Dissolution of Partnership firm by Pranav K @LEXCLIQ


As per section 39 of the Indian Partnership Act, ‘dissolution of partnership’ between all the partners of a firm is called ‘Dissolution of the Firm’. Dissolution of partnership only involves a change in the relation of the partners, whereas dissolution of a firm means complete breakdown of the relation of partnership among all the partners.

Dissolution of the firm can be done by two methods:

  1. Dissolution without the order of court: – It may take place in the following manner
  • Dissolution by Mutual Agreement or Consent: – As partnership is a creation by mutual consent in the same way it can be dissolved by the mutual consent of all the partners. It can also be dissolved in accordance with a contract between the partners.
  • Compulsory dissolution: – Compulsory dissolution takes place under the following three circumstances:
  • When all the three partners become insolvent or when all the partners except one becomes insolvent the firm is dissolved because a firm should consist of atleast two partners.
  • When any one the partners become insolvent.
  • If the business becomes unlawful by happening of some event.
  • Dissolution on the happening of certain contingencies: – Under section 42, if the following events happen, a firm gets dissolved.
  • Expiry of the firm for which the firm was constituted.
  • Completion of the particular adventure for which the firm is constituted
  • Death of a partner.
  • Insolvency of a partner.
  • Dissolution by Notice: – Section 43 states that in case of a partnership at will, it may be dissolved by any partner by giving notice in writing to all the partners of his intention to dissolve the firm. An oral notice or notice to only some partners is not sufficient. When one such notice is given, then it cannot be taken back where all partners agree. A partnership which is not at will cannot be dissolved.


  1. Dissolution by order of the court: – Under the following seven grounds, the court may order dissolving a firm:
  • Insanity of Partner: – When one of the partners becomes insane then any partner may apply to the court for dissolution. There must be adequate proof to show that the partner has been really suffering from an unsound mind.
  • If a sleeping partner becomes insane, the court may not order dissolution.
  • Permanent incapacity of the partner: – When any partner has become permanently uncapable of performing his duties as a partner then the court may order dissolving the firm. The incapacity may be due to physical ailment or due to mental illness. However, the incapacity must be permanent in nature.
  • Misconduct of partner: – When a partner is guilty of misconduct and if such misconduct is likely to affect adversely the carrying on of the firm’s business then the court may order dissolving the firm. However, the firm cannot be dissolved on the petition given by the guilty partner. The misconduct of the partner need not be connected to the partnership business and it is sufficient if the misconduct affects the business of the firm. Examples of misconduct are, conviction for breach of trust, gambling, fraudulent acts.
  • Continuous/Persistent breach of Contract: – When a partner willfully and continuously commits breach of partnership agreement or conducts himself in such a manner so that it becomes impossible for the other partners to carry on the business in partnership with him, then the firm may be dissolved. In Anderson v Anderson, it was held that for dissolution of a firm, the violation of the partnership agreement by a partner must not merely be useful and persistent but must also be substantial.
  • Transfer of interest: – When a partner has transferred the whole of his interest in the firm to a third party, then the court may order dissolving the firm, if other partners sue for the same. Here, the transfer of shares must be of the whole interest of the partner in the firm and not merely a part of it.
  • Continuous losses: – Since the main objective for establishing the firm is to achieve profit, when the business of the firm is running at a loss for a continuous period then the firm may be dissolved by the court.
  • Any just or equitable ground: – When on any other ground, the court thinks it is just and equitable to dissolve the firm, it may do so

Mackenzie v Himalaya Assurance Co. LTD, the court held that the fact that the partnership cannot be run profitable due to the personal differences between partners is also a ground for dissolution by court order.



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