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The Indian Partnership Act 1932 deals with dissolution of partnership of firm. Section 39 of the Indian Partnership Act, provides that “the dissolution of the partnership between all the partners of a firm is called “dissolution of a firm.” It implies the complete breakdown of all the relation between all the partners as well as realizing the assets and the liabilities of the firm and sharing the gain and loss between the partners.
There are different ways through which a firm may be dissolved which are mentioned as follows:
The firm is not a separate legal entity and is represented through partners and a partnership firm may be dissolved with the consent of all the partners. The condition precedent would be if all the partners agree to dissolve the partnership or a contract has been made for dissolution of partnership then it will be dissolved by necessary intimation to the Registrar of firms.
A Partnership firm can be dissolved compulsorily by the Registrar of firm due to two reasons which are as follows:
It is also provided that if a firm has more than one undertaking and unlawfulness of one undertaking does not affect then the firm will not dissolve.
Under this case a firm will be dissolved on the happening of certain events. Hence, the dissolution of firm depends on the happening or non- happening of following event. This type of dissolution is also known as contingent dissolution.
Therefore, contingent dissolution of firm depends on these four events only. The above list is exhaustive in nature. It is discretion of the Registrar of firm to decide whether to dissolve the firm.
Under this type of dissolution of firm the partnership can be dissolved by any partner by giving notice to all other partners of his intention of dissolving the firm. This type of dissolution can only happen in case of partnership at will. Partnership will dissolve on the date mentioned on the notice or in case no date is mentioned on the notice then on the date of communication of notice to all the partners.
This section gives power to partners to dissolve the firm if no agreement is made. Also, any partner can exit from the partnership and extinguish its assets and liabilities from the firm.
Under these cases a firm shall be dissolved by the court only. Following are the instances in which a firm can be dissolved by court:
In this case if any partner is not able to handle the pressure of the business or if mentally unstable due to any professional or personal reasons.
In this case if any partner is not able perform the business duties during the course of business proceeding. For example: if partner suffering from incurable disease, or permanently disabled that is unable to perform duty.
In this case if any partner breaks any rules or regulation or bye –laws of the
firm and is accounted as misconduct then partnership firm will be dissolved. For example- if any partner purchase/sale of any goods without with prior permission from the other partner or disclose any confidential information to any outsider.
In this case if any partner sold his interest or sold his share to third person then he will not be considered as partner of the firm and firm will be dissolved.
In this section it gave wide power to court to take up matter relating to any dissolution of firm which is not mentioned from sub-clause (a to f). It is the court to decide whether it would be just and equitable to dissolve the partnership. It is the discretion of the court to decide whether the matter is just and equitable to dissolve the firm.
Generally, after dissolution of firm the partner ceases to be a member of partnership. But in some cases if any liability arises after dissolution the existing partner would be liable except who is adjudicated insolvent , is of unsound mind , dead etc.
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