Partnership firm: difference between dissolution and retirement

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

On retirement of the partner, there constituted 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. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement

[See – Pamuru Vishnu Vinodh Reddy v.Chillakuru Chandrasekhara Reddy, (2003) 3 SCC445].

In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. 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. [See – Erach F.D.Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724].

[Source: Guru Nanak Industries v. Amar Singh, decided by SC on 26th May 2020]

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