Dissolution of a firm takes place on the happening of certain contingencies in the following cases:
(A) By the death of a partner
(B) By the adjudication of a partner as an insolvent
(C) When the business of the firm becomes illegal
(D) If constituted for a fixed term, by the expiry of that term
Choose the correct answer from the options given below:
Dissolution of a firm takes place on the happening of certain contingencies in the following cases:
(A) By the death of a partner
(B) By the adjudication of a partner as an insolvent
(C) When the business of the firm becomes illegal
(D) If constituted for a fixed term, by the expiry of that term
Choose the correct answer from the options given below:
Solution
Dissolution of a firm on the happening of certain contingencies (Section 42 of the Partnership Act) includes specific events that may or may not occur during the life of the firm.
Let's examine each case:
(A) By the death of a partner - This is a contingency. Death is an uncertain event that may happen during the firm's existence. Unless the partnership deed states otherwise, the firm dissolves on a partner's death.
(B) By the adjudication of a partner as an insolvent - This is also a contingency. Insolvency of a partner is an uncertain event. When a partner is adjudicated insolvent, the firm dissolves unless agreed otherwise.
(C) When the business becomes illegal - This falls under compulsory dissolution, not dissolution by contingencies. When the business becomes unlawful (due to change in law or when carrying on the business becomes illegal), the firm must dissolve immediately by operation of law. It is not merely a contingency but a mandatory requirement.
(D) If constituted for a fixed term, by the expiry of that term - This is a contingency-based dissolution. The expiry of the agreed term is a certain event that leads to dissolution unless partners decide to continue.
The key distinction is that contingencies under Section 42 are events that may lead to dissolution (with some flexibility in the partnership agreement), while compulsory dissolution under Section 41 leaves no choice.
Correct answer: Option 1 - (A), (B) and (D) only
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2023: 28 May Shift 1