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The Supreme Court on Wednesday (September 9) held that, upon dissolution of a partnership at will, an outgoing partner's right to receive his share in the residue of the partnership assets is not frozen as of the date of dissolution. Instead, the partner is entitled to have his share determined based on the value of the partnership assets as on the date of their actual valuation.

A bench of Justice Ujjal Bhuyan and Justice Vipul M Pancholi heard the case where the partnership firm owning 3.27 acres of land in Hyderabad sought to be dissolved by one of the partner at Will. The issue before the Court was whether the outgoing partner's share in the firm's immovable property had to be valued as on October 18, 1983, the date of dissolution, or at the value prevailing when the property was actually assessed or sold.

Affirming the Andhra Pradesh High Court's judgment, the judgment authored by Justice Bhuyan held that though the profits or losses of the partnership business have to be determined as on the date of dissolution, that date does not necessarily determine the monetary value of the partner's share in the residue of the partnership assets.

“The profits or losses in the business of the partnership firm should be ascertained as on 18.10.1983. The significance of referring to this date is limited to ascertainment of profits and losses alone and it has no relevance to the right of the partners to receive the value in the residue of the assets.”, the Court said.

Dissolution of a partnership ordinarily invites liquidation of the partnership assets

“With the dissolution of the partnership firm, all its assets have to be necessarily liquidated unless any one or more partners of the dissolved firm come forward to pay the market value of the share of the remaining partners/all partners in lieu of liquidation with the consent of the remaining partner or partners. The reconstituted firm has no right whatsoever to utilize the assets of the dissolved firm unless all the partners of the dissolved firm reach an agreement to settle the accounts and to pay the outgoing partner his share in the value of the assets. However, if such an agreement is not reached, there is no option other than liquidation of the assets and distribution of the value realized from such liquidation in proportion to their shares amongst all partners.”, the Court said.

Assets of the erstwhile partnership cannot be retained by the remaining partners of the erstwhile partnership to constitute a fresh partnership

The Court also addressed the position of the partners who continued the business after the dissolution i.e., upon constitution a fresh partnership.

The Court rejected the argument that the reconstituted partnership could simply continue to retain and use the assets belonging to the erstwhile firm without first settling the rights of the partners of the dissolved firm.

The Court held that the properties continued to belong to the erstwhile partnership, and the newly constituted partnership could retain them only by purchasing them from the dissolved firm or otherwise settling the outgoing partner's entitlement.

“The properties, i.e. the land in question belong to the erstwhile partnership M/s Viraj Constructions. The new partnership could have retained the said land in question only by purchasing it from the erstwhile partnership which had not been done. Therefore, retention of the land in question by the new partnership is illegal.”, the Court said.

In terms of the aforesaid, the appeal was dismissed.

Cause Title: V. SUMITRA REDDY & ANR. VERSUS K. RANGANADHA REDDY & ORS.

Citation : 2026 LiveLaw (SC) 918

Click here to download judgment

Appearance:

For Appellant(s) :Mr. Ananga Bhattacharyya, AOR Ms. Devahuti Tamuli, Adv.

For Respondent(s) :Mr. Krishna Dev Jagarlamudi, AOR Mr. Shadab Azhar, Adv. Mr. Arpit Kumar Mishra, Adv. Mr. Vishnu Kant Mundada, Adv. Mr. Ashutosh Dubey, AOR Ms. Rajshri A. Dubey, Adv. Mr. Amit P. Shahi, Adv.

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