A firm is dissolved compulsorily in the following cases:

(A) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract

(B) when the business of the firm becomes illegal

(C) when the business of the firm is earning a large amount of profit.

(D) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership

Choose the correct answer from the options given below:

According to the Indian Partnership Act, 1932, compulsory dissolution occurs in specific situations where the partnership can no longer legally continue.

Analyzing each statement:

Statement (A) is correct under Section 41(b). When all partners or all except one become insolvent, they lose their capacity to contract. Since a partnership requires at least two competent partners, the firm must be dissolved compulsorily.

Statement (B) is correct under Section 41(a). If the business activity itself becomes illegal (for example, a law is passed prohibiting that particular business), the firm cannot continue and must be dissolved immediately.

Statement (C) is incorrect. Earning large profits is never a ground for compulsory dissolution. This is actually a desirable situation. Partners may choose to dissolve voluntarily, but there is no legal compulsion to dissolve a profitable firm.

Statement (D) is correct under Section 41(a). If any event makes it unlawful for the partners to carry on business together (such as a change in law affecting the partnership structure or the partners' eligibility), the firm must be compulsorily dissolved. This is different from (B) as it focuses on the unlawfulness of continuing the partnership itself, not necessarily the business.

Therefore, statements (A), (B), and (D) represent cases of compulsory dissolution.

Correct Answer: Option 1