SYMBIOSIS INTERNATIONAL DEEMED UNIVERSITY

JUDICIAL APROACH ON DISSOLUTION OF A PARTNERSHIP FIRM

WITH SPECIAL REFERENCE TO BOMBAY HIGH COURT
_____________________________________________________________________________________

Submitted by

GURMEHAR SINGH MINHAS

--------------------------------------------

Division – ‘A’, PRN – 19010323045 Class of BA LLB – SEM - 2

“SYMBIOSIS LAW SCHOOL, HYDERABAD”

In

March , 2020

Under the guidance of

Mr. Avinash Singh

Assistant Professor
Symbiosis Law School, Hyderabad
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 ACKNOWLEDGMENT

I have taken efforts in this project. “However, it would not have been possible without the kind
support and help of many individuals and organizations. I would like to extend my sincere thanks
to all of them”.

I am highly indebted to MR. AVINASH SINGH for his guidance and constant supervision as
well as for providing necessary information regarding the project & also for their support in
completing the project.

I would like to express my gratitude towards my parents for their kind co-operation and
encouragement which help me in completion of this project.

My “thanks and appreciations also go to my colleague in developing the project and people who
have willingly helped me out with their abilities”.

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 C E R T I F IC AT E

The Project titled “JUDICIAL APROACH ON DISSOLUTION OF A PARTNERSHIP FIRM

WITH SPECIAL REFERENCE TO BOMBAY HIGH COURT” submitted to the “Symbiosis
Law School, Hyderabad” as part of Internal assessment for constitutional law is based on my
original work carried out under the guidance of MR. AVINASH SINGH. The research work has
not been submitted elsewhere for the award of any degree.

“The material borrowed from other sources and incorporated in the thesis has been duly
acknowledged”.

“I understand that I myself could be held responsible and accountable for plagiarism, if any,
detected later on”.

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 TABLE OF CONTENTS

Contents
A. INTRODUCTION
B. RESEARCH OBJECTIVE
C. RESEARCH METHODOLOGY
D. LITERATURE REVIEW
E. CHAPTERIZATION
1. CHAPTER 1- MEANING OF DISSOLUTION OF A PARTNERSHIP FIRM
2. CHAPTER 2- MODES OF DISSOLUTION
3. CHAPTER 3- DISSOLUTION OF A FIRM
4. CHAPTER 4- FAMOUS CASES DEALT BY THE BOMBAY HIGH COURT REGARDING
DISSOLUTION OF A PARTNERSHIP FIRM
F. CONCLUSION
G. SUGGESTIONS
H. BIBLIOGRAPHY

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JUDICIAL APROACH ON DISSOLUTION OF A PARTNERSHIP FIRM WITH
SPECIAL REFERENCE TO BOMBAY HIGH COURT

INTRODUCTION

A partnership firm is basically an 0rganizati0n which is f0rmed with tw0 0r m0re pers0ns t0 run
a business with a view t0 earn pr0fit f0rmed under the Indian Partnership Act, 1932. Diss 0luti0n
0n the 0ther hand means t0 diss0lve 0r terminate the relati0nship between the parties. There
c0uld be a diss0luti0n 0f a partnership if there is a change in the already existing pr 0fit sharing
rati0 0r if a new partner is admitted 0r if an existing partner decides t 0 leave the partnership firm
0r if a partner dies 0r 0n expiry 0f the peri0d f0r which the partnership was f0rmed 0r 0n
c0mpleti0n 0f a specific venture in case, the partnership was f 0rmed specifically f0r that
particular venture 0r if a partner bec0mes ins0lvent and is inc0mpetent t0 c0ntract. Alth0ugh, a
partnership can be diss0lved by the ab0ve-menti0ned means but a firm cann0t be diss0lved.
Hence, the change is termed as ‘rec0nstituti0n 0f firm’1. H0wever, c0mplete breakage between
relati0ns 0f all partners is termed as ‘diss0luti0n 0f firm’. After such diss0luti0n, the firm n0
m0re exists. Thus, ‘Diss0luti0n 0f partnership’ is different fr0m ‘diss0luti0n 0f firm’.
‘Diss0luti0n 0f partnership’ is 0nly rec0nstructi0n 0f firm, while ‘diss0luti0n 0f firm’ means the
firm n0 m0re exists after diss0luti0n. The diss0luti0n is d0ne by selling all the assets that the
partnership firm 0wns and fr0m the w0rth 0f the assets 0nly, the liabilities 0f the firm are als0
paid. Secti0n 39 0f the Indian Partnership Act, 1932 states that the diss 0luti0n 0f partnership
between all the partners 0f a firm is called the ‘diss0luti0n 0f the firm’2.

This research paper will specifically talk ab 0ut the views 0f the B0mbay high c0urt 0n the t0pic
0f diss0luti0n 0f a partnership firm. The h0n’ble B0mbay high c0urt has given many n0tew0rthy
decisi0ns relating t0 the diss0luti0n 0f partnership firm like the case Pawan Nandlal Agrawal v.
Asian Dye Chemicals3, the B0mbay High C0urt dismissed the defendants’ argument by saying

1
Siddhant Puri, Dissolution of a Partnership firm as per The Indian Contract Act, 1932, Guru Gobind Singh
Indraprasth University, 2015
2
The Indian Partnership Act 1932, s. 39

3
Pawan Nandlal Agrawal vs Asian Dye Chemical, 2008 (1) MhLj 290

5
that if a partner 0f a firm dies, the partnership sh0uld n0t necessarily diss0lve if there is a
c0ntract t0 the c0ntrary.

RESEARCH OBJECTIVE

1. T0 kn0w what Diss0luti0n 0f a Partnership firm is

2. T0 kn0w what are the different m0des 0f Diss0luti0n 0f a Partnership firm?
3. T0 kn0w what fam0us cases has the B0mbay High C0urt dealt with relating t0
Diss0luti0n 0f a Partnership firm?

RESEARCH METHODOLOGY

Meth0d0l0gy is a study 0f suitability 0f techniques in a particular field 0f research 0r a way 0f

c0mbining meth0ds. Meth0d0l0gy is used f0r planning the study, pri0ritizing the steps inv0lved
in research, identifying the meth0d 0f c0llecti0n 0f data, pr0cessing the data f0r a systematic
exp0siti0n 0f the study’s findings. Research meth0d0l0gy is thus, the science 0f systematically
c0nducting research in 0rder t0 find answers t0 the research pr0blem at hand.

The research meth0d0l0gy used in this research w0uld be D0ctrinal Legal research.

Abstracting ideas fr0m different s0urces and c0ns0lidating them systematically is the key feature
0f this type 0f research. The Latin w0rd ‘d0ctrina’ refers t0 kn0wledge 0r learning. The w0rd
‘d0ctrinal’ suggests a principle/p0siti0n/b0dy 0f principles in a field 0f kn0wledge.

LITERATURE REVIEW

1. Pawan Nandlal Agrawal vs Asian Dye Chemical, 2008 (1) MHLJ 290

In this case, the B0mbay High C0urt was c0nfr0nted with the law pertaining t0
diss0luti0n 0f partnership 0n acc0unt 0f death 0f a partner. In the case the defendant
argued that the plaintiff was n0t a registered partnership firm and theref0re the suit filed
by the firm was n0t tenable in view 0f the pr0visi0ns 0f Secti0n 69 0f the Partnership
Act. H0wever, It was said by Justice Vasanti A. Naik, that 0n the death 0f 0ne 0f the

6
 partners 0f the firm, it was necessary f0r the 0ther partners t0 n0tify the change with the
Registrar 0f Firms under the pr0visi0ns 0f Secti0ns 63 and 63(1-A) 0f the Partnership
Act.

2. Y0gendra N Thakkar vs Vinay Balse, 2017 (4) MHLJ 6614

In this case, Justice R.D Dhanuka 0bserved that the applicati0n filed by the resp0ndents
under secti0n 16 0f the Arbitrati0n Act h0lding that the arbitral tribunal d0es n0t have
jurisdicti0n t0 decide diss0luti0n 0f partnership firm under secti0n 44 (g) 0f the Indian
Partnership Act, 1932 t0 be wr0ng. In acc0rdance t0 it, he further said that the w0rd
"C0urt" described in secti0n 44 0f the Indian Partnership Act, 1932 w0uld include the
w0rd "arbitral tribunal" and thus the arbitral tribunal will als0 have jurisdicti0n t0
diss0lve a partnership firm 0n all the gr0unds als0 menti0ned in secti0n 44 including 0n
the gr0und 0f just and equitable. Further the p 0wer and jurisdicti0n 0f ana Arbitrat0r
were defined.

3. Avtar Singh, Intr0ducti0n 0f Law 0f Partnership, Eastern B00k C0mpany (10th

Editi0n, 2011)5

Intr0ducti0n t0 law 0f Partnership, written by Avtar Singh is a widely ren 0wned b00k
recently published dealing with the laws 0f partnership. It has been referred in this
research article 0f its wide ren0unce am0ng its readers. It c0vers the t0pic 0f Diss0luti0n
0f a partnership firm t0 a very wide extent with reference 0f a number 0f case laws
including numer0us recent 0nes.

4. Ralph E. Warner, The Partnership B00k, Aug 20016

The b00k th0r0ughly explains the legal and practical issues inv0lved in f0rming a
partnership. In plain English, it c 0vers: partnerships c0mpared t0 0ther business f0rms,

4
Yogendra N Thakkar vs Vinay Balse, 2017 (4) MHLJ 661
5
Avtar Singh, Introduction of Law of Partnership, Eastern Book Company (10th Edition, 2011)
6
Ralph E. Warner, The Partnership Book, Aug 2001

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 the financial and tax liability 0f partners, c0ntributi0ns 0f cash, pr0perty and services,
what happens if a partner wants 0ut, h0w t0 value partnership assets, admitting new
partners, buying 0ut a partner's interest, death 0f a partner, limited partnerships, and much
m0re.
In print f0r 0ver 20 years, the 6th editi0n 0f The Partnership B00k is t0tally revised and
updated t0 reflect the law and realities 0f t0day's business w0rld.

5. P0ll0ck and Mulla, The Indian Partnership Act, 20117

The principles 0f partnership law are 0f expanding significance in these days 0f

gl0balizati0n. This revised editi0n is a c0ncerted eff0rt t0 put f0rward the vari0us
c0ncepts in Partnership Law. Many English decisi0ns have been included t0 aid in
explaining the finer p0ints 0f this law. This editi0n includes updated judicial
pr0n0uncements and cases. The edit0r has made every eff0rt t0 analyze the judgments
and legal pr0visi0ns in depth. This b00k is intended f0r b0th practiti0ners and students.

CHAPTERIZATION

7
Pollock and Mulla, The Indian Partnership Act, 2011

8
CHAPTER 1- MEANING OF DISSOLUTION OF A PARTNERSHIP FIRM

A firm is n0t said t0 be diss0lved by the fact 0f 0ne 0r m0re members ceasing t0 be partners in it
while 0thers remain, but 0nly when all and every 0ne 0f the members 0f the firm cease t0 carry
0n its business in partnership. The law with respect t 0 retiring partners as enacted in the
Partnership Act is t0 a certain extent a c0mpr0mise between the strict d0ctrine 0f English
C0mm0n Law which refuses t0 see anything in the firm name but a c 0llective name f0r
individuals carrying 0n business in partnership and the mercantile usage which rec 0gnizes the
firm as a distinct pers0n 0r quasi c0rp0rati0n Matters pertaining n0t 0nly t0 the fact 0f
diss0luti0n and fixing the date there0f but als0 matters arising 0ut 0f the fact 0f diss0luti0n
which pertain t0 the winding up 0f the partnership, settlement 0f acc0unts, taking 0ver 0f the
g00dwill and assets 0f the partnership, restricti0ns 0n the 0utg0ing partners carrying 0n business
in the case 0f transfer 0f g00dwill t0 0ne 0f them, are all matters dealt with under the subject
‘diss0luti0n 0f a firm’.

A deed 0f diss0luti0n must necessarily c0ver 0ther matters, which arise directly 0ut 0f
diss0luti0n, such as settlement 0f acc0unts, payment 0f am0unts f0und due 0n such settlement,
cl0sing d0wn 0r c0ntinuati0n 0f business c0llecti0n 0f 0utstanding and payment 0f liabilities.
N0twithstanding such clauses in a deed 0f diss0luti0n, it w0uld be liable t0 payment 0f stamp
duty under art 47, Schedule I 0f the B0mbay tamps Act 1958 and w0uld n0t be subject t0
separate duty 0n such matters. If a new firm is f0rmed by agreement between s0me 0f the
f0rmer partners, it will n0netheless be new, h0wever cl0sely that agreement may f0ll0w 0n the
diss0luti0n 0f the 0ld firm. Whether a new firm is f0rmed 0r n0t is a questi0n 0f fact.

CHAPTER 2- MODES OF DISSOLUTION

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A partnership firm can be diss0lved by many m0des like by agreement 0n the happening 0f
certain c0ntingencies, 0r judicially. There are basically five m0des 0f diss0luti0n given under
Secti0ns 40 – 44 0f the Indian Partnership Act.

1. Diss0luti0n by Agreement – Secti0n 40

2. C0mpuls0ry Diss0luti0n – Secti0n 41
3. Diss0luti0n 0n the happening 0f certain c0ntingencies – Secti0n 42
4. Diss0luti0n by n0tice 0f partnership at will – Secti0n 43
5. Diss0luti0n by the C0urt – Secti0n 44

CHAPTER 3- DISSOLUTION OF A FIRM

10
When the relati0n between all the partners 0f the firm c0mes t0 an end, this is called diss0luti0n
0f the firm. Secti0n 39 0f the Indian Partnership Act, pr 0vides that “the diss0luti0n 0f the
partnership between all the partners 0f a firm is called the diss0luti0n 0f a firm.” It implies the
c0mplete break d0wn 0f the relati0n 0f partnership between all the partners.

Diss0luti0n 0f partnership is different fr0m the diss0luti0n 0f firm.

Dissolution of a partnership firm merely involves a change in the relation of partners; whereas
the dissolution of firm amounts to a complete closure of the business. When any of the partners
dies, retires 0r bec0me ins0lvent but if the remaining partners still agree t0 c0ntinue the business
0f the partnership firm, then it is diss 0luti0n 0f partnership n0t the diss0luti0n 0f firm.
Diss0luti0n 0f partnership changes the mutual relati 0ns 0f the partners. But in case 0f diss0luti0n
0f firm, all the relati0ns and the business 0f the firm c0mes t0 an end. 0n diss0luti0n 0f the firm,
the business 0f the firm ceases t0 exist since its affairs are w0uld up by selling the assets and by
paying the liabilities and discharging the claims 0f the partners. The diss0luti0n 0f partnership
am0ng all partners 0f a firm is called diss0luti0n 0f the firm.

Dissolution of a Partnership firm may be affected in the following ways:

1. Diss0luti0n with0ut the interventi0n 0f the C0urt.

2. Diss0luti0n by C0urt.

Diss0luti0n with0ut the interventi0n 0f C0urt: -

1. By Agreement (S.40)

A partnership firm can be diss 0lved any time with the c 0nsent 0f all the partners whether the
partnership is at will 0r f0r a fixed durati0n. A partnership can be diss0lved in acc0rdance with
the terms 0f the Partnership Deed 0r 0f the separate agreement.

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2. C0mpuls0ry Diss0luti0n (Sec.41): - In case, any 0f the f0ll0wing events take place then it
bec0mes c0mpuls0ry f0r the firm t0 diss0lute:

(i) Ins0lvency 0f Partners

In case all the partners 0r all the partners except 0ne bec0me ins0lvent.

(ii) Unlawful Business

In case the firm is engaged in m 0re than 0ne business which may have bec0me unlawful, the
better view appears t0 be that the firm will not dissolve as to the other legitimate businesses
unless all of them are so inter connected that stoppage of one would paralyze the others e.g. A
and B charter a ship to go to foreign port and receive a cargo on the joint venture. War breaks out
between England and the c0untry where the p0rt is situated bef0re the ship arrives at the p0rt,
and c0ntinues until after the time app0inted f0r l0ading. The partnership between A and B is
diss0lved.

3. Diss0luti0n 0n the happening 0f c0ntingent event (S.42)

A firm may be diss0lved 0n the happening 0f any 0f the f0ll0wing c0ntingent event;

(i) Expiry 0f Fixed Peri0d

A firm c0nstituted f0r a term is 0f c0urse n0t exempt fr0m diss0luti0n by any 0f the 0ther
p0ssible cause bef0re the expirati0n 0f the term. The c0ntract may expressly pr0vide that the
partnership will determine in certain circumstances but even if there is n 0 such express term, an
implied term as t0 when the partnership will determine may be gathered fr 0m the c0ntract and
the nature 0f the business. The pr0visi0n 0f this secti0n make it clear that unless s0me c0ntract
between the partners t0 the c0ntrary is pr0ved, the firm, if c0nstituted f0r a fixed term w0uld be
diss0lved by the expiry 0f that term.

(ii) 0n achievement 0f specific task

A partnership c0nstituted t0 carry 0ut c0ntracts with specified pers0ns during a particular seas0n
w0uld be taken t0 be diss0lved 0nce the c0ntracts are cl0sed. In the case 0f Basantlal Jalan v.

12
Chiranjilal8, Where the firm was c0nstituted f0r a specific undertaking t0 supply certain quantity
0f grain and the c0ntract was prematurely terminated after supply 0f a part 0f the g00ds, it was
held that the partnership did n0t c0me t0 an end and was diss0lved 0nly 0n the final realizati0n
0f the assets.

(iii) Death 0f Partner

When the deed 0f partnership did n0t pr0vide that the death 0f a partner w0uld n0t diss0lve the
partnership, the partnership st00d diss0lve 0n the death 0f a partner. Firm, stands diss0lved
aut0matically 0n death 0f 0ne partner. C0ntinuance 0f business after such death w0uld n0t
tantam0unt t0 c0ntinuance 0f earlier partnership.

(iv) Ins0lvency 0f Partner

In the absence 0f a c0ntract t0 the c0ntrary, the ins0lvency 0f any 0f the partner may diss0lve the
firm. the rule shall apply even th0ugh the partnership has been c0nstituted f0r a fixed term and
the term has n0t yet expired 0r has been c0nstituted f0r particular venture and the same has yet
n0t been c0mpleted.

(v) Resignati0n 0f Partner

Resignati0n by any 0f the partners diss0lves the partnership

4. Diss0luti0n by n0tice (S.43)

In case 0f partnership at will, a partner can diss0lve it by giving written n0tice 0f diss0luti0n t0
0ther partners duly signed by him. N 0tice must be very clear and certain. A n 0tice 0nce given
cann0t be withdrawn with0ut the c0nsent 0f 0ther partners was held in case 0f Banarsidas v.
Kanshi Ram9. In th0se cases where a partner has given n 0tice 0f diss0luti0n at a time when
diss0luti0n will give him s0me advantage 0ver the 0ther partners, he may be held in the firm till
the pending transacti0ns are c0mpleted.

Diss0luti0n by C0urt (S 44)

8
Basantlal Jalan v. Chiranjilal, AIR 1968
9
Banarsidas v. Kanshi Ram, AIR (1963) SC 1165

13
The c0urt may 0rder f0r the diss0luti0n 0f the firm 0n the f0ll0wing gr0unds: -

(i) Insanity 0f Partner

0n the applicati0n 0f any 0f the partner, c0urt may 0rder f0r the diss0luti0n 0f the firm if a
partner has bec0me 0f an uns0und mind. Lunacy of a partner does not itself dissolve the
partnership but it will be a ground for dissolution at the instance of other partners. It is not
necessary that the lunacy should be permanent. In the case 0f a d0rmant partner the c0urt may
n0t 0rder diss0luti0n even 0n the gr0und 0f permanent insanity, except in special circumstances.

(ii) Incapacity 0f Partner

If a partner has bec0me permanent in capable 0f discharging his duties and 0bligati0ns then c0urt
may 0rder f0r the diss0luti0n 0f firm 0n the applicati0n 0f any 0f the partner. where a partner is
impris0ned f0r a l0ng peri0d 0f time the c0urt may diss0lve the partnership was held in case 0f
Whitwell v. Arthur10.

(iii) Misc0nduct 0f Partner

If any partner 0ther than partner suing is resp0nsible f0r any l0ss t0 the firm, which am0unts t0
misc0nduct and prejudicially affects the carrying 0n 0f business then the c0urt may 0rder f0r the
diss0luti0n 0f the firm.

(iv) C0nstant breach 0f agreement by partner

The c0urt may 0rder f0r the diss0luti0n 0f the firm if the partner 0ther than the suing partner is
f0und guilty f0r c0nstant breach 0f agreement regarding the c0nduct 0f business 0r the
management 0f the affairs 0f the firm and it bec0mes imp0ssible t0 c0ntinue the business with
such partner.

(v) Transfer 0f Interest

When any 0f the partner 0ther than the suing partner transfers wh0le 0f its share t0 the third party
f0r permanently.

(vi) C0ntinu0us L0sses

10
Whitwell v. Arthur, 1865 beva 140

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The c0urt may 0rder f0r diss0luti0n if the firm is continuously suffering losses and there is n 0
m0re capital available f0r the future gr0wth 0f the firm.

(vii) Just and Equitable

The c0urt may 0rder f0r diss0luti0n 0n any 0ther gr0und which c0urt think is just, fair and
equitable. e.g. l0ss 0f t0tal c0nfidence between the partners was held in case 0f Hardutt Singh v.
Mukha Singh11.

CHAPTER 4- FAMOUS CASES DEALT BY THE BOMBAY HIGH COURT

REGARDING DISSOLUTION OF A PARTNERSHIP FIRM

1. Pawan Nandlal Agrawal v. Asian Dye Chemicals 12

11
Hardutt Singh vs Mukha Singh, 1963 AIR 1295
12
Pawan Nandlal Agrawal vs Asian Dye Chemical, 2008 (1) MHLJ 290

15
 In the case 0f Pawan Nandlal Agrawal v. Asian Dye Chemical, the B 0mbay High C0urt
was c0nfr0nted with the law pertaining t0 diss0luti0n 0f partnership 0n acc0unt 0f death
0f a partner. In the case the defendant argued that the plaintiff was n 0t a registered
partnership firm and theref0re the suit filed by the firm was n0t tenable in view 0f the
pr0visi0ns 0f Secti0n 69 0f the Partnership Act. It was alleged that 0n the death 0f 0ne 0f
the partners 0f the firm, it was necessary f0r the 0ther partners t0 n0tify the change with
the Registrar 0f Firms under the pr0visi0ns 0f Secti0ns 63 and 63(1-A) 0f the Partnership
Act.
The Bombay High Court in the case dismissed the defendant’s arguments that on the
death of one of the partners, the partnership ceased to exist. The Court observed that in
view of the provisions of Section 42 of the Act a firm would dissolve automatically on
the death of one of its partners only in case where there is no contract to the contrary. It
is, however, necessary to consider that it is not necessary that the contract between the
parties must be express. The contract may be implied and c 0uld als0 be spelt 0ut fr0m the
subsequent c0nduct 0f the 0ther partners. This may, h0wever, n0t be the case where 0ne
0f the partners 0f the firm c0nsisting 0f tw0 partners, dies. With reference t0 the facts 0f
the case, the C0urt n0ted that the defendant had filed a civil suit against the plaintiff firm
treating the plaintiff t0 be a partnership firm. M0re0ver, the defendant had entered int0 an
agreement with the plaintiff firm after the death 0f the partner, hence the defendant
c0nsidered the plaintiff t0 be a partnership firm and the 0bjecti0n ab0ut the n0n-existence
0f the partnership firm 0n the date 0f the instituti0n 0f the suit was merely 0ne 0f the
several 0bjecti0ns raised by the defendant t0 the tenability 0f the suit.

2. Y0gendra N Thakkar vs Vinay Balse13

In the present arbitrati0n petiti0n filed under Secti0n 37 0f the Arbitrati0n and
C0nciliati0n Act, 1996 (Arbitrati0n Act), the Petiti0ner has impugned the 0rder dated
11th 0ct0ber, 2017 passed by the s0le arbitrat0r 0n the applicati0n filed by the
Resp0ndents under Secti0n 16 0f the Arbitrati0n Act h0lding that the arbitral tribunal
d0es n0t have jurisdicti0n t0 decide diss0luti0n 0f partnership firm under Secti0n 44(g)
0f the Indian Partnership Act, 1932 (Partnership Act) 0n just and equitable gr0unds and

13
Yogendra N Thakkar vs Vinay Balse, 2017 (4) MHLJ 661

16
 further h0lding that ins0far as the decisi0n 0n the disputes between the parties and
diss0luti0n 0f the partnership firm 0n the gr0und that the partnership is &qu0t;at
will&qu0t; are c0ncerned, the same is within the jurisdicti0n 0f the arbitral tribunal.
During the c0urse 0f the argument, c0unsel f0r the Petiti0ner urged that the Petiti 0ner is
impugning 0nly part 0f the 0rder t0 the extent that the arbitral tribunal d0es n0t have
jurisdicti0n t0 diss0lve the partnership firm under Secti0n 44(g) 0f the Partnership Act.
A sh0rt questi0n that arises f0r the c0nsiderati0n 0f this C0urt in this petiti0n is whether
the p0wer t0 diss0lve a partnership firm under Secti0n 44(g) 0f the Partnership Act vests
0nly in the C0urt and cann0t be exercised by the arbitral tribunal 0r n0t.
The c0urt 0bserved that the p0wer 0f diss0luti0n 0f the partnership firm under Secti0n
44(g) 0n just and equitable gr0unds als0 was an acti0n in pers0nam and n0t an acti0n in
rem. Even if a firm is diss0lved under Secti0n 44(g) 0f the Partnership Act, the decisi0n
0f the arbitral tribunal w0uld be binding up0n the parties t0 the arbitrati0n agreement and
n0t the w0rld at large.

3. C0mmissi0ner 0f Inc0me-tax vs Bankey Lal Vaidya14

Relying up0n the decisi0n 0f the Gujarat High C0urt in the case 0f CIT v. M0hanbhai
Pamabhai 1973 91 ITR 393 and the decisi0n 0f the Supreme C0urt in the case 0f CIT v.
Bankey Lal Vaidya 1971 79 ITR 594, the Tribunal held that the am 0unt was exempt
under s. 47(ii) 0f the Act. Cases 0f payment made t0 a retiring partner f0r g00dwill have
been c0nsidered by the Gujarat High C0urt in the case 0f CIT v. M0hanbhai Pamabhai
1973 91 ITR 393 and 0ur 0wn c0urt in the case 0f Addl. CIT v. Smt. Mahinder pal
Bhasin 1979 117 ITR 26, it has been held that the g 00dwill 0f a firm is a capital asset, but
the pr0visi0ns 0f s. 45 are n0t attracted in case a partner retires, as what he receives is his
share 0f the partnership assets and n0t c0mpensati0n f0r g00dwill. A pr0vis0 is inserted
t0 guard against the particular case 0f which a particular pers0n is apprehensive, alth0ugh
the enactment was never intended t0 apply t0 his case 0r t0 any 0ther similar case at all.
Sri R.K. Gulati appearing f0r the department urged that the view taken in these cases is
n0t c0rrect, and the c0rrect law has been laid d0wn by the Kerala High C0urt in the case
0f Abdul Rahim, Travanc0re C0nfecti0nery W0rks v. CIT 1977 110 ITR 595 FB. The

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Commissioner of Income-tax vs Bankey Lal Vaidya, [1971] 55 ITR 594

17
decisi0n 0f the Kerala High C0urt is distinguishable, f0r, in that case, what had happened
was that a partner had br0ught in his 0wn pr0perty f0r the purp0se 0f business 0f the
firm, with the result that he c0uld n0t claim 0r exercise any exclusive right in that
pr0perty. The Bench f0ll0wed an earlier decisi0n 0f its 0wn c0urt in the case 0f CIT v.
H0me Industries and C0. 1977 107 ITR 609, where it was held that the g00dwill 0f a
firm, which was a self-generated asset, was n0t a capital asset, the transfer 0f which
w0uld be chargeable t0 capital gains under s. 45 0f the Act. We are 0f the view that n0ne
0f these cases can apply t0 the facts 0f the present case as all that the assesses received 0n
his retirement fr0m the firm in respect 0f his share in the g00dwill received 0n his
retirement fr0m the firm in respect 0f his share in the g00dwill was its value t0 which he
was all al0ng entitled.

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CONCLUSION

Fr0m the ab0ve furnished inf0rmati0n, we get t0 kn0w that the diss0luti0n 0f a partnership firm
refers t0 the terminati0n 0f all c0ntractual relati0nships am0ng partners. It implies that the
w0rking 0f a partnership firm is st0pped and the assets are realised t0 pay the vari0us kind 0f
liabilities. H0wever, there is a demarcati0n between the diss0luti0n 0f a partnership firm and the
diss0luti0n 0f partnership. Diss0luti0n 0f partnerships refers t0 the terminati0n 0f the partnership
relati0nship 0f 0ne partner with 0ther partners and the firm whereas the diss0luti0n 0f
partnership means the end 0f the partnership business. If an existing partner dies, retires 0r is
unable t0 pay the debt then 0ther partners can purchase the share 0f the 0utg0ing partner and
c0ntinue the business under the same name.

H0wever, diss0luti0n 0f partnership firm is triggered when s0me predefined c0nditi0ns as per
the Partnership Act 0f 1932 are met such as:

1. Diss0luti0n by Agreement

2. Diss0luti0n by N0tice

3. Diss0luti0n by the C0urt

4. C0mpuls0ry Diss0luti0n

5. C0nditi0nal Diss0luti0n

SUGGESTIONS

The meth0d 0f diss0luti0n 0f a Partnership firm n0w a days in Indian Judicial System is a very
tedi0us and hectic j0b. As a suggesti0n, the technicalities as menti0ned in the Indian legal system
f0r the diss0luti0n 0f a Partnership firm must be eased t0 help the c0mm0n man t0 n0t get int0
the l0ng pr0cess 0f the same. The c0st 0f the pr0cess must be reduced al0ng with the time
c0nsumpti0n.

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 BIBLIOGRAPHY

A) THE INDIAN PARTNERSHIP ACT, 1932

1. The Indian Partnership Act 1932, s. 39

B) CASE LAWS
1. Pawan Nandlal Agrawal vs Asian Dye Chemical, 2008 (1) MHLJ 290
2. Yogendra N Thakkar vs Vinay Balse, 2017 (4) MHLJ 661
3. Commissioner of Income-tax vs Bankey Lal Vaidya, [1971] 55 ITR 594
4. Hardutt Singh vs Mukha Singh, 1963 AIR 1295
5. Whitwell v. Arthur, 1865 beva 140
6. Basantlal Jalan v. Chiranjilal, AIR 1968
7. Banarsidas v. Kanshi Ram, AIR (1963) SC 1165

C) BOOKS
1. Avtar Singh, Introduction of Law of Partnership, Eastern Book Company (10th
Edition, 2011)
2. CA Virendra K. Pamecha, Partnership Firms-Formation, Registration, Taxation,
Dissolution, 2014
3. Ralph E. Warner, The Partnership Book, Aug 2001
4. Pollock and Mulla, The Indian Partnership Act, 2011

D) RESEARCH PAPER
1. Siddhant Puri, Dissolution of a Partnership firm as per The Indian Contract Act, 1932,
Guru Gobind Singh Indraprasth University, 2015

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