partnership law bd discussions

1. INTRODUCTION TO BUSINESS LAW
COURSE CODE: BUS 360
SECTION: 07
Course Instructor: Afnan Ashfaque
LECTURE 8
THE LAW OF PARTNERSHIP: DISSOLUTION OF FIRMS
SOURCE: BOOK 3: CHAPTER 3, COMMERCIAL LAW AND INDUSTRIAL LAW, 27TH EDITION BY
ARUN KUMAR SEN AND JITENDRA KUMAR MITRA

2. What is dissolution?
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Dissolution of a firm means the end of a firm by
the break up of the relation of partnership
between all the partners.
The grounds of dissolution
1. By agreement: A firm may be dissolved any
time with the consent of all the partners of the
firm. Partnership is created by contract, it can
also be terminated by contract.

3. Grounds of Dissolution
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2. Compulsory dissolution: A firm is dissolved-
(a) By the adjudication (ruling/verdict) of all the
partners or of all the partners but one as insolvent
(bankrupt/unable to pay off debt), or
(b) By the happening of any event which makes the
business of the firm unlawful.
But if a firm has more than one undertaking (a
promise or agreement to do or not do something),
some of which become unlawful and some remain
lawful, the firm may continue to carry on the lawful
undertakings.

4. Grounds of Dissolution
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3. 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
undertakings, by the completion thereof
c) by the death of a partner; and
d) By the adjudication of a partner as an
insolvent.

5. Grounds of Dissolution
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4. By notice: the firm may be dissolved by any
partner giving notice in writing to all other partners
of his intention to dissolve the firm.
in the event that a partner serves a notice of
dissolution with an ulterior motive which
demonstrates an improper purpose, then under
those circumstances it may be successfully
argued that the court would prevent the
dissolution of the partnership or at least force the
defaulting partner to account to the other partners
for any “undue advantage” accruing as a result of
their act of bad faith.

6. Grounds of Dissolution (Dissolution
by court)
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5. Dissolution by the Court: the court may dissolve a
firm on
anyone of the following grounds
(a) Insanity: If a partner has become of unsound mind
the suit for dissolution in this case can be filed by
any other partner.
(b) Permanent incapacity: If a partner becomes
permanently incapable of performing his duties as a
partner. The law-suit for dissolution in this case must
be brought by a partner other than the person who
has become incapable.
Permanent incapacity may arise from an incurable
illness like paralysis. In Whitwell v. Arthur a partner
was attacked with paralysis which on medical
evidence was found to be curable. Dissolution was not
granted.

7. Grounds of Dissolution (Dissolution
by court)
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( c ) Guilty conduct: If a partner is guilty of
conduct which is likely to affect the carrying on
of the business. To justify dissolution under
this clause the misconduct must be of such a
nature as to affect adversely the particular
business concerned. Misconduct which affects
one business may not affect another business.
Therefore the court must take into account the
nature of business that the partnership carries
on.

8. Grounds of Dissolution (Dissolution
by court)
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Example: The partner of a firm of solicitors was
convicted of travelling on the railway without a
ticket and with intent to defraud. It was held
that since the conviction was for
dishonesty, it was likely to be damaging to
the partnership business and dissolution
was granted.

9. Grounds of Dissolution (Dissolution
by court)
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(d) Persistent Breach of Agreement: If a partner
willfully and persistently commits breach of the
partnership agreement regarding management or
otherwise conducts himself in such a way that it is
not reasonably practicable for the other partners to
carry on business in partnership with him.
Examples: In English cases the following acts have
been held to be sufficient ground for directing
dissolution: refusing to account for money received;
taking away the books of account; the application of
money belonging to the firm in payment of his
private debts ; continued quarrelling, and such a
state of animosity as prevents reasonable hopes of
reconciliation and friendly co-operation.

10. Grounds of Dissolution (Dissolution
by court)
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(e) Transfer of whole Interest:
 If a partner has transferred the whole of his
interest in the firm to an outsider.
 Transfer of a partner's interest does not by
itself dissolve the firm. But the other partners
may ask the court to dissolve the firm if such a
transfer occurs.
 Only the transfer of the entire interest of the
partner gives ground for action. The transfer of
a part of the partner's interest does not provide
any ground for dissolution.

11. Grounds of Dissolution (Dissolution
by court)
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(f) Loss: If the business of the firm cannot be
carried on except at a loss. Since the motive, with
which partnerships are formed, is acquisition of
gain, the courts have been given discretion to
dissolve a firm in cases where it is impossible to
make profits.
(g) Just and Equitable clause: If the court
considers it just and equitable to dissolve the firm.
This clause gives a discretionary
(flexible/unrestricted) power to the court to
dissolve a firm in cases which do not come within
any of the foregoing clauses but which are
considered to be fit and proper cases for
dissolution.

12. Grounds of Dissolution (Dissolution
by court)
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Example: Dissolution has been granted under
the just and equitable clause in the following
cases-deadlock in the management; partners
not on speaking terms; disappearance of the
substratum (foundation/basis) of the business.