SC: When there are only two partners, retirement of one dissolves the firm

The Hon’ble Supreme Court, on 26th May 2020, in the matter of Guru Nanak Industries, Faridabad And Another v. Amar Singh (Dead) Through Lrs observed that there is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’, however when there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm.

The Hon’ble Supreme Court observed that:

There is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’. (Para 12)

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. (Para 12)

When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement  (Para 12)

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 (Para 12)

Copy of judgment: Judgement_26-May-2020

-Adv. Tushar Kaushik

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