Partnership

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Guest

Guest (Querist)

19 February 2013 There are two partners. The partnership deed contains one clause which says that if any of the partners die the partnership will not be dissolved and the remaining partner will continue the business.

Q 1) Is this clause holding good ?

Q 2) If one partner dies , will the other partner (only one) continue partnership ?

Q 3) If one partner dies , is a dissolution deed required ?

Q 4) If the clause is valid, will not the partnership be deemed to be a proprietorship concern ?

Q 5) A new partner is admitted within 5 days of the death of a new partner and a new partnership deed has been created,is still a dissolution deed required ?

Please help !!

poonam

poonam (Expert)

19 February 2013 Hey there,

In a landmark judgment, in Mohd Laiquiddin v Kamala Devi Misra (deceased),2010, the Supreme Court has ruled that on the death of a partner of a firm comprised of only two partners, the firm is dissolved automatically; this is notwithstanding any clause to the contrary in the partnership deed. The court found that Section 4 of the 1932 Partnership Act defines a 'partnership' as a contract between more than one person (since it uses the term 'persons'). Therefore, if in a firm comprised of only two persons as partners one dies, the contract comes to an end. There cannot be any contract unilaterally without acceptance by the other partner.

poonam

poonam (Expert)

19 February 2013 Accordingly, answers to your question are :

1. the clause is not valid

2. the partnership will not continue

3. the dissolution is automatic hence no dissolution deed is needed

4. the clause is not valid so no effect shall follow

and 5. since the partnership is dissolved automatically after the death of the partner, new partnership deed shall be entered into for new partnership to commence.

I hope this suffices.

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