Section 42 (c) of the Indian Partnership Act, 1932[1] implies that subject to the contract to the contrary, a firm is dissolved by the death of a partner. "There cannot be any contract unilaterally without acceptance and agreement by the legal heirs of the deceased partner."

 

A plain reading of Section 42 (c) of the Indian Partnership Act, 1932[1] implies that subject to the contract to the contrary, a firm is dissolved by the death of a partner.

 In case of only 2 partners in the firm, death of a partner results in dissolution even if there is a contract to the contrary. 

The Supreme Court in Mohd. Laiquiddin and Ors. vs. Kamala Devi Misra (Dead) by L.Rs. and Ors., MANU/SC/0031/2010, (2010 ) 2 SCC 407, [2010] 1 SCR 873. observed that when there are only two partners in a firm, on the death of one the firm is deemed to be dissolved despite the existence of any clause which says otherwise. 

A partnership is a contract between the partners; there cannot be any contract unilaterally without acceptance by the other partner. If the legal representatives of the original plaintiff are not interested in continuing the firm or in constituting a new firm, they cannot be asked to continue the partnership. There is no legal obligation on them to do so, as a partnership is not a matter of heritable status, but purely one of contract, which is also clear from the provision of Section 5 of the act.(7) Therefore, the firm dissolved by virtue of the death of one of the partners. 

In the case of Commissioner of I.T v. Seth Govindram Sugar Mills, MANU/SC/0170/1965, It is laid down in this case that in a partnership firm when a deed consisted of a clause that on the death of the one of the partners, heirs of the deceased partner, shall be admitted in the firm in his place, the said clause in the partnership deed can be given effect if the firm consisted of 3 or more partners and not when the firm consists of only 2 partners. 

The same was reiterated in Tirupati Constructions Company vs. Central Bureau of Investigation,  MANU/UP/2236/2018. In case of more than 2 partners, death of a partner results in dissolution of the partnership unless there is a contract to the contrary. It was held in the case of CIT v. K Wadhumal and Sons that, “3. it is settled law that ordinarily on the death of a partner, the partnership firm is automatically dissolved vide section 42 of the Indian Partnership Act. The only exception is where in the partnership deed it is mentioned that on death of a partner the firm will not dissolve. In this case there is nothing to show that there is any mention in the partnership deed that the firm shall not automatically dissolve on the death of a partner.” Ads by  Mohan Lal Jagan Nath & CIT v. Empire Estate[5] “2. …..There was nothing in the partnership deed to the effect that the partnership will continue even after the death of a partner. Hence in view of section 42 of the Partnership Act the firm stood dissolved….  ”

Rights And Duties Of Legal Heirs After Death Of One/Both/All Of The Partners Of The Partnership Firm

Name of the case – S.P. Mishra & Ors. Vs. Mohd. Laiquddin Khan & Anr., C.A. No. 3311 of 2015 (SC) 

Subject and sections involved – Section 42 (C) of the Partnership Act, 1932

Section 42 in The Indian Partnership Act, 1932

42. Dissolution on the happening of certain contingencies.—Subject to contract between the partners a firm is dissolved,—

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent.

The fact of the Case: 

All the appellants are legal heirs of late Sri Jai Narayan Misra and all the respondents are legal heirs of late Smt. Hashmatunnisa Begum. During the lifetime of late Sri Jai Narayan Misra and late Smt. Hashmatunnisa Begum, entered into a partnership deed. Late Smt. Hashmatunnis Begum is the owner of open land with structures. Both were successfully carrying on business in real estate by developing the land which forms the part of Paigah Compound. It appears that a major portion of the land is already developed but the dispute is to an extent of 3381 square meters. 

During the lifetime, the predecessor of late Sri Jai Narayan Misra (appellant) has filed a suit to grant a permanent injunction against the defendant restraining the defendant and all the persons claiming through the defendant from preventing the plaintiff from carrying out the work of preparing the layout plan, developing the property and sale thereof, in an extent of 3,381 square meters. And also, to grant a mandatory injunction directing the defendant to sign the layout and other documents submitted to the Cantonment Board for sanction in respect of the land admeasuring 3,381 square meters forming part of Paigah Colony.

Issue:

1. Whether in the event of the death of either or both of the party, their legal representatives shall automatically become partners in the partnership firm and they shall continue to act as partners of the firm till the venture envisaged under partnership?

2. Whether such legal representative shall have the same rights and shall be subject to the same liabilities and responsibilities, as the deceased partner of the partnership firm?

The ratio of the Case: 

The Supreme Court held that the legal representative shall not automatically become the partner in the partnership firm in the event of the death of either or both of the partners. 

It was observed that the executable decree depends on the rights litigated by the parties. In the event of the death of one of the partners, by operation of law, u/s 42 (C) of the Indian Partnership Act, 1932 the partners are not bound by the decree obtained by the predecessor of the partnership. 

Thus, the apex court is of the view that since the respondents were not parties to the partnership deed and that the partnership stands dissolved, in the view of the death of one of the partners, the respondents have not derived the benefits of the assets of the partnership firm, the decree obtained by the predecessor of the appellants, is not executable against the respondents herein.