'Retirement of a partner' and 'Dissolution of Partnership', enure different consequences in law: SC

The SC on May 26, 2020 {GURU NANAK INDUSTRIES, FARIDABAD AND ANOTHER vs AMAR SINGH (DEAD) THROUGH LRS} held that there is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’. It was held that on retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, it was held that accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. It was also held that when the partners agree to dissolve a partnership, it is a case of dissolution and not retirement.

The SC Bench, comprising of Justice N.V. Ramana, Justice Sanjiv Khanna & Justice Krishna Murari observed that in the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. It was held that a partnership firm must have at least two partners. It was held that when there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm.

In the present case, the primary claim and submission of the appellants before the SC was that Amar Singh had resigned as a partner and, therefore, in terms of clause (10) of the partnership deed (Exhibit P-3) dated 6th May 1981, he would be entitled to only the capital standing in his credit in the books of accounts. However, the argument was rejected by the SC and held, that in the present case there were only two partners and there is overwhelming evidence on record that Amar Singh had not resigned as a partner. It was held that on the other hand, there was mutual understanding and agreement that the partnership firm would be dissolved. 

It was also held that the receipt Exhibit P-9 dated 17th October 1988 refers to part payment of Rs.1,00,000/- towards settlement between the two partners. The SC held that it also refers to the date of dissolution as 24th August 1988, which clearly indicates that payments were still to be made whereupon the two sides would have completely severed their relationship although there was a mutual agreement that the date of dissolution was 24th August 1988.

Therefore, the SC dismissed the appeals and upheld the judgment and decree passed by the ADJ, Faridabad (first appellate court) and sustained by the High Court, except it was directed that the date of dissolution of the firm would be taken as 24th August 1988 and not 31st of March 1989.