Does a Partnership firm continue to exist with legal representative of deceased as new 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 v Kamala Devi Misra (deceased) represented by LRs[2] 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.

Commissioner of I.T v. Seth Govindram Sugar Mills[3]

• 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.[4]

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.”

 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….  ”

[1] The Indian Partnership Act, 1932, Act No. IX of 1932, S. 42(c).

[2] 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.

[3] CIT v. Seth Govindram Sugar Mills, MANU/SC/0170/1965

[4] Tirupati Constructions Company vs. Central Bureau of Investigation,  MANU/UP/2236/2018.

[5] CIT v. Empire Estate, (1996) 218 ITR 355 (SC)