• Partnership dispute

Hello,

My father is a partner in a firm of 5 partners. The partnership firm owns a parcel of land in which a manufacturing unit is operational. Now, 4 partners want to wind up the business and sell the land while 1 partner is objecting. The 4 partners have 83% share in the partnership firm while the objecting partner has 17% share. The objecting partner says he will go to court and stall the sale if the remaining partners proceed. My question is: 

What is the legal option available for the majority share partners to sell the property and exit without the consent of the objecting partner? Please advise.
Asked 3 years ago in Business Law

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7 Answers

1) under the law of partnership, a firm has no legal existence apart from its partners, and it is merely a compendious name to describe its partners.

 

2) Under Section 19 of the Partnership Act, the implied authority of a partner does not empower him to acquire immovable property for the firm or transfer immovable property belonging to the firm. In the absence of any agreement between the partners, if any occasion arises for dealing with the immovable property of the firm, then it would be necessary for all the partners to join the instrument.

 

3) you need his consent to sell immovable property 

Ajay Sethi
Advocate, Mumbai
94523 Answers
7486 Consultations

5.0 on 5.0

Yes, the majority partners can proceed to dissolve the firm and sell the property so as to divide the sale proceeds among the partners.

Devajyoti Barman
Advocate, Kolkata
22779 Answers
484 Consultations

5.0 on 5.0

the 4 partners cannot transfer the property of the firm if the consent of all partners is not in place

section 19(2)(g) of the Indian Partnership Act, 1932 prohibits such transfer, provided there is no custom of trade or usage to the contrary

further no buyer would be willing to purchase the firm's property is all the partners are not consenting for such sale

if as per the partnership contract between the partners the partnership is a partnership at will then the 4 partners can issue a notice for dissolving the firm to the 5th partner u/s 43 of the partnership act, 1932 and the firm will stand dissolved upon expiry of notice period stated in the dissolution notice

Yusuf Rampurawala
Advocate, Mumbai
7485 Answers
79 Consultations

5.0 on 5.0

Dear sir,

 

The partnership deed itself consists of the mode in which any dispute that arises between the partners shall be solved in a certain manner. This could either be by arbitration or in the court of law.

Now, as far as your query regarding the exit of other partners is concerned, please note that any partner can leave a firm after sending a legal notice to other partners, and unless laid down in the partnership agreement otherwise, no one can object such exit.

However. in your case the dissolution seems to happen by way of agreement amongst only four members. Please note that for the dissolution of firm, all members must give their consent. Without the other person's consent, the court can rightly rule in favour of him to stop the sale proceeds. Also, for the appropriation of funds, the consent of all the partners is required. 

Hence, it is advised that you seek to dissolve the partnership firm by way of court order. For this you will have to file a petition and if your firm satisfies any of the following conditions, the court can grant decree in your favour:


  • When a partner becomes insane 

  • When a partner becomes permanently incapable of performing his duties as a partner. 

  • When a partner is guilty of misconduct which is more likely to affects the reputation and business of the firm. 

  • When a partner continuously commits a breach of the partnership agreement. 

  • When a partner transfers the whole of his interest or share in the firm to a third party. 

  • When the business of the firm cannot be carried on except at a loss. 

  • When the court’s opinion regarding the dissolution of the firm to be just and equitable on any ground. Thank you 
  • .
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Anik Miu
Advocate, Bangalore
8742 Answers
109 Consultations

4.7 on 5.0

The dissolution of a partnership firm is said to be dissolved when the relationship between the partners is terminated

Causes of Dissolution of Partnership Firms

  • Dissolution by Agreement. ...
  • Dissolution by Notice. ...
  • Insolvency of Partners. ...
  • Commitment to Illegal Business. ...
  • Death of a Partner. ...
  • Expiry of Term. ...

  • Completion of Work or Contract. ...
  • Resignation of Partner.

After the dissolution of the firm the authority of each partner to bind the firm, and other mutual rights and obligations of the partners, continue so far as may be necessary for the following two purposes:

(a) To wind up the affairs of the firm, e.g., disposing of the property, realising amount due from debtors and paying to creditors and so on; and

(b) To complete transactions begun but unfinished at the time of the dissolution, e.g., taking delivery of the goods ordered before dissolution and paying for them.

On the dissolution of a firm every partner or his representative is entitled to have the property of the firm realised and 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.

So long as the affairs of the dissolved firm are in process of winding up, it is still the duty of every partner not to make any personal profit out of transactions concerning the firm. A partner, therefore, must account to the firm for every benefit so derived by him and must share it with other partners

Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term, such a partner shall be entitled to repayment of ‘rateable amount of premium’ for the unexpired period except where the dissolution has been caused:

(a) By the death of a partner;

(b) By the misconduct of the partner so admitted; or

(c) By mutual agreement of all the partners containing no provision for the return of premium.

In the absence of an agreement to the contrary, each partner or his representative is entitled to restrain the other partners from carrying on a similar business in the name of the firm or from using the property of the firm for their own benefit, until the affairs of the firm have been completely wound up.

However, where a partner or his representative has bought the goodwill of the firm he can use the firm name. (Sec. 53)

Further, the partners in anticipation of or upon dissolution of the firm can agree that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits.

Such an agreement shall be valid and not void on the ground of restraint of trade, if the restrictions imposed are reasonable. (Sec. 54).

The dissolution of a partnership firm is said to be dissolved when the relationship between the partners is terminated. In case of dissolution, the firm ceases to exist. The process of dissolution includes disposing of the assets and the liabilities are paid off. The firm discontinues all of its activities and no partner has any relation with the other partners.

 Dissolution by Court: The dissolution of a partnership firm may be ordered by the court on the following grounds:


  • When a partner becomes insane 

  • When a partner becomes permanently incapable of performing his duties as a partner. 


  • When a partner is guilty of misconduct which is more likely to affects the reputation and business of the firm. 

  • When a partner continuously commits a breach of the partnership agreement. 

  • When a partner transfers the whole of his interest or share in the firm to a third party. 

  • When the business of the firm cannot be carried on except at a loss. 

  • When the court’s opinion regarding the dissolution of the firm to be just and equitable on any ground. 

Settlement of accounts on dissolution 

According to Sec. 48 of The Indian Partnership Act,1932, the following procedure is to be followed for the settlement of accounts between partners after the dissolution of the firm: 

. Losses including deficiencies of capital shall be first paid out from the profits, next from the capital, and if necessary, by the personal contribution of partners in their profit-sharing ratio. 

2. The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, will be applied in the following manner:


  • Payment of the debts of the firm to the third parties 

  • Payment of advances and loans given by the partners 

  • Payment of capital contributed by the partners 

  • The surplus, if any, will be divided among the partners in their profit-sharing ratio. 

T Kalaiselvan
Advocate, Vellore
84722 Answers
2172 Consultations

5.0 on 5.0

- A partnership firm can be dissolved, if all the partners have mutually agreed upon closing the partnership firm, or after entering into an agreement.

- Further, if a partnership business is at will, then any partner can dissolve the partnership by giving an advanced notice. Notice should contain a date from which dissolution will be effective.

- Further, if any of the partners becomes mentally unstable or misbehaves with the other partner or doesn’t abide by the clauses of the agreement, then the other partner may file a case in the court to dissolve the firm. However a court can dissolve the firm only if it is registered with the registrar of firms. Hence an unregistered partnership firm can’t be dissolved by the court.

- Further, a partnership can be dissolved when a partner withdraws or dies.

- Further, in case of dissolution, accounts have to be settled and distributed as per the mode prescribed in section 48 of the Partnership Act.

- Hence, 4 partners can wind up the business and sell the land , then the partnership will come to an end , as for partnership it require at least two partner to continue. 

Mohammed Shahzad
Advocate, Delhi
13105 Answers
195 Consultations

5.0 on 5.0

In Partnership where more than 2 persons are Partners what the majority will decide that will be applicable.

In your matter where there are 5 persons in a Partnership 4 giving consent is the majority then 1 person not giving consent will not be applicable.

You can show the decision taken by the majority in the Partners & sell the property with no issues.

 

Thank you.

Ritwik Sarkar
Advocate, Kolkata
26 Answers
2 Consultations

5.0 on 5.0

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