Dissolution by Court (Section 44)

Section 44 which permits a partner to invoke the jurisdiction of the court to dissolve a firm is not subject to contract between the partners. But, if there is a term in contract that the dispute will be referred to the arbitration and not to court, then it is valid, under the exception to Section 28 of Indian Contract Act. Therefore, any partner can file a suit for the dissolution of firm on any of the grounds mentioned in Section 44. The court is bound to order the dissolution if the grounds are satisfied. The court on the other hand, also given the discretionary power in granting the order of dissolution, because, the court has to see the interest of the firm rather than the interest of a single individual. In Satyanarain vs. Venkat (AP), the court ordered for the retirement of a partner, instead of ordering for dissolution of the firm.

Grounds:

a) Unsoundness of mind – Such a suit may be filed by any of the partners either on behalf of the partner who has become of unsound mind, or by any other partner. This dissolution under this ground is to protect the interest of the partner becoming unsound, of the other partners as well as of the public.

b) Permanent incapacity to perform duties – When the incapacity is not permanent the court would not grant relief. In Whitwell v. Arthur, one partner suffered from paralytic attack. It was found from medical evidence that incapacity was not likely to be permanent as the defendant’s health was improving. The court did not grant dissolution of the firm.

– The suit for dissolution can be filed only by any other partner and not by partner who suffers from incapacity.

c) Conduct injurious to partnership business – Misconduct need not be with regard to the partnership business, but the conduct should be such as should prejudicially affect the partnership business conviction for breach of trust (Essel v. Hayward) or by the adultery by one partner with another partner’s wife (Abbott v. Crump), are grounds for dissolution of the firm.

d) Persistent breach of partnership agreement – When a partner wilfully and persistently commits breach of agreements relating to the management of the affairs of the firm or when his conduct with regard to firm’s business is such that it is not reasonably practicable for other partners to carry on business in partnership with him, a suit for dissolution of the firm may be filed.

– In Harrison v. Tenant, one of the partners in the firm of solicitors ignored the other two partners and declined to settle dispute with mutual consultation, it was held that the conduct of one of the partners being destructive of mutual confidence, was a valid ground for dissolution of the firm.

Similarly,

– when due to frequent quarrels when there is no hope of mutual co-operation. (Baxter v. West)

– or a partner prepares false accounts. (Cheeseman v. Price)

– when a partner refuses to render accounts and takes away the books of accounts of firm. (Vali Venkatswami v. Venkatswami)

– or a partner misuses partnership funds for paying personal debts. (Smith v. Jeyes). The court may order dissolution.

e) Transfer of whole of a partner’s interest – When a partner has transferred the whole of his interest in a firm to third party it can be ground on which court may dissolve a firm. Similar would be position when the partner has allowed his share to be charged under the provision of civil procedure code, or has allowed it to be sold in recovery of arrears of land revenue or any dues as assessee of land revenue.

– It is necessary that transfer must be of the whole of partner’s interest rather than merely a part of it.

f) When the business can be carried on only at loss – The object of every partnership is to make profits and if the business is carried on at loss only any of the partners may apply to the court for dissolution of the firm. (Jennings v. Baddeley)

g) When dissolution is just and equitable – This ground is provided to meet those situations which have not been provided under Section 44. Such situations may arise due to several reasons. As the partnership firm i.e. based mainly on trust and confidence, this may be shaken at any time. The majority partners may harass the minority partners. There may be deadlock between the partners. The following are cases which held the decisions on the ground of just and equitable aspects.

i) Satyanarain v. Venkat (AP), Gurudayal v. Raghunath (Allahabad High Court) and Vishnu Chandra v. Chandrika Prakash Aggrawal (Supreme Court)

ii) Pannalal v. Padmavathi – The court must see that the interests of the partners does not jeopardise.

iii) In Re. Yenidge Tobacco Co. Ltd. – Dissolution can be ordered when there is a deadlock between partners, when there is no communication or when they are on non[1]speaking terms.

iv) Atwood v. Hande – When there is a feeling of mistrust among partners, dissolution may be ordered on just and equitable ground.

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