Compulsory Dissolution of Partnership Firm

Compulsory Dissolution occurs under Section 41 of the Indian Partnership Act, 1932, when the partnership must be dissolved by law without any choice.

Analysis of Options:

Option 1: When a partner becomes insane

• This is a ground for Dissolution by Court under Section 44(1)(a)
• Partners can approach the court, but dissolution is not automatic or compulsory
• The court decides after examining the case

Option 2: On the death of a partner

• This is Dissolution on happening of certain contingencies under Section 42(c)
• However, if the partnership deed contains a clause for continuation, the firm may continue with remaining partners
• Not compulsory in all cases

Option 3: When the business of the firm becomes illegal ✓

• This is Compulsory Dissolution under Section 41
• When the business becomes unlawful or illegal (due to change in law or any other reason), the firm must be dissolved immediately
• No option is available to partners - dissolution is mandatory
• Example: If a law is passed making the firm's business illegal, the firm must dissolve

Option 4: When a partner becomes permanently incapable

• This is a ground for Dissolution by Court under Section 44(1)(a)
• Similar to insanity, the court may dissolve on application
• Not automatic or compulsory

---

Key Point: Compulsory dissolution happens when continuing the business becomes unlawful or when all partners except one become insolvent. The firm has no choice but to dissolve in such situations.