“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.” In a judgment interpreting the scope of Section 42 of the Indian Partnership Act, 1932, the Supreme Court has held that a partnership firm comprising more than two partners does not stand dissolved upon the death of a partner if the partnership deed contains an express clause providing for continuity. The Court dismissed a Special Leave Petition filed by Indian Oil Corporation Limited (IOCL), which had sought to justify its unilateral discontinuation of kerosene supplies to the respondent firm following the death of a majority partner.
The Bench affirmed the findings of both the Single Judge and the Division Bench of the Calcutta High Court, which had directed IOCL to continue supplies to the partnership firm, M/s Shree Niwas Ramgopal, pending its reconstitution.
The Division Bench of Justice Pankaj Mithal and Justice Ahsanuddin Amanullah observed, “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... 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.”
The respondent firm, originally a proprietorship, was reconstituted in 1989 into a partnership with three partners, Kanhaiyalal Sonthalia (55% share), and his two sons, Ramesh and Gobinda. The firm was appointed as a kerosene dealer under a dealership agreement with IOCL executed in May 1990. This agreement, read with Clause 18 of the partnership deed, stipulated that the death of a partner would not ipso facto terminate the firm. It further permitted the surviving partners to induct any competent heir of the deceased.
Following the death of Kanhaiyalal in November 2009, IOCL declined to continue the dealership beyond June 2010 unless all legal heirs joined the reconstituted partnership. The surviving partners sought to reconstitute the firm by inducting one legal heir and submitted the requisite documentation. IOCL, however, insisted on full participation or express no-objection from all heirs, prompting the writ petition.
The High Court allowed the writ, issuing a mandamus to IOCL to maintain the supply of kerosene pending proper reconstitution. The Court also left open the rights of any dissenting heirs to approach a civil court. IOCL challenged this order by way of Special Leave Petition.
Rejecting IOCL’s stance as rigid and misplaced, the Court observed, “It is a classic case where instead of acting in a just, fair and equitable manner, the statutory corporation, a state instrumentality, has acted in a high-handed manner while exercising arbitrary powers with no sense of fairness in a matter of commercial interest.”
The Court categorically held that Section 42 of the Partnership Act, which provides for the dissolution of a firm on the death of a partner, would not apply where the firm has more than two partners and the deed contains a continuity clause.
Referring to its earlier decisions and judgments of the Calcutta and Allahabad High Courts, the Court emphasised that a change in the constitution of a firm due to death does not necessarily imply its dissolution, particularly where contractual provisions and intent of the parties suggest otherwise.
The Court also interpreted Clause 1.5 of IOCL’s policy guidelines and held that the insistence on participation of all legal heirs lacked legal basis. It observed, “It is not necessary for the surviving partners to include all the heirs of the deceased partners in the partnership or to wait for their consent... The insistence of the IOCL that all the legal heirs of the deceased partner should join the reconstituted firm or give ‘No Objection Certificate’... would be contrary to the spirit of the original deed of partnership.”
While dismissing IOCL’s appeal, the Court upheld the High Court’s directions and cautioned against the adoption of hyper-technical or obstructive approaches by public corporations in matters of ongoing business, and stated, “The IOCL ought to avoid such litigations by interfering with the continuance of any running business by taking a narrow approach.”
Case Title: Indian Oil Corporation Limited & Ors. Vs. M/S Shree Niwas Ramgopal & Ors.
Case No.: Special Leave Petition (Civil) No. 1381 of 2025
Coram: Justice Pankaj Mithal and Justice Ahsanuddin Amanullah
Advocate for Petitioner: Sr. Adv. Madhavi Goradia Divan, AOR Shashwat Goel, Adv. Mala Narayan, and Adv. Isha Ray
Advocate for Respondent: Sr. Adv. Yashraj Singh Deora, AORs Rameshwar Prasad Goyal, and Pallavi Pratap, Advs. Ramanand Aggarwal, Anindo Mukherjee, Rameshwar Prasad Goyal, Pallavi Pratap, Ashag Gutgutia, Amjid Maqbooc, and Yashvi Aswani,
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