MODES OF

DISSOLUTION OF FIRM

SUBMITTED TO :

 DR. AMITA VERMA 

UILS, PU

SUBMITTED BY:

PRAVESH

73/17
 PARTNERSHIP

A partnership is a business relationship among two or more persons to share profits and
losses of the business, carried by all or any of them acting for all. 
Partnership is defined under Indian Partnership Act, 1932-
                    “Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all”. 
Partners, Firm and Firm Name: The persons who have entered into a partnership with
one another individually are called partners and collectively called firm. Firm name is the
name under which a business is carried on. 
 DISSOLUTION

OF FIRM  OF PARTNERSHIP
• It involves discontinuation of business of • It does not affect continuation of business. It
partnership. involves only reconstitution of the firm.
• It involves winding up of the firm and • It involves only reconstitution and requires
requires realization of assets and settlement only revaluation of assets and liabilities of the
of liabilities. firm.

• A firm may be dissolved by the order of the • Dissolution of partnership is not ordered by

court the court
 MODES OF DISSOLUTION

WITHOUT THE INTERFERENCE OF BY THE ORDER OF THE COURT

THE COURT
• By agreement: [sec.40] • Insanity of partner: [sec.44(a)]
• Permanent incapacity of the partner: [sec.44(b)]
• By compulsory dissolution or by
• Misconduct of a partner: [sec.44(c)]
operation of law :- [sec.41] 
• Persistent breach of agreement: [sec.44(d)]
• On the happening of certain
• Transfer of interest: [sec. 44(e)]
Contingencies.[Sec.42]
• Business of the firm working at a loss: [sec.44(f)]
• By notice :- [sec.43]
• Any other ground: [sec.44(g)] 
 WITHOUT THE INTERFERENCE OF THE COURT

• By Agreement [Sec.40] : A partnership firm can be dissolved any time with the consent of all
the partners this applies to all cases whether the partnership firm is at will or for a fixed
duration. A partnership can be dissolved in accordance with the terms of the Partnership Deed
or of the separate agreement. 
• By compulsory dissolution or by operation of law [sec.41] : Compulsory dissolution means
that the firm is bound to be dissolved due to subsequent event i.e. unlawfulness of business.
That dissolution is involuntary dissolution. It means partner wants to continue
the business, but law declares that business of the firm is unlawful. So, firm is to be dissolved.
The proviso to the section deals with cases in which the firm is carrying on not one business,
but more than one type of business. In such cases if at least one type of activity remains
lawful, the partnership escapes compulsory dissolution.
 WITHOUT THE INTERFERENCE OF THE COURT

• On the happening of certain Contingencies.[Sec.42] : Subject to the contract between

the partners, a firm is dissolved under the following circumstances:  
i. If the firm is constituted for a fixed term, then by expiry of that term i.e. by efflux of time.
ii. If the firm is constituted to carry out one or more adventure, then by completion
thereof.
iii. By the death of a partner.
iv. By the adjudication of a partner as an insolvent. The partnership is dissolved on the
date on which the adjudication is made.
 WITHOUT THE INTERFERENCE OF THE COURT

• 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. In case of deed of dissolution, date on which the deed is executed
is the date of dissolution, notwithstanding that a future date is mentioned as the date of dissolution.
Where there was a clear provision in the deed that the partnership would continue as long as there were
at least two partners, the SC held that the partnership and its continuance was not dependent upon the
will of the partners and therefore, no partner had the right to dissolve it by notice. (Uduman v Aslum) 
 
 DISSOLUTION BY COURT

• Insanity of partner: [sec.44(a)] - Insanity or lunacy of a partner does not, as a rule,

dissolve the firm. However, if any other partner or the nearest friend of the insane partner
files a suit for dissolution of partnership, then dissolution may be ordered by the court. 
• Permanent incapacity of the partner :- [sec.44(b)] - When a partner becomes permanently
incapable of performing his duties as a partner, on a suit being filed by the other partner, the court
may order a dissolution of the firm. However, if on medical evidence, incapacity of a partner is
found curable, the court will not order dissolution. 
 DISSOLUTION BY COURT 

• Misconduct of a partner :- [sec.44(c)] - Where a partner is guilty of his conduct which is

likely to affect prejudicially the carrying on of the partnership, it would also be a ground for
the other partners to file a suit and get the order for dissolution of partnership. The misconduct
must be willful.
• Persistent breach of agreement :- [sec.44(d)] - Where a partner, other than the partner suing,
willful or persistently commits breach of the partnership agreements relating to the
management of the affairs of the firm or the conduct of its business, or otherwise so conducts
himself that it is not practicable for the other partners to carry on the business of the firm with
him, the court may, at the instance of any of the other partners, dissolve the firm.
 DISSOLUTION BY COURT 

• Transfer of interest :- [sec. 44(e)] - Where the partner has in any way transferred the whole of
his interest in the firm to a third party, or has allowed his share to be charged or sold by the
court in execution of the decree or in the recovery of the arrears of the land revenue, the court
may dissolve the firm at the instance of any of the partners. 
• Business of the firm working at a loss :- [sec.44(f)] - Where the business of the firm cannot
be carried on except at a loss, the court may dissolve the firm at the suit of a partner. This
clause gives discretion to the court to dissolve the firm if the business thereof cannot be carried
on except at a loss. The main motive of partnership is to share the profit. If losses are only
incurred and there are no business prospects, the partnership cannot exist.
 DISSOLUTION BY COURT

• Any other ground :- [sec.44(g)] - The court may dissolve the firm on any other ground
which renders it just and equitable that the firm should be dissolved. For eg:
i. Dead lock in the management.
ii. Partners not on speaking terms.
iii. Disappearance of the substratum of the business.
iv. Lack of co-operation or mutual confidence.
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.  
THANK YOU !