Retirement Of One Partner Amounts To Dissolution Of Partnership Firm Consisting Of Only Two Partners: SC [Read Judgment]

When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm, the Supreme Court has observed.

The bench of Justices NV Ramana, Sanjiv Khanna and Krishna Murari was considering a civil appeal in which the contention raised was that since the appellant had resigned as a partner and, therefore, in terms of the relevant clause of the partnership deed, he would be entitled to only the capital standing in his credit in the books of accounts.

While considering this argument, the bench discussed the distinction between 'retirement of a partner' and 'dissolution of a partnership firm'. It said:

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, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement [See – Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC 445]. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm [See – Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724]. 

The court also said that, in the instant case, there were only two partners and there is overwhelming evidence on record that Amar Singh had not resigned as a partner.

Case no.: CIVIL APPEAL NOS. 6659-6660 OF 2010
Case name: GURU NANAK INDUSTRIES, FARIDABAD vs. AMAR SINGH (DEAD) 
Coram: Justices NV Ramana, Sanjiv Khanna and Krishna Murari 

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