Modes Of Dissolution Of Partnership Firm

In today’s article we are going to know the Modes Of Dissolution Of Partnership Firm. There are various modes of dissolution of a partnership firm.

But before diving deep into this topic, it’s essential to first grasp the basics. The Dissolution of Partnership firm is governed by the Indian Partnership Act of 1932. There are two concepts, one is dissolution of firm and other one is dissolution of partnership.

In case of dissolution of the firm, partnership among all partners comes to an end, but when two or more than 2 persons who are partners of the firm ceases to be partner’s but other partners continue the partners there is dissolution of partnership.

Section 39 of Indian Partnership Act,1932, provides about dissolution of Partnership firm, it states that “where the dissolution of partnership between all the partners takes place it is called dissolution of the firm.”

For example, When in a firm consisting A,B,C all of them ceases to be a partner with one another it amounts to dissolution of the firm

The dissolution of a partnership firm can occur through several distinct methods, which are follows:

1. By Agreement
2. Compulsory Dissolution
3. By happening of certain contingencies
4. By Notice of partnership at will
5. By Court

1. By Agreement

This is one of the simple methods of dissolution of partnership firms. This method allows partners to dissolve a partnership through agreement, consent, or existing contracts.

2. Compulsory Dissolution

Indian Partnership Act ,1932 provides certain events on the happening of which there is compulsory dissolution. The events are as follows:

• When all the partners become insolvent or any one remains solvent only. In 2016, this was repealed.
• Unlawful activities may lead to compulsory dissolution. It is to be noted if the firm is carrying on more than one business, if one of them becomes unlawful while the other remains lawful, the firm can carry its functions with respect to other work.

3. By happening of certain contingencies

According to the Indian Partnership Act, 1932, the happening of any of the following contingencies can lead to the dissolution of the firm, however under dissolution is not compulsory. The contingencies are as follows:

• Expiration of the partnership firm
• Completion of task
• Death of the partner
• Insolvent partner

4. By Notice of partnership at will

According to the Indian Partnership Act, 1932, if the partnership is at will, then any partner can give notice in writing to all other partners informing them about his intention to dissolve the firm. If the partnership is partnership at will it can be dissolved by notice only.

Case law : Banarsi Das v. Kanshi Ram, AIR (1963) S.C. 1165

In the case of Banarsi Das vs Kanshi Ram, the apex court clarified that the filing of a suit for dissolution is not considered a notice under Section 43, the effective date of dissolution is the date of the preliminary decree by the court.

5. By Court

According to the Indian Partnership Act, 1932 the Court may dissolve a firm on the suit of a partner on any of the following grounds:

• Unsoundness of mind
• Permanent incapacity to perform duties
• Persistent breach of partnership agreement
• Conduct injurious to the partnership firm
• Transfer of interest
• When the business can be carried out only at the loss
• When dissolution is just and equitable