Dissolution of Firm( Sec. 45-55)Corporate Law- Partnership Act, 1932-

Dissolution of Firm ( Sec. 45-55) Corporate Law- Partnership Act, 1932-

Dissolution of Firm( Sec. 45-55)

Prepared by Assist. Professor Rekha Khandelwal

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Partnership Act, 1932 – Chapter – IV- Dissolution of Firm ( Section 45 – 55)

Dissolution of Firm Sec. 39 – 44

45. Liability for acts of partners done after dissolution. –

(1) Regardless of the dissolution of a firm, the partners are liable to third parties, such as for any work done between them, which remains in effect until the firm has given official notice prior to the dissolution:

But the property of the deceased partner, or one who is judged insolvent, or a partner who, without being known as a partner with the firm, retires from the firm, is not liable under this section for acts done after dissolution of firm.

 (2) Notice under sub-section (1) may be given by any partner.

46. Right of partners to have business wound up after dissolution. –

At the time of the dissolution of the firm, each partner or his representative, against all other partners or their representatives, reserves the right to apply the firm’s assets in the form of payment of debts and liabilities of the firm and distribute the surplus among the partners or their representatives in accordance with their rights.

47. Continuing authority of partners for purposes of winding up. –

After the dissolution of the firm, each partner’s ability to bind the firm and the other mutual rights and obligations of the partners continue to dissolve, until the firm may need to complete the work and complete the transaction, but not otherwise.

But the firm is in no case bound by the actions of the partner who gave the verdict to the insolvent; This provision, however, does not affect the liability of any person who presents himself after the judgment has been given or knowingly allows himself to be represented as a partner of the insolvent.

48. Mode of settlement of accounts between partners. –

In the case of settlement of the firm’s account after dissolution, the following rules will be followed by the partners subject to agreement:

  • Losses, including loss of capital, will be paid first out of profit, out of subsequent capital and, if necessary, individually by the partners to the extent they were entitled to share the profits.
  • The assets of the firm, including any amount contributed by the partners to cover the capital deficit, will be applied in the following manner and in the following order:
    •  (i) the payment of the firm to third parties.
    • (ii) ) in the case of payment by the firm at its applicable rate for the advance of each partner as separate from the capital.
    • (iii) to pay each partner at the rate due to him on account of capital. and
    • (iv) the remainder, if any, shall be divided among the to the extent that they were entitled to divide the profits.

49. Payment of firm debts and of separate debts. –

Where there are joint debts from the firm and separate debts from any of the partners, the firm’s property will be applied for the first time in the case of payment of the debts of the firm, and if there is a surplus, each partner’s share will be paid to him or her. The surplus (if any) of a partner’s individual assets will be applied first in the case of payment of his individual debts and in the case of payment of debts of the firm.

50. Personal profits earned after dissolution. 

Subject to the agreement between the partners, the provisions of section (a) of section 16 shall apply to transactions made by a surviving partner or a representative of a deceased partner, due to the death of a partner and before the firm was dissolved

But where any partner or his representative has purchased the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

51. Return of premium on premature dissolution. –

Where a partner pays a premium for entering into partnership for a fixed term and the firm dissolves before the expiration of that term instead of the death of a partner, it may be reasonable that he shall be entitled to repayment of the premium or of such part, on the terms upon which he became a partner and to the length of time during which he was a partner, unless,

  • (a) this dissolution is mostly due to his own misconduct, or
  •  (b) the dissolution is in accordance of an agreement containing no provision for the return of the premium or any part of it.

52. Rights where partnership contract is rescinded for fraud or misrepresentation. –

Where a partnership agreement has been rejected on the grounds of fraud or misrepresentation by either party, the party in possession of the party is immediately entitled to, without prejudice, any other right.

  • right to a pledge or a right of retention on the surplus or the assets of the firm remaining after the payment of the debts of the firm, for any sum paid by him for the purchase of a part of the firm and for any capital contributed by him.
  • to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm.
  • to be compensated by the partner or partners guilty of the fraud or misrepresentation against all the debts of the firm.

53. Right to restrain from use of firm name or firm property. –

After the dissolution of the firm, each partner or his representative may, in the absence of a agreement between the partners to the contrary, prevent any other partner or his representative from conducting a similar business in the name of the firm or from any use of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up.

But where any partner or his representative has purchased the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

54. Agreements in restraint of trade. –

The partners, in the event of the firm’s dissolution or its anticipation, may enter into an agreement that some of them some or all of them will not conduct a business like the firm within a specified time or within specied local limits  and in spite of something contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), this agreement will be valid if the imposed sanctions are reasonable.

55. Sale of goodwill after dissolution. –

 (1) In the case of settlement of a firm’s account after dissolution, the goodwill, subject to agreement between the partners, shall be included in the assets, and may be sold separately or with other property of the firm.

Rights of buyer and seller of goodwill. – (2) If the goodwill of a firm is sold after dissolution then a partner may continue a business compete with the buyer and he may advertise such business.

However, subject to agreement between him and the buyer, he may not

  1. use the firm name,
  2. represent himself as conducting the business of the firm, or
  3. ask for  the custom of persons who were dealing with the firm before its dissolution.

Agreements in restraint of trade. – (3) A partner, after selling the firm’s goodwill, may enter into an agreement with the buyer that the partner will not conduct any business like the firm within a specified period or within certain local limits and in spite of anything under section 27 of the Indian Contract Act, 1872, Under the section, such agreements shall be valid if the imposed sanctions are reasonable

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