Retirement of partner
Retirement of a Partner
(Under the Indian Partnership Act, 1932)
Retirement of a partner refers to a situation where an existing partner voluntarily withdraws from the partnership firm while the remaining partners continue the business.
The Indian Partnership Act, 1932 provides the legal framework for retirement of a partner under Sections 32 to 38.
✅ Modes of Retirement (Section 32)
A partner may retire from a firm:
With the Consent of All Other Partners
If the partnership is at will, or there's no agreement to the contrary, a partner can retire with the consent of the other partners.
According to an Express Agreement
If the partnership deed allows a partner to retire in certain conditions, they can do so in accordance with that agreement.
By Giving Notice in Case of a Partnership at Will
If the firm is a partnership at will, a partner can retire at any time by giving a written notice to all other partners.
📜 Legal Consequences of Retirement
1. Liability for Acts of the Firm Before Retirement (Section 32(2))
A retiring partner remains liable for all acts done by the firm before retirement, unless there is:
An agreement to the contrary, and
Public notice is given.
2. Liability for Acts After Retirement (Section 32(3))
A retired partner is not liable for acts of the firm after retirement if:
Public notice of retirement is given, or
In case of a sleeping partner, no notice is required.
3. Right to Share in Profits if Assets Used Without Settlement (Section 37)
If accounts are not settled, and the firm continues using the outgoing partner's share in assets, they are entitled to:
A share in profits attributable to use of their assets, OR
Interest at 6% p.a. on their share in the firm.
📣 Notice of Retirement (Public Notice)
Essential to limit liability of the retiring partner.
As per Section 72, public notice must be:
Given in the Official Gazette, and
Published in at least one vernacular newspaper circulating in the district where the firm’s principal place of business is located.
💼 Rights of a Retired Partner
Right to Share in Assets and Profits
Entitled to settlement of accounts.
May claim share in goodwill, if applicable.
Right to Start a Competing Business
Allowed unless restricted by agreement.
Cannot use the firm’s name or represent themselves as connected to the firm.
Right under Section 37
Share of profits or 6% interest if firm uses their share in property post-retirement without settlement.
⚖️ Important Case Laws
🧑⚖️ CIT v. A.W. Figgies & Co. (1953 AIR 455)
Distinguished between retirement and dissolution.
Held that retirement does not end the partnership firm; it continues with remaining partners.
🧑⚖️ Erach F.D. Mehta v. Minoo F.D. Mehta (2011)
Bombay High Court ruled a retired partner has a statutory right under Section 37.
🧑⚖️ Narayanappa v. Bhaskara Krishnappa (1966 AIR SC 1300)
Held that a retiring partner has an interest in the property until final settlement.
📋 Checklist for Valid Retirement
| Requirement | Applicable? |
|---|---|
| Retirement clause in partnership deed | ✔️ (if applicable) |
| Consent of other partners (if required) | ✔️ |
| Written notice (if at will) | ✔️ |
| Public notice (to limit liability) | ✔️ |
| Final settlement of accounts | ✔️ |
| Transfer of share in assets/goodwill | ✔️ |
📝 Conclusion
Retirement of a partner is a well-defined legal process that ensures:
The rights and liabilities of the outgoing partner are protected,
The continuity of the firm is preserved,
And the remaining partners are not unduly burdened.
The retiring partner must ensure compliance with all procedural and legal requirements, especially public notice, to avoid future liabilities.
RELATED Blog
0 comments