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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Deepa, Esha and Farhan run a firm in Jaipur whose only business is trading in a particular commodity. The government then bans trading in that commodity, making the business unlawful. What is the effect on the firm?

The firm is dissolved compulsorily, automatically by operation of law. When the firm's only business becomes unlawful, the partnership cannot lawfully continue, so no notice, agreement or court order is required to bring about dissolution.

  1. AThe firm continues until the partners decide otherwise
  2. BThe firm is dissolved only if a court passes an order
  3. CThe firm is dissolved by operation of law because its business has become unlawfulCorrect
  4. DOnly the partner who proposed the business is liable and the firm continues

Explanation

A firm is compulsorily dissolved when an event makes its business unlawful, or makes it unlawful for partners to carry it on in partnership. No notice or court order is needed. Option B is wrong because compulsory dissolution happens automatically.

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