insanity, except in special
circumstances.
(b) Permanent Incapacity- whether any partner has become permanently
incapable of performing his duties as a partner; any partner can apply for
dissolution. The incapacity may be due to illness, mental or physical in nature but
it must be permanent. 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 likely hood 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. If a partner
has become permanent in capable of discharging his duties and obligations then
court may order for the dissolution of firm on the application of any of the
partner. where a partner is imprisoned for a long period of time the court may
dissolve the partnership was held in case of Whitwell vs. Arthur. In the case law,
Whitwell vs. Arthur, a partner suffered from an attack of paralysis and that
would have been a good ground for dissolution for the fact that the medical
evidence showed that the attack was only temporary and he was already
improving.

17
 (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. If any partner other than partner suing is responsible
for any loss to the firm, which amounts to misconduct and prejudicially affects
the carrying on of business then the court may order for the dissolution of the
firm. If any partner other than partner suing is responsible for any loss to the
firm, which amounts to misconduct and prejudicially affects the carrying on of
business then the court may order for the dissolution of the firm.
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 in Harrison vs. Tenant, “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.

It may also be noted that much depends on the nature of the business. In Snow
vs. Milford, a partnership firm carried on the business of the bankers. A partner
18
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. Similarly, if the conduct of a partner is such that partners may lose
faith in each other the firm may be dissolved. Similarly, if the conduct of a
partner is such that partners may lose faith in each other the firm may be
dissolved.
(d) Persistent Breach of Agreement – 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 of gross misconduct in the
19
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. When a partner,
other than suing persistently commits breach of agreement relating to the
management of the firm or otherwise so conducts himself in matters relating to
business that it is not reasonably practicable for the other partners to carry on the
business in partnership with him, the court may order dissolution. Any conduct
that is destructive of mutual confidence gives rise to the ground of dissolution of
the firm. “ Keeping erroneous accounts and not entering receipts, refusal to meet
on matters of business, continued quarrelling, and such a state of animosity as
precludes all reasonable hope of reconciliation and friendly co-operation, have
been held sufficient to justify a dissolution.” A father’s treatment of his partner’s
son (opening his private letters, and like some parents, failing to realize that his
son is now a grown up.) has been held to justify dissolution.”
The court may order for the dissolution of the firm if the partner other than
the suing partner is found guilty for constant breach of agreement regarding the
conduct of business or the management of the affairs of the firm and it becomes
impossible to continue the business with such partner.
(e) Transfer of Interest – When a partner has transferred the whole of his
interest in the firm, to a third party or has allowed his interest to be charged, or
has allowed it to be sold in, the recovery of arrears of land revenue, or any of the
dues recoverable for land revenue, the court may order dissolution. When any of
the partner other than the suing partner transfers whole of its share to the third
party for permanently. 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 partner in the firm. It does not entitle the
transferee, during the continuance of the firm to interfere in the conduct of the
20
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.

(f) Perpetual Losses – When the business of the firm cannot be carried on save
at a loss, the court may dissolve it. The whole object of the Partnership is to
make profits and if that object cannot be attained, it is needless for the firm to
continue. Thus where whole of the capital contributed by the partners had already
been spent and there were no business prospects unless they contributed further
capital which they refused to do, the court granted dissolution. 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 reasons 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. The court may order for dissolution
if the firm is continuously suffering losses and there is no more capital available
for the future growth of the firm.
21
(g) Just & Equitable – Dissolution may be ordered when on any other ground
the court thinks it just & equitable that the firm should be dissolved. The
expression, “just and equitable” gives the court a very wide discretionary power,
which is not fettered by any rules, to order dissolution whenever in the
circumstances it seems desirable. Where the terms of a partnership deed provided
to a partner, the facility from withdrawing from a firm by transferring his trust to
others, the court said that this would keep the right to seek dissolution in
abeyance unless a crisis is created by others by refusing to pay him out. The
court equally concerns itself with the interests of the other partners. Where the
managing partner supplied to the firm from his personal business certain material
for which he overcharged, this would held to be a breach of faith entitling other
partners to demand dissolution. It is not necessary that a notice as per Section 43
should be given. The court has to take into account all the facts and
circumstances and moulds the relief according to the exigencies of the case.
Where the dissolution was prayed for, the court provided relief of retirement.35
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), 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 was 7/9. There was no cooperation 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.
The court may order for dissolution on any other ground which court think is
just, fair and equitable. E.g. loss of total confidence between the partners was
held in case of Havidatt Singh vs. Mukhe Singh.
22
Whether Right to Apply for Dissolution can be Excluded
The right of a partner to ask for dissolution on any of the above grounds
cannot be excluded by nay agreement to the contrary. Where the no other mode
of dissolution is available, Section 44 being the lender of last resort, its operation
cannot be allowed to be nullified. The Allahabad High Court has, however, held
differently. In a case before it the partnership deed provided that a partner could
withdraw it by selling his interests to his co-partners or, in the event of their
failure to buy it, by selling it to the others and dissolving the firm. The other
partner failed to buy and, therefore, dissolution was prayed for, but was not
granted, the court saying that the provision had taken away a partner’s right to
cause dissolution. This view is, however, now no longer tenable. Following a
Privy Council Decision, the J&K High Court stated that “It can be safely said
that Section 44 confers an absolute and independent right and it is not open to the
partner’s to take away that right by means of an agreement between them.
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). 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.

23
Section 45: Liability of acts of a partner done after Dissolution.
(1) Notwithstanding the dissolution of a firm, the partners continue to be liable
as such to third parties for any act done by any of them which would have been
an act of the firm if done before the dissolution, until public notice is given of
the dissolution: Provided that the estate of a partner who dies, or who is
adjudicated an insolvent, or of a partner who, not having been known to the
person dealing with the firm to be a partner, retires from the firm, is not liable
under this Section for acts done after the date on which he ceases to be a
partner.

(2) Notices under sub-Section (1) may be given by any partner.

Public Notice for Dissolution:

The first step in the process of dissolution is to give a public notice of
dissolution. The notice may be given by the firm or any partner. This is necessary
to terminate the liability of the partners by holding out and of the firm by
estoppel, for without it, the firm and every partner would continue to be liable to
3rd parties for any act done by them which would have been an act of the firm if
done before dissolution. As long as a public notice is not given, each and every
partner is liable. The right of the 3rd parties to proceed against the estate of a
deceased partner for liabilities incurred up to the date of death would be even if
the firm has been dissolved.
Liability for Prior Acts
Where two partners committed breach of the partnership agreement by
giving notice of termination and the third accepted it, the court said that although
they have committed a repudiatory breach, which he had accepted, he remained
liable for certain debts which were incurred before the partnership and were
ongoing, such as the rent on the firm’s former premises. A partner who accepts a
repeudiatory breach by another partner remains liable for debts incurred prior to
24
the dissolution of the partnership. The partners of a dissolved firm could not
escape liability for the dishonor of a cheque issued by the firm because no public
notice for dissolution had been published. They were also not in a position to
offer any proof of the fact of dissolution.
Section 46: Right of partners to have business wound up after dissolution.
On the dissolution of a firm every partner or his representative is entitled, as
against all the other partners or their representatives, to have the property of
the firm applied in payment of the debts and liabilities of the firm, and to have
the surplus distributed among the partners or their representatives according
to their rights.
Right to demand winding up
The rights and liabilities of partners on dissolution cannot overreach the
provisions of the Act. The partners are bound by the provisions of the Act. When
one of the two partners did not want to continue the business and want it to be
closed down, the other partner can seek for the renewal of the firm. In the case
law T. Sambaingam vs. Govt of T.N., 2003 a partner requested for the renewal
of license of a cinema hall by saying that he was in the management of the
property of the firm.
The mere execution of a deed of dissolution does not put an end to matters
of rights and liabilities of partners that happens only when the firm has been
finally wound and it’s properties are distributed.
Section 47: Continuing authority of partners for purposes of winding up.
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
affair of the firm and to complete transactions begun but unfinished at the
time of the dissolution, but not otherwise: Provided that the firm is in no case
bound by the acts of a partner who has been adjudicated insolvent; but this
proviso does not affect the liability of any person who has after the
25
adjudication represented himself or knowingly permitted himself to be
represented as a partner of the insolvent.

Authority continues for 2 purposes: -

The commencement of dissolution does not at once terminate the authority of the
partners. The partners authority to act for the firm and to bind their co- partners
continues at least for two purposes. The authority continues-

(a) So far as it is necessary to wind up the affairs of the firm

(b) To complete the transactions begun but not finished

At the time of dissolution Section 47 concludes the remark that the authority
continues for no other purpose. In the case, Bourne vs. Bourne, 1906, a
partnership having been dissolved by the death of a partner, the surviving partner
deposited the firm’s title deeds with a bank to secure an overdraft. This was held
to be binding on the representative of the deceased partner. “Prima Facie, the
surviving partner has not only the right but the duty to realize the partnership
property, and for the purpose for such realization to carry on the business if it is
necessary so to do for a reasonable realization of the property”
Section 48: Mode of Settlement of accounts between partners
In settling the accounts of a firm after dissolution, the following rules shall,
subject to agreement by the partners, be observed:—
(a) Losses, including deficiencies of capital, shall be paid first out of profits,
next out of capital, and, lastly, if necessary, by the partners individually in the
proportions in which they were entitled to share profits;

(b) The assets of the firm, including any sums contributed by the partners to
make up deficiencies of capital, shall be applied in the following manner and
order:—
26
(i) In paying the debts of the firm to third parties;
(ii) In paying to each partner ratably what is due to him from the firm for
advances as distinguished from capital;
(iii) In paying to each partner ratably what is due to him on account of capital;
and
(iv) The residue, if any, shall be divided among the partners in the proportions
in which they were entitled to share profits.
Section 50: Personal profits earned after dissolution
Subject to Contract between the partners, the provisions of clause (a) of Section
16 shall apply to transactions by any surviving partner or by the representatives
of a deceased partner, undertaken after the firm is dissolved on account of the
death of a partner and before its affairs have been completely wound up:
Provided that where any partner or his representative has bought the goodwill of
the firm, nothing in this Section shall affect his right to use the first name.
Profits by partner after dissolution and before winding up- Where a partner, after
dissolution and before the affairs of the partnership are wound up, derives any
profit for himself from any transaction of the firm, or from the use of the
property or business connection of the firm or the firm name, he shall account for
that profit and pay his share to the surviving partner or the representative of the
deceased partner. But if a partner carries on another business of a similar nature,
this Section would not apply.
For example, A and B carry on business in partnership. The firm holds leasehold
for the purposes of the business. A dies. Before the affairs of the firm are
completely wound up, the lease expires and B renews it. The renewed lease is
partnership property.
Dissolution of firm does not put an end to rights accrued during existence of
partnership.- Mere execution of deed of dissolution did not discharge the parties
thereto from their rights and liabilities. The rights and liabilities of the partners in
27
respect of the partnership property would be discharged only when the firm is
finally wound up and the properties of the firm are distributed. Sections 50 and
53 of the Act indicate that it may also restrain the use of the firm’s name and
firm’s property in terms of Section 53 of the Partnership Act.
Provisions- Where on dissolution on partner has bought the goodwill of the firm,
he may use the firm name even before the affairs of the partnership have been
completely wound up.

Section 51. Return of Premium on Premature Dissolution

Where a partner has paid a premium on entering into partnership for a fixed term,
and the firm is dissolved before the expiration of that term otherwise than by the
death of a partner, he shall be entitled to repayment of the premium or of such
part thereof as may be reasonable, regard being had to the terms upon which he
became a partner and to the length of time during which he was a partner, unless-
(a) The dissolution is mainly due to his own misconduct.
(b) The dissolution is in pursuance of an agreement containing no provision for
the return of the premium or any part of it.
When entitled to return of premium- In case of earlier dissolution the partner
paying the premium is entitled to a return of a proportionate part of the premium,
except when the partnership is dissolved-
(1) by death of one of the partners;

(2) owing to the misconduct of the partner paying the premium;

(3) In pursuance of an agreement, this does not provide for the return of the
premium or any part of it.

Where, therefore, the partnership is dissolved-

(1) without the fault of either party

(2) owing to the fault of both

28
(3) owing to the fault of the partner receiving the premium

(4) owing to the insolvency of the partner receiving the premium, where the
partner paying the premium was not aware of the other’s embarrassed
circumstances at the time of entering into partnership.The partner paying the
premium is entitled to the proportionate part of the premium.
Return of reasonable premium- In absence of special reasons, the amount of
premium to be returned should bear the same proportion to the whole premium as
the unexpired term bears to the whole term agreed upon. But where part of the
consideration of the payment of premium is not referable to the whole of the term
it may be difficult to apply the said principle. The legislation has used the
expression “as may be reasonable.” The said expression is controlled by the
words which follow it. Under the said expression it may not be possible to take
into consideration other advantages to the partner paying the premium, such as,
obtaining a footing in a large town, making a large acquaintance with the
customers or a misrepresentation as to the income of the original owner or the
person was induced to enter partnership by reason of fraud.
Interest whether recoverable- In calculating what proportion of the premium
should be returned, interest on the premium paid is not to be accounted for, as
under the contract it belonged to the person who received it.
For example, A and B become partners for ten years. A paying B a premium of
$1000. A quarrel occurs at the end of the eight years, both parties being in the
wrong, and a dissolution is decreed. A is entitled to a return of $200 of the
premium from B.
Sub-Section (b): Dissolution by mutual agreement – If by mutual agreement the
partnership is dissolved before the expiry of the term fixed, and nothing is
provided at the time of the dissolution for the return of the premium, the partner,
who paid the premium, cannot afterwards claim to have any part of it returned.
No return of premium in case of death- The party paying the premium is not
entitled to a return of any part of the premium on the death of his partner before
29
the expiry of the term fixed, as it is an implied term of the contract that the
partnership should last for the fixed period, provided both be alive. In Whincup
V. Hughes, explained the principle as follows:
“The case does not fall within the rule as to a total failure of consideration, nor
within the rule as to a mutual rescission of contract, but within the rule that
where a special sum is paid for a special consideration, and there is a partial
failure, a party cannot recover even part.”
Insolvency of partner- Where a partner, who has paid a premium had at the time
of the contract of partnership notice of the embarrassed circumstances of his
partner, the partner paying the premium is not entitled to the return of any part of
it on the insolvency of the partner receiving the premium. Where, however, there
is no similar notice of the embarrassed circumstances of the partner, a portion of
the premium is returnable on the insolvency of the partner.
Partnership at will- The Section applies only to partnerships for a fixed term, and
not to a partnership at will. In the case of a partnership at will, the premium is not
returnable on dissolution, in the absence of fraud, or an express stipulation on the
point.
Section 52. Rights where partnership contract is rescinded for fraud or
misrepresentation
Where a contract creating partnership is rescinded on the ground of the fraud or
misrepresentation of any of the parties thereto, the party entitled to rescind is,
without prejudice to any right, entitled-
(a) To lien on, or a right of retention of the surplus of the assets of the firm
remaining after the debts of the firm have been paid, for any sum paid by him for
the purchase of a share in the firm and for any capital contributed by him.

(b) To rank as a creditor of the firm in respect of any payment made by him
towards the debts of the firm.

30
(c) To be indemnified by the partner or partners guilty of the fraud or
misrepresentation against all debts of the firm.

Without prejudice to any other right – The conferred by (a), (b) and (c) are in
addition to the other rights of such a partner. The other rights would be refund of
capital, premium, contribution, damages, interest on all payments made and costs
in the suit for rescission. Upon rescission, he cannot retain the profits received as
that would amount to approbation.
Rights of a partner on rescission- This Section lays down the rights of a partner
on his rescinding the contact, but these rights he is entitled to only against the
partner. But as against third parties, it is no defense that he was fraudulently
induced to become a partner. Such a contract is voidable, and until the contract is
rescinding, all the partners are liable to creditors.
For example, A fraudulently induces B to enter into partnership with him— B
pays A, a premium of Rs. 5000. within a few months the firm incurs liabilities to
the extent of Rs. 10,000 and on discovering the fraud B files a suit for the
rescission of the contract creating partnership, and the contract is rescinded. In
the meanwhile creditors of the firm levy attachment on B, who pays Rs. 3000 to
the creditors. B on rescinding the contract is entitled to a decree for Rs. 5000 and
Rs. 3000 against A, and is entitled to a lien for the said amounts on the assets of
the firm. He is also entitled to a declaration that A is bound to indemnify B
against all outstanding debts, claims, demands, and liabilities which B has
become or may become liable to pay.
Section 53. Right to restrain from use of firm name or firm property
After a firm is dissolved, every partner or his representative may, in the absence
of a contract between the partners to the contrary, restrain any other partner or his
representative from carrying on a similar business in the firm name or from using
any property of the firm for his own benefit, until the affairs of the firm have
been completely wound up:
31
 Provided that where any partner or his representatives has bought the
goodwill of the firm, nothing in this Section shall affect his right to use the first
name.
Use of the First Name— Under Section 55(1) goodwill is a saleable asset.
Provisions of the Section 55(2) are intended not to affect the goodwill which is
sold off. Under Section 50 after dissolution, a partner cannot derive profit by use
of partnership property or its goodwill. This Section supplies an effective means
to check any abuse of the provisions of Section 50 and to prevent any prejudice
to the value of the goodwill which is saleable under Section 55.
A surviving partner, while he has the authority to act for the best interest
of the business, is bound not to act in such a manner as to destroy any part of its
value. It quite settled in our common law that the goodwill is an asset of the firm
and does not, as once supposed, “survive” to the continuing partner alone.
Certainly, one partner may be restrained from using the firm name or the firm’s
property to do business for his own exclusive profit pending the liquidation of
the partnership affairs. After dissolution and liquidation of the firm there is no
exclusive right to the use of the old name unless it has been so agreed; but it
must not be used so as to expose a former partner to liability on the grounds of
“holding out.” Whether there is any substantial risk of that kind is a question of
fact in each case.
However, this Section will not prevent a surviving partner from carrying on
business subject to the provisions of Section 55(2).
Section 54: Agreements in restrain of Trade
Partners may, upon or in anticipation of the dissolution of the firm, make an
agreement that some or all of them will not carry on a business similar to that of
the firm within a specified period or within specified local limits; and
notwithstanding anything contained in Section 27 of the Contract Act such
agreements shall be valid if the restrictions imposed are reasonable.

32
Reasonable Restrictions— Whether the restrictions are reasonable will depend on
the facts of each case. The restrictions should afford a fair protection to the
interest of the party concerned and not be so large as to interfere with the interest
of the public.
Restriction may be with respect to time and place. The degree of protection may
vary in different cases depending upon the character and nature of the business
concerned.
Section 55: Sale of Goodwill after Dissolution
(1) Sales of Goodwill after Dissolution
In settling the accounts of a firm after dissolution, the goodwill shall, subject to
contract between the partners, be included in the assets, and it may be sold either
separately or along with other property of the firm.
(2) Rights of Buyer and Seller of Goodwill
Where the goodwill of a firm is sold after dissolution, a partner may carry on a
business competing with that of the buyer and he may advertise such business,
but, subject to agreement between him and the buyer, he may not—

(a) use the firm name

(b) represent himself as carrying on the business of the firm

(c) solicit the custom of persons who were dealing with the firm before its
dissolution.

(3) Agreements in Restrain of Trade

Any partner may, upon the sale of goodwill of a firm, make an agreement with
the buyer that such partner will not carry on any business similar to that of the
arm within a specified period or within local limits, and, notwithstanding
anything contained in Section 27 of the Contract Act such agreement shall be
valid if the restrictions imposed are reasonable.

33
Goodwill— Under Section 14 “Goodwill” is an asset of the firm. It may be sold
separately or along the other property of the firm.
Valuation of Goodwill— In valuing the goodwill the court should set such a
value upon it as it might consider to have been attached to the business at the
date of dissolution, and the value of the goodwill ought to be appraised on the
footing that, if it were sold, the old partners would be at liberty to carry on a rival
business, but would not have the right to solicit any person who was the customer
of the old firm, or the right to carry on business under the firm name.
Where Goodwill not Sold— Upon the dissolution of a partnership , without any
sale or assignment of the goodwill, and without any provisions as to the use of
the firm name, each of the partners is entitled to carry on business under that
name, provided that he does not by so doing expose his former partners to any
risk of liability. Whether there will be any such risk is a matter to be determined
having regard to the circumstances of each case.
For example, J.W. Burchell, C.T.D. Burchell, and W.G. Wilde carried on
business as solicitors under the style of “Burchell & Co.” The partnership was
dissolved by consent, there being no sale of the goodwill and no provision as to
the use of the firm name. Thereafter, J.W.Burchell and C.T.D. Burchell carried
on business as solicitors under the style of “Burchell & Co.” Wilde and his son
carried on business under the style of “Burchell & Co.” It was held that business
being one of the solicitors , there was no substantial risk of the Burchells being
held liable, and therefore Wilde and his son were entitled to carry on business
under the style of “Burchell & Co.”

34
 Case Law
Prakash Chand Vs. Bhanwar Lal and anr.
Court : Rajasthan
Reported in : RLW2009(4)Raj3419
..... of the judgment of this court delivered in the case of dinesh jangid v. laxmi
kant jangid 2007 (2) wlc (raj.) 703, it was submitted that,
after dissolution of firm, partnership still subsists for purpose of completing
pending transactions, winding up, settlement of accounts and other rights and
obligations inter se parties.2. with this assumption that the ..... firm has not
been dissolved, the petitioner requested respondent-bhanwar lal to execute
a dissolution deed in accordance with law and to finalize the accounts but on
one pretext or the other, ..... by treating his son om prakash as partner.
according to the petitioner, mere separation/stoppage of business does not
amount to dissolution and further right to sue for dissolution of a
continuing firm exists so long as the partnership continues, for this
contention, the learned counsel for the petitioner relied upon the judgment
delivered in the case of haramohan poddar and ..... limitation act, 1963, the suit
for accounts and share of profit of a dissolved partnership firm can be filed
within a period of three years from the date of dissolution of the firm.
the firm stands dissolved on 16.4.1978 with the retirement of the petitioner
from the partnership firm and, therefore, the limitation started from that date.
once the limitation starts to .....
Mohinder Nath and ors. Vs. Sh. Narender Nath and ors.
Court : Delhi
Reported in : 1998IIIAD(Delhi)1; 72(1998)DLT785; 1998(45)DRJ296;
1998RLR333
..... chandra hazra, : air1976cal459 it was held that where a partner waited for
about three years after he had given notice of dissolution of the firm and
allowed the other partners to carry on the partnership business by constitution
of a new firm, the prayer for appointment of a receiver was liable to be
rejected on the ground of delay and laches. in t.krishnaswamy ..... at will, were
contrary to the record. the second contention raised by mr.v.p.singh is that even
assuming the partnership to be at will, it is not in every suit for dissolution of
the firm that a receiver has to be appointed as a matter of course but the court
had to give a finding that the circumstances warranted the appointment ..... of
one of the partners. the contention of the plaintiff in that case was that
the partnership was at will and as he had given notice
of dissolution of partnership, he was entitled to have the firm dissolved.
interpreting the terms of the partnership, the court held that the partners
35
having agreed that the partnership shall continue notwithstanding that one
partner goes out or dies, the ..... this court has to see as to what was the
agreement between them as contained in the partnership deed and whether it
was a case of retirement of the plaintiff from the firm or the plaintiff could ask
for dissolution of the firm even when other three partners want to continue
the firm and pay to the plaintiff his share on his retirement from the .....
K. Suryanarayana and anr. Vs. P. Lakshmipathi Raju and ors.
Court : Andhra Pradesh
Reported in : AIR2002AP340
..... in o.s.no.551 of 1980 on the file of the principal district munsif court,
bapatla. the suit was filed by the plaintiff for dissolution of partnership and
settlement of accounts of the 1st defendant-firm and to pass a decree in his
favour for such amount as he may become entitled to with interest against such
defendants who become liable to ..... on the file of the subordinate court,
bapatla.12. when the matter came up for hearing before the appellate court, the
appellate court held that mere severance of relation of partnership does not
amount to dissolution of the firm, that if ex.b.47-contract of sale dated 25-7-
1979 is a letter of consent or agreement for the ..... as the running of the
business of the mill is the essential condition for the dissolution of
the partnership, that since the firm was already dissolved when the same was
sold to defendants 18 and 19, it is not necessary to pass any order
for dissolution of the firm and there is no necessity for the 2nd defendant to
render any accounts to the plaintiff ..... of accounts. therefore it cannot be
inferred that closing of the business and selling of the mill to the third parties
does not amount to dissolution of the partnership. the appellate court further
observed as follows:. so, the lower court considered that when the firm was
tentatively dissolved, the other points will not come to an end, but when the
point that the .....
Bhaktimala Beedi Factory Vs. Commissioner of Income Tax
Court : Andhra Pradesh
Reported in : [1996]219ITR6(AP)
..... question before the supreme court was about the admissibility of a
relinquishment deed executed by some of the members of
the partnership firm in proof of dissolution of the partnership firm as well
as settlement of accounts whereunder both movable and immovable properties
were conveyed and hence whether the said document of ..... in the other case
and moreover, the question of registration does not arise in this case as no part
of the immovable property of the partnership firm is involved in the transfer.
it may be pointed out that in a later case, reported in cit vs . juggilal kamlapat :

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[1967] ..... partnership-firm without reference to the firm since the property
which is brought in by the partners into the partnership firm or acquired later,
becomes the property of the firm and the right of a partner is only a share in
the profits or a share in the value of assets on dissolution. ..... the ito further
observed that by transferring the asset of the firm to a ..... trust in which all the
partners are not beneficiaries, an attempt to avoid payment of tax was evident.
the cit(a) as well as the tribunal took the same view and further observed that
the goodwill cannot be evaluated in monetary terms so long as
the partnership firm .....
Asstt. Cit Vs. Vijay Talkies
Court : Income Tax Appellate Tribunal ITAT Mumbai
..... supra) and n. khadervali saheb v. n. guru sahib (2003) 261 itr l for the
proposition that a partnership firm is not an independent legal entity and its
partners are the real owners of the assets of the partnership firm and that
on dissolution of a partnership firm, the allotment of assets to individual
partner is not a case of transfer of any assets of the ..... firm because the assets
which hereinbefore belonged to all the partners jointly, will after dissolution of
the firm stand allotted to the partners individually.thus there is no ..... n.
khadevali saheb's case (supra) for the proposition that a partnership firm is
not an independent entity from its partners and partners are the real owners of
assets of the firm and therefore on the dissolution of the firm, the assets which
heretofore belonged to the partners jointly, will after dissolution belong to the
partners individually. thus there is no transfer or of ..... (i) whether the
distribution of assets on the dissolution of the firm would amount to transfer?
(ii) whether the capital gains is taxable in the hands of the firm which is
already dissolved and is not in existence. (iii) as, in a partnership firm,
partners are the joint owners of the assets, whether the partnership firm is
taxable? (v) whether the distribution of cash .....

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 CONCLUSION
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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