27 May 2020

Retirement of one partner amounts to dissolution of partnership if there are only two partners

  • Is retirement of partner and dissolution of partnership firm is the same thing?
  • What the difference between retirement and dissolution?
  • When retirement of partner amounts to dissolution of partnership firm?

 Sec.37 and 48 of The Partnership Act

Retirement of one partner amounts to dissolution of partnership if there are only two partners
   There is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement [See – Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC 445]. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm [See – Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724]. [Para No.12]


Supreme Court

Gurunanak Industries Faridabad
Vs.
Amar Singh

Decided on 26/05/2020


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