• Winding up partnership business on death of partner

My father in law expired in August 2016. He was partner in firm which was partnership at will and no clause that surviving partners can carry on business in such eventuality. However remaining surviving partners entered in to new deed after two days of his death and intimated to registrar of firm that he has been retired from partnership firm after his death. They introduced clause in new partnership deed stating new firm has taken over all assets andliabilities of old firm at book value. They are not maintaining any separate legal heir account. They intentionally kept name of new firm Identical.i want that partnership firm business to be wound up firm to settle accounts of deceased partner and firm to be wound up under court order. Kindly advise me under what acts and sections I shall move application in court for this purpose. Few months back my wife has filed partition case in which share of deceased in partnership firm is claimed. 
Shall I need to file separate case. Or shall I give application in same suit for winding business of that firm Or shall I give application for stay on business operation of that firm.if I have to file new case whether it has to be filed under partnership act
Asked 4 years ago in Business Law

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8 Answers

Section 46 of the Partnership Act. lays down that on tile dissolution of a firm every partner or his representative is entitled as against alia other partners or their representatives to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights. This provision has to be strictly followed when the firm is dissolved but the principle lying under this provision has also to be followed where the firm is not to be dissolved and share of the outgoing partner is to be determ,ined

2) On the dissolution of a firm, all the properties belonging to the partnership have to be sold and the sale proceeds after discharging all the partnership debts liabilities, have to be divided among the partners according to their respective shares, and this is the general rule.

3)legal heirs of deceased partner have to file suit for rendition of accounts of the firm

4) also seek injunction restraining new firm from carrying on business in name of old firm

Ajay Sethi
Advocate, Mumbai
87917 Answers
6207 Consultations

5.0 on 5.0

Section 42 of the Indian Partnership Act, 1932 provides for dissolution of partnership on occurrence of certain contingencies which includes ‘death of the partner’ as one of those contingencies. In cases where the terms of the partnership deed are silent on continuation of partnership’s business, a contract to continue the partnership after the death of a partner may be implied from the conduct of the parties. Section 42 of the Act does not apply where there are only two partners, since there cannot be a contract between the partners that on the death of one of them, the partnership will not be dissolved.

In cases where the terms of the partnership deed are silent on continuation of partnership’s business, a contract to continue the partnership after the death of a partner may be implied from the conduct of the parties. This means that where it is evident that such an intention was present, the nominee or legal representative of the deceased partner can take the place of deceased partner and business of the firm can be continued with the presumption that the partnership was never dissolved on the death of that partner. The above legal position is based on two assumptions- (a) there are more than two partners in the firm, and (b) the legal representatives are interested in taking forward the business of the firm.

Dissolving a partnership firm is different from dissolving a partnership. In the former case, the firm ends its name and hence cannot do business in the future. But in case of dissolving a partnership, the existing partnership is dissolved– by consent or on happening of a certain event, but the firm can retain its existence if remaining partners enter into a new partnership agreement.Dissolving a partnership firm means discontinuing the business under the name of said partnership firm. In this case, all liabilities are finally settled by selling off assets or transferring them to a particular partner, settling all accounts existed with the partnership firm.Any profit/ loss is transferred to partners in their profit sharing ratio as agreed by them in the partnership deed.

Death of a partner dissolves the partnership and the rights of the representatives of the deceased partner would depend on the provisions of the partnership deed.In the absence of any agreement or decision by arbitration, accounts will have to be prepared as on the date of death and the profit or loss ascertained. Apart from this additional point regarding the deceased partner’s share of profits up the date of his death, the treatment in accounts is not different from that in case of retirement. After ascertaining the amount due to the deceased partner, the balance in his capital account should be transferred to an account opened in the name of his executors.

Section 37 of Indian partneship act says Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm: Provided that whereby contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

In your case the existing partners started a new firm .So getting the share it must be file settlement of accounts suit of the firm. Upon realization, all assets will be sold off in the market, and the cash realizing out of such a sale will be used for paying the liabilities. Assets or liabilities may also be taken over by the partners for which the respective partner capital accounts will be adjusted by such amount. Capital contributed by each partner will be repaid to him in the capital contribution ratio.

Ajay N S
Advocate, Ernakulam
3990 Answers
93 Consultations

5.0 on 5.0

Sir on the event of the death of a partner the partnership firm need to be dissolved or the share of partner must have to be determined and the legal heirs of same should be paid.with the share .

So the the legal heirs of the deceased father in law can file dissolution and distribution of asset and liabilities of the Firm, further seeking for stay on business of the Firm also calling upon partners to produce the accounts of the Firm.

Since the new partnership firm is started the old need to be dissolved and the asset ans liabilities need to be distributed the new firm.cannot without consent take over all the properties of the old Firm.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

Dear Client,

You have no locus to say in the matter but your wife and her relatives.

Firm stands dissolved by death of a partner. In cases where the terms of the partnership deed are silent on continuation of partnership’s business, a contract to continue the partnership after the death of a partner may be implied from the conduct of the parties and the nominee or legal representative of the deceased partner can take the place of deceased partner and business of the firm can be continued with the presumption that the partnership was never dissolved on the death of that partner.

And as per sec 12 of partnership act, legal heir/nominee/representatives have right to access and inspect books of firm.

And on dissolution, surplus shall be distribute among the legal heirs as per sec 42 of Act. Ask your wife to file civil suit.

Yogendra Singh Rajawat
Advocate, Jaipur
21481 Answers
31 Consultations

4.4 on 5.0

hello

in case of death of any partner a provision must have been provided and in case of any partnership disputes, an arbitration clause is provided in the agreement. if it has been provided, then send a legal notice to the remaining partners and proceed accordingly. the deed has to be seen in its entirety. file an objection in the case filed by the partners and give an application for impleadment.

regards

Rahul Mishra
Advocate, Lucknow
13757 Answers
65 Consultations

5.0 on 5.0

File a suit for settlement of account . You can file stay application in the same suit

Ajay N S
Advocate, Ernakulam
3990 Answers
93 Consultations

5.0 on 5.0

When the partnership having been dissolved due to death of a partner or has come to a terminus, the rights of the parties are to be worked out in terms of the contract of the partnership entered by and between the partners and the rights engrafted therein.

So, in absence of any such clause that surviving partners can carry on business in such eventuality, you have a good prima facie please for a suit for temporary and mandatory injunction with interim relief against the other partners of the firm refraining them to carry on any business. This application can be filed in the same code weather partition suit is being adjudicated.

You should go through Section 46 and 48 of the Indian Partnership Act which states that:

46. RIGHT OF PARTNERS TO HAVE BUSINESS WOUND UP AFTER DISSOLUTION. —On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

48. MODE OF SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS.

In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed :

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;

(b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order :

(i) in paying the debts of the firm to third parties;

(ii) in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner ratably what is due to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

Siddharth Jain
Advocate, New Delhi
5928 Answers
101 Consultations

5.0 on 5.0

What is your role in this business?

In which capacity are you disputing this issue.

Your wife can fight as a legal heir because that is her right.

If you are a shareholder then in that capacity you can seek the remedy and relief.

T Kalaiselvan
Advocate, Vellore
78070 Answers
1543 Consultations

5.0 on 5.0

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