Sale of goodwill after dissolution (Section 55)

a) In settling the accounts of a firm after dissolution, the 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.

b) Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of a buyer and he may also advertise such a business. The carrying on such a business by a partner is, however, subject to following restrictions –

i) He cannot use the name of the firm. On the sale of the goodwill, it is only the buyer of goodwill who can use the firm name.

ii) He cannot represent himself to be carrying on the business of the firm. In Hookam v. Pottage, on dissolution of a firm by the court, it was decided that goodwill should belong to Hookam. Hookam now continued the business under ‘Hookam & Co.’. The other partner Pottage also started a business in same area and named his stop as ‘Pottage from Hookam and Pottage’ it was held that use of firm’s name like that would create on impression that he was connected with old firm and therefore Hookam was entitled to obtained injunction restraining Pottage from using the firm’s name like that.

iii) He cannot solicit the custom of persons who had been dealing with the firm before dissolution, if they themselves come to him, he may attend to them, but it will be wrong if he approaches them with an idea to persuade them for being diverted toward himself. In Trego v. Hunt, Trego and Hunt formed the partnership on the condition that goodwill of the business would be the sole property of Trego. Trego died and Hunt formed a new partnership Mrs. Trego on the same condition for 7 years when exactly 1 year of partnership term was left, it was found by Mrs. Trego that Hunt has employed a clerk of the firm to prepare a list of firm’s customers, after the office hours. His object was to approach them after retirement to canvass them for becoming his customers; it was held that Mrs. Trego was entitled to obtain an injunction to restrain Hunt from making such copies of the lists of firm’s customers.

c) Agreement in restraint of trade – Any partner may, upon the sale of the goodwill of a firm, make an agreement with the buyer that such a partner will not within a specified period or within specified local limits and notwithstanding anything contained in Section 27 of ICA such agreement shall be valid if the restrictions imposed are valid.

In Hukmi Chand v. Jaipur Ice and Old Mills, it was held that condition in the agreement of not carrying similar business by the retiring partner, only on the adjoining premises was reasonable and binding on the transferees of the retiring partner and therefore an injunction restraining the carrying on similar business was issued.

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