Meaning of Dissolution of Firm
As per Sec. 39 of the Indian Partnership Act, 1932 the dissolution of partnership among all the partners is
known as the ‘dissolution of the firm’. On dissolution, the firm’s business gets ended and all the assets are realised and liabilities cleared off. Thus, all the matters pertaining to partnership are totally terminated. As a result of the dissolution of partnership, the firm’s dissolution is not necessary, but on the disorganisation of a firm, the partnership must necessarily end.
Modes of Dissolution
The partnership could be dissolved either voluntarily (at discretion) or with the court’s intervention.
I. Dissolution of a Firm Without Court’s
Intervention The following are the modes in which the court doesn’t intervene for dissolution of the partnership firm
(1) Dissolution by Mutual Agreement- A firm may bendissolved with the consent of all the partners or in accordance with a contract among the partners. As per Sec. 40 of the Indian Partnership Act, when all the partners agree, the firm might be dissolved voluntarily.
(2) Compulsory Dissolution- As per Sec. 41 of the
Indian Partnership Act, a firm may be dissolved:
1.By the happening of any event which makes it unlawful for the business of the firm to be carried on.
2. Dissolution of a Firm With Court’s
(3) Dissolution on the Happening of Certain Contingency-As per Sec. 42 of the Indian Partnership Act, subject to the contract between the partners, a firm is dissolved:
If constituted for a fixed term, on the expiry of that term;
1.By the adjudication of all the partners or of all the
2 . partners but one, as insolvent; or
3.By the death of a partner; and
4.By the adjudication of a partner, as insolvent.
(4) Dissolution by Notice at Will- As per Sec. 43 of
the Indian Partnership Act, 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. The firm is dissolved from the date mentioned in the notice as the date of dissolution or, if no date is mentioned from the date of communication of the notice.
On the suit filed by any partner, the court may dis-
solve a firm on any of the following grounds, as mentioned in Sec. 44 of the Indian Partnership Act:
If constituted to carry out one or more adventures or undertakings, by the completion thereof;
1.Unsound Mind or Insanity of a partner
2.Permanent Incapability of a partner
3.Misconduct of a partner
4.Breach of Agreement
5.Transfer of Interest
7.Any Other Just and Equitable Cause