SUBMITTED TO DR EQBAL HUSSAIN

The Indian Partnership Act, 1932

Registration and Dissolution of Firms (Ss. 39-71)

Submitted by:

Vaibhav Pratap Singh

B.A.LL.B. (Hons.) 2nd Semester, 2013

ACKNOWLEDGMENT

I would take this opportunity to thank the people who helped me in making this project which has been a learning experience. In that endeavour, first and foremost I would express my gratitude toward my professor of Law of Contracts Mr Eqbal Hussain. His immense knowledge and teaching skills along with her helping disposition are where all of this stemmed from. Next, I would thank my seniors in the faculty who gave us guidelines as to how to go about the research. These are the people who were always there with me in the making of this project. Heartfelt thanks to all the above-mentioned people.

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CONTENTS
Table of Cases.3 1. Registration of Firms.....4
1.1 1.2 Procedure of Registration...4-6 Effects of Non-Registration.6-10 Exceptions..11-12

1.3

2. Dissolution of a Firm...13
2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Modes of Dissolution.13-18 Consequences of dissolution ..19 Authority of Parties in Winding up.20 Liability to Share Personal Profit21 Winding up.21-22 Mode of Settlement of Accounts ..22-24 Refund of Premium....24-25 Agreement in Restraint of Trade26-27 Sale of Good Will .27-29

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TABLE OF CASES

1. Crawshay v. Maule, (1818) 1 Swanst at p.508; 18 RR at p. 132 2. Dev Sharma v. Laxmi Narain, AIR 1956 Punj 49 3. Garner v. Murray, (1904) LT 665 4. J.R and O.M Contractors v. I.T. Commissioner, AIR 1967 AP 99 5. Jagsish Chandra Gupta v. Kajaria Traders (India) Ltd., AIR 1964 SC 1882 6. Kerala Aeroconut Works v. Ramkrishna & Sons, AIR 1982 Ker 144 7. Moss v. Elphicck, 1910 102 LT 639; 1910 1 KB 846 8. P. Ananda Rao v. G. Raja Rao, AIR 1976 AP 256 9. Re Bourne, Bourne v. Bourne1, 906 95 LT 131 10. Snow v. Milford, 1868 18 LT 142 11. Talakchand Kanji Vora v. Keshavlal AIR 1973 Cal 279 12. Umarani Sen v. Sudhir Kumar, AIR 1984 Cal 230

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Registration of Firms
Procedure of Registration:
The Partnership Act authorizes the State Governments to appoint Registrars of Firms for the purpose of registering partnership firms 1. Accordingly an office of the Registrar of Firms exists in every state2. Registration is obtained by filling an application with the Registrar. The application must be on the prescribed form and accompanied by the prescription fee. The application has to state the following particulars3: a) The name of the firm b) The place or principal place of business of the firm c) The names of any other places where the firm carries on business d) The date when each partner joined the firm e) The names in full and the permanent address of the partners f) The duration of the firm The application must be signed and verified by each partner or his duly authorized agent4. If a partner refuses to sign the application form, registration can only be achieved by dropping his name from the form.

1 2

Section 57 He is a public officer within the meaning of section 21 of the Indian Penal Code. 3 Section 58 4 Section 58 (2)

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If the Registrar is satisfied that the requirements as to registration have been complied with, he registers the firm and enters its name in the Register of Firms5. He then issues under his hand a certificate of registration.

Change of Particulars [S.60]

Any change of name or location of the principal place of business requires almost a new registration and, therefore, statement to that effect signed by all partners and accompanied by the prescribed fee should be set to the Registrar. When the business of the firm is discontinued at one place or extended to a new place6 or when a partner changes his name or permanent address7 or when the firm is dissolved or a partner retires or joins or a minor, having been admitted elects to become or not to become a partner8, the Registrar should be informed.

Penalty for false particulars

The statements in the application form or amending forms and notices sent tot the Registrar should be true and complete. If any person knowingly, or without belief in its truth, furnishes false or incomplete information, he is lliable for penalty9.

Section 59. Filling of particulars makes an effective registration, even if the Registrar delays his work, J.R and O.M Contractors v. I.T. Commissioner, AIR 1967 AP 99 6 Section 61 7 Section 62 8 Section 63 9 Which may extend to three months of imprisonment or fine or both

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Rules of Evidence [s.68]

Any statement, notice or intimation recorded with the Registrar by any person is a conclusive proof against him of the fact stated10. Entries relating to a firm in the Register of Firms shall be proved by producing certified copies of the entries11.

Effects of Non-Registration
Section 69 reads: Effects of Non-Registration- (1) No suit to enforce the right arising from a contract or constituted but this Act shall be instituted in any Court by or on behalf of any person suing as a partner in the firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against a third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners on the firm.

10 11

Section 68 (1) Section 69 (2)

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(3) The provisions of sub-section(1) and (2) shall apply to also a claim of set off or other proceedings to enforce a right arising from a contract, but shall not affecta) the enforcement of any right to sue for the dissolution of the firm or for the accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm; or b) the powers of an official assignee or Court under the Presidencytowns Insolvency Act 1920 (5 of 1920) to realise the property of an insolvent partner. (4) This section shall not applya) to firms or partners in the firms which have no place of business in [the territories to which this Act extends], or whose place of business in [the said territories], are situated in areas to which, by the notification under [section 56], this Chapter does not apply; or b) to any suit or claim of set off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or, outside the Presidency-towns, is not of a kind specified in Schedule II to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or otter proceeding incidental to or arising from such suit or claim.
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Registration of firms is not compulsory. It is optional and there is no penalty for non-registration. Yet registration becomes necessary at one time or the other, because section 69 seriously cuts short the capacity of an unregistered firm and its partners to sue. The firm cannot, for example, sue any person for the price of the goods supplied to it. This disability is too great a compelling force to bring the firm to the Register. The effect of non-registration may be now stated.

1) Suit between the partners and the firm

A partner of an unregistered firm cannot sue the firm or his present or past copartners for the enforcement of any right arising from the contract or conferred by the Partnership Act. Only a partner of a registered firm, whose name appears in the registration, can sue for enforcement of such rights.

This difficulty may be overcome by getting the firm registered before the action is brought. But once the dispute between the partners has arisen, all of them might not sign the application form, and consequently the firm may remain unregistered. It is, therefore, advisable to get the firm registered as soon as it is constituted. In P. Ananda Rao v. G. Raja Rao12 , on the death of a partner, his interest developed upon his sons who became partners. But this change was not registered with the Registrar and therefore for the purpose of the suits, the firm
12

AIR 1976 AP 256

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became an unregistered firm. The sons found out that the other partner sold his interest to an outsider. This was a breach of the partnership agreement which provided for the sale only to the other partners. The sons attempted to enforce the partnership agreement, but were not allowed. Their connection that they should be allowed to sue as the co-owners of the property was not accepted. Thus the only chance was dissolution and to realise the assets of a dissolved firm. 2) Suits between Firm and third parties An unregistered firm cannot sue any third party for the enforcement of any right arising from contract. A suit can be brought only by or on behalf of a registered firm and that also by the persons whose names appear as partners in the register of firms. This difficulty can once again be overcome by registering the firm before an action is brought. The action of an unregistered firm is however, liable to be dismissed and it cannot be rectified by subsequent registration. A fresh suit will have to be filed after the registration provided that it is still within the period of limitation. The above two disabilities also apply to a claim set-off or other proceedings to enforce a right arising from a contract. A claim of set-off means that if, for example, an unregistered firm is sued by a third party to recover a sum of

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money, the firm cannot say that the money owing to the third party should be set-off against the claim. The words other proceedings had created some difficulty as to their import, particularly in reference to the question whether they included arbitration proceedings. The Supreme Court has now by its decision in Jagsish Chandra Gupta v. Kajaria Traders (India) Ltd.13 , settled the controversy. A clause in a deed of partnership provided that in case of any dispute between the partners; the matter will be referred to arbitration. A dispute having arisen, one of the partners appointed an arbitrator to which the other gave no response. An action was then commenced to enforce the arbitration clause of the agreement. The other partner contended that the firm was unregistered and the suit must be dismissed. The Supreme Court held that the suit was not maintainable. This is a welcome decision. If arbitration proceedings were allowed, unregistered firms would, by providing for arbitration in the partnership deed, escape the disability contained in the section.

13

1965 1 SCJ 249; AIR 1964 SC 1882

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Exceptions
The section however admits the following exceptions. Firstly, as unregistered firm and the partners can bring an action for the dissolution of the firm or the accounts of a dissolved firm. They can also enforce any right or power to realise the property of a dissolved firm. Thus the disability to sue disappears with the dissolution of the firm. Secondly, the official assignee, the receiver or the Court acting for an insolvent partner, may bring an action for the realisation of the insolvents share, whether the firm is registered or not14. Thirdly, an unregistered firm or its partners may sue or claim set-off where the subject matter of the suit does not exceed rupees one hundred in value15. Fourthly, statutory and non-contractual rights are outside the scope of the disability inflicted by the section. If a person damages the property of the firm, he can be sued, whether the firm is registered or not. An unregistered firm has been allowed to enforce the payment of a cheque in the capacity of a payee, it being a statutory right under the Negotiable Instruments Act16. A similar firm

14 15

Section 69(2)(b) Section 69(4)(b) 16 Kerala Aeroconut Works v. Ramkrishna & Sons, AIR 1982 Ker 144

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was allowed to sue a carrier for the loss of goods for which the firm was a bailee, it being a statutory right under section 180 of the Indian Contract Act17. Lastly, third parties can always sue the firm whether it is registered or not. The disability is that of the firm and not of the people outside it.

17

Umarani Sen v. Sudhir Kumar, AIR 1984 Cal 230

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Dissolution of a Firm
When a firm is put to an end as between all the partners, it is called the dissolution. Section 39 declares: Dissolution of a Firm- The dissolution of a partnership between all the partners of a firm is called the "dissolution of the firm". Thus dissolution is something different from the retirement of a partner, because in retirement, the business is continued by one or more of the partners. Where immediately after dissolution, the firm is reconstituted and the business is resumed by some of the partners, even if in the same name and place, that remains a dissolution.

Modes of Dissolution
A firm may be dissolved by any of the following ways:

1. By Consent [S.40]
A firm may be dissolved at any time with the consent of all the partners. This applies for all cases whether the firm is for a fixed period or at will. 2. By Agreement [S.40] A firm may be dissolved in accordance to the contract between the partners. The contract providing for the dissolution may be contained in the partnership deed itself or in a separate agreement.
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3. Compulsory Dissolution [S.41] A firm is dissolved (a) by the adjudication of all the partners or of all the partners but one as insolvent, or (b) by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership :

Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings. 4. Contingent Dissolution [S.42] A firm is dissolved on the happening of any of the following contingencies, provided that there is no agreement on the contrarya) if the firm is constituted for a fixed period, by the expiry of that term. b) If the firm is constituted to carry out one or more adventures or undertakings, when they are completed. c) by the death of a partner. d) by the adjudication of a partner as insolvent.

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5. By Notice [S.43]
When a partnership is at will, which means partnership, the duration of which is not fixed, it may be dissolved at any time by any partner by giving a notice of his intention to dissolve it. The notice should be in writing and signed by the partner giving it and should be served upon all the partners. The firm is dissolved as from the date mentioned in the notice or, if no date is mentioned, as from the date of communication of the notice. But where a partner gives notice at an importune moment or at a time when the dissolution will give him some advantage over the other partners, the court may hold him until the pending transactions are completed and the liabilities are paid off18 . A partnership which is not at the will cannot be determined by notice.

Thus in Moss v. Elphicck19 a deed, constituting a partnership of two persons for an unidentified time, provided that the firm could be terminated by mutual agreement only. It was held that the notice of dissolution given by one of the partners was invalid as the operation of Section 43 was excluded by agreement to the contrary.

18 19

Crawshay v. Maule, (1818) 1 Swanst at p.508; 18 RR at p. 132 1910 102 LT 639; 1910 1 KB 846

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In Talakchand Kanji Vora v. Keshavlal20 the Supreme Court has expressed the opinion that in a partnership consisting of two partners only, if there is any provision regulating the mode of retirement, it will in essence be an agreement as to dissolution. The firm will not be at will and the provisions regulating the retirement will have to be followed for dissolution. 6. Dissolution by Court [S.44] Section44. Dissolution By The Court- At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely :(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner; (b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner; (c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business regard being had to the nature of the business; (d) that a partner, other than the partner suing, wilfully or persistently commits breach of agreements relating to the management of the affairs of the firm of the conduct of its business; or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;
20

AIR 1973 Cal 279

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(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provisions of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue due by the partner; (f) that the business of the firm cannot be carried on save at a loss; or (g) on any other ground which renders it just and equitable that the firm should be dissolved.

By section 44 the court is empowered to order the dissolution of a firm at a suit of a partner in the following cases: a) Insanity- When one of the partners has become a person of unsound mind, any partner, including the insane, may apply for dissolution. b) Permanent Incapacity- When a partner, other than the partner suing becomes permanently incapable of performing his duties as a partner, any of the partners may apply for dissolution. The incapacity should be of permanent nature. In Whitwell v. Arthur21 a partner suffered from an attack of paralysis and that would be a strong ground for dissolution. But the medical evidence showed that the attack was only temporary and that he already was improving. Dissolution was not allowed.
21

1865 147 RR 73 ; 55 ER 826

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(c) Misconduct- When a partner other than the partner suing is guilty of conduct which is likely to affect prejudicially the conduct of the firm, the Court may order dissolution. In Snow v. Milford22 a partner of the firm of bankers committed adultery with several women in the city where the business was carried on and his wife had left him. The other partners applied for dissolution on this ground. The court disallowed saying that the misconduct was not likely to affect the business of bankers. (d) Persistent Breach of Agreement- when a partner, other than the partner suing, persistently commits breach of agreements relating to the management of the firm or otherwise conducts himself in matters relating to the business that is reasonably not practicable for the other partners to carry on the business in partnership with him. (e) Transfer of Interest- when a partner, other than the partner suing, has transferred the whole interest of the firm to a third party, or has allowed his interest to be charged, or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue, the court may order dissolution. (f) Perpetual losses- when the business of the firm cannot be carried on save at a loss, the court may dissolve it. The whole purpose of a firm is to make profit.

22

1868 18 LT 142

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(g) Just and Equitable- when on any grounds the court thinks that it dis just and equitable to dissolve the firm, it may dissolve it.

Consequences of dissolution Public notice and liability for acts done after dissolution [S.45]
Section45: Liability for Acts of Partners Done After Dissolution(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm, if done before the dissolution, until public notice is given of the dissolution : Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner. (2) Notices under sub-section (1) may be given by any partner. The first step in the process of dissolution of a firm is to give a public notice of dissolution. This is necessary to terminate the liabilities of the partners by holding out and of the firm by estoppels, for without it, the firm and every partner is liable to third parties for any act done by them which would have been an act of the firm if done before dissolution.
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Authority of Parties in Winding up [S. 47]

Section 47: Continuing Authority of Partners For Purposes of Winding Up. After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise : Provided that the firm is in no case bound by the acts of a partner who had been adjudicated insolvent, but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent. The commencement of dissolution does not at once terminate the authority of the partners. The authority continues firstly, so far as it is necessary to wind up the affairs of the firm. Secondly, to complete the transaction begun but not not finished at the time of dissolution. In Re Bourne, Bourne v. Bourne23 a partnership having been dissolved by the death of a partner, the surviving partner deposited the firms title deeds with a bank to secure an overdraft. This was held to be binding upon the representative of the deceased partner.

23

1906 95 LT 131

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Liability to Share Personal Profits [S. 50]

Section 50: Personal Profits Earned After Dissolution- Subject to contract between the partners, the provisions of clause (a) of section 16 shall apply to transactions by any surviving partner or by the representatives of deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up: Provided that where any partner or his representative has bought the good will of the firm, nothing in the section shall affect his right to use the firm-name. Where a firm is dissolved on the account of the death of a partner and if, before its affairs are completely wound up, any transaction is undertaken by the surviving partner or the representative of the deceased partner, which brings him to some advantage at the expense of the firm, he is bound to share it with the other partners under the principle of Section 16(a).

Winding up [s. 46]

Section 46: Right Of Partners To Have Business Wound Up After Dissolution-On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or which representatives according to their rights.
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On the dissolution of a firm every partner or his representative has the right to have the property of the firm applied in payments of the debts and liabilities of the firm and to have surplus distributed among the partners with their rights.

Mode of Settlement of Accounts [S. 48]

Section 48: Mode Of Settlement Of Accounts Between PartnersIn settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits; (b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order : (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateably what is due to him on account of capital; and
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(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. The mode of payments of accounts is laid down in section 48. The section lays down the fundamental principles, first as to payment of losses, and second as to application of assets. As to losses, this section says that losses including the deficiencies of capital, shall be paid first out of the profits, next out of the capital and lastly, if necessary, by the partners individually in the proportion they were entitled to share the profits. As to the application of the assets, the section says that the assets, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: First: In paying the debt of the firm to the third parties Second: In paying to each partner rateably what is due to him from the firm in for the advances as distinguished from capital, that is to say loans given by the partner to the firm are paid after paying the outside creditors. Partners claims on the firm are not equated to the claim of the third parties. Third- In paying each partner what is rateably due to him on the account of capital.

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Fourth- The residue, if any shall be divided in the same proportions in which they share profits. Some of these rules found application in Garner v. Murray24: Under the terms and conditions of the partnership, the partners contributed the capitals in unequal shares, but they shared the profit in equal shares. The firm was dissolved and after paying the outside creditors and the partners advances, the assets were not sufficient to pay back the partners capital. Two partners contributed their shares of deficiency bit the third failed to do so. It was held that firstly, that every partner is bound to contribute equally to make up the deficiency and secondly, that if a partner failed to contribute his share, the other partners were not bound to make contributions in the respect of that default.

Refund of Premium [S. 51 and 52]

Section 51: Return of Premium on Premature Dissolution- Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term otherwise than by the death of a partner, he shall be entitled to repayment of the premium or of such part thereof as may be reasonable, regard being had to the terms upon which he became a partner, and to the length of time during which he was a partner, unless (a) the dissolution is mainly due to his own misconduct, or (b) the dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it.
24

(1904) LT 665

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Section 52: Rights Where Partnership Contract Is Rescinded For Fraud or Misrepresentation- Where a contract creating partnership is rescinded on the ground of fraud or misrepresentation of any of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitle (a) to a lien on, or right of retention of, the surplus of the assets of the firm remaining after the debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm and for any capital contributed by him; (b) to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm; and (c) to be indemnified by the partner or partners guilty of fraud or misrepresentation against all the debts of the firm. According to section 51 no refund is possible in the following cases: 1. Where the firm is not constituted for a fixed period. 2. Where the firm is not dissolved by the unexpected death of a partner. 3. Where the dissolution is mainly due to the misconduct of the new partner himself 4. Where the dissolution is in pursuance of an agreement between the partners which contains no provisions for the return of the premium or any part of it.

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Agreement in Restraint of Trade [Ss. 53 & 54]

Section 53: Right to Restrain From Use of Firm-Name or Firm-PropertyAfter a firm is dissolved, every partner or his representative may, in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firmname or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up: Provided that where any partner or his representative has brought the goodwill of the firm, nothing in this section shall affect his right to use the firm-name. Section 54: Agreements In Restraint Of Trade- Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits and notwithstanding anything contained in section 27, of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable. Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm. The agreement shall be valid: a) if it specifies period or local limits of restraint b) if the restrictions imposed are reasonable.
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In Dev Sharma v. Laxmi Narain25 , two partners carried out an agency of mill. They agreed that on the termination of the agency, the firm would be dissolved and neither partner would undertake the same agency. The agency was terminated and the firm was dissolved. One of the partners then obtained a renewal of agency in his favour. The other partner sued to restrain him in terms of the agreement, but the action failed. Neither of the partners was carrying out the business if the firm which came to an end on the determination of the agency and therefore, the agreement was necessarily for nobodys protection.

Sale of Good Will [S. 55]

Section 55: Sale of Goodwill after Dissolution. (1) In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or along with other property of the firm. (2) Rights of Buyer and Seller of Goodwill. Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business, but, subject to agreement between him and the buyer, he may not (a) use the firm-name,

25

AIR 1956 Punj 49

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(b) represent himself as carrying on the business of the firm, or (c) solicit the custom of persons who were dealing with the firm before its dissolution. (3) Agreements in Restraint of Trade. Any partner may upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits, and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 such agreement shall be valid if the restrictions are reasonable.

On the dissolution of a firm, the good will, being an important asset, is included in the assets of the firm. The good will may be sold separately or along with the properties of the firm. After selling the good will of the firm, every partner is at a liberty to carry on a business competing with that of the buyer. He may also advertise such business and attract customers. But he cannot do the following: 1. He cannot use the name of the firm. 2. He cannot represent that he is carrying on the business of the firm, he cannot say to the customers that he was the one who carried on the old business.

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3. He cannot solicit the customs of persons who were dealing with the firm before dissolution.

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