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DISSOLUTION OF FIRM
According to sec.4 of the Indian Partnership Act 1932,
“Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all of them or any of them acting for all.”
Persons who have entered into partnership are called individually ‘partners’
and collectively a ‘firm’.
MODES OF DISSOLUTION
DISSOLUTION OF A FIRM
MODES OF DISSOLUTION
1. By agreement :- [sec.40]
A firm may be dissolved-
i. with the consent of all the partners; or
ii. in accordance with the contract between the partners. The contract
may be express or implied.
4. By notice :- [sec.43]
In case of partnership 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. The firm is dissolved from date mentioned in the notice or if no
date is mentioned then from the date of communication of the notice. The
notice must be explicit, precise and final. It should be served on all the
partners. A notice once given cannot be withdrawn unless all the other
partners consent. A partnership which is not at will cannot be dissolved
by notice.
The court may, at the suit of a partner, dissolve a firm on the following
grounds:-
Dissolution will arise where it appears that the state of feelings and
conduct have been such that business cannot be continued at an
advantage of either party.
2. After dissolution of the firm, the authority of each partner to bind the firm
continues in two cases :- (sec.47)
i. to wind up the affairs of the firm; and
ii. to complete the transactions begun but unfinished at the time of
dissolution.
A partner adjudicated insolvent cannot bind the firm in any
case. However, if a person represents himself or knowingly permits
himself to be represented as a partner of the insolvent, he will be liable
for the acts of the insolvent. As an insolvent partner ceases to be a partner
on the date of the order of adjudication, all acts done by him upto the date
of the order of adjudication are binding on the firm.
3. If any partner earns any profit from any transaction connected with
the firm after its dissolution, he must share it with the other partners
and the legal representatives of the deceased partner.
SETTLEMENT OF ACCOUNTS
If the assets are sufficient to pay (1) and (2) above, but
insufficient to repay each partner his full capital, the deficiency in the capital
shall be borne by the partners in the proportion in which they are entitled to
share profits.
FORM `E'
(See rule 4)
Firm Name....................................
Registered Address............................
......................................
Solemnly affirmed at :
(1)
(2)
(3)
Certified that the person who has signed this notice has signed it in my
presence and he has solemnly affirmed that the particulars furnished therein
are true.
In the case of person not conversant with the English language, the contents
of the above particulars have been explained to him in a language familiar to
him and he has affirmed the truth thereof.
Signature.
Note 1. - Please strike out item (a) or (b) whichever is not applicable.
Note 4. - This notice must be signed by every partner or his agent specially
authorised in this behalf on solemn affirmation before a Magistrate or other
Officer duly empowered to administer Oaths.
(Price Re. 1)
Note: In the above form part (a) would be striked out since it is meant for
change of constitution of firm whereas part (b) is meant for dissolution of
the firm.
CASE-STUDY NO.1.
Mohrilal
V/s
Shri Ballabh
Both had agreed between themselves that the work of sale and
purchase of various commodities was to be conducted by the defendant and
that they would maintain the day to day accounts Kachhi Rokar from which
the same will be entered every evening in Pakki Rokar to be maintained by
the plaintiff.
Both courts below held that tobacco business was a part and
parcel of partnership business. The learned judge felt persuaded to come to
the conclusion that tobacco business was not conducted jointly by
partnership. It seems to have been entended that plaintiff appellant and
defendant respondents were acting within the limits of authority. The real
effect of partnership was nothing more and less than pooling the profits and
losses of the said business and sharing it between the parties.
Vali Venkaraswami
V/s
Gannabathula Venkataswami
Plaintiff - 4 anna
Defendant 1 - 4 anna
Defendant 2 - 3 anna
Defendant 3 - 4 anna
Defendant 4 - 4 anna
Defendant 5 - 1 anna
i. He retained in his hands more cash than he was allowed under the
partnership deed.
ii. No meeting of partners was ever held after the execution of the deed.
iii. In spite of repeated requests of the plaintiff, managing partner refused
to show him accounts of the firm.
V/s
According to the consent terms the parties agreed to have their dispute
resolved through sole arbitration of Mr. Justice D.M. Rege (Retd.) of
Bombay High Court. The arbitrator will file the award in the Bombay High
Court in accordance with the provisions of the Arbitration Act.
Thus the disputes between the parties which arose in the suit stood referred
to sole arbitration of Justice D.M. Rege. Claims were preferred before the
sole arbitrator by all parties. The arbitrator did not entertain the counter
claim of the respondents seeking for dissolution of the firm M\s V.H. Patel
& Company on the ground that it was beyond the scope of reference. The
award was filed in the Bombay High Court. The learned counsel submitted
that the principal question is whether the arbitrator was competent to
entertain the counter claim filed by respondent No. 1 for dissolution of the
firm M\s V.H. Patel & Company and falls within the scope of the terms of
reference made by this Court on February 15, 1991; that the counter claim
made by the respondent for dissolution of the firm was not within the terms
of reference either expressly or impliedly and the parties referred to the
arbitrator specific disputes relating to the rights and obligations of the parties
arising out of (i) the agreement dated July 3, 1987, (ii) retirement deed dated
August 1, 1987, (iii) to the user of the trade marks in question, and (iv) to
the determination of the rights of respondent No. 1 as a partner of the firm as
per the pleadings of the parties in the pending suits; that the pleadings of the
parties in the suits did not include any claim by any partner for dissolution of
the firm M\s V.H. Patel & Company, that there is no scope for raising a new
plea by way of an amendment as to dissolution of the firm, and, that the
arbitrator is bound strictly by the terms of the arbitration and cannot travel
beyond it.
The High Court is conscious of the question that the relief for dissolution of
the firm was not one of the matters on which there was a dispute which was
referred to arbitrator. However, the High Court is of the view that though in
the plaint there is no prayer for dissolution of firm it was possible for the
respondent to claim that relief in the civil suit. Even if he had not retired
pursuant to the terms of the agreement entered into between the parties, it is
certainly permissible for him when disputes had arisen between the parties to
ask for dissolution of the partnership and when that was not possible by
mutual consent a dispute could certainly arise thereto and such a dispute
could have been referred to arbitration as provided in the Partnership Deed.
If that was permissible, such a contention could be raised in the suit filed by
the parties. Power of the arbitrator will primarily depend upon the arbitration
clause and the reference made by the Court to it. If under the terms of the
reference all disputes and difference arising between the parties have been
referred to arbitration, the arbitrator will, in general, be able to deal with all
matters, including dissolution.
--The End--