Page 176 - DMGT407Corporate and Business Laws

Unit 6: Partnership Act and Limited Liability Act

be sold for arrears of land revenue or for charges recoverable as land revenue, the court Notes
may dissolve the partnership. The transfer of a part of his share by a partner to any third
party is not permissible unless otherwise agreed. A partner can, however, transfer even
the whole of his share to a partner in the firm, because no new partner is introduced
thereby.
(f) The court can also dissolve partnership where the business of the firm cannot be carried on
save at a loss. The court can order dissolution even though the partnership is for a fixed
period [Rehmat-un-nisa-v. Price, 42 Bom. 380].
(g) Just and equitable: The court can order dissolution on any other ground which in the
opinion of the court is a fit ground for dissolution of partnership. Dissolution on this
ground has been granted in case of deadlock in the management, disappearance of the
substratum of the business, partners not on speaking terms, etc.

6.7.5 Consequences of Dissolution

On the dissolution of a firm, it becomes necessary to wind up the affairs of the firm, i.e., the
assets are realised, the liabilities paid out and surplus, if any, distributed amongst the partners
or their representatives according to their respective rights.

6.7.6 Settlement of Accounts (s.48)

Usually the Deed of Partnership contains an accounting clause according to which the final
accounts between partners are settled. In the absence of such an agreement, s.48 provides as
follows:
(i) The losses, including losses on capital, must be paid, first from profits, next out of capital
and lastly, if necessary, by contribution of each partner in proportion to his share in
profits.

(ii) The assets of the firm, including sums contributed by partners to make up deficiency of
capital, shall be applied as follows: (a) in paying debts of the firm to outsiders; (b) in
paying each partner rateably for advances made by him to the firm as distinct from
capital; (c) in paying each partner, rateably, amount due for capital contribution and
(d) the residue in paying each partner in accordance with his share in the profits of the
firm.
(iii) If a partner becomes insolvent or otherwise cannot pay his share of the contribution, the
solvent partners must share rateably the available assets (including their own contribution
to the capital deficiency), i.e., the available assets will be distributed in proportion to their
original capital. This is called the rule in Garner v. Murray (1904)1 Ch. 57.

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Caution It is to be noted that the period of limitation according to the Limitation Act for a
suit for accounts on dissolution is three years. If a partner fails to bring such a suit against
one partner within the period, the whole claim is barred against the remaining partners
also.
Sale of goodwill after dissolution. Section 55 provides that in settling the accounts of a firm after
dissolution, goodwill shall, subject to contract between the partners, be included in the assets
and it may be sold either separately or along with other property of the firm.
Where the goodwill of a firm is sold after dissolution, a partner may carry on a business
competing with that of the buyer and he may advertise such business but subject to agreement

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