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CONTRACT

REGISTRATION AND DISSOLUTION


OF FIRMS

Submitted to : Submitted by :
Mr. Eqbal Hussain Ziaul Haq
Incharge : Contract
B.A.LLB(Hons)1st Year

Faculty of Law
Jamia Milia Islamia
New Delhi
Acknowledgement
It gives me immense pleasure and gratitude to thank my contract’s
teacher Sir Eqbal Hussain who has helped me in each possible way
that one could . My project without his help would have been a much
difficult task.
I would like to thank staff of the faculty of law library of Jamia
Millia Islamia for helping me in searching valuable information .
I would also like to extend my thankfulness to my colleague
Pancham for giving me valuable advice.

Your’s Sincearly
Ziaul Haq
REGISTRATION OF FIRMS
Sections (56-71)
The Partnership Act does not provide for the compulsory registration of firms.
Therefore, an unregistered firm is not an illegal association. But non-registration
of partnership gives rise to a number of disabilities which have a persuasive
pressure for its registration.

Partnership Act places no prohibitions upon an unregistered partnership making


contracts either between the parties inter se or with some third party nor upon as
unregistered partnership acquiring property or assets. All that it does it to make
a suit instituted by an unregistered partnership to recover property not
maintainable.

(1) POINTS WORTH NOTING :


(a) The prohibitions laid down in the Section are mandatory
(b) It cannot be dispensed with by the Court on the Ground of consent of the
parties.1
(c) The point may be raised at any stage of the suit, even after the written
statement is filed by the defendant2 or even in appeal.3

However such an objection cannot be raised-

(a) In execution proceedings after the decree is passed.4


(b) By a separate suit.5

(2) THE FORMALITIES OF REGITRATIION :


Under Sec. 58(i) of the Act :

(1)“The registration of a firm may be affected at any time by sending by


post or delivery to the Registrar of the area in which any place of business

1
Govindmal v. Kunj Biharilal, A.I.R. (1954), Bom. 364.
2
Gopinath v. Ramdas, A.I.R. (1936), Cal. 133.
3
Goverdhandass v. Abdul Rahiman (1942) Mad. 775.
4
Kuldeep Thakur v. Sheomangal Prasad, A.I.R. (1957), Pat.4.
5
Jalal Mohamad Ibrahim v. Kakka Mohamad, A.I.R. (1972), Mad. 56
of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating :

(a)The firm name,

(b)The place or principal place of business of the firm,

(c)The names of any other places where the firm carries on business,

(d)The date when each partner joined the firm,

(e)The names in full and permanent addresses of the partners, and

(f)The duration of the firm.

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

(2)Each person signing the statement shall also verify it in the manner
prescribed”

S.58(2) stipulates :

“Each person signing the statement shall also verify it in the manner
prescribed.”

(3) Registration : (S.59)


“When the Registrar is satisfied that the provisions of Section 58 have been
duly complied with, he shall record any entry of the statement in a register
called the Register of Firms, and shall file the statement”
Under Sec. 56 of the Act, the Government of any state may, by
notification declare that the provisions relating to the registration of firms
shall not apply to the State or any part thereof.

(4) Time of Registration : as to the time of registration of firm, there is no


definite provision of law. However, as for the limitations put in the Sec.
69(2), before any suit can be filed in a Court of Law, registration must have
been affected. Subsequent registration does not cure the initial flaw at the
institution of the suit. Therefore, the best course in such a situation is to
withdraw the suit from the Court.
Registration may, however, be effected at any time before the suit is
instituted or the set-off is pleaded. However, once a firm is registered, and the
name of the partner suing is shown in the Register, suit would be mantainable
even the change in the constitution of the firm by reason of death, retirement,
addition etc. has not been notified as required by S.63 of the Act.

In other words, where dissolution occurs by death, notice by a partner who had
taken his place would be sufficient to keep the continuity of the firm insofar as
registration goes. The firm must be taken to be still registered and as long as the
partners suing are shown in the register as partners, then notwithstanding the
retirement of the original partners, it remains a registered firm. 6

(5)Effect Of Registration : a reliable evidence of the existence of a


partnership. Where the firm is registered, the statements required by, made
under Sec.58 will be conclusive evidence against each of the partners under Sec.
68. In other words, the partners now cannot avoid liability on the ground that
there is no partnership between them.

CONSEQUENCES OF NON-REGISTRATION
Non-registration of partnership gives rise to a number of disabilities which are
set out in Sec. 69 of the Act. This section is mandatory in character. 7 Either the
firm or the partner suffers from these disabilities if the firm is not registered :

(1) Suits between Partners and the Firm : A partner of an unregistered firm
cannot file a suit (against the firm or any partner thereof) for the purpose
of enforcing a right arising from the contract or a right conferred by the
Partnership Act.8

Operation of S. 69(1) can only be extend to :

(i)Any suit in which a partner sues his co-partner, or the firm to enforce
any right arising from the contract between the partners as such, or

6
Firm Paras Ram Swarup v. Firm Baldev Sahai Ram Bhagat, A.I.R. 1963 Punj. 215.
7
Ghanshyam Vijay Oil Mills v. Thackar Ranchhodas Ratanshi A.I.R. 1985, NOC. 17 (Guj.);
Loonkaran Sethia v. Mr. Ivan E. John A.I.R. 1977 SC 336
8
Ram Adhar v. Ram Kirat Tiwari A.I.R. 1981ALL. 405.
(ii) to enforce any right which the Act can be said to have conferred on
partners

The contract would be the contract of partnership regulating their rights and
obligations inter se.

Thus, the right of a partner to compel his co-partner to effect registration would
be a right arising from a contract, and suit to enforce such a right brought by
one partner against the other partners of an unregistered firm is non
maintainable under this Section.9

EXAMPLE :

A partnership consisting of A, B and C is not registered. C is expelled


from the firm by the remaining partners A and B. C now wants to file a suit
against A and B for a declaration that he has been wrongfully expelled from the
firm and also claims damages for wrongful expulsion. Held, the suit must fail
since the firm is not registered. The only remedy available to C is to bring a suit
for dissolution of the firm and accounts.

A suit by a person for a declaration that he is a partner with the Defendant


in a business is hit by S.69 and is barred if the partnership is not registered.10 It,
is, therefore, advisable to have the firm registered when it is constituted, if not,
at least at any time before, the suit is filed. If it is not registered, the firm and all
its partners would be put to extreme inconvenience.11 When disputes have
arisen between partners it is not likely that they would all agree or join in. The
only course open to a partner or partners desiring to bring a suit in such a case is
to file suit for dissolution of the firm and accounts.

In conclusion it can be said that the plain terms of S.69(2) bar the
institution of a suit to enforce a right arising out of a contract unless the firm is
registered and the persons suing are or have been shown in the register of firms
as partners in the firms. Subsequent registration cannot and does not cure the
initial defect in the institution of the suit.12

A plaint filed by an unregistered firm would not be a plaint at all and all
the proceedings thereunder will be without jurisdiction. It was held that the
9
Singer Sewing Machine Co. v. Surath Singh, A.I.R. 1941, Rang. 196.
10
Guno Prasad v. Abhoy Hari (1947) 52 Cal. W.N. 15.
11
Badri Prasad v. Nagarmal A.I.R. 1959, S.C. 559.
12
Puram Mal v. Central Bank Of India, A.I.R. (1953) Punj. 235; Ghanshyam Vijay Oil Mills v. Thackar
Ranchhodas Ratanashi A.I.R. 1985 NOC 17 (Guj).
decree obtained by an unregistered firm was a nullity and cannot be executed, 13
nor can such void plaint be amended under 0.6 R.17 C.P.C.14

The Act does not contemplate the registration of dissolved firm, 15 but an
unregistered firm can certainly give a valid notice under S.80 of C.P.C.16

The dismissal of a suit on the ground only of non-registration of the firm


cannot be a bar to fresh suit after registration if it is within time, since the
decision is one not on merits and hence cannot operate a judicata,17 Further,
such a suit cannot be deemed to be a non- existent suit or proceedings for
purpose of S. 14 of the Limitation Act, 1908.18 Similarly when a suit is
withdrawn by partners of an unregistered firm is no bar to a fresh suit on the
same cause of action after the firm is registered.19

(2)Suits between firms and third parties : No suit can be filed on behalf of an
unregistered firm against any third party for the purpose of enforcing a right
arising from a contract.

The above two exceptions deal with

(a) Bringing an action for the dissolution of the firm or for accounts of
a dissolved firm, and
(b) Enforcing any right or power to release the property of a dissolved
firm. “it seems that the intention of the Legislature was to inflict
disability for non-registration for only during the subsistence of the
partnership.20

EXAMPLE :

A and B partners of an unregistered firm, purchased a taxi to ply. The business


was carried on for a year when A, without the consent of B disposed of the taxi.
B thereupon brought an action to recover his share in the sale proceeds. The
defence of A was that the firm is an unregistered one. Held, that the business

13
Sunderlal & Sons v. Yogendra Nath Singh A.I.R. (1976) Cal. 471.
14
In the matter of Abani Kanta Pal A.I.R. 1986 Cal. 143.
15
Shri Baba Commercial Syndicate v. Channamma Sethi Dasu, A.I.R. 1968, A.P. 378.
16
Bhattacharjee & Co. v. Union Of India, A.I.R.1957, AII. 159.
17
Sonalal v. Sadasiv (1937) Nag. 430.
18
Surajmal Daguraniji v. Shrikisan Ramkisan, 75, Bom, L.R. 186.
19
Re. Arunagiri Mudaliar (1936), Mad. 697.
20
Pollock and Mulla on Sale Of Goods and Partnership Act, 388 (3rd Ed. By Pritt, 1966).
having been closed on the sale of the taxi, the action was for realisation of the
assets of a dissolved firm and therefore maintainable.21

(2) An unregistered firm cannot claim a set-off in a suit :


S. 69(3) provides for application of provisions of S. 69(1) and (2) to
claim a set off and also to other proceedings of any kind which can
properly be said to be for enforcement of any kind arising from any
contract except those expressly mentioned as exceptions in Sub-sections
(3) and (4) of Section 69.

The words “other proceedings” have given rise to a several conflicting decisions
and the Supreme Court has put at rest as to whether they included “arbitration
proceedings”, by its decision in Jagdish Chandra Gupta v. Kajaria Traders
(India) Ltd;22

S. 69 cannot preclude a party from making a reference to arbitration without the


intervention of the Court in pursuance of an arbitration clause in a contract with
an unregistered firm.23 Suits by a partner to enforce contracts entered into
between partners after dissolution is not covered by S. 69.

The proper course, therefore, may be to get the firm registered before an action
is brought.24 It may be noted that an action brought by an unregistered firm is
liable to be dismissed and it cannot be rectified by subsequent registration. In
that case, a fresh suit will have to be filed after necessary registration provided
here it is still within the period of limitation.

Some of the High Courts are of the view that an action brought before
registration can be validated by subsequent registration,25 while some are
against the view.26 The view of the Bombay High Court27 is that the period
during which an unregistered firm was pursuing a suit under a bona fide mistake
of fact should be excluded.

*EXCEPTIONS : Non-registration, however, does not affect the


following rights :

21
See Basant Lal v. Chandrajit Lal A.I.R. 1968, Pat. 96.
22
A.I.R. 1964., S.C. 1882.
23
Meghraj v. Raghunath, A.I.R (1955) Cal. 178.
24
State of U.P v. M/S Hamid Khan & Bros. A.I.R. 1986, AII, 130.
25
Varadarajula Naidu v. Rajamanika Mudaliar, A.I.R. 1937, Mad. 767
26
Puran Mal v. Central Bank Of India, A.I.R. 1939, Punj. 235.
27
Surajmal v. Srikishan, A.I.R. 1973 Bom. 313.
(1) A partner of an unregistered firm can file a suit for the dissolution of the
firm and for accounts.

(2) Suits can be filed for the realisation of the properties of a dissolved firm
even though it was unregistered. [S. 69(3) (a).]

(3) An Official Assignee or Receiver may realise the property of an insolvent


partner of an unregistered firm [S. 69(3)(b).]

(4) A partner of an unregistered firm may sue or claim a set-off provided the
amount of the claim does not exceed Rs.100 in value in respect of matter
otherwise triable by the Small Cause Courts [S. 69(4)(b).]

(5) A partner of an unregistered firm may bring a suit to enforce a right arising
otherwise than out of a contract. i.e. in respect of torts, breach of patent etc.

(6) The third party may however bring a suit against the unregistered firm or
any of its partners. S. 69(2) is designed to protect the interest of third party
parties. However, an unregistered firm is free to enter into a contract with a
third party. The disability created by this clause is with regard to the right to file
a suit and not with regard to the right to enter into a contract

(7) The disabilities of an unregistered firm do not attach to a firm whose place
of business are all outside are all outside India. [S. 69(4)(a)].

S. 69(4) exempts from the operation of this section, firms, whose place of
business are all outside India or in areas exempted from the operation of this
Chapter under S.55. Such firms can institute suits or other legal proceedings or
plead set-offs, without being registered in any court, in India otherwise having
jurisdiction to entertain the suit or other legal proceedings.
DISSOLUTION OF FIRMS
Sections (39-55)
S. 39 States:

“The dissolution of partnership between all partners of a firm is called


the dissolution of the firm”.

‘Dissolution of the firm’ means the cession of jural relationship amongst all
the partners of the firm. A firm is not said to be dissolved by the fact if one
or more members ceasing to be partners in it while others continue to remain
in the firm, but only where all and every one of the members of the firm
cease to carry on its business in partnership, the firm is said to be dissolved.
Thus, it implies the complete breakdown of the relation of partnership
between all the partners.

Dissolution

(I) Without the intervention (II) By order of the


of the court Court (sec. 43)

By Compulsory On the happening By


Agreement Dissolution of certain contin- notice
gencies (sec. 42) (sec. 43)

DISSOLUTION WITHOUT THE INTERVENTION OF


THE COURT

It may take place in any one of the following ways :


(1) By agreement : (S. 40)
“A firm may be dissolved with the consent of all the partners or in
accordance with a contract with the partners”

As per the section a firm may be dissolved (i) with the consent of all the
partners or (ii) in accordance with a contract between the partners. Both
the above kinds of dissolution, namely, by consent and by agreement, are
provided for in the same section. But they are different. Partners can
consent to a dissolution regardless of what their previous agreements are.
But in dissolution by contract they have to follow their subsisting
agreement, whether the other partners consent or not.

As a partnership is created by agreement, so also it can be dissolved


by all the partners agreeing to dissolution .

EXAMPLE :
E and M were brothers and entered into an agreement to carry on
in partnership business. Subsequently, one of the partners agreed to retire from
the business. The Supreme Court held : “When the partnership consisted of only
two partners and one partner agreed to retire, there can be no doubt it will
amount to dissolution of the partnership.”28
The consent required for dissolution should be the consent of all partners.
In fact, majority of the partners have no power to dissolve the firm against the
wishes of the minority.
In law, there would be no difficulty in a dissolution of a firm being
followed by the constitution of a new firm by some of the erstwhile partners
who may take over the assets and liabilities of the old firm.29

(2) By Compulsary dissolution : (S. 41)

“A firm is dissolved –
(a) By the adjudication of all the partners or of all the partners but one as
insolvent, or
(b) By the happening of any event which makes it unlawful for the
business of the firm to be carried on or for the partner 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”.

Heading supplied to the section (i.e, compulsory dissolution) is not


accurate. It is intended to cannote a dissolution by operation of law on
the happening of certain events. It is also intended to emphasize the
distinction between dissolutions by other methods, e.g. (1) by
agreement (S. 40); (ii)in accordance with the Contract (S. 42); (iii) by
giving a notice in the case of a partnership at will (S.43); and (iv) by
Court under S.4

28
Erah F.D. Mehta v. Minoo F.D. Mehta, A.I.R. 1971 S.C. 1653 (1655)
29
I.T. Commr., W.B. v. Mis Pigot Chapman &Co.A.I.R. 1982 S.C. 1085 (1089)
(i)Insolvency : In the case of insolvency of one or more of the
partners, the firm might be continued with the other partners unless
there is contract to the contrary. It follows that if all the partners are
adjudged insolvent, or if all but one partner are declared insolvent, the
firm cease to exist, for a firm must consist of atleast two persons as
partners.

(ii) business becoming illegal : in case the business of the partnership


is prohibited by law or becomes illegal, the partnership is dissolved.
So also the business may be prohibited or become illegal when the
partners have become alien enemies due to declaration of war.
However, S. 41(b) does not apply to a case where the partnership is
illegal ab initio; such partnership would be void and no question of
dissolution would arise.

Proviso : Trading with a particular country, for example, may very


well be interpreted as forbidden by war, while trade with other
countries is lawful and within the scope of partnership.

(3) On the happening of certain contingencies : (S. 42)

A firm may be automatically dissolved on the happening of certain


contingencies. But the partners can make contracts to the contrary. The
section states :

“Subject to contract between the partners, a firm is dissolved-

(a) If constituted for a fixed term, by the expiry of that term;


(b) If constituted to carry out one or more adventures or undertakings,
by the completion, thereof
(c)By the death of a partner; and
(d)By the adjudication of partner as an insolvent.”

Subject to contract : the provisions of the earlier S. 41 are mandatory,


while the present section lays down the rules applicable where there is no
contract to the contrary. In other words, the partnership agreement may provide
that the firm will not be dissolved in any of the aforementioned cases. The
contract may expressly provide that the partnership will determine in certain
certain circumstances but even if there is no such express term, an implied term
as to when the partnership will determine may be gathered from the contract and
the nature of the business.30 Thus, contract to continue a partnership after death
of a partner may be express or implied.

EXAMPLE :
A given partnership consisted of two partners. One of the terms in the partnership
agreement was that on the death of one partner his heirs should take his place. The question
that arose in this case was whether on death of one partner his heir would automatically
become a partner. Constructing S. 42, “on the death of a partner, a firm is dissolved ‘subject
to a contract between the parties’,” means, if there are more than two partners it may be
agreed that the might carry on the business. However, it was held that in case where there
were only two partners the partnership would be dissolved by the death of one of them.31

It has to be remembered that a partnership is a creation of contract and not


on arising from status. In other words, the heirs of one partner could not become
partners without their consent. If they decide to join, however, it would be a new
partnership indeed. An agreement that on the death of the partner in such
partnership his heir or nominee would take his place does not make the heir or
nominee automatically a partner.32

On completion of a venture : A contract to carry out murram work on a


road was undertaken in partnership which was constituted for that venture. It
was held that the work could not be said to be completed till the final bill is
prepared. It was observed that even if the road work was completed the contract
was not completed till reciprocal promises were fulfilled.33

(4)By notice : (S. 43)

“(1) where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all other partners of his intention to dissolve the
firm.
(2)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.”

Voluntary dissolution : when the partnership is at will, the firm may be


dissolved by any partner giving notice in writing to all other partners of his
intention to dissolve the firm.

30
Keshavlal L. Patel v. Patel Bhailal N. A.I.R. 1968, Guj. 157
Shantaram Sadashiv v. Sripada Bhavani Shankar A.I.R. 1974, Kar. 110.
31
Commr, of Income –tax v. G.S.Mills, A.I.R.(1966) S.C. 24.
32
K.R.Mallesha v. Ramnath Gajanand A.I.R. 1974 AP 53.
33
Dayalal Trikamlal Mali v. Harjivandas Madhavji Mali, 1982, 23 (I) G.L.R. 305.
Requirements : the provision envisages three things:

(i)the serving of a notice,


(ii)such a notice must be in writing, and
(iii)it should unequivocably express an intension to dissolve the firm.

Such a notice must be issued to all other partners of the firm. An oral notice or
notice to only some of the partners will not be sufficient. It must be explicit34
and not vague. Once a notice is given it cannot be withdrawn unless all the
partners consent to such withdrawl.

Effect : The firm is dissolved from the date mentioned in the notice as the
date of dissolution.35 If no date is mentioned, then from the date of the
communication of the notice is in transit or post, and if the partner serving the
notice dies, it has been held that the dissolution is by death and not by notice.

DISSOLUTION WITH THE INTERVENTION OF


THE COURT
Dissolution by the Court : (S. 44)
*Introductory : Where there is no possibility for dissolution under the above
mentioned provisions, the partnership may be dissolved by the Court at the suit
of a partner provided that any of the conditions prescribed by S. 44 is satisfied.
S. 44, it may be noted, it not made subject to the contract between the parties. In
other words, it gives a right to each partner to seek the assistance of a Court to
have a partnership dissolved on ground specified in the section.36 But the power
of the Court to dissolve a firm is not subject to the contract between the partners.
It rests with the direction of the Court to order dissolution.

34
Chainkaran Sidhkaran Oswal v. Radhakishan V. Dixit, A.I.R. 1956, Nag. 56 (58).
35
Banarasidas v. Kanshi Ram A.I.R. 1963, S.C. 1165.
36
Sardar Hardutt Singh v. Ch. Mukha Singh A.I.R. 1973 J&K 46.
A creditor of the firm is not entitled to be added as a party in a suit for
dissolution and accounts, for, he is neither a necessary or proper party in such a
suit.37

At suit of a partner, the Court may dissolve a firm on any of the following
grounds, namely-
(a)Insanity : [S. 44(1)]
“(a) 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;”

Insanity or lunacy ipso facto does not dissolve the firm, but it is a sufficient
ground for bringing a suit for dissolution of the firm. Since a partner must be
one capable of entering into a contract, it may not be permissible to carry on the
business when one partner becomes a lunatic. However in case of insanity of a
dormant partner the Court will not ordinarily order dissolution.

(b)Permanent incapacity : [S. 44 (b)]


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

The relationship can exist on the basis that all partners would attend
diligently to the business of the partnership. If therefore, one of the partners is
permanently incapacitated, then the other partners may have recourse to the
Court for getting a dissolution. However, incapacity must be of permanent
nature. In Whitwell v. Arthur38a partner was attacked with paralysis which on
medical evidence was found to be curable. Hence, dissolution was not granted.
However, where a partner is imprisoned for a long period of time, the Court may
dissolve partnership.
Similarly, when one partner becomes blind or paralytic and thereby
thereby permanently incapacitated, the other partners may seek a dissolution.

37
Siddarth Kumar Modi v. Jagjit Singh Bindra, A.I.R. 1984 , Del. 116.
State Bank of Patiala v. Amar Nath (1982) 84, Punj. L.R. 479.
38
(1865) 35 Beau 140
(c) Misconduct : [S. 44 (c)]
“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;”

The misconduct, therefore, must be such-

(i) as is likely to affect prejudicially the carrying on of the business, and

(ii) it must be wilful misconduct.

(d) Breaches of agreement : [S. 44 (d)]

Utmost good faith is the essence of the relationship. In the decided English
cases, following acts have been held to be sufficient ground for directing
dissolution. Persistent refusal or neglect to attend to the business, neglect to
accounts, taking away of partnership books, continued quarrelling without any
hope of reconciliation. Thus, where a partner makes up a false balance sheet or
keeps erroneous accounts, or quarrels continuously, or is guilty of conduct
which leads to misunderstanding, it has been held that that the other partners are
entitled to dissolution.

But, dissolution will not be ordered on the ground of mere incompatiability of


tamper or occasional sqabbles between partners.39

(e) Transfer of whole interest : [S. 44 (e)]

Only the transfer of entire interest of the partner gives ground for action. The
transfer of a part of the partner’s interest is not covered up by the present sub
clause. In other words, the formation of a sub-partnership is not a valid ground
for dissolution.

(f) Business carried on at a loss : [S. 44(f)]

“(f) that the business of the firm cannot be carried on save at a loss.”

39
Smith v. Jayes (1841) 49 E.R. 433.
Every partnership exists for the sake of gain. If, therefore, the business cannot
be carried on save at a loss, or the attainment of the common end, with a view to
which the partnership was formed, becomes impossible, or there is no
reasonable likelihood of earning the profit, in all such cases, the court may order
dissolution, because the continuance of the business is not advantageous.

(g) Any other grounds : [S. 44(g)]

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

One of the partners may feel that the partnership ought to be dissolved in the
interest of all concerned. To meet such a situation, S. 44(g) enables the Court to
dissolve the partnership. The jurisdiction of the Court under this clause is very
wide and is not confined to the matters which would fall under the previous
clauses of this section. Want of co-operation or mutual confidence and chronic
disputes40or state of tensed feelings between partners41would entitle a court to
order dissolution under this clause. Though the power of the Court under S.44
should be invoked only where other modes of dissolution are unavailing, yet
this does not militate against the discretionary power of the court under the
section.42

Whenever dissolution of partnership is sought under this sub-clause, then it


for the Court to decide, whether it would be just and equitable to dissolve the
partnership or not and such a matter cannot be left to be gone into and decided
by the arbitrator in pursuance of the arbitration clause contained in the
partnership deed.43

40
Babu Lal v. Kanhaiya Lal (1953) A.U.P. 43.
41
Hasham v. Nriman (1924) A. Bom. 57.
42
Sat Pal Anand v. R.K.Ahuja,A.I.R 1973 P&H 197
43
Narinder Singh Randhawa v. Hardial Singh Dhillon A.I.R. 1985 P & H 41.
STEPS TO BE TAKEN ON DISSOLUTION
The above provisions of the partnership Act suggests the following steps to be
taken on dissolution of the firm.

(1) All the assets of the firm , including goodwill are sold or disposed off in
any other way (E.g. a partner may take over an asset)
(2) The amount so realized is applied in paying off third party liabilities in
the first balance.
(3) If any one or more partners have advanced loan to the firm in addition
to his capital, then these loan are repaid next after repayment of third
party liabilities.
(4) Now, partners will be paid what is due to them on capital accounts. If
the surplus is not enough to return the full amount of capital, then the
partner are paid retably.
(5) Surplus, if any, left after returning capitals is paid to the partners in their
profit sharing ratio.

Firm debts and Private debts :

The liability of partner is unlimited, in the sense that the private


property of the partners can also be utilized for payment of rim’s debts.
But, according to Partnership Act, private property of any partner must
be utilized first in payment of partner’s private debt. Similarly, firm’s
assets are first applied in payment of firm’s debts and if there is any
surplus, then the share of a partner in the said surplus can be utilized in
payment of private d
INDEX OF AUTHORITIES

BOOKS REFERRED

 The Indian Partnership Act, 1932 ………………….Praful R. Desai


 Law of Torts ………………………………..………R.K.Bangia
 Commentary on Indian Partnership Act…………….Pollock & Mulla

WEBSITES REFERRED

 http://jstore .com
 http://scc.online .com