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The Section 4 of Indian Partnership Act, enacted in 1932, defines partnership as “the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all." There is an agreement that decides how profit and losses are divided between the partners in the partnership firm that can be oral or written. While there should be a minimum of 2 persons and a maximum of 10 persons in the banking business and 20 persons in non-banking business to constitute a partnership firm.

While a partnership firm can be formed easily due to minor legal formalities, a contractual agreement, higher management, and lesser risk, it is always subject to misunderstanding, miscommunication, unlimited liability, and dissolution or winding up due to several reasons.

As defined under Section 39 of the Indian Partnership Act 1932, dissolution of partnership firms occurs when the partnership between all the partnership firms is dissolved. On dissolution of the partnership firm ceases to exist as a going concern. The partners no longer possess their rights, and the relationship among them changes, often reconstituting another firm. The winding up of partnership firms results in de-management of internal affairs, liquidation of assets and discharge of debt out of the realized proceeds. Sections 40 to 44 of the Indian Partnership Act 1932 deal with the dissolution of the partnership firm with or without the intervention of the court.

DISSOLUTION BY AGREEMENT

As provided under Section 40 of the Act, winding up of a partnership  firm may be processed only with the consent of all the partners or in accordance with a contract between them. The partners may, by consent or by entering into an agreement, dissolve the firm and proceed for winding up of a partnership firm. As one of the simplest methods of dissolution of partnership firms, a dissolution by partner’s agreement does not require the intervention of the court.

COMPULSORY DISSOLUTION

Section 41 of the Indian Partnership Act 1932 deals with dissolution of partnership firm in cases:

· When all partners or all except one partner become insolvent.

· When the business activity is carried on by the firm becomes unlawful.

DISSOLUTION ON THE HAPPENING OF CERTAIN CONTINGENCIES

Section 42 of the Act deals with the winding up of partnership firm on the happening of certain events such as follows:

•   When the term expires, if the contract of the firm is on a fixed term.

•   On the completion of the task for which the firm was constituted.

•   On the death of the partner provided the other partners' consent to such dissolution.

•   When one or all of the partners is adjudged insolvent.

•   When any of the partners submit the resignation.

DISSOLUTION BY NOTICE

As provided in Section 43 of the Act, the procedure of winding up of a partnership firm is- when the partnership is at will, any partner can dissolve the firm by giving a notice of dissolution to other partners. The notice should be clear and precise and duly communicated to the other partners as mentioned in the agreement. Unless the notice is given, an invitation to the partners that expresses an intention to dissolve the firm, the provision of Section 43 of the Act won’t become operational.

DISSOLUTION BY THE COURT

 Another procedure of winding up of partnership firms is-While all the above sections do not require the intervention of the court, Section 44 of that allows decomposition of the firm by a partner suing the other partner and winning the case before the court. The court may dissolve a partnership firm on the following grounds:

•  When one of the partners becomes insane or of unsound mind, the other partner can bring up a suit to dissolve the firm.

•  When one of the partners becomes permanently incapable of doing his duties as a partner then the other partner may resort to the court for dissolution of the firm.

•  When there is any misconduct by one of the partners resulting in the firm’s losses, the court may order the dissolution and winding of the partnership firm.

•  If any partner persistently breaches an agreement or conducts himself in a manner that it is impossible on the part of other partners to carry on the business with the former, the court may order the dissolution of partnership firm.

•  In the case when the firm is suffering from consecutive losses, the court may order for dissolution due to unavailability of capital for the growth

Sections 45 to 51 deal with the consequences of the dissolution of the partner firm. These sections decide the liability of the partners after dissolution, winding up of rights of partners, settlement of accounts between them, payment of firm's debts and distribution of personal profits after that.

Thus the Indian Partnership Act 1932 provides the provisions by which a partnership firm can be dissolved by the court or without the intervention of the court. The Act is there to keep things transparent and just among the partners of a partnership business so that they do not take undue advantage of each other, thereby,  enforcing a better environment and smoother management in the firm.The procedure for winding up of partnership firm should be followed.