Partnership Firm Disputes: Partners’ Rights and Legal Remedies

The governing law

Partnership firms are governed by the Indian Partnership Act, 1932 and, above all, by the partnership deed. Many disputes can be resolved by reading the deed carefully.

Common causes of dispute

• Unequal contribution of capital or effort
• Withdrawal of money without consent
• Non-sharing of accounts
• A partner starting a competing business
• Exit, retirement or death of a partner

Why registration matters

Under Section 69, an unregistered firm and its partners face restrictions in suing to enforce contractual rights against third parties or each other. Registering the firm with the Registrar of Firms avoids this difficulty.

Dissolution

A partnership at will may be dissolved by any partner giving written notice (Section 43). A court may also dissolve a firm on grounds such as misconduct, persistent breach of the agreement or where carrying on the business is only possible at a loss (Section 44).

Rendition of accounts

On dissolution or retirement, partners may seek settlement of accounts. A suit for dissolution and accounts is a common remedy.

Arbitration and settlement

Many deeds contain an arbitration clause. Where they do, the dispute may have to be referred to arbitration. Negotiated exits are often faster and less costly.