Section 39 of the Indian Partnership Act states that when there is a dissolution of the partnership between all the partners of a firm is called the dissolution of a firm. When the relation between all the partners of the firm comes to an end, this is called dissolution of the firm. It implies the complete breakdown of the relationship between all the partners of a firm.
Dissolution of a Partnership firm may be affected by two distinctive ways:
• Dissolution without the intervention of the Court.
• Dissolution by Court.
Dissolution without the intervention of Court:-
- By Agreement: A partnership firm can dissolve any time if it has the consent of all the partners.
- Compulsory Dissolution:
- Insolvency of Partners- In cases all the partners or all the partners except one become insolvent.
- Unlawful Business- In case the firm’s business is unlawful on the happening of a subsequent event.
- Dissolution on the happening of contingent event
- Expiry of Fixed Period: Firm is dissolved automatically if the firm is constituted for fixed period.
- On achievement of specific task: If the firm has been constituted for the achievement of specific task, firm ceases to exist after the target has been achieved.
- Death of Partner: Death of any of the partner dissolves the partnership.
- Insolvency of Partner: In the absence of a contract to the contrary, the insolvency of any of the partner dissolves the firm.
- Resignation of Partner: Resignation by any of the partners dissolves the partnership
Dissolution by notice: In case of partnership is at will, a partner can dissolve it by giving written notice of dissolution to other partners duly signed by him.
Dissolution by Court:-
The court may order for the dissolution of the firm on the following grounds:-
- Insanity of Partner: if any partner applies to the, court may order for the dissolution of the firm if a partner has become of an unsound mind. Lunacy of a partner does not itself dissolve the partnership but for other partners it would be grounded dissolution.
- Incapacity of Partner: If a partner has become permanently incapable of performing his duties then court may order for the dissolution of firm on the application of any of the partner.
- Misconduct of Partner: If any partner misconducts that affect the carrying on of business then the court may order for the dissolution of the firm.
- Constant breach of agreement by partner: The court may order for the dissolution of the firm if the partner other than the beseech partner is found guilty for constant breach of agreement regarding the conduct of business or the management
- Transfer of Interest: When any of the partners other than the accused partner transfers whole of its share a third party for permanently.
- Continuous Losses: If the firm is continuously suffering losses and there is no more capital available for the future growth of the firm the court might order for dissolution.
- Just and Equitable: The court may order for dissolution on any other ground which court think is just, fair and equitable.
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