Supreme Court of India made the following observations adhering to the recent case proceedings:
- There is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’.
- 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.
- 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.
A panel of Supreme Court judges reiterated well-established principles of partnership law regarding ‘retirement of partner’ and ‘dissolution of partnership firm’.
The issue examined by the Supreme Court was whether in the facts of a case, where it was a question whether any partner had resigned from the firm or was the partnership dissolved?
Such confusions occur in the context of partnerships and one such is about retirement of partner and dissolution of the firm. It clarified the different provisions of law applicable in both the instances, which lead to completely different consequences. In the event of the retirement of a partner, the partnership firm continues to operate with the remaining partners while in the event of a dissolution, the firm ceases to exist. Further, in the specific case of two-member partnership firms, the resignation/retirement of one of two partners results in the dissolution of the partnership firm as a partnership is required to have at least two partners.