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

Gopal, Hari and Indu are partners. Indu is declared insolvent (adjudged an insolvent). The partnership deed has no clause on this. What is the effect on the firm?

This is wrong as written.

  1. AThe firm is dissolved on Indu's insolvency in the absence of a contract to the contraryCorrect
  2. BThe firm continues and Indu remains a partner with full rights
  3. CThe firm is dissolved only if Gopal and Hari give notice within 30 days
  4. DThe firm is dissolved only by a court order

Explanation

Under the Act, if a partner is adjudged insolvent, he ceases to be a partner on the date of the order. The firm is dissolved on that event only where the firm consists of two partners. For a firm of three, the firm continues unless the contract says otherwise. Hence the correct choice is the one saying the firm continues, so reading option 0 as dissolved is wrong. The firm of three continues without Indu.

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