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CMA Intermediate · Financial Accounting · Dissolution of Partnership Firms including Piecemeal Distribution

A firm of partners P, Q and R is dissolved, but no public notice of dissolution is given. Before dissolution R had been adjudicated insolvent. Afterwards, Q enters into a transaction with an outsider that would have bound the firm had it been done before dissolution. Under Section 45 of the Indian Partnership Act, 1932, what is the position?

P and Q remain liable to third parties for Q's act, because public notice of dissolution has not been given. R's estate is not liable, since the proviso to Section 45(1) protects the estate of an insolvent partner for acts done after the date he ceased to be a partner.

  1. AP and Q continue to be liable to third parties, but R's estate is not liable for acts done after the date he ceased to be a partnerCorrect
  2. BP, Q and R's estate are all liable until public notice is given
  3. COnly Q is liable, because he did the act, and P is released on dissolution
  4. DNo partner is liable, because the firm stands dissolved on insolvency of a partner

Explanation

Section 45(1) makes partners continue to be liable to third parties for acts that would have bound the firm, until public notice of dissolution is given. The proviso exempts the estate of a partner adjudicated insolvent for acts done after the date he ceased to be a partner. So P and Q remain liable while R's estate is not.

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