Dissolution of a firm means discontinuation of the firms business and the relationship between the partners. According to Sec. 39 of Indian Partnership Act 1932, Dissolution of firm means dissolution of partnership between all the partners in the firm. In unlimited partnership, every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a part ner. You can be held personally responsible for another partner’s negligence or carelessness. This means that if your partnership firm is insufficient to meet its financial obligations, you may have to use your personal assets to pay off debtors, even though you personally may not be at fault.
With respect to dissolution of firm when the partners are having difference of opinion regarding dissolution of the firm on certain grounds, a suit can be filed by any partner in the court to dissolve the firm. Depending upon the merits of the matter, the court may order for dissolution of the firm. Under Section 44 of the Act, the court may dissolve the firm on the following grounds :
When.a partner becomes insane, the court may order to dissolve the firm. The suit can be filed by any of the other partners or even by any friend of the insane partner.
ii. Permanent incapacity:
When a partner becomes permanently incapable of doing his duties as a partner, the court may dissolve the firm. The suit for dissolution must be filed by a partner other than the incapacitated partner.
When a partner, other than the partner suing is guilty of misconduct and such misconduct is likely to affect the carrying on of the business, the court may dissolve the firm. The misconduct may be outside the business (punishment for an offence, adultery of a partner etc.
iv. Persistent breach of agreement:
When a partner persistently or willfully commits breach of agreement or conducts himself in such a manner that it is impossible on the part of other partners to carry on the business with him, the court may dissolve the firm. Maintaining wrong accounts, taking away the books of accounts, continuous quarreling with other partners are good grounds.
v. Transfer of interest:
When a partner transfers his whole interest in the firm to a third party or all his shares are sold or attached by the court under a decree, the court may dissolve the firm.
vi. Continuous losses:
When the business cannot be carried on except at a loss, the court may dissolve the firm.
vii. Any other ground:
The court may dissolve the firm on any other ground where the court considers it just and equitable to wind up the business.
Adv. Rajiv Malhotra