In short. Under the Partnership Act 1932, a partnership at will ends when a partner gives written notice of dissolution (section 43); other firms end by agreement, on contingencies such as death or expiry of term, or by a court order under section 44. After dissolution, accounts are settled under section 48. Even an unregistered firm's partner can sue for dissolution and accounts.
This post covers firms governed by the Indian Partnership Act 1932: the traditional business partnership, registered or not. Limited liability partnerships are a different legal structure under the LLP Act 2008, with disputes going to the NCLT; our post on choosing between a private limited company and an LLP explains how they differ.
Partnership disputes in Delhi NCR tend to follow a pattern. The firm grows on trust and an old deed, one partner ends up running the day-to-day business and the bank account, and the others start feeling shut out. By the time anyone consults an advocate, the question is no longer whether to separate but how to do it without losing years and money. Disputes that reach court are handled through our civil law practice and our commercial court practice in Delhi.
- The law
- Indian Partnership Act 1932
- Partnership at will
- Dissolved by any partner's written notice (section 43)
- Dissolution by court
- Grounds in section 44, including just and equitable
- Unregistered firm
- Partner can still sue for dissolution and accounts (section 69(3))
- Limitation for accounts
- 3 years from the date of dissolution
- Forum
- Civil or commercial court, or arbitration under the deed
What are the most common partnership firm disputes?
Money and control, nearly always. The usual complaints are that one partner is not sharing profits or is drawing more than agreed, that capital contributions were never equalised, that one partner controls the bank account and books and will not show them, that business is being diverted to a relative's concern, or that a new partner has been brought in without consent. On the other side, the working partner often feels that the sleeping partners want profits without effort.
The second big group arises at the end of the relationship: a partner wants to retire and be paid out, the others want to expel someone, a partner dies and the heirs ask for a share, or the partners agree to separate but cannot agree on the value of the goodwill, the stock or the property the firm uses. These questions are mostly answered by the deed and, where it is silent, by the default rules in the Act.
Before deciding on a strategy, find out three things: whether there is a written deed and what it says about retirement, dissolution and disputes; whether the firm is registered with the Registrar of Firms; and whether the partnership is at will or for a fixed term or venture. Those three facts shape almost every option that follows.
What rights does a partner have if the deed says nothing?
The Act fills the gaps. Under section 12, every partner has a right to take part in the conduct of the business, ordinary matters are decided by majority, the nature of the business cannot be changed without everyone's consent, and every partner has a right to have access to and inspect and copy any of the books of the firm. A partner who is refused access to the books is being denied a statutory right, which is often the first point raised in a notice.
Section 13 sets out the money rules that apply unless the partners agree otherwise. No partner is entitled to remuneration for taking part in the business. Partners share profits and losses equally. Interest on capital is payable only if the deed provides for it, and then only out of profits. A partner who advances money beyond his agreed capital is entitled to interest at six per cent a year on that advance.
Duties run alongside the rights. Partners must carry on the business for the greatest common advantage, be just and faithful to each other, and render true accounts (section 9). A partner who makes a profit from a transaction of the firm, or from using the firm's property, name or business connection, must account for it to the firm, and a partner who runs a competing business must hand over its profits (section 16).
Default rules under the Partnership Act and what deeds usually change
These rules apply only where the deed is silent. A well-drafted deed replaces most of them with terms that fit the firm.
| Issue | Default rule in the Act | What deeds commonly provide |
|---|---|---|
| Share of profit and loss | Equal shares (section 13(b)) | Agreed ratio, often linked to capital or work |
| Remuneration to working partners | None (section 13(a)) | Fixed salary or commission to named working partners |
| Interest on capital | Only if agreed, and only out of profits (section 13(c)) | A stated rate, subject to tax limits |
| Interest on advances beyond capital | 6% a year (section 13(d)) | A different stated rate, or none |
| Day-to-day decisions | Majority; change in nature of business needs all (section 12(c)) | Named managing partner, signing limits, matters needing unanimity |
| Access to books | Every partner may inspect and copy (section 12(d)) | Usually kept; sometimes adds monthly statements |
| Admitting a new partner | Consent of all partners (section 31) | Same, or a stated majority |
| Expelling a partner | Only if the deed gives the power, used in good faith (section 33) | Specified grounds, notice and hearing |
| Retirement | With consent of all, as agreed, or by notice in a partnership at will (section 32) | Notice period, valuation method and payment schedule |
| Death of a partner | Firm dissolved unless contract provides otherwise (section 42(c)) | Firm continues with surviving partners; heirs paid out |
Can a partner be expelled or forced to retire?
A partner can be expelled only if the deed expressly gives that power, and the majority must use it in good faith (section 33). There is no power of expulsion under the general law. Courts have treated good faith as requiring that the partner be told what he is accused of and given a chance to answer before the decision. An expulsion done by a majority that simply wants a larger share, or done without notice, is liable to be set aside.
Retirement is voluntary, but its terms depend on the deed. Under section 32, a partner may retire with the consent of all the others, in accordance with an express agreement, or, where the partnership is at will, by written notice to all the other partners. A retiring partner remains liable to third parties for acts of the firm before his retirement, and until public notice of the retirement is given he can be liable for later acts too.
A retired partner who has not been paid out has a valuable statutory right. Under section 37, if the remaining partners carry on the business with the firm's property without settling his accounts, he or his estate can claim, at his option, either the share of profits made since he left that is attributable to the use of his share of the property, or interest at six per cent a year on the amount of that share. This often changes the arithmetic of a settlement.
How is a partnership firm dissolved?
There are five routes. First, by agreement: all the partners agree to dissolve, or the deed provides for it (section 40). This is the cleanest route and is usually recorded in a dissolution deed that also settles accounts and assets. Second, compulsory dissolution by law: when all partners or all but one are adjudged insolvent, or when the business becomes unlawful (section 41).
Third, on contingencies, unless the partners have agreed otherwise: when a fixed term expires, when the venture for which the firm was formed is completed, or when a partner dies or is adjudged insolvent (section 42). Many deeds provide that the firm continues despite a death, which avoids an automatic dissolution. Fourth, by notice: where the partnership is at will, any partner may dissolve it by written notice to all the others, and the firm stands dissolved from the date stated in the notice or, if none, from the date of communication (section 43).
Fifth, by the court, on the grounds in section 44. This is the route when the partnership is for a fixed term or venture, the deed does not allow dissolution by notice, and the partners cannot agree. A partnership is at will when the deed fixes no term and has no provision for determination, so many small firms with simple deeds can be dissolved by notice without going to court at all.
Key sections of the Partnership Act 1932 in a dispute
Sections 9, 12, 13 and 16
Partners' duties of good faith and true accounts, rights to take part in the business and inspect the books, default money rules, and the duty to account for personal profits and competing business.
Sections 31 to 33 and 37
Admission of a new partner with everyone's consent, retirement, expulsion only under a power in the deed exercised in good faith, and the outgoing partner's right to subsequent profits or interest at six per cent.
Sections 40 to 44
Dissolution by agreement, compulsory dissolution, dissolution on contingencies, dissolution of a partnership at will by notice, and dissolution by the court.
Sections 45 to 48 and 55
Liability for acts after dissolution until public notice, the right to have the business wound up, continuing authority for winding up, the order in which assets and losses are settled, and the sale of goodwill.
Section 69
An unregistered firm, or its partners, cannot sue the firm or other partners to enforce rights under the contract or the Act, but section 69(3) preserves the right to sue for dissolution, for accounts of a dissolved firm and to realise its property.
Order 20 Rule 15 and Order 40 Rule 1, CPC
The court passes a preliminary decree in a dissolution suit declaring shares and directing accounts before the final decree, and may appoint a receiver to manage or protect the firm's property during the suit.
On what grounds will a court dissolve a partnership firm?
Section 44 allows the court, on a suit by a partner, to dissolve a firm where a partner has become of unsound mind; a partner has become permanently incapable of performing his duties; a partner is guilty of conduct likely to prejudicially affect the business; a partner wilfully or persistently commits breach of agreements about management, or conducts himself so that it is not reasonably practicable to carry on business with him; a partner has transferred his whole interest to a third party; the business can only be carried on at a loss; or on any other ground that makes it just and equitable to dissolve the firm.
In practice, the just and equitable ground and the breach-of-agreement ground do most of the work. Courts look for a breakdown of the mutual confidence the partnership depends on: partners who have stopped speaking, a partner excluded from the business, accounts withheld for years, or rival businesses run by different partners. Ordinary disagreement about how to run the business is not enough; there has to be something that makes the partnership unworkable.
Under section 44, the misconduct grounds cannot be invoked by the partner who is himself at fault. A partner who diverts business and then seeks dissolution because trust has broken down will face that objection. The court will also fix a date of dissolution, which matters for accounts and limitation.
What if the partnership firm is not registered?
Registration with the Registrar of Firms is optional, but non-registration has a serious consequence under section 69. An unregistered firm cannot sue a third party to enforce a contract, and a partner of an unregistered firm cannot sue the firm or the other partners to enforce a right arising from the deed or conferred by the Act. Courts have applied the bar to proceedings to enforce an arbitration clause in the deed as well. Registration must exist on the date the suit is filed; registering afterwards does not cure it.
The important exception is section 69(3). The bar does not affect a partner's right to sue for dissolution of the firm, for accounts of a dissolved firm, or to realise the property of a dissolved firm. So a partner in an unregistered firm who wants out is not without a remedy: he dissolves the firm, by notice if it is at will or by suit if not, and then claims accounts. What he cannot do is sue for his share of profits while keeping the firm alive.
If you are setting up a firm, register it, and file changes in partners and addresses with the Registrar. The process and documents are covered on our page on company registration and firm incorporation.
Does the arbitration clause in the partnership deed apply?
Usually, yes. Most partnership deeds in north India contain an arbitration clause, and disputes about accounts, retirement, expulsion and dissolution are all arbitrable. If one partner files a civil suit, the other can apply under section 8 of the Arbitration and Conciliation Act 1996 for the matter to be referred to arbitration, provided he does so no later than his first statement on the substance of the dispute.
Old deeds often name a specific person as arbitrator, sometimes a family elder, an accountant or one of the partners. Where the named arbitrator has died, refuses to act or is ineligible because of a close relationship with a party, a fresh appointment can be sought from the court under section 11; see our post on appointment of an arbitrator under section 11. Urgent protection, such as freezing a bank account or stopping the sale of firm property, is available from the court under section 9 even before the tribunal is formed, as explained in section 9 interim relief before and during arbitration.
Arbitration can be faster than a civil suit for accounts, which tends to run for years through preliminary and final decrees. But it needs a competent arbitrator who can handle accounts, and the costs fall on the parties. Our arbitration and conciliation practice page explains how the process works.
How a suit for dissolution and accounts works
Where there is no arbitration clause, or both sides choose court, the usual remedy is a suit for dissolution and rendition of accounts. Partnership agreements are listed in the Commercial Courts Act 2015, so suits of ₹3 lakh and above usually go to the commercial court.
Send a notice of dissolution or a demand
For a partnership at will, a written notice dissolves the firm. For other firms, the notice sets out the grounds and demands accounts. It should be sent to every partner, and also served by email; our post on sending a legal notice before filing a suit covers the form.
Pre-institution mediation
For a commercial suit, mediation under section 12A of the Commercial Courts Act is mandatory unless urgent interim relief is sought. It is run by the District Legal Services Authority and many partnership disputes settle there.
File the plaint
The plaint describes the firm, the deed, the capital and the grounds, and asks for dissolution, accounts, a preliminary decree and interim relief. Court fee in a suit for accounts is paid on the value tentatively stated, with the balance paid when the amount is found due; see court fee and suit valuation in Delhi.
Seek interim protection
Applications for an injunction restraining operation of bank accounts or sale of assets, for a receiver, or for a local commissioner to inventory stock and seize books are filed with the plaint where the facts justify them.
Preliminary decree
Once the court finds that the firm stands dissolved and the shares of the partners, it passes a preliminary decree under Order 20 Rule 15 CPC fixing the date of dissolution and directing that accounts be taken.
Taking of accounts
A local commissioner, often a chartered accountant or an advocate, examines the books, bank statements and evidence and reports what each partner owes or is owed. Parties can object to the report.
Final decree and execution
The court passes a final decree for the amounts due and directs the sale or division of assets. The decree is then executed like any money or property decree.
Limitation matters here. A suit for accounts and a share of profits of a dissolved partnership must be filed within three years from the date of dissolution under the Limitation Act 1963. Our post on limitation periods for civil suits explains how the date is fixed and when an acknowledgment helps.
Protecting the firm's money and assets while the dispute runs
The partner who controls the bank account and the books has a practical advantage, and interim orders exist to neutralise it. Courts can restrain the operation of the firm's account except for agreed purposes, direct that cheques be signed jointly, restrain the sale or encumbrance of the firm's property, and order that the books be deposited or copied. In serious cases, where assets are being dissipated, the court can appoint a receiver under Order 40 CPC to take charge of the business or particular assets.
Courts do not grant these orders lightly, because they can bring a running business to a halt. They look for evidence: bank statements showing large unexplained withdrawals, transfers to a related concern, stock moved out of the godown, or a sale agreement for firm property. A plaint that simply says the defendant may misuse funds usually gets notice, not an order.
When Advocate B.K. Singh takes on a partnership dispute, he usually asks the client to pull the firm's bank statements for the last three years before anything else is drafted. Those statements, read against the deed and the income-tax returns of the firm, show where the money went far more reliably than either partner's version, and they decide which interim orders are worth asking for.
How are accounts settled after dissolution?
Section 48 sets the order, unless the partners agree otherwise. Losses, including deficiencies of capital, are paid first out of profits, then out of capital, and finally by the partners individually in the proportion in which they shared profits. The firm's assets, including any sums the partners contribute to make up deficiencies, are applied first to pay the firm's debts to third parties, then to repay each partner's advances beyond capital, then to repay each partner's capital, and the residue is divided in the profit-sharing ratio.
Goodwill is part of the firm's property and must be valued and accounted for, unless the deed provides otherwise (section 55). Partners can agree that one of them will take over the business and pay the others for their share of goodwill, and the buyer can be protected by a reasonable restraint on the others competing, which the Act allows; our post on non-compete clauses and section 27 explains the limits. Property standing in the name of one partner but bought with firm money, and property owned by a partner but only used by the firm, often become the hardest questions in the accounts.
After dissolution, each partner retains authority to wind up the affairs of the firm and complete unfinished transactions, but not to start new business (section 47). Public notice of the dissolution under section 72, by publication in the Official Gazette and a local newspaper and notice to the Registrar for a registered firm, protects partners from liability for later acts done in the firm's name (section 45).
What happens when a partner dies?
Unless the deed provides otherwise, the death of a partner dissolves the firm (section 42(c)). In a two-partner firm, there is no firm left in any case. Many deeds provide that the firm continues with the surviving partners, and some allow a legal heir to be admitted as a partner. Where the firm continues, the deceased partner's estate is entitled to his share as on the date of death, and if the survivors carry on with his share without paying it, to subsequent profits or interest under section 37.
The heirs do not automatically become partners, because partnership is a relationship of personal trust. They step into the deceased's financial entitlement, not his management rights. If they want to claim accounts, they can sue the surviving partners, and the three-year limitation runs from the date of dissolution, which in many cases is the date of death. Heirs who wait several years for an informal settlement sometimes lose the right to sue.
Can one partner file a criminal case against another?
Rarely with success. Partners have joint ownership of the firm's property, and courts have long been reluctant to treat a partner's use of firm money as criminal breach of trust unless there was a specific entrustment of property to him for a particular purpose. A complaint of cheating under section 318 of the Bharatiya Nyaya Sanhita needs dishonest inducement at the start of the transaction, which is hard to show in a partnership that worked for years before falling apart.
Criminal complaints filed to pressure a partner into settlement are frequently quashed by the High Court as civil disputes given a criminal colour. There are genuine exceptions, such as forged signatures on firm documents or cheques, or fabricated accounts, where offences of forgery and falsification may be made out. Even then, the civil suit for accounts is what recovers money. Take advice before going to the police, because a weak complaint can harden the other side and damage your civil case.
A made-up example: three partners in a Ghaziabad trading firm
Here's a made-up example. Three friends run a building materials trading firm in Ghaziabad under a 2014 deed. Capital is equal, profits are shared equally, there is no fixed term and no clause on dissolution, and the firm was never registered. One partner, R, handles purchases, sales and the bank account. The other two, S and T, have day jobs and visit occasionally.
In 2025, S and T notice that profits have fallen while R has bought a new shop in his wife's name, from which a similar business operates. R stops sharing the ledgers. S and T cannot sue for their share of profits, because the firm is unregistered and section 69 bars that. But the partnership is at will, so they send a joint written notice dissolving the firm from a stated date, and demand accounts.
R ignores the notice. Mediation under section 12A fails. S and T file a suit for accounts of the dissolved firm, which section 69(3) permits, with an application to restrain R from operating the firm's account and to appoint a local commissioner to take an inventory of stock. The court grants a limited injunction and appoints a commissioner. Bank statements produced in the suit show transfers from the firm account to the wife's business.
The court later passes a preliminary decree directing accounts. Faced with the commissioner's report, R settles: he takes over the business and pays S and T for their capital, their share of accumulated profits and an agreed value for goodwill, in instalments secured by post-dated cheques. Had S and T waited beyond three years from the date of dissolution, the suit would have been time-barred.
Documents to collect before you act
Partnership cases are won on documents. Collect what you can before you send a notice, because access to the books often stops once a dispute is out in the open.
Firm documents
- Partnership deed and all supplementary or retirement deeds
- Registrar of Firms certificate and Form A or later change filings, if registered
- PAN and GST registration of the firm
- Bank account opening forms showing authorised signatories
- Any agreement for property or premises used by the firm
Financial records
- Bank statements of the firm for at least three years
- Income-tax returns and audited accounts of the firm
- Partners' capital and current account ledgers
- GST returns and stock statements
- Loan and overdraft sanction letters
Evidence of the dispute
- Emails and WhatsApp messages between partners about money and management
- Requests to inspect books and the replies
- Records of diversion to related businesses, such as invoices or customer statements
- Notices exchanged, with proof of delivery
- Death certificate and proof of heirship, if a partner has died
Tax, GST, bank and registration formalities on dissolution
Dissolution and reconstitution have tax consequences for the firm and the partners, particularly when assets are distributed or a partner is paid out above his capital balance. The rules were restructured with the new income-tax law that took effect in April 2026, so the firm's chartered accountant should work out the tax position before the dissolution deed is signed, not after. The deed should say who bears any tax that arises.
On dissolution, the firm's GST registration must be cancelled and final returns filed, and on reconstitution the registration must be amended. Banks need to be told so that the account is frozen or its mandate changed; a partner who has retired but remains a signatory can be dragged into later disputes. For a registered firm, notices of dissolution or changes in partners should be filed with the Registrar of Firms, and public notice given under section 72.
When to settle, and what to do this week
Most partnership disputes end in a settlement, and the question is whether it comes early and cheaply or late and expensively. A suit for accounts can take years through preliminary and final decrees, and the business usually suffers in the meantime. If both sides can agree on an accountant to prepare a reconciliation of capital, drawings and profits, and on a method of valuing goodwill, a dissolution deed can often be signed within weeks. A well-drafted dissolution or retirement deed, with payment terms and security, is the goal; our page on commercial contracts and agreements explains how we prepare them.
This week, collect the deed and the documents listed above, check whether the firm is registered and whether the partnership is at will, and write down the dates that matter: when you last saw the accounts, when you were excluded, when any partner left or died. If you want an advocate to read the deed and tell you the realistic options and deadlines, the team of Advocate B.K. Singh at B.K. Singh & Associates can review the papers. Write to us through the online legal enquiry page.
Frequently asked questions
How can I dissolve a partnership firm in India?
By agreement of all partners, by written notice if the partnership is at will, automatically on events such as death or expiry of term unless the deed says otherwise, or by a court order under section 44. A dissolution deed recording the settlement of accounts is the cleanest route.
Can one partner dissolve a partnership without the consent of others?
Yes, if the partnership is at will, which means the deed fixes no term and has no clause on how it ends. Any partner can then dissolve it by written notice to all the others under section 43. Otherwise he must rely on the deed or apply to the court.
Can a partner of an unregistered firm file a case against other partners?
He cannot sue to enforce rights under the deed or the Act while the firm continues, because of section 69. But section 69(3) allows him to sue for dissolution, for accounts of a dissolved firm and to realise the dissolved firm's property.
What is the time limit to claim accounts after dissolution of a partnership?
Three years from the date of dissolution under the Limitation Act 1963. The date stated in a notice of dissolution, or fixed by the court, is therefore important, and it is risky to wait for informal talks to finish.
Can a partner be removed from a partnership firm?
Only if the deed gives the power of expulsion and the majority uses it in good faith, under section 33. The partner should be told the charges and heard before the decision. Without such a clause, a partner cannot be expelled.
What happens to a partnership firm when a partner dies?
The firm is dissolved unless the deed provides that it will continue. The heirs do not become partners automatically but are entitled to the deceased partner's share. If the survivors carry on using that share, the estate can claim subsequent profits or interest under section 37.
Do I have the right to see the accounts of my partnership firm?
Yes. Section 12(d) gives every partner the right to have access to, inspect and copy the firm's books. Refusal is a breach of the Act and is often a ground used in a suit for dissolution.
Can a partner start a competing business?
Not while he is a partner, unless the others agree. Section 16 requires him to account for and pay to the firm the profits of any competing business. After he leaves, he can compete unless he has validly agreed to a reasonable restraint.
Is arbitration compulsory if the partnership deed has an arbitration clause?
If one partner files a suit, the other can ask the court under section 8 of the Arbitration Act to refer the dispute to arbitration, and the court generally must. Urgent interim relief can still be sought from the court under section 9.
How is goodwill valued when a partnership is dissolved?
The Act does not fix a method, so the deed or the partners' agreement governs. Where they disagree, a valuer or the local commissioner in a suit values it, often on a multiple of average profits. Goodwill must be accounted for unless the deed provides otherwise.
Is a retiring partner liable for the firm's debts?
He remains liable for debts incurred before retirement. He can also be liable for later acts until public notice of his retirement is given. Giving that notice and informing the bank and major creditors protects him.
Which court hears partnership disputes in Delhi?
Suits for dissolution and accounts of ₹3 lakh and above generally go to the commercial courts in the district complexes, and those above ₹2 crore to the Delhi High Court. Smaller claims go to the civil judge. If the deed has an arbitration clause, the dispute usually goes to arbitration.
Written and reviewed at B.K. Singh & Associates
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M., with more than twenty years of practice before the Supreme Court, the Delhi High Court, district courts and tribunals across Delhi NCR. This article explains the general law as of 24 October 2026; it is not legal advice on your facts.