Mohd. Laiquiddin v. Kamala Devi Misra, (2010) 2 SCC 407.
Judgment Link: https://main.sci.gov.in/jonew/judis/35888.pdf
Relevant paragraphs: 22. The sole issue raised by the respondents in this appeal, who are the appellants in Civil Appeals Nos. 4411-12 of 2002, is whether the finding of the courts below that the partnership firm stood dissolved on account of death of one of the partners was correct in the light of the express provisions of the Partnership Act, namely, Section 42(c) of the same.
23. Before we proceed to examine the correctness of this concurrent finding arrived at by the courts below, it is necessary to examine the relevant provisions of the Partnership Act, 1932 and the relevant clauses of the partnership deed entered between the original plaintiff and the original defendant. “Partnership” is defined under Section 4 of the Act which reads as under:
“4. Definition of ‘partnership’, ‘partner’, ‘firm’ and ‘firm name’.—‘Partnership’ is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
24. Section 42 of the Act reads as under:
“42. Dissolution on the happening of certain contingencies.—Subject to contract between the partners a firm is dissolved—
(a) if constituted for a fixed term, by the expiry of the term;
(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent.”
25. Dissolution of a partnership firm on account of death of one of the partners is subject to the contract entered into by the parties. In this context, it is pertinent to refer to the terms of the deed of partnership. Clause 22 of the partnership deed reads as follows:
“The partnership shall be in force for a period of 42 years certain from this date and the death of any partner shall not have the effect of dissolving the firm.”
This clause clearly states that death of any partner shall not have the effect of dissolving the firm. However, in the facts and circumstances of the case, we are not in a position to give absolute effect to this clause of the deed of partnership.
26. The learned counsel for the respondents contended that since the parties agreed that in spite of the death of any of the partners, the firm shall continue for 42 years irrespective of the death of the original plaintiff (since deceased). They further argued that it clearly contemplates that the legal representative of the partner, who dies, would be under a duty to enter into a fresh deed of partnership. The legal representatives were precluded from claiming benefits if they deny entering into a fresh partnership agreement.
27. In order to arrive at the conclusion that the partnership firm stood dissolved on account of death of one of the partners, the High Court had rightly placed reliance on S. Parvathammal v. CIT2 wherein the High Court held that in a firm consisting of two partners on account of death of one of the partners, the firm automatically is dissolved and observed as follows: (ITR pp. 161-62)
“… a partnership normally dissolves on the death of a partner unless there was an agreement to the contrary. There was no such agreement in the original partnership deed. Even assuming that there was such an agreement, in a partnership consisting of two partners, on the death of one of them, the partnership automatically comes to an end and there is no partnership which survives and into which a third party can be introduced. Hence, on the death of S, the original partnership was dissolved. The subsequent taking in of the assessee as a partner was only as a result of the entering into of a new partnership between R and the assessee. Partnership was not a matter of heritable status but purely one of contract.”
In the light of the aforementioned case, it is clear that when there are only two partners constituting the partnership firm, on the death of one of them, the firm is deemed to be dissolved despite the existence of a clause which says otherwise. A partnership is a contract between the partners. There cannot be any contract unilaterally without the acceptance by the other partner.
Compiled by S. Basavaraj, Advocate, Daksha Legal.
Daksha Legal 