JAMIA MILLIA ISLAMIA

FACULTY OF LAW

NAME – SHANTANU AGNIHOTRI

COURSE – B.A. LLB (HONS.)
SEMESTER II
ROLL NO: 57

SUBJECT – LAW OF CONTRACT

THEME – Registration & Dissolution of Firms
under Indian Partnership Act,1932

SUBMITTED TO: Prof. EQBAL HUSSAIN

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ACKNOWLEDGMENT
I would take this opportunity to thank the people who helped me in making this project which
has been a learning experience. In that endeavour, first and foremost I would express my
gratitude toward my professor of Law of Contracts Mr Eqbal Hussain. His immense knowledge
and teaching skills along with her helping disposition are where all of this stemmed from. Next, I
would thank my seniors in the faculty who gave us guidelines as to how to go about the research.
These are the people who were always there with me in the making of this project. Heartfelt
thanks to all the above-mentioned people.

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Introduction

T
he fundamental premise of understanding of the statutory provisions associated with
the area of partnership is principally derived from the understanding of the Indian
Partnership Act 1932. This was one of the earlier precedent set in the Indian statutory
history which fundamentally evaluates and analyses the critical junctures associated with the
process of partnership in India. However this is essentially a relic of our colonial past which is
undoubtedly a no forged one. The fundamental notion of partnership as an act of mutual trust is
essentially not codified.

However, the principle notion associated with the development of such is act is critically
evaluated as major milestone in the statutory history of Indian jurisprudence which undoubtedly
requires major changes in its modus operandi. Although many judicial precedents have been in
resolute, however none of them have critically made a justification. The fundamental notion of
this understanding is based on the fact that partnership as an act is invariably based on the fact
that partnership as an act requires a factor of mutual trust and dignity in an amicable manner
which is needed in an amicable manner and can’t be forfeited. However a codification of such a
document requires an invariable amount of flexibility as it necessitates a laudable amount of
combination of statutory compliance and values. However the law of the land necessarily needs a
value phase but in a case of fact value conjectures the fact and the matter of compliance always
presides over the value. However in a rapidly changing business environment where the
impersonal business entity such as a company are in prominence, the concept of partnership as a
business needs much modification to gain legitimacy and value in changing business
environment.1

1
Dr. Sanjeev Kumar, Law of Partnerships:(Indian Partnership Act 1932),India Netbooks(2016)

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Among the number of pros and cons, the legitimacy of the partnership as a business entity needs
particular speculation and analysis of the business environment as a new form of business known
as the “Limited Liability Partnership” has evolved into a mainstream business establishment
model where the concerned business developers can opt for a relative term of risk and liability
which was fundamentally missing in the partnership agreement and was a much needed change,
which is particularly appreciated by the business communities across the world for the amount of
flexibility it provides for the new business commodities such as startups and other ventures.
However an exclusive understanding of the registration of the firms under the Indian Partnership
Act, 1932.Partnership firms in India are administered by the Indian Partnership Act, 1932. While
it is not necessary to enter one’s partnership firm as there are no fines for non-registration, it is
appropriate since the certain rights are denied to an unregistered firm. 2

Registration of Firms
Procedure of Registration:
Registration of Firms Procedure of Registration: The Partnership Act authorizes the State
Governments to appoint Registrars of Firms for the purpose of registering partnership firms. 3
Accordingly an office of the Registrar of Firms exists in every state. Registration is obtained by
filling an application with the Registrar. The application must be on the prescribed form and
accompanied by the prescription fee. The application has to state the following particulars4 :

a) The name of the firm

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 the permanent address of the partners
f) The duration of the firm

2
Shubham Sinha,Partnership Laws of India Ebook:Indian Law Series,2008
3
Bare Act:The Indian Partnership Act 1930,Universal Law Publishers,Section 57,edn-2018
4
Bare Act: The Indian Partnership Act 1930,Universal Law Publishers,Section 58,edn-2018

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The application must be signed and verified by each partner or his duly authorized agent 5.

If a partner refuses to sign the application form, registration can only be achieved by dropping
his name from the form.When the Registrar of Firms is satisfied that all formalities relating to
registration have been fully complied with, he makes an entry in the Register of Firms. Thus, the
firm is considered to be registered. The Registrar issues a certificate called ‘Registration
Certificate’ to the firm. The Register of Firm remains open for inspection on payment of
prescribed fee for the purpose.6

Change of Particulars [S.60]

Any change of name or location of the principal place of business requires almost a new
registration and, therefore, statement to that effect signed by all partners and accompanied by the
prescribed fee should be set to the Registrar.
When the business of the firm is discontinued at one place or extended to a new place or when a
partner changes his name or permanent address or when the firm is dissolved or a partner retires
or joins or a minor, having been admitted elects to become or not to become a partner8, the
Registrar should be informed.

Penalty for false particulars

The statements in the application form or amending forms and notices sent tot the Registrar
should be true and complete. If any person knowingly, or without belief in its truth, furnishes
false or incomplete information, he is lliable for penalty.

Rules of Evidence [s.68]

Any statement, notice or intimation recorded with the Registrar by any person is a conclusive
proof against him of the fact stated10. Entries relating to a firm in the Register of Firms shall be
proved by producing certified copies of the entries. 7

5
Bare Act:The Indian Partnership Act 1930,Universal Law Publishers,Section 58(2),edn-2018
6
Sir Fredrick Pollock,The Indian Contract Act,Sweet and Maxwell Publishers,Second edn
7
www.blog.ipleaders.in/registration-firms-indian-partnership-act

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Fundamentals Problems Faced By Not Registering a Firm

The following can be understood as the principle disadvantages faced by a partner if he/she does
not register the firm under Indian Partnership Act, 1932:

(1) A partner is not entitled to file a suit in any court of law against the other partners or
the firm for the execution of any right emerging from any undertaking or right
bestowed by the Partnership Act.

In P. Ananda Rao v. G. Raja Rao8 , on the death of a partner, his interest developed
upon his sons who became partners. But this change was not registered with the
Registrar and therefore for the purpose of the suits, the firm became an unregistered
firm. The sons found out that the other partner sold his interest to an outsider. This
was a breach of the partnership agreement which provided for the sale only to the
other partners. The sons attempted to enforce the partnership agreement, but were not
allowed. Their connection that they should be allowed to sue as the co-owners of the
property was not accepted. Thus the only chance was dissolution and to realise the
assets of a dissolved firm.
(2) A right evolving from an undertaking cannot be implemented in any Court of law by or in
support of one’s firm against any other firm.

(3) Moreover, the firm or any of its associates cannot assert a set off (i.e. fundamental
negotiation of debts possessed by the argufied parties to one another) or other actions in a
disagreement with a third party.9

8
AIR 1976 AP 256
9
http://www.yourarticlelibrary.com/partnership-firms/procedure-for-the-registration-and-dissolution-of-
a-partnership-firm/40802

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(4) Suit between the firms and third parties.

The Supreme Court has now by its decision in Jagsish Chandra Gupta v. Kajaria Traders
(India) Ltd10 , settled the controversy. A clause in a deed of partnership provided that in case of
any dispute between the partners; the matter will be referred to arbitration. A dispute having
arisen, one of the partners appointed an arbitrator to which the other gave no response. An action
was then commenced to enforce the arbitration clause of the agreement.
The other partner contended that the firm was unregistered and the suit must be dismissed. The
Supreme Court held that the suit was not maintainable. This is a welcome decision. If arbitration
proceedings were allowed, unregistered firms would, by providing for arbitration in the
partnership deed, escape the disability contained in the section.

Exceptions
The section however admits the following exceptions.

Firstly, as unregistered firm and the partners can bring an action for the dissolution of the firm or
the accounts of a dissolved firm. They can also enforce any right or power to realise the property
of a dissolved firm. Thus the disability to sue disappears with the dissolution of the firm.

Secondly, the official assignee, the receiver or the Court acting for an insolvent partner, may
bring an action for the realisation of the insolvent’s share, whether the firm is registered or not. 11

Thirdly, an unregistered firm or its partners may sue or claim set-off where the subject matter of
the suit does not exceed rupees one hundred in value. 12

Fourthly, statutory and non-contractual rights are outside the scope of the disability inflicted by
the section. If a person damages the property of the firm, he can be sued, whether the firm is
registered or not. An unregistered firm has been allowed to enforce the payment of a cheque in

10
1965 1 SCJ 249; AIR 1964 SC 1882
11
Bare Act:The Indian Partnership Act 1930,Universal Law Publishers,Section 69(2)(b),edn-2018
12
Bare Act: The Indian Partnership Act 1930,Universal Law Publishers,Section 69(4)(b),edn-2018

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the capacity of a payee, it being a statutory right under the Negotiable Instruments Act 13 A
similar firm was allowed to sue a carrier for the loss of goods for which the firm was a bailee, it
being a statutory right under section 180 of the Indian Contract Act.14

Dissolution of a Firm
When a firm is put to an end as between all the partners, it is called the dissolution. Section 39
declares:
Dissolution of a Firm- The dissolution of a partnership between all the partners of a firm is
called the "dissolution of the firm".
Thus dissolution is something different from the retirement of a partner, because in retirement,
the business is continued by one or more of the partners. Where immediately after dissolution,
the firm is reconstituted and the business is resumed by some of the partners, even if in the same
name and place, that remains a dissolution. 15

Modes of Dissolution
A firm may be dissolved by any of the following ways:
1. By Consent [S.40]
A firm may be dissolved at any time with the consent of all the partners. This applies for all
cases whether the firm is for a fixed period or at will.

2. By Agreement [S.40] A firm may be dissolved in accordance to the contract between the
partners. The contract providing for the dissolution may be contained in the partnership deed
itself or in a separate agreement.

13
Kerala Aeroconut Works v. Ramkrishna & Sons, AIR 1982 Ker 144
14
Umarani Sen v. Sudhir Kumar, AIR 1984 Cal 230
15
Shubham Sinha,Partnership Laws of India Ebook:Indian Law Series,2008

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3. Compulsory Dissolution [S.41]

A firm is dissolved

(a) by the adjudication of all the partners or of all the partners but one as insolvent,
(b) 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.

4. Contingent Dissolution [S.42] A firm is dissolved on the happening of any of the following
contingencies, provided that there is no agreement on the contrary-
a) if the firm is constituted for a fixed period, by the expiry of that term.
b) If the firm is constituted to carry out one or more adventures or undertakings, when they are
completed.
c) by the death of a partner.
d) by the adjudication of a partner as insolvent.

5. By Notice [S.43]

When a partnership is at will, which means partnership, the duration of which is not fixed, it may
be dissolved at any time by any partner by giving a notice of his intention to dissolve it. The
notice should be in writing and signed by the partner giving it and should be served upon all the
partners. The firm is dissolved as from the date mentioned in the notice or, if no date is
mentioned, as from the date of communication of the notice. But where a partner gives notice at
an importune moment or at a time when the dissolution will give him some advantage over the

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other partners, the court may hold him until the pending transactions are completed and the
liabilities are paid off16 . A partnership which is not at the will cannot be determined by notice.

Thus in Moss v. Elphicck17 a deed, constituting a partnership of two persons for an unidentified
time, provided that the firm could be terminated “by mutual agreement only”. It was held that the
notice of dissolution given by one of the partners was invalid as the operation of Section 43 was
excluded by agreement to the contrary.

In Talakchand Kanji Vora v. Keshavlal18 the Supreme Court has expressed the opinion that in a
partnership consisting of two partners only, if there is any provision regulating the mode of
retirement, it will in essence be an agreement as to dissolution. The firm will not be “at will” and
the provisions regulating the retirement will have to be followed for dissolution.

6. Dissolution by Court [S.44]

By section 44 the court is empowered to order the dissolution of a firm at a suit of a partner in
the following cases:
a) Insanity- When one of the partners has become a person of unsound mind, any partner,
including the insane, may apply for dissolution.

b) Permanent Incapacity- When a partner, other than the partner suing becomes permanently
incapable of performing his duties as a partner, any of the partners may apply for dissolution.
The incapacity should be of permanent nature.

In Whitwell v. Arthur19 a partner suffered from an attack of paralysis and that would be a strong
ground for dissolution. But the medical evidence showed that the attack was only temporary and
that he already was improving. Dissolution was not allowed.

16
Crawshay v. Maule, (1818) 1 Swanst at p.508; 18 RR at p. 132
17
1910 102 LT 639; 1910 1 KB 846
18
AIR 1973 Cal 279
19
1865 147 RR 73 ; 55 ER 826

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(c) Misconduct- When a partner other than the partner suing is guilty of conduct which is likely
to affect prejudicially the conduct of the firm, the Court may order dissolution.

In Snow v. Milford20 a partner of the firm of bankers committed adultery with several women in
the city where the business was carried on and his wife had left him. The other partners applied
for dissolution on this ground. The court disallowed saying that the misconduct was not likely to
affect the business of bankers.

(d) Persistent Breach of Agreement- when a partner, other than the partner suing, persistently
commits breach of agreements relating to the management of the firm or otherwise conducts
himself in matters relating to the business that is reasonably not practicable for the other partners
to carry on the business in partnership with him.

(e) Transfer of Interest- when a partner, other than the partner suing, has transferred the whole
interest of the firm to a third party, or has allowed his interest to be charged, or has allowed it to
be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land
revenue, the court may order dissolution.

(f) Perpetual losses- when the business of the firm cannot be carried on save at a loss, the court
may dissolve it. The whole purpose of a firm is to make profit.

(g) Just and Equitable- when on any grounds the court thinks that it dis just and equitable to
dissolve the firm, it may dissolve it. 21

20
1868 18 LT 142
21
Sir Fredrick Pollock,The Indian Contract Act,Sweet and Maxwell Publishers,Second edn

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Settlement of Accounts

In a case where the partners do not have an agreement regarding the dissolution of the firm, the
following provisions of the Indian Partnership Act 1932 will apply:

 The firm will pay the losses including the deficiency of capital firstly out of the profits,
secondly out of the partner’s capital and lastly by the partners individually in their profit
sharing ratio.

 The firm shall apply its assets including any contribution to make up the deficiency firstly,
for paying the third party debts, secondly for paying any loan or advance by any partner and
lastly for paying back their capitals. Any surplus left after all the above payments is shared by
partners in profit sharing ratio.22

Some of these rules found application in Garner v. Murray23: Under the terms and conditions of
the partnership, the partners contributed the capitals in unequal shares, but they shared the profit
in equal shares. The firm was dissolved and after paying the outside creditors and the partner’s
advances, the assets were not sufficient to pay back the partner’s capital. Two partners
contributed their shares of deficiency bit the third failed to do so. It was held that firstly, that
every partner is bound to contribute equally to make up the deficiency and secondly, that if a
partner failed to contribute his share, the other partners were not bound to make contributions in
the respect of that default.

22
www.indiankanoon.org/doc/107341/
23
(1904) LT 665

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BIBLIOGRAPHY

Books and Guides

●Dr. Sanjeev Kumar, Law of Partnerships:(Indian Partnership Act

1932),India Netbooks(2016)

●Shubham Sinha,Partnership Laws of India Ebook:Indian Law

Series,2008

●Bare Act:The Indian Partnership Act 1930,Universal Law

Publishers,Section 57,edn-2018

●Sir Fredrick Pollock,The Indian Contract Act,Sweet and Maxwell

Publishers,Second edn

WEBSITES
●www.blog.ipleaders.in/registration-firms-indian-partnership-act

●www.indiankanoon.org/doc/107341/

●http://www.yourarticlelibrary.com/partnership-firms/procedure-for-
the-registration-and-dissolution-of-a-partnership-firm/40802

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