{"id":2858,"date":"2017-09-14T09:32:23","date_gmt":"2017-09-14T04:02:23","guid":{"rendered":"http:\/\/www.infipark.com\/articles\/?p=2858"},"modified":"2017-11-08T00:17:31","modified_gmt":"2017-11-07T18:47:31","slug":"discuss-term-dissolution-firm-states-various-modes-dissolution-firm","status":"publish","type":"post","link":"https:\/\/www.infipark.com\/articles\/discuss-term-dissolution-firm-states-various-modes-dissolution-firm\/","title":{"rendered":"Discuss the term ‘dissolution of a firm.’ States the various modes of dissolution of a firm."},"content":{"rendered":"

Discuss the term ‘dissolution of a firm.’ States the various modes of dissolution of a firm.<\/strong><\/p>\n

Ans. Meaning of Dissolution of a Firm\u2014<\/strong> It is to be noted that “when a firm, is put to an end as between all the partners, that is called dissolution. S. 39 says that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. Various<\/p>\n

Modes of Dissolution of Firm-A firm may be dissolved in any of the following ways–<\/p>\n

1. Dissolution by Agreement –<\/strong> According to S. 40 a firm may be dissolved with the (i) consent of all the partners or (ii) In accordance with a contract between the partners. Thus, it may be noted that a firm may be dissolved at any time with the consent of all the partners. This applies to all cases whether the firm it for a fixed period or at will. A dissolution was held to have take place in the case of a partnership at will when the partners decided not to carry on the business of the firm from an agreed date. On the other hand, it may be noted that a firm may be dissolved in accordance with a contract between the partners. The contract providing for dissolution may be contained in the partnership deed itself or m a separate agreement.<\/p>\n

2. Compulsory Dissolution \u2014<\/strong> According to S. 41 a firm is dissolved in the following two ways\u2014(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 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\u00a0adventures and undertakings. The two clauses of dissolution of compulsory nature mentioned in above may be explained as under-<\/p>\n

(a) Insolvency-<\/strong>It is to be noted that where all the partners of the firm have been adjudicated as insolvents, the partnership inevitably overs. This is so because partnership is a contract and insolvents, till they are not discharged, cannot contract either among themselves or with those dealing with the firm. The same result follows where only one partner remains solvent and all others have been adjudicated as insolvents.<\/p>\n

(b) Illegality of Business-<\/strong>Again, it is to be noted that where the business of a firm is illegal from the very beginning, the agreement of partnership by itself is unlawful. U\/S. 23 of the Contract Act, 1872. Such a case does not fall within the scope of S. 41. The section applies when the business is lawful in the beginning but subsequently, on account of some change in law or outbreak of hostilities, the business becomes unlawful S. 56 of the- Contract Act says that when the performance of a contract becomes unlawful, the contract becomes void. S. 41 (b) of the partnership Act says that when the business of a firm becomes unlawful, the firm is, by force of law, dissolves. The clause contemplates two kinds of possibility. Either the business itself becomes unlawful or its doing is not permissible by law only for the partnership even if it is a lawful act for others.<\/p>\n

3. Dissolution on the Happening of Certain Contingencies-<\/strong>According to S.42, subject to the contract between the partners a firm is dissolved\u2014<\/p>\n

(a) If constituted for a fixed term, by the expiry of the term;<\/p>\n

(b) If constituted to carry out one or more adventures or undertakings, by the completion thereof;<\/p>\n

(c) By the death of partner; and<\/p>\n

(d) By the adjudication of a partner as an insolvent. It may be noted that a firm is dissolved on the happening of any of the following contingencies, provided that there is no agreement to the contrary\u2014<\/p>\n

(a) Expiry of Term\u2014<\/strong>It nay be noted that where a firm is constituted for a fixed term, it becomes dissolved on the expiry of that term, unless the dissolution is prevented by an agreement between the partners.<\/p>\n

(b) Completion of the Business-<\/strong>When the business of the firm is completed a partnership is dissolved by operation of law S. 42 provides that where a firm is constituted to carry out one or more adventures or understanding it is dissolved by the completion thereof. Where a firm is constituted for a particular term or venture, and a partner dies earlier, it would end as from the date of death irrespective of the fact that neither the term has expired nor business completed.<\/p>\n

(c) Death of Partner-<\/strong>It is to be noted that the effect of cl. (c) of S. 42 is that in the absence of a coontract to the contrary, a partnership is dissolved by the death of a partner. Death of a partner means the dissolution of the partnership.<\/p>\n

(d) Insolvency of Partner –<\/strong>A firm is dissolved by the adjudication of a partner as an insolvent. Thus, the insolvency even of a single partner operates as a dissolution. This being also subject to an agreement to the contrary, the partners can agree that the insolvency of a partner will not have the dissolving effect. But such an agreement will be subject to the provisions of the Act relating to compulsory dissolution, namely, that on the insolvency of all the partners or all but one the firms would stand compulsorily dissolved.<\/p>\n

4. Dissolution by Notice of Partnership at Will –<\/strong> According to S. 43<\/p>\n

(1) where the partnership is at will the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.<\/p>\n

(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.<\/p>\n

Partnership at will, means partnership the duration of which has not been fixed. It may be dissolved at any time by any partner by giving notice of h is intention to dissolve it. Notice should be in writing, signed by the partner giving it and should be served upon all the partners. The notice must not be ambiguous or vague. It must be factual, explicit and final. A notice that accounts should be rendered and that a certain work, must not be proceeded with was held to be not a notice of dissolution. A majority resolution to dissolve the firm was also held to be not a notice of dissolution. But where the partners stopped the work some three years before a suit was filed by. one of the partners for accounts, it was held that the firm stood dissolved from that time by implied agreement and, therefore, the suit for accounts was time-barred. He could not save himself from the bar of time by subsequently giving a notice of dissolution. 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 notice. On the other hand a Partnership which is not at will cannot be determined by notice. For Example; in Moss Vs. Elphick, 1910, a deed, constituting a partnership of two persons for an undefined 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 S. 43 was excluded by agreement to the contrary. In Erach F. D. Mehta Vs. Minoo, (1970) 2 S.C.C. 724 : A.I.R. 1971 S.C. 1653, the Supreme Court has expressed the opinion that in a\u00a0partnership consisting of two partners only, if there is any provision regulating the mode ofretirement, it will in,essence be an agreement as to dissolution. The firm will not be “at will” and the provision relating to retirement will have to be followed for dissolution also. In Mc Leod Vs. Dowting, (1927) 43 T.L.R. 655, -where a partner sent a notice of dissolution to his only other partner and died before the other received the notice, it was held that the firm became dissolved by the death of a partner and not by notice.<\/p>\n

5. Dissolution by the Court\u2014<\/strong>According to S. 44 at the suit of a partner, the court may dissolve a firm on any of the seven following grounds, namely\u2014 .<\/p>\n

(a) Insanity\u2014<\/strong>It may be noted that where one of the partners had become a person of unsound mind, any partner, including the insane, may apply for dissolution. Insanity renders the partner incapable of performing his duties as a partner and is, therefore, a good ground for putting an end to the firm. Dissolution may be necessary both to protect the interest of the insane and of the other partners also.<\/p>\n

(b) Permanent Incapacity-<\/strong>It is to be noted that where any partner, other than the partner suing, has become permanently incapable of performing his duties as a partner, any partner may apply for dissolution. The incapaulity may be due to illness, mental or physical, but it should be of a permanent nature. For Example; in Whitwell Vs. Arthur (1865), a partner suffered from an attack of paralysis and that would have been a good ground for dissolution but for the fact that the medical evidence showed that the attack was only temporary and he was already improving.<\/p>\n

(c) Misconduct-<\/strong>Where a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the business of the firm the court may order dissolution. It is not necessary that the misconduct should be connected with the business of the firm. Its only connection with the firm need’be that it will damage the business prospects of the firm. Thus, conviction for travelling without ticket, or for breach of trust is sufficient, but misconduct in personal life may not be so.<\/p>\n

(d) Persistent Breach of Agreement\u2014<\/strong>Where a partner, other than the partner suing, persistently commits breach of agreements relating to the management of the firm or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him. Any conduct which is destructive of mutual confidence between the partners is sufficient. “Keeping erroneous accounts and not entering receipts refusal to meet on matters of business, continued quarrelling, and such state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation, have been held sufficient to justify a dissolution.”<\/p>\n

(e) Transfer of Interest\u2014<\/strong>When a partner, other than the partner suing, has transferred the whole of his interest in 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.<\/p>\n

(f) Perpetual Losses\u2014<\/strong>It may be noted that when the business of the firm cannot be carried on except at a loss the court may dissolve it. Since the whole object of a partnership is to make profits and if that object cannot be fulfilled, therefore, it is useless for the firm to continue the business.<\/p>\n

(g) Just and Equitable\u2014<\/strong>It may be noted that where on any other ground the court thinks it just and equitable that the firm should be dissolved. The expression, “just and equitable” gives the court a very wide discretionary power, which is not to be fettered by any rules to order dissolution whenever in the circumstances it seems to be desirable.<\/p>\n","protected":false},"excerpt":{"rendered":"

Discuss the term ‘dissolution of a firm.’ States the various modes of dissolution of a firm. Ans. Meaning of Dissolution of a Firm\u2014 It is to be noted that “when a firm, is put to an end as between all the partners, that is called dissolution. S. 39 says that the dissolution of partnership between […]<\/p>\n","protected":false},"author":35,"featured_media":3003,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46],"tags":[],"class_list":["post-2858","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contract-2"],"_links":{"self":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2858","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/comments?post=2858"}],"version-history":[{"count":5,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2858\/revisions"}],"predecessor-version":[{"id":3161,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/posts\/2858\/revisions\/3161"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media\/3003"}],"wp:attachment":[{"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/media?parent=2858"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/categories?post=2858"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.infipark.com\/articles\/wp-json\/wp\/v2\/tags?post=2858"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}