What is Dissolution of Partnership by Court Order
What is Dissolution of Partnership by Court Order

What is Dissolution of Partnership by Court Order?

Introduction 

We always think that the partnership is dissolved by the partners by way of their mutual understanding. But it does not always happen. The same scenarios do not effectively work in every partnership firm. If a partnership is made between the partners for a fixed period, and one of the firm’s partners wants to dissolve it, then the partner needs to dissolve by court order. In this article, we address the grounds that may occur to the dissolution of a partnership firm after considering whether the court can order the dissolution of the partnership. So please stay tuned and read below:

What is Dissolution of Partnership by Court Order?

Before, we understand when the court can intervene in the dissolution of a partnership. We should know that, commonly, two types of partnerships are created by the partners. One is a partnership at will, and the second is a partnership for a fixed period. We look at the terms of a partnership at will, which provide freedom to the partner to dissolve a firm at any time. For that, the partner who wishes for that dissolution has to give notice in advance. However, this process does not work when a partnership is created for a fixed period. It cannot be dissolved without the consent of all partners.

According to the provision of the Indian Partnership Act of 1932, section 44 deals with the dissolution of the firm through the court. If the partner has an appropriate reason, he can approach the court and pray for the dissolution of the partnership firm. Thus, if one or more partners desire to dissolve the partnership firm, they can file a petition for that, and this remedy is available for all kinds of partnerships. The court has a discretionary power to order the dissolution. If any circumstances come out for natural justice, then the court can pass an order. Let’s look at some circumstances, which are given below;

(1) The firm’s partner becomes an unsound mind or insane

If the partner becomes insane or unsound mind, there is a reason for the dissolution of the partnership. However, the said partnership does not automatically dissolve. Any legal guardian or representative of an unsound partner or any other partner has to file a lawsuit to dissolve the partnership firm. And such dissolution effects from the date of the order.

(2) The inability of a firm partner

For any reason, the partner of the partnership firm becomes incapable to continue participating in the partnership firm. For example, if the partner becomes blind or incapable, etc. In that situation, if any partner of the firm files a suit for dissolution, then the court can pass the order to dissolution of the partnership firm.

(3) Any misconduct of the partner

Any of the firm partners committed misconduct. It would result in adverse effects on the firm business and reputation. It is a critical condition for the firm. In that situation, if any other partner files a suit for dissolution, then the court can consider that reason and will be ordered for the dissolution of the firm. Suppose if one of the partners of the firm had a gambling addiction, that may have adverse effects on the firm. Thus, the court considers that reason and can pass for the dissolution of the firm.

(4) If a partnership agreement is breached by a partner

Any one of the partners is continuously breaching the terms of the partnership agreement. Then, other partners have a right to protect their legal rights, which is given in the partnership agreement. They can approach the court for the dissolution of the firm. Here, one thing notable is that the partner must continue the breaching without determining the warning of the other partners. Thus, an on-off mistake or breach does not result in the dissolution of a firm, but continuous breaching may result in the dissolution of the firm by a court order.

(5) If the firm partner transfers his share 

A firm’s partner cannot transfer his share and interest to the other without obtaining the permission of the other partners. If any partner does so, then he cannot be admitted as a new partner in such a way. In this situation, the other partner can reach out to the court and file a lawsuit for the dissolution of the partnership firm.

(6) Due to heavy losses

The firm business suffered heavy losses, which is not bearable. In this situation, the partner can approach the court, and if the court is satisfied that there is no chance for the firm business to turn into profit, then the court can pass the order for the dissolution of the firm.

(7) Other causes

Other reasons may have occurred that are not defined in the list under section 44 of the Indian Partnership Act. If, the suit for dissolution is filed by the partner, with a particular cause; and that is not specified under this section. But, if the court is satisfied with justifiable. Then, the court can pass the order for the dissolution.

About admin

Check Also

what is meant by reconstitution of partnership firm

What is Meant by Reconstitution of Partnership Firm

Reconstitution of Partnership Firm Reconstitution of a partnership refers to a typical change or restructuring …

Leave a Reply

Your email address will not be published. Required fields are marked *