Dissolution by the Liability for acts of partners done after dissolution
Dissolution of a partnership and the liability of partners for acts done after dissolution under Indian Partnership Law (Indian Partnership Act, 1932).
🔹 Dissolution of Partnership
Dissolution refers to the termination of a partnership firm either by:
Agreement between partners (mutual consent)
Compulsory dissolution by law (death, insolvency of a partner, or by court order)
Expiry of partnership term (if partnership was for fixed duration)
Relevant Sections:
Section 39 – Dissolution of partnership
Section 47-49 – Consequences of dissolution and liability of partners
🔹 Liability for Acts of Partners Done After Dissolution
Even after a partnership is dissolved, partners may still be liable for acts done on behalf of the firm in certain circumstances.
1. Authority of Partners After Dissolution
Section 47(1) – A partner has authority to bind the firm for acts necessary for winding up of the firm’s business:
Collecting firm’s assets
Disposing of firm’s property
Paying off firm’s debts
Conducting transactions necessary to settle accounts
These acts are part of winding up, not the continuation of normal business.
2. Liability to Third Parties
a) Acts Necessary for Winding Up
If a partner enters into contracts to settle debts or dispose of assets, the firm is liable.
b) Acts Outside Winding Up
If a partner conducts new business unrelated to winding up, the firm is generally not liable, except to protect third parties who were unaware of the dissolution.
c) Liability to Third Parties Who Act in Good Faith
Section 47(2) – A partner may bind the firm after dissolution if:
The third party does not know the dissolution
Act is in ordinary course of business
This protects innocent third parties dealing with the firm in good faith.
3. Personal Liability of Partners
Section 48 – A partner who acts after dissolution may be personally liable if:
The act is beyond winding up
Third party suffers loss because the partner was not authorized to act
Example:
If a dissolved firm’s partner enters a new contract for business expansion, they can be held personally liable, and the firm not liable.
4. Case Laws
Re Wilson (1883, UK Case)
A partner who contracted after dissolution bound the firm because the act was necessary for winding up.
Kelly v. Fraser (1890, UK Case)
Firm not liable for new business started after dissolution, partner held personally liable.
Basu v. Union of India (1961, Cal HC)
Act done in good faith during winding up binds the firm even if the partnership is formally dissolved.
5. Summary Table
| Aspect | Explanation |
|---|---|
| Authority of partners | To bind firm for winding up transactions (collecting assets, paying debts, selling property) |
| Acts outside winding up | Firm not liable; partner may be personally liable |
| Liability to third parties | Firm liable if third party unaware of dissolution and act appears to be in ordinary business |
| Legal provisions | Sections 47–49, Indian Partnership Act, 1932 |
| Important Cases | Re Wilson (1883), Kelly v. Fraser (1890), Basu v. Union of India (1961) |
âś… Conclusion:
After dissolution, partners cannot carry on ordinary business, but they can act to wind up the firm.
The firm is bound for acts done in winding up or if third parties are unaware of dissolution.
Acts beyond winding up make the partner personally liable.
RELATED Blog
0 comments