39. Dissolution of a firm- The dissolution of
partnership between all the partners of a firm is called the “dissolution of
the firm”.
40. Dissolution by Agreement- A firm may be
dissolved with the consent of all the partners or in accordance with a contract
between the parties.
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.
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.
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 communication of the notice.
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.
45. Liability for acts of 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 form 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.
After dissolution of partnership, no partner, no
partner is privy to other. Suit by one will not operate as resjudicata on the
other.
46. Rights 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 of 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.
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 affairs 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 adjudication represented
himself or knowingly permitted himself to be represented as a partner of the
insolvent.
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:-
(i) in paying the debts of the firm to third
parties;
(ii) in paying to each partner rateably what is
due to him from the firm for advances as distinguished from capital.
(iii) in paying to each partner rateably what is
due to him on account of capital; and
(iv) the residue, if any, shall be divided among
the partners in the proportion in which they were entitled to share profits.
49. Payment of firm debts and of separate debts-
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.
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 firm name.
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, or
(b) the dissolution is in pursuance of an
agreement containing no provision for the return of the premium or any part of
it.
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
other right, entitled-
(a) to a lien on, or a right of retention of, the
surplus or 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; and
(c) to be indemnified by the partner or partners
guilty of the fraud or misrepresentation against all the debts of the firm.
53. Right to restraint 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 of the property of the firm for his own
benefit, until the affairs of the firm 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 firm name.
54. Agreements in restraint 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 Indian Contract Act,
1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are
reasonable.
55. Sale of goodwill after dissolution- (1) 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, or
(c) solicit the custom of persons who were
dealing with the firm before its dissolution.
(3) Agreement in restraint of trade- Any partner
may, upon the sale of the goodwill of a firm, make an agreement with the buyer
that such partner will not carry on any business similar to that of the firm
within a specified period of within specified local limits, and notwithstanding
anything contained in Section 27 of the Indian Contract Act, 1872, (9 of 1872),
such agreement shall be valid if the restrictions imposed are reasonable.
