According to this Indian Partnership Act 1932, partnership is a category of commerce in which two or more than two persons comes into a official agreement to run an association with agrees to be the co-owners also consent to distribute duties and obligations and split the earnings, takings or sufferers that the commerce produces as said by their quantity. This act explains to organization is a bond among at least two parties who have recognized sharing the benefits formed from the business under the administration of the members. This partnership agreement consists of rights and responsibilities of the all members, whose consent to be the co-owners. This Partnership Act defines dissolution in different ways and section 40 to 44 states dissolution of partnership firm.
In Indian Partnership Act 1932, a bond among two or more persons who have agreed to run a business together with the share of profit and loss likewise. The quantity of partners in that firm is sort of two to twenty. Their Agreement acts describe the rights and responsibilities of the members of a firm, as provided by the law. The dissolution of the partnership firm shows the ways to the dissolution of partnership too.
Section 39:- Dissolution
Section 39 of the Indian Partnership Act says that’ the dissolution of a partnership among with the entire partners of a firm is known as the ‘dissolution of the firm’. This Act defines the termination of the partnership relationship. The matters of dissolution occur due to the death of a partner or retirement and if any of the partners become an insolvent.
The accurate meaning of the dissolution of partnership is the formal ending of a partnership. The word dissolution means that the act of officially finishing a formal agreement.
Methods of Dissolution of a firm –
The partnership firm can be dissolves by agreement and permission or consent, on the happening of assured contingencies. It can be also dissolved by the Court and by notice of partnership at will under the partnership act.
Dissolution of a partnership firm can be done in 2 following methods:-
- Dissolution without the intervention of the court which provide under section (40-43).
- Dissolution by the Court which provide under Section 44 of this act.
Section 40 – Dissolution by agreement
According to Section 40 of the said Act, a firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
A firm possibly dissolved with the approval of the entire partners or in concord with a contract between the partners. The firm may be dissolved by the consent of all the partners or by entering into an agreement to dissolve the firm. This is the uncomplicated process of dissolution of partnership firm and intervention of the court is not requisite in this. In this merely dissolution by mutual consent of all partners and it comes in the section 40.
Section 41– Compulsory dissolution due to any unlawful business activities (Section 41)
A firm may be dissolved by the following points:-
- Insolvency of partner:-
In this case all the partners turn into insolvent or all the partners except one partner become insolvent then firm may be dissolved.
- Unlawful business: –
In this case any act which is against the law are happening in the business of the firm to be running or else for the partners to keep it on in partnership, the firm may be dissolved. Unlawful activities like selling of drugs, trading with alien countries, dealing in illegal products etc, all activities which is illegal.
- For example:-
P is a resident of India and Q is a resident of Bangladesh are partners. If war breaks out between these two countries then the partnership will become unlawful and hence it is dissolved automatically according to this act.
Section 42 – Dissolution on the happening of certain contingencies
Under this act, the partnership is breaking up or dissolved on the happening of some contingency.
The certain contingency contains that:-
- On the ending of fixed term; when the partnership is created for the fixed term. If the agreement of a partnership firm is on a fixed term then ending of that firm will take place on the expiry of that contract or agreement.
- On the death of the partner, the dissolution of firm can take place only when the other partner prefer too. If the other partner wishes to continue the firm even after the death of a partner then there will be no option to dissolution the firm. Merely the partnership will be dissolved.
- The completion of project or undertaking; when the partnership was formed for the use of finishing undertaking or project. If the firm was produced for a definite number of duty or task then on completion of the duty or task, the partnership firm ends to exist.
- The adjudication of partners as an insolvent; When in the firm, one of the partners or all the partners is insolvent then dissolution can take place. Even dissolution can take place if any one of the partners resigns.
According to this act, when any partner wants to dissolve the partnership he provides a notice to all other partners conveying his intention to dissolve the partnership. If all the partners provide his consent then the partnership can be dissolved. The partnership is dissolved on the date of agreed in that notice moreover if no such date is mentioned in that notice then date of dissolution of partnership firm is the date of declaration of note.
Section 44:- Dissolution by the Court
- Unsound mind/insanity:-
When any partner becomes unsound mind or insane then a suit is taken by a next friend of a partner who has become unsound mind or insane or any other partner.
- Incapacity :-
When the partners, other than a suing partner become permanent incapable to do his duties and responsibilities as a partner.
In the case of Whitwell vs. Arthur held that where a partner is imprisoned for a long period of time then the court may well dissolve their partnership.
- Misconduct of Partner:-
When the partners, other than suing partner is blameworthy or guilty of any act which have an effect on the running on a business with respect to the nature of business.
- Constant breach of agreement by partner:-
The court may order for the ending of the firm if the partner other than the suing partner is found guilty for constant breach of agreement on the subject of the conduct of business or the managing of the affairs of the partnership firm and it becomes not possible to continue the business with such partners.
- Transfer of interest:-
When a partner has transfer his entire interest to the third party with no consent of other partners or else gives an authorization to the Court to charge his share for the recovery of land.
- Perpetual or Continuous losses:-
In this when the business is constantly suffering loss and the court believes that the firm cannot going on in the upcoming future due to continuous losses and cannot renew to its original position.
- Just and equitable ground :-
This is a ground in which the court may order for dissolution on any other ground which court think is just, fair and equitable. Like:-
- Conflict between the partners
- Deadlock in the management
- Offence committed by any of its partner
- Loss of foundation of business.
In case of Havidatt singh vs. Mukhe Singh the court held like this loss of total confidence between the partners.
Section 45:- liability for acts of partners has done after dissolution.
Section 45 says that the partners persist to be legally responsible to the third party until the public notice of the dissolution of the partnership is given.
It will not be applied to the partner who is dead or else insolvent or to the sleeping partner and also to the retired partner.
After the dissolution, the partner is legally responsible to pay his debt and to wind up the associations as regards the partnership.
Subsequent to the dissolution, partners are accountable to the contribution of the profit which they have decided in agreement.
Section 46 – Rights of partners to have business wound up after dissolution
According to this act, the dissolution of a firm, every partner or his representative is entitled in the opposition to every other partners or their representatives, to have the property of the partnership firm applied in payment of the debts and liabilities of the firm, with have the remaining disseminated amongst the partners or their representatives according to their rights and duties.
Dissolution of a partnership under the Section 39 to 44 of partnership act, 1872 is for the parties to a contract to decide about dissolution of the partnership. As well as Section 45 provides the legal responsibility for acts of partners completed after dissolution. Besides Section 46 discussed about rights of partners to have business wound up after the dissolution.