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INTRODUCTION
MEANING
When the relation between all the partners of the firm comes to an end, this is called
dissolution of the firm. Section 39 of the Indian Partnership Act, provides that the
dissolution of the partnership between all the partners of a firm is called the dissolution of a
firm. It implies the complete break down of the relation of partnership between all the
partners.
MODES
1. By Agreement (S.40)
A partnership firm can be dissolved any time with the consent of all the partners
whether the partnership is at will or for a fixed duration. A partnership can be dissolved in
accordance with the terms of the Partnership Deed or of the separate agreement.
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2. Compulsory Dissolution (Sec.41)
In case, any of the following events take place then it becomes compulsory for the
firm to dissolute
In case all the partners or all the partners except one become insolvent.
In case the firm is engaged in more than one business which may have become
unlawful, the better view appears to be that the firm will not dissolve as to the other
legitimate businesses unless all of them are so inter connected that stoppage of one would
paralyze the others e.g. A and B charter a ship to go to foreign port and receive a cargo on the
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 the time appointed for loading.
The partnership between A and B is dissolved
A firm constituted for a term is of course not exempt from dissolution by any of the
other possible cause before the expiration of the term. The contract may expressly provide
that the partnership will determine in certain circumstances but even if there is no such
express term, an implied term as to when the partnership will determine may be gathered
from the contract and the nature of the business. The provision of this section make it clear
that unless some contract between the partners to the contrary is proved, the firm, if
constituted for a fixed term would be dissolved by the expiry of that term.
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In the case of Basantlal Jalan v. Chiranjilal, Where the firm was constituted for a
specific undertaking to supply certain quantity of grain and the contract was prematurely
terminated after supply of a part of the goods, it was held that the partnership did not come to
an end and was dissolved only on the final realization of the assets
When the deed of partnership did not provide that the death of a partner would not
dissolve the partnership, the partnership stood dissolve on the death of a partner. Firm, stands
dissolved automatically on death of one partner. Continuance of business after such death
would not tantamount to continuance of earlier partnership.
In the absence of a contract to the contrary, the insolvency of any of the partner may
dissolve the firm.the rule shall apply even though the partnership has been constituted for a
fixed term and the term has not yet expired or has been constituted for particular ventureand
the same has yet not been completed.
In those cases where a partner has given notice of dissolution at a time when
dissolution will give him some advantage over the other partners, he may be held in the firm
till the pending transactions are completed.
The court may order for the dissolution of the firm on the following grounds:-
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(i) Insanity of Partner
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.
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 ofWhitwell v. Arthur
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.
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 v. Mukhe Singh
When any of the partner other than the suing partner transfers whole of its share to the
third party for permanently.
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.
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(vii) Constant breach of agreement by partner
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.
CONCLUSION
When a partnership is dissolved, and after the debts to the third parties have been paid
and advances made by a partner have been repaid, the assets are insufficient to repay each
partner his capital in full, any deficiencies must be borne by the partners in the same
proportion as the profits would have been divided. In after the above payments are made,
there is surplus, that surplus is to be divided in the proportion. Where there are joint debts due
from the firm, and also separate debts due from any partner, the property of the firm shall be
applied in the first instance in payment of the debts of the firm, and, if there is any surplus,
then the share of each partner shall be applied in payment of his separate debts or paid to him.
The separate property of any partner shall be applied first in the payment of his separate
debts, and the surplus (if any) in the payment of the debts of the firm.
REFERENCES
http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=bc6219eb-2a06-
4528-b4eb-15ef6a3c60b0&txtsearch=Subject:%20contract
http://www.advocatekhoj.com/library/lawareas/partnership/dissolution.php?
Title=Partnership&STitle=Dissolution%20of%20a%20Firm
http://www.legalservicesindia.com/article/article/dissolution-of-partnership-firm-
1063-1.html
http://gradestack.com/CA-CPT/Reconstitution-and/Modes-of-dissolution-of-
a/22696-4560-56234-study-wtw