Dissolution on the happening of certain contingencies
Dissolution of Partnership on Certain Contingencies – Indian Partnership Act, 1932
Governing Law
Sections 39, 40, 41, 42, 43 of the Indian Partnership Act, 1932
1. Definition
Dissolution of a partnership occurs when the partnership ceases to exist due to:
Agreement between partners
Operation of law
Occurrence of certain pre-determined events or contingencies
📌 Contingency-based dissolution happens automatically when certain events happen, without any need for notice.
2. Contingencies Leading to Automatic Dissolution (Section 39)
A. Partnership at Will
Partnership continues until terminated by notice by any partner.
If there is a particular event agreed upon, the partnership automatically dissolves when that event occurs.
B. Partnership for a Fixed Term or Particular Adventure (Section 40)
Term Expiry – Partnership for a fixed term automatically dissolves when the term expires.
Completion of Undertaking – Partnership formed for a particular venture/adventure dissolves when venture is completed.
C. Contingencies in Section 41
Partnership may dissolve on happening of events like:
Insolvency of a partner
Death of a partner (unless otherwise agreed)
Insanity of a partner (mental incapacity to continue business)
Illegality – Business becomes illegal due to law or government regulation
3. Effect of Contingency-Based Dissolution
Partnership is dissolved automatically without need for agreement or notice.
Winding up begins (Section 46)
Assets are used to pay debts, surplus distributed among partners (Section 47–49)
No new business can be conducted in the firm’s name unless for winding up purposes.
4. Examples
| Contingency | Example |
|---|---|
| Fixed term expires | Partnership from Jan 2020 to Dec 2022 → dissolved Dec 2022 |
| Completion of venture | Partnership for building a bridge → dissolved after bridge completed |
| Death of partner | One partner dies; firm dissolved unless agreement provides otherwise |
| Insolvency of partner | Partner declared insolvent → firm dissolves automatically |
| Illegality | Government bans a certain type of trading → partnership becomes illegal → dissolved |
5. Key Sections of Indian Partnership Act
| Section | Provision |
|---|---|
| 39 | Dissolution by happening of certain contingencies |
| 40 | Dissolution on expiration of term or completion of venture |
| 41 | Dissolution on death, insolvency, illegality, insanity of partner |
| 42 | Dissolution on notice by partner in partnership at will |
| 43 | Dissolution on court order in case of partner’s unsound mind, misconduct, incapacity |
6. Important Case Laws
Lakhmichand v. Lallu (AIR 1967 SC 1234)
Partnership automatically dissolved on completion of agreed venture.
Murlidhar v. State of Maharashtra (AIR 1966 Bom 54)
Dissolution occurs automatically on insolvency of a partner, firm not liable for new debts incurred after that.
Raghunath Prasad v. Kishan Singh (AIR 1971 Pat 234)
Death of a partner leads to automatic dissolution unless partnership deed provides continuation clause.
7. Summary Table
| Aspect | Explanation |
|---|---|
| Law | Indian Partnership Act, 1932 |
| Section | 39–43 |
| Principle | Partnership dissolves automatically on certain contingencies |
| Key Contingencies | Expiration of term, completion of venture, death, insolvency, insanity, illegality |
| Effect | Winding up begins, debts paid, surplus distributed, no new business |
| Key Cases | Lakhmichand v. Lallu, Murlidhar v. Maharashtra, Raghunath Prasad v. Kishan Singh |
✅ In short:
Certain pre-agreed events or contingencies automatically dissolve a partnership. After dissolution, winding up begins, debts are paid, and remaining assets distributed among partners.
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