32. Retirement of a partner - (1) A partner may retire -
a) with the consent of all the other partners,
a) in accordance with an express agreement by the partners, or
a) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.
(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.
(3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties of any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement:
Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.
(4) Notices under subsections (3) may be given by the retired partner or by any partner of the reconstituted firm.
33. Expulsion of a partner - A partner may not be expelled from a firm by any majority of the partners, save in the exercise in good faith of powers conferred by contract between the partners.
(2) The provisions of subsections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.
34. Insolvency of a partner - (1) Where a partner in the firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.
(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.
35. Liability of estate of deceased partner - Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.
36. Rights of outgoing partner to carry on competing business - (1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but subject to contract to the contrary, he may not -
a) use the firm name,
b) represent himself as carrying on the business of the firm or
c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.
(2) Agreements in restraint of trade - a partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Contract Act 1872 such agreement shall be valid if the restrictions imposed are reasonable.
37. Right of outgoing partner in certain cases to share subsequent profits - 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 of his estate, then, in the absence of a contract 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 where by 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 of 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.
38. Revocation of continuing guarantee by change infirm - A continuing guarantee given to a firm, or to a third party in respect of the transaction of a firm, is in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.
CHAPTER VI
DISSOLUTION OF A FIRM
39. Dissolution of a firm - The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm".
40. Dissolution by agreement - A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
41. Compulsory dissolution - A firm is dissolved -
a) by the adjudication of all the partners or of all the partners but one as insolvent or
b) by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership:
Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.
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 that 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.
43. Dissolution by notice of partnership-at-will-
(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.
44. Dissolution by the Court - At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:-
a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner;
a) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner;
a) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;
a) that a partner, other than the partner suing, willfully, or persistently, commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;
a) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, or has allowed it to be sold in the recovery of arrears of land-revenue or of any dues recoverable as arrears of land-revenue due by the partner;
a) that the business of the firm cannot be carried on save at a loss; or
a) on any other ground which renders it just and enquitable that the firm should be dissolved.
45. Liability for acts of partners done after dissolution - (1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution:
Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner.
(2) Notices under subsection (1) may be given by any partner.
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.
47. Continuing authority of partners for purposes of winding up - After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:
Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent.
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.
a) 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 rateably what is due to him from the firm for advances as distinguished from capital;
ii) in paying to each partner rateably what is due to him on account of capital; and
ii) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.
49. Payment of firm's debts and of separate debts- Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus(if any) in the payment of the debts of the firm.
50. Personal profits earned after dissolution- Subject to contract between the partners the provisions of clause (a) of section 16³ shall apply to transactions by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up:
Provided that where any partner or his representative have bought the goodwill of the firm, nothing in this section shall affect his right to use the firm name.
