Dissolution of Partnership Firm

Before dissolving the partnership, we must be aware of the distinction between “dissolution of the partnership” and the dissolution of the company that is part of it. Dissolution of partnership signifies that the partnership has ended business, and dissolution of the partnership firm signifies the ending of the partnership’s business as well as the partnership firm.

Dissolution for a partnership company is the termination of each contract between the partners. It also means that all business operations within the company are halted and all assets and obligations are paid and cleared off.

Now, the question is: what happens when the partnership is to dissolve? There are many reasons that lead to the dissolution of the partnership, such as the case may be when a new partner is added, or the partner dies or has left the partnership or the remaining partners are able to continue their respective businesses. If changes occur of the partners, the previous partnership is terminated while the brand new one is formed with the assets and liabilities of the previous one.

The partnership can be disbanded in the following circumstances:

In the event of the death of the partner who died.
Because of the addition of the new partner.
Because of the death of an associate.
In the event of bankruptcy the partner.
The expiration date is the partnership period, if agreement is for a specific time.

Modes of Dissolution

There are several ways in which a partnership may be dissolved, which include:

Through an act of partners by a partnership agreement. to end the partnership at a certain date. Partners may come to an agreement on a certain time frame of maybe five years. Partners can terminate an agreement with conclusion of the five-year period. In some cases, partners may dissolve the agreement at the midpoint of the time frame under certain conditions.

Lawful operation A partnership is the result of an agreement that is subject to the law. If any illegal activity occurs, the partnership is dissolution. You can form an official partnership to avoid unlawful work.

In the decree of the court the partnership can be disbanded by the court, and the court will allow the following conditions:

In the event that the spouse is not able to work,
If the person who is living with you is mentally unstable,
If the partner behaves in a way that has a negative effect on the partnership
In the event of a violation of the agreement between a partner.

Dissolution statement: the Dissolution can be accomplished by filing a statement with secretary of the state. The statement must include details of the partnership’s name as well as the date and reason for dissolution.

Statutory provisions pertaining to the Dissolution

The specific provisions that are included within the Indian Partnership Act regarding the dissolution of the partnership. These include:

In Section 4, we define the definition of partnership.
Section 6 outlines the various ways of existence of the partnership.
Section 45 defines the liability of the partner following the dissolution of the partnership.
Section 46 outlines how rights can be claimed by the partner in relation to the business after its dissolution.
Section 48 specifies the means of settlement of the accounts of partners following the dissolution of the partnership.

Rights After Dissolution of Partnership

Article 46 under the Indian Partnership Act, 1932 regulates partner rights following the dissolution of the partnership. After the dissolution partnership, the partners are entitled to certain rights with respect to the same:

The right for an equitable lien upon the dissolution of the firm, each partner has certain rights. This includes the right to receive the assets of the firm utilized to pay obligations and debts, and to share surplus between all partners.
Right to refund of premium At the time of the formation of the partnership. Partners are required to pay an amount to the extent of a premium at the time of dissolution. Partners receive that amount according to the contract.
Rights in the event that a partnership contract has been cancelled due to fraud or other reasons. If an individual partner accepts joining the firm through fraud or through misrepresentation made by other partners or if he suspects such. Then he is entitled to terminate your partnership contract.
The right to restrict from using the name of the firm or property: following the end of the partnership, the partner is entitled to prevent others from using the name as the company.
The right to make personal gain by utilizing the name of the firm If the firm dissolves the partner gets an option to use the name the company as he purchases goodwill from the firm and may earn a money from it.

Liabilities After Dissolution of Partnership

In Section 45, the Indian Partnership Act, 1932 covers the liability of actions of partners that occurred following the dissolution. The liability is:

The partners remain accountable for the liability of the third-party up to the public notice of dissolution is made public. It will not apply to the deceased partner or to the partner who is insolvent, or to the sleep partner or retired partner.
Following the dissolution of the association, each partner will be accountable for his debts and complete the business of the partnership.
Following the dissolution of the partnership, the partners are bound to share in the profits they’ve decided to share in accordance with their agreement or as agreed.

Landmark Judgements On Dissolution of Partnerhsip Firm

Narendra Bahadur Singh vs Chief Inspector Of Stamps, U.P. (1971)

In this instance the partnership was dissolved, with it. The third-party (Narendra Bahadur Singh) was granted all assets (stocks) liabilities. That included all debts in accordance with the account. He was allowed to keep the original name of the company and could carry on the business in full profit and losses.

The three other parties did not have any rights to loss, profit or other liabilities. The capital, profit and loss of the remaining three parties has been agreed to receive, and Narendra Bahadur Singh arranged to pay the amount mentioned.

In order to pay the money in a secure manner, he made a hypothecation and charged a specific property. But it was ruled by the judge that the property of the company is shared by each partner equally since there is no sole owner of the company. The settlement will be made in accordance with the method of settlement in Section 48 of the Indian Partnership Act.

B.K. Kapoor & Anr. vs Mrs. Tajinder Kapoor & Anr. (2008)

In this instance the plaintiff-respondent filed an action for to dissolve the company. The plaintiff asserted that under the terms of the agreement. The partner was entitled to 18% book profit for the initial Rs.75,000 and 12% for the following Rs.75,000 of book profits and 8 percent of the remaining amount of book profits.

The relationship was not properly mentioned in the plaint. It was a reason for which it was hard to keep the partnership. Thus, a notice of suit handed out to petitioners, who made the application for relief pursuant to Section 8 of the Act in which they claimed that the matter is covered by the arbitrarily drafted agreement.

However, in the end it was decided that the petitioners were seeking dissolution on a just and fair ground set out in Section 44 of arbitrarily act, not because of the legal term in the partnership deed, and thus the case was not subject to the arbitration under Section 8.

Santdas Moolchand Jhangiani And v Sheodayal Gurudasmal Massand (1970)

In this instance it was two plaintiffs as well as one defendant. The defendant entered into the partnership and then continued with the business of the partnership. Following their decision to dissolve the partnership and pay the partnership’s accounts. The plaintiff to whom payment was made. Filed a suit to recover damages and the proceedings were viewed by the judge. He declared there was no just the deed of dissolution, but as well the bond.

He seized the document and requested the plaintiff to pay the stamp duty. In the final decision, it was decided that the deed of dissolution that was issued in this case isn’t able to stamp as a bond, and the fact that it was recorded as a declaration of dissolution was sufficient.

N. Guruva Reddy vs The District Registrar (1976)

In this instance, Guruva Reddy, son of Chenchu Rami Reddy and other six people and legal heirs to Smt. P. Sri Devamma were operating a partnership business. The legal representative as well as five other partners express their intention to leave the partnership.

The agreement to dissolve the company was made. The dissolution was signed using the official stamp. At the end of the day it was stated the charge had been imposed for the partners in a specific amount that is payable in the deed of dissolution.

Conclusion

It can be concluded from the explanation above of dissolution of partnership firm, with the ending of the partnership between the partners. They will have rights and obligations that they have to fulfill.

They can seek to enforce this with the aid of the Indian Partnership Act, 1932 because it contains a specific provision on the subject. The law clearly outlines the grounds for dissolution of partnership to ensure that no one can take advantage of it.

The Indian Partnership Act, 1932

Types of Partners

Kinds of Partnership