MODES OF

DISSOLUTION
OF A FIRM
Submitted by:
Dishu Kumar
Roll No: 236/18
Section: C
 MEANING OF DISSOLUTION

 Dissolution of partnership/firm means coming to an end

the relation between the partners of a firm.
 According to Section 39 of the Indian Partnership Act,
1932, when the dissolution of partnership between all the
partners of the firms occurs, it is known as the dissolution
of the firm.
 MODES OF DISSOLUTION

By Agreement

Compulsory Dissolution

On happening of certain event

By Notice

By the Court
 DISSOLUTION BY AGREEMENT

The dissolution of a firm by an agreement has been

explained under Section 40 of the Indian Partnership Act,
1932.
According to the Section 40 , A firm may be dissolved
either:
 With the consent of all the partners;
 Or, in accordance with a contract between the parties.
 With the consent of the partners: As partners can
form a firm with a consent similarly the they are also
free to end the partnership by mutual consent.
 In accordance with a contract between the parties:
When there exists the contract between the partners
indicating as to when and how a firm may dissolved, a
firm may be dissolved.
 COMPULSORY DISSOLUTION

Section 41 mentions certain events on the happening of

which there must be the compulsory dissolution of the firm.
These circumstances are:
 When all the partners or all except one are adjudicated
insolvent.
 If the business of the firm subsequently becomes unlawful
But,
 If the firm was carrying on one or more than adventures,
the illegality of one or more of them shall not of itself
result in the dissolution of the firm in respect of those
adventures which are still lawful.
Also,
 There is also a compulsory dissolution of the firm if
some event happens because of which it becomes
unlawful for the partners to continue as partners with
each other.
 DISSOLUTION ON THE HAPPENING OF
CERTAIN EVENTS

Section 42 mentions certain contingencies/events on the

happening of which the firm is dissolved, unless there
exists a contract to the contrary.
These events/contingencies are:
 Expiration of partnership term.
 Completion of the adventure.
 Death of the partner.
 Insolvency of the partner.
 Expiration of the partnership term: When the partnership
has been constituted for a fixed term, it continues for the
contemplated term and would be dissolved one expiry of
such a period.
 Completion of the adventure: Partnership created for some
specific adventure or undertaking comes to an end on the
completions of such an adventure or undertaking.
In the of Dayalal v. Harijawandas, it was held by the court
that if there exists an agreement between the partners that the
partnership will continue to exist even after the completion of
the adventure, then the mutual rights and duties of the partners
will be the same and continue to operate in the upcoming
adventure also.
 Death of a Partner: Death of a partner results in the
dissolution of the firm unless the remaining partners
agree to the contrary.
 Insolvency of the partner: When a partner is
adjudicated insolvent, he ceases to be a partner. The
firm is also dissolved unless there is an agreement
between the remaining partners to the contrary.
 DISSOLUTION BY NOTICE

Dissolution by notice is explained under Section 43.

When the Partnership is at will, the partners are not bound to
remain as partners or continue the partnership for any fixed
period.
As per Section 43, such a firm may be dissolved by any
partner giving notice in writing to all the other partners of his
intention to dissolve the firm.
In the case of Jenes v. Lloyd, it was held by the court that
dissolution by a notice will be valid even though one of the
partners to whom the notice is given is insane.
 The notice must clearly and in unambiguous terms indicate
the intention of the partner giving notice to dissolve the firm.
 The notice for dissolution is a statutory requirement and
therefore, the requirements of Section 43 have to be
satisfied.
 Also, a partnership at will is dissolved by a partner giving
notice, in writing, to all other partners of his intention to
dissolve the firm.
In the case of Sri Krishan Gupta v. Ram Babu Gupta, it was
held by the court that even though the partnership at will is
dissolved by notice, however nothing prevents the dissolution
of such a partnership by the mutual consent of the partners,
death of a partner or insolvency.
 DISSOLUTION BY THE COURT

Section 44 mentions certain grounds on which a suit can

be filed for the dissolution of a firm.
This suit can be filed by the innocent partners and not by
the partner whose conduct is the subject matter of the suit.
The grounds given under Section 44 are:
 Unsoundness of mind: When a partner becomes of
unsound mind, a suit for dissolution of the firm can be
filed
 Permanent incapacity to perform the duties: When a
partner becomes permanently incapable of performing
his duties as a partner then that is a good ground for
applying to the court for the dissolution of the firm.
When the incapacity is not permanent, the court would
not grant relief.
 Conduct injurious to the partnership business: When
a partner is guilty of conduct which is likely to effect
prejudicially the carrying on the business of the firm,
the court may dissolve the firm on that ground.
 Persistent breach of partnership agreement: When a
partner wilfully and persistently commits breach of
agreements relating to the management of the affairs of
the firm or so conducts himself in matters relating to the
firm’s business that it is not reasonably practicable for
the others to carry on the business in partnership with
him, a suit for dissolution may be filed.
 Transfer of the whole of a partner’s interest: When a
partner has transferred the whole of his interest in the
firm to the third party, it can
be a ground on which the court may dissolve the firm.
 When the business can be carried only at a loss: If it
appears that the business of the firm cannot be carried
on except at a loss, any of the partners may apply to the
court for the dissolution of the firm.
 When dissolution is just and equitable: Apart from
ordering the dissolution of the firm on the above
mentioned grounds, the court has the wide power of
dissolving the firms on any other ground which renders
it just and equitable that the firm should be dissolved.
In the case of Harrison v. Tenant, it was held that the
conduct of one of the partners being destructive of mutual
confidence, which could not be restored was a valid
ground for dissolution of firm.
Also, in the case of Abbot v. Crump, it was held by the
court that adultery by one of the partner with another
partner’s wife was held to be the good ground for the
dissolution of the firm by the court.
 LIABILITIES FOR ACTS DONE AFTER
DISSOLUTION
As per Section 45,The parties continue to be liable to the
third party for any acts done by them which would have
been an act of the firm if done before the dissolution, until
a public notice is given of the dissolution.
 CONCLUSION

 Thus, a firm may be dissolved by any of the given modes

under the Indian partnership act, 1932.
 These grounds are given under Section 39-44 of the act.
 A firm dissolved by any of the modes given by the act
discontinues to operate its operations in future.
THANK YOU !