THE INDIAN PARTNERSHIP ACT, 1932

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

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.

where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the partners of his intention to dissolve the firm.

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 the communication of the notice.

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;

that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner;

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;

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;

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 any of dues recoverable as arrears of land revenue due by the partner;

on any other ground which renders it just and equitable that the firm should be dissolved.

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 from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner.

(2)

On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or 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.

Do the partners of the firm after its dissolution have continuing authority for purposes of winding up the affairs of the partnership?

After the dissolution of a firm the authority of each partner to wind 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 affair of the firm and to complete transactions began 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.

In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed -

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;

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 -

in paying the debts of the firm to third parties;

in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;

in paying to each partner ratably what is due to him on account of capital; and

the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

What are the priorities regarding payment of firm debts and of separate debts?

Where there are joint debts due from the firm, and also separate debts 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.

Can the partners use firm name or firm property after dissolution of the firm?

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 same 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 right to use the firm name.

Can the goodwill of the firm be sold after dissolution and in course of settlement of accounts?

 In setting 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.

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 -

use the firm name,

represent himself as carrying on the business of the firm, or

solicit the custom of persons who were dealing with the firm before its dissolution.

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 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.

The State Government may appoint registrars of firms for the purposes of the partnership act for different areas.
The registration of a firm may be affected at any time by sending by post or delivering to the registrar of the area in which any place of business of the firm is situated or proposed to be situated a statement in the prescribed form and accompanied by the prescribed fee stating -

the firm name,

the place or principal place of business of the firm,

the names of any other places where the firm carries on business,

the date when each partner joined the firm,

the names in full and permanent addresses of the partners, and

the duration of the firm.

The statement shall be signed by all the partners by their agents specially authorised in this behalf.

When the registrar is satisfied that the provisions of section 58 have been duly complied with he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement. Then there are provisions regarding recording of alterations in firm name and principal place of business, noting of closing and opening of branches, noting of changes in names and addresses of partners, recording of changes in and dissolution of a firm, recording of withdrawal of a minor, rectification of the mistakes, amendment of register by order of court, inspection of register and filed documents, grant of certified copies, proof of certified copies of the entry in the Register Of Firms in evidence etc. in sections 59-68.

No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the register of firms as a partner in the firm.

No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm.

The provisions of sub-sections (1) and (2) shall apply also to claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect -

the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or

the powers of an official assignee, receiver or court under the Presidency-towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.

to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories, are situated in areas to which, by notification under section 56, this Chapter does not apply, or

to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or, outside the Presidency-towns, is not of a kind specified in Schedule II to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

A public notice under this Act is given -

where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of a registered firm, or to the election to become or not to become a partner in a registered firm by a person attaining majority who was admitted as a minor to the benefits of partnership, by notice to Registrar Of Firms under section 63, and by publication in Official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relate has its place or principal place of business, and

in any other case, by publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business.

HOME

^
top