Partnership Firm With More Than Two Partners Doesn't Dissolve On Death Of One Partner If Deed Provides Continuity : Supreme Court

The Supreme Court observed that a partnership firm with more than two partners does not dissolve upon the death of one partner, provided the partnership deed contains a clause allowing the firm's continuity.

The bench comprising Justices Pankaj Mithal and Ahsanuddin Amanullah heard the case where the Appellant-Indian Oil Corporation stopped the supply of kerosene to the Respondent-Partnership Firm (with three partners) just because one of its partners died. The partnership deed contains a clause that in the event of the death of one of the partner, the firm will not cease to function; rather, it shall continue to carry on the business, and the surviving partners may admit any of the competent heirs of the deceased partner to the partnership so as to reconstitute it.

Aggrieved by the Calcutta High Court's decision directing it to resume the supply to the firm, the Appellant approached the Supreme Court, arguing that the firm stands dissolved upon the death of the partner.

Affirming the High Court's decision, the judgment authored by Justice Mithal observed that though it is correct that a partnership firm ceases to function upon the death of a partner, this rule would not apply when there exist more than two partners.

“It is settled in law by virtue of Section 42 of the Partnership Act, 1932 that the partnership will stand dissolved inter alia on the death of the partner but this is applicable in cases where there are only two partners constituting the partnership firm. The aforesaid principle would not apply where there are more than two partners in a partnership firm and the deed of partnership provides otherwise that the firm will not stand automatically dissolved on the death of one of the partners.”, the court observed.

“In the case at hand, the partnership consisted of three partners and the deed of partnership, in unequivocal terms, provided that the death of a partner shall not cause discontinuance of partnership and the surviving partners may continue with the business. Therefore, the principle laid down under Section 42 of the Partnership Act would not be applicable and the partnership would continue despite the death of one of the partners.”, the court added.

Also, the Court noted that the Appellant-IOCL must not act arbitrarily to disrupt the business activities and justified the High Court's decision directing IOCL to continue the supply of kerosene to the existing partnership firm till it is properly reconstituted, subject to other orders.

Accordingly, the appeal was dismissed.

Case Title: INDIAN OIL CORPORATION LIMITED & ORS. VERSUS M/S SHREE NIWAS RAMGOPAL & ORS.

Citation : 2025 LiveLaw (SC) 709

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Appearance:

For Petitioner(s) Ms. Madhavi Goradia Divan, Sr. Adv. (argued by) Ms. Mala Narayan, Adv. Mr. Shashwat Goel, AOR Ms. Isha Ray, Adv.

For Respondent(s)

(R.1 to R.3) Mr. Yashraj Singh Deora, Sr. Adv.(argued by) Mr. Ramanand Aggarwal, Adv. Mr. Anindo Mukherjee, Adv. Mr. Rameshwar Prasad Goyal, AOR

(R.7 & R.8) Ms. Pallavi Pratap, AOR(argued by) Mr. Ashag Gutgutia, Adv. Mr. Amjid Maqbooc, Adv. Ms. Yashvi Aswani, Adv.