The Indian Partnership Act of 1932 outlines the dissolution of firms, defining dissolution as the end of the partnership between all partners. Various modes of dissolution are specified, including dissolution by agreement, compulsory dissolution due to insolvency or illegality, and dissolution upon certain contingencies such as the death of a partner. The act also details procedures for dissolution, including the role of courts and conditions under which a partner may give notice to dissolve a partnership at will.

1. Indian Partnership
Act,1932

2. Dissolution Of Firms

3. Dissolutions of firms
Sec 39 to 55
Se. 39 lays down that the dissolution of partnership
between all the partners of a firm is called the “
Dissolution of a firm”.
Changes in the constitution of a firm does not amount to
a Dissolution of a firm.
Retirement of Partner does not amount a dissolution of
firm.

4. Modes of dissolution of
Firm
1. Sec. 40 Dissolution by Agreement
2. Sec.41 Compulsory dissolution
3. Sec.42 on happening of certain Contingencies
4. Sec.43 By notice of Partnership at will
5. Sec.44 By the Court

5.  WITHOUT THE INTERVEN-TION
OF THE COURT
 UNDER THE ORDER OF THE
COURT
Sec(40-43) (S.44)
1. By Agreement (sec.40) 1. Unsoundness Mind
2.By Compulsory Dissolution
(Sec.41)
a.) Insolvency
b.) Illegality of business
2. Permanently Incapacity.
3. By Happening of Certain
Contingencies.
a.)Expiry of a fixed term
b.) Completion of the
Adventure
c.) Death of a Partner
d.) Insolvency of a Partner
3. Misconduct

6. 4. By notice from one
partner to the others
-In case of
“Partnership At Will”
(Sec.43)
4. Partner willfully or
Persistently commits
a Breach Of
Agreement
5.Partner
a.) Has Transferred
the whole of his interest
in the firm to a 3rd Party
b.) Has allowed his
share to be charged
under O:-21 R:-49 of
the Civil Procedure Code
c.) Has allowed his
share to be sold in the
recovery of arrears of
Land Revenue.
6. Business of a firm
cannot be carried on
save at a loss.
7. On any other just &
equitable ground

7. Sec. 40 Dissolution by
Agreement
A firm may be dissolved-
(a) With the CONSENT OF ALL THE PARTNERS;
Example:- A firm can be discharged by the Mutual
Agreement of the Partners.
(Partners can, whenever they please, sit together &
Consent to a dissolution.) (Spontaneous Consent)

8. Consent can be Express or Implied.
Pandurang Vanarase V. Janardan Narain Vanarase
1995 A1 HC 1863 (Bom)
“When all the brothers have given in writing that they do
not claim any share in old firm, it amounts to dissolving
the firms.”
b.) in accordance with a Contract between the Partners.
Where dissolution occurs in pursuance of a contract
previously made, the most common example being that
of a clause in partnership deed itself, providing for the
dissolution in certain events like “Unsoundness of
partner”

9. Sec. 41 Compulsory
Dissolution
A firm is Dissolved:-
(a) By the adjudication of all the partners, or all of
the partners but one as, insolvent; Or
where all the partners of the firm have been adjudicated
insolvents, the partnership inevitably ends. Or only
one partner remains solvent & all others have been
adjudicated insolvent.
The partnership is dissolved under clause (a)
(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.

10. Example:- The state Government issues an ordinance
prohibiting liquor business in all firms. The partnership is
automatically dissolved.
(Sec.56 of Indian Contract Act, 1872)
“Performance of a contract becomes unlawful, the
contract becomes void.
R. v. Kupfer (1915) 112 LT 1138
Where a partnership between persons three of whom
were in Germany & the one in England was held to have
become illegal on the outbreak of war between
England & Germany.
Gherualal Parakh V. Mahadeodas AIR 1959 SC 781
A firm to carry on a wagering business has been held by
supreme court to be unlawful.

11. Sec. 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 death of a partner; and
(d) by adjudication of a partner as an insolvent.

12. Noor Mohammad v. C.I.T (1991) ITR 550 (A11)
Change in the constitution of a firm
Where a clause in partnership deed provided that firm
does not automatically stand dissolved on the death of a
partner, widow of the deceased partner joined the firm
and fresh deed of partnership was executed.
Logical Exception
The only logical exception is that such stipulation will be
of no effect when the partnership consists of only two
partners.

13. Sec. 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
other partners of his intention to dissolve the firm.
2.) The firm is dissolved as from the date mentioned in
the notice as the dissolution or, if no date is so
mentioned, as from the date of the communication of the
notice.

14. (Notice to Dissolve the Deed)
Tilokram Ghosh v. Gita Rani AIR 1989 Cal 254
If the firm is at will, then it can be dissolved by the
partner or partners by giving notice in accordance with
the provisions of Sub-sec. (1) and (2) of Sec. 43 of
Partnership act.

15. Sec.44 Dissolution by
Court
Sec. 44 lays down Seven Important Cases in which the
court can order of dissolution.
A). Unsoundness of Mind / Insane
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 person.
In such cases, dissolution become necessary to protect
the interest both of the insane as well as other partners.

16. B). Permanent Incapacity.
That a partner, other than the partner suing, has become
in anyway permanently incapable of performing his duties
as partner;
Whitwell v. Arthur 55 ER 848 (1865) 147 RR 73
A partner suffered from an attack of paralysis & that
would have been good ground for dissolution but for the
fact that the medical evidence showed that the attack
was only temporary and he had already started showing
signs of improvement by the time of hearing of his
partner’s application for dissolution.

17. C.). Misconduct
that a partner, other than a 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;
• Moral turpitude of a partner would be a sufficient ground
• Snow v. Milford (1868) 18 LT 142: 16 WR 554
• A partner of a firm of bankers committed adultery in
the city where the business was carried on.
• thus, adultery committed by a partner have been held
to be sufficient grounds.

18. • Essel v. Hayward (1816 30 Beav. 130)
• (breach of trust)
• The court said that a partnership between two solicitors for
their joint lives may be dissolved if one of the parties
fraudulently sells out trust funds and applies the proceeds to
his own use.
• Professional Misconduct is also a ground of Dissolution
•D). Persistent Breach of Agreement
• 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 this
business, or otherwise so conducts himself in matters
relating to the business that is not reasonably practicable for
the other partners to carry on the business in partnership
with him;

19. It has been held that destroying old account books, pre-paring
false balance sheets and making false entries in
books are sufficient grounds under this clause.
Harrison v. tennant, (1856) 21 Beav 142.
Any conduct which is destructive of mutual confidence
between the partners is sufficient.
(e) Transfer of Interest
That a partner other than a 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 Order
21,Rule 49 of the Civil Procedure Code, 1908 ; or
• Has allowed his share to be solved in the recovery of
arrears of land revenue, or any other dues which are
recoverable as arrears of land revenue.

20. (f) Perpetual Losses
• The reason for this ground is that the motive of every
partnership is the acquisition of gain. If, therefore, the
business can be constituted only at a loss.
• It would be a good ground for the court to dissolve such
a partnership.
(g) Just & Equitable
• On any other ground which renders it just & equitable
that the firm should be dissolved.
• Thus, if the substratum (bottom) of the partnership is
gone or if there is a deadlock between the partners, the
court may wind up the partnership on the ground that it
is just & equitable to do so.

21. • The power of the court to dissolve a partnership on this
ground is analogous to its power to wind up a company
on the just & equitable ground under s. 433 of the
Companies Act, 1956.
• Thus, Courts have winding up of a partnership firm in
the following cases, observing that it would be Just &
Equitable to wind up the firm:
a). When the substratum of the partnership was gone
b). When there was a serious deadlock between the
partners;
c). Where there was a perpetual state of tense feelings
between the partners

22. Difference between
Dissolution of Firm &
Partnership

23. Dissolution of Firms Dissolution of
Partnership
1.) complete breakdown
of the partnership
relation & not in any
change in constitution of
the Firm.
1).Partner may by
agreement amount
themselves provide for
the continuance of the
firm.
2.) Complete
termination of the
relation b/n the Partners
2.) Partner terminates
his relationship with the
firm.
3.) Business in closed. 3.)Business of the firm
continues for the
remaining Partner.
4.)Assets & Liabilities of
firms are set-off & share
of each partner is
calculated.
4.) Only the share of
out-going partner is
calculated.