Assignment_Contract_II_.pdf

Assignment – Contracts II
DISSOLUTION OF A PARTNERSHIP FIRM - THE INDIAN
PARTNERSHIP ACT, 1932
Name – Avinash Ramesh Wadhwani
Roll no – 355- S.Y. LLB. Semester -IV
New Law College - Mumbai

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Contract Act was repealed and replaced by the Partnership Act of 1932.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 goodwill. The dissolution of partnership between all the partners of a firm is called
the dissolution of the firm. (Section 39). As per Section 4, Partnership is the relation between
persons who have agreed to share profits of business carried on by all or any of them acting for
all. Thus, if some partner is changed/added/ goes out, the ‘relation’ between them changes and
hence ‘partnership’ is dissolved, but the ‘firm’ continues. Hence, the change is termed as
‘reconstitution of firm’. However, complete breakage between relations of all partners is termed
as ‘dissolution of firm’. After such dissolution, the firm no more exists. Thus, ‘Dissolution of
partnership’ is different from ‘dissolution of firm’. ‘Dissolution of partnership’ is only
reconstruction of firm, while ‘dissolution of firm’ means the firm no more exists after
dissolution.

MEANING OF DISSOLUTION OF A FIRM
A firm is not said to be dissolved by the fact of one or more members ceasing to be partners in it
while others remain, but only when all and every one of the members of the firm cease to carry
on its business in partnership. The law with respect to retiring partners as enacted in the
Partnership Act is to a certain extent a compromise between the strict doctrine of English
Common Law which refuses to see anything in the firm name but a collective name for
individuals carrying on business in partnership and the mercantile usage which recognizes the
firm as a distinct person or quasi corporation 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.

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 – 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.
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. 2
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 Court3
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.
1
C.I.T , W.B vs. A.W Figgis & co. , A.I.R 1953
2
Best Enterprises vs. Elanchizian, AIR 2006 Mad 274
3
Keshavlal patel vs. Bhailal Patel, AIR 1968 Guj 157

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 Lal4, 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 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.
4
Harish Kumar vs. Bachan Lal AIR 1991 P H 130, (1991) 99 PLR 188

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 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 Court6
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
5
Section 34
6
Gherulal Parakh vs. Mahadeo Das 1959 AIR 781, 1959 SCR Supl. (2) 406

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 7
partnership was
declared unlawful simply because of a war that broke into England and Germany. It survives for
the business which 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 earlier8
.
(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.9
7
R. vs. Kupfer, (1915) 2 KB 321: (1915) 112 LT 1138
8
Sayyed Abdul vs. Tumuluri, AIR 1927 Mad 491:(1927) 52 MLJ 318
9
Saligram Rupal Khanna vs. Knawar Rajnath, (1974) 2 SCC 642: AIR 1974 SC 1094

(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 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 partnerships10
. 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 license11
. 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 adventure12
. 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 partner13
: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 Court14
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 J15
. 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 between the
10
Section 8 (Definition of Particular Partnership)
11
Ramnarayan vs. Kashinath (1824), AIR 1954 Pat 53: (1953) 1 BLJR 289
12
Sayyed Abdul vs. Tumuluri, AIR 1927 Mad 491:(1927) 52 MLJ 318
13
If the firm remains in business after the death, it will be a new firm at anyrate of the tax
purposes. CIT vs. Vinayaka Cinema, AIR 1978 AP 51
14
Kesrimal vs. Dalichand, AIR 1959 Raj 140.
15
All India Reporter

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, 200216
.
(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.
(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.
16
2002 (3) ALD 406, 2002 (3) ALT 689

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 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.
17
Parsons vs. Hayward, 1862
18
Jones vs. Lloyd, 1874
19
AIR 2000 Mad. 62, at p. 65.

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;
(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 dissolution20
. 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 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 partners21
.
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. Arthur22
, 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.
(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
20
Jugal Chandra Bhattacharjee vs. Gunny Hajee Ahmed, 1925 53 Cal 214 at 225, 226 &
235, 91 IC
21
Rowland vs. Evans, 1824 43 Ch 826
22
Whitwell vs. Arthur 1865 beva 140. [2]

of the business regard being had to the nature of the business23
. 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. Tenant24, “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. Milford25, a
partnership firm carried on the business of the bankers. A partner of the firm named Milford
was guilty of living in adultery with several women and as a result of this his wife had deserted
him. Other partners filed as suit for dissolution of the firm on the ground of the said bad conduct
of Milford.
Reasoning & Decision: The court dismissed the suit holding that it cannot be said that a
customer’s money is not safe because one of the partners of the firm is guilty of adultery.
Though the court condemns the act of adultery of a person but this cannot be a ground for the
dissolution or expelling the partner. Undoubtedly in some cases the moral conduct of a person
may prejudicially affect the business of a firm. For example, if a doctor enters into a partnership
with another doctor to run the clinic and it is found that he is immoral
23
Section 44(c), The Indian Partnership Act, 1932.
24
[1856] ALL ER 945.
25
(1868) 18 LT 142.

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.26
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 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 receipts27
, refusal to
meet on matters of business28
, continued quarrelling, and such a state of animosity as precludes
all reasonable hope of reconciliation and friendly co-operation29
, have been held sufficient to
justify a dissolution30
.” 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
dissolution31
.”
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
26
See Carmichael vs. Evans, (1904) 90 LJ 573; (1904) 1 Ch. 486.
27
Cheesman vs. Price, (1865) 35 Beav 142: 147 RR 74: 55 ER 849
28
De Bevenger vs. Hammel, 7 Jar Blyth 1829
29
Baxter vs. West, 1860 1 Dr & Sm 173
30
Lindley on the law of Partnership (12th
edition) 593
31
Charles D. Drake, Law of Partnership (1912)

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 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 partners32. 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 dissolution33
. 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.
32
Section 29(1), The Indian Partnership Act, 1932.
33
Jeening vs. Baddeley, 1856 3 K&J 78

(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. 34
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 36
. 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.
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 contrary37
. 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
34
N. Satyanarayana vs. M. Vekanta Bala, 1989 AIR AP 167, 175
35
Panna Lal vs. Padmavati, 1960.
36
Nainder Singh Randhava vs. Hasrdial Singh Dhillon, AIR 1985 P&H 41; See also Kalpana
Kothari vs. Sudha Yadav, (2002) 1 SCC 203; AIR 2002 SC 89.
37
Hardutt Singh vs. Mukha Singh, AIR 1973 J&K 46

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 Decision38
, 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.

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