1. Partnership at will — Dissolution by notice — Outgoing partner's entitlement to share in firm assets — Valuation as on dissolution date or final decree — Sections 7, 43, 46, 48, Partnership Act, 1932. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 54 , 55 )
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2026 Supreme(SC) 1098
SUPREME COURT OF INDIA
UJJAL BHUYAN, VIPUL M. PANCHOLI, JJ.
V. Sumitra Reddy & Anr. – Appellants
Versus
K. Ranganadha Reddy & Ors. – Respondents
Civil Appeal No. 8167 of 2017
Decided On : 09-09-2026
Advocates appeared:
For Appellant(s):Mr. Ananga Bhattacharyya, AOR Ms. Devahuti Tamuli, Adv. Mr. Krishanu Barua, Adv. For Respondent(s): Mr. Krishna Dev Jagarlamudi, AOR Mr. Vishnu Kant Mundada, Adv. Mr. Arpit Kumar Mishra, Adv. Mr. Shrey Nautiyal, Adv. Mr. Ashutosh Dubey, AOR Mrs. Rajshri Dubey, Adv. Mr. Abhishek Chauhan, Adv. Mr. Amit P Shahi, Adv. Mr. Anjan Datta, Adv. Mr. Rahul Sethi, Adv. Mr. Rajendra Anbhule, Adv. Mr. Govind Kashyap, Adv. Mr. Anirban Tripathi, Adv. Mrs. Rekha Chaudhary, Adv. Mrs. Sona Khan, Adv. Mr. Lokesh Raghav, Adv. Mr. Om Prakash Yadav, Adv. Ms. Chand Trikha, Adv.
For Appellant(s):Mr. Ananga Bhattacharyya, AOR Ms. Devahuti Tamuli, Adv. Mr. Krishanu Barua, Adv. For Respondent(s): Mr. Krishna Dev Jagarlamudi, AOR Mr. Vishnu Kant Mundada, Adv. Mr. Arpit Kumar Mishra, Adv. Mr. Shrey Nautiyal, Adv. Mr. Ashutosh Dubey, AOR Mrs. Rajshri Dubey, Adv. Mr. Abhishek Chauhan, Adv. Mr. Amit P Shahi, Adv. Mr. Anjan Datta, Adv. Mr. Rahul Sethi, Adv. Mr. Rajendra Anbhule, Adv. Mr. Govind Kashyap, Adv. Mr. Anirban Tripathi, Adv. Mrs. Rekha Chaudhary, Adv. Mrs. Sona Khan, Adv. Mr. Lokesh Raghav, Adv. Mr. Om Prakash Yadav, Adv. Ms. Chand Trikha, Adv.
Upon dissolution of a partnership at will, the outgoing partner's share in the residue of assets is based on the market value at the time of assessment or realization, not the value as of the date of dissolution, which only governs the calculation of profits and losses.
Headnote:(A) Indian Partnership Act, 1932 - Sections 7, 43, 46, and 48 - Dissolution of partnership at will - Right of partners to have business wound up - On dissolution of a firm, every partner is entitled 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 according to their rights (Section 46) - Settlement of accounts requires that assets be applied first to third-party debts, then to partner advances, then to capital, and finally, the residue divided in proportion to profit-sharing ratios (Section 48). (Paras 44, 46)
(B) Valuation of Assets upon Dissolution - The right of a partner upon dissolution is two-fold: the right to settle accounts as of the date of dissolution and the right to share the residue in assets following liquidation - The date of dissolution is relevant for ascertaining profits and losses, but it does not limit the right of a partner to receive the actual market value of the residue of assets at the time of realization or assessment - Valuation of assets on a notional basis or based on book value from the date of dissolution, when realization occurs much later, would be grossly unfair and impractical. (Paras 57.1, 60)
Facts of the case:
A partnership at will was dissolved by notice. A preliminary decree was subsequently passed granting one partner a 25% share in the capital and assets. A dispute arose during final decree proceedings regarding whether the valuation of the firm's immovable property should be determined based on the market value prevailing on the date of dissolution (which occurred decades prior) or based on the value at the time of actual assessment and sale through public auction.
Findings of Court:
The court found that the remaining partners could not legally retain the assets of the dissolved firm to constitute a new partnership without purchasing those assets. The direction to sell the property via public auction and distribute 25% of the proceeds to the outgoing partner after discharging liabilities is in accordance with law and equity.
Issues: Whether an outgoing partner in a partnership at will is entitled to their share of immovable assets valued as of the date of dissolution of the firm or as of the date of assessment/realization of the property.
Ratio Decidendi: Liquidation of assets is a necessary step for the payment of shares under Section 48 of the Indian Partnership Act, 1932. While profits and losses are fixed as of the date of dissolution, the residual interest in assets is a right to the actual value realized. Restricting the valuation to the date of dissolution would cause serious prejudice to the outgoing partner and be an impractical proposition when the property is sold years later.
Result: Civil appeal dismissed.
Legal Category Hierarchy
- commercial law
- practice and procedure
Table of Contents
2. Outgoing partner claimed share of current sale proceeds; remaining partners insisted on valuation as on dissolution date and that property need not be sold. (Para 31 , 32 )
3. Civil appeal dismissed; affirmed direction for public auction of the dissolved firm's asset and payment of the partner's 25% share from sale proceeds after liabilities. (Para 61 , 62 )
4. What is a partnership at will and how is it dissolved under Section 43 of the Indian Partnership Act, 1932?
A partnership at will arises where no duration or mode of determination is fixed. Any partner may dissolve it by written notice to all other partners, and dissolution takes effect from the date stated in the notice or, if none, from communication. (Para 40 , 42 )
5. What rights does a partner have in the assets of a firm after dissolution under Sections 46 and 48 of the Act?
Each partner is entitled to have the firm's assets applied to pay debts and liabilities and to receive a proportionate share of the surplus; partnership assets include immovable property and must be liquidated for distribution unless the partners otherwise agree. (Para 39 , 44 , 46 )
6. Does the rule that a retiring partner's share is valued at the retirement date apply also to dissolution of a partnership at will?
No. On retirement, the reconstituted firm continues and the outgoing partner has no right to later profits or asset appreciation. On dissolution, different rules apply: accounts are settled by realizing assets and distributing the residue under Section 48. (Para 50 , 51 , 53 )
7. As on which date must the value of an outgoing partner's share in the assets of a dissolved partnership at will be determined?
The value is determined when the assets are assessed and liquidated, not as on the date of dissolution. The dissolution date is relevant only for settling profits and losses; the partner is entitled to a share of the sale proceeds after discharging liabilities. (Para 48 , 49 , 57 , 58 , 59 , 60 )
JUDGMENT :
UJJAL BHUYAN, J.
In this appeal, challenge has been made to the judgment and order dated 09.04.2012 passed by the then High Court of Judicature of Andhra Pradesh at Hyderabad (briefly the ‘High Court’ hereinafter) in Civil Revision Petition No. 1554 of 2011 filed by the first respondent.
2. The issue involved pertains to the share of the first respondent in the assets of the partnership firm on its dissolution. Pertinently, the issue centers around the interpretation of the provisions of Sections 46 and 48 of the Indian Partnership Act, 1932 (briefly ‘the Partnership Act’ hereinafter) in the context of Sections 7 and 43 thereof.
3. At the outset, relevant facts may be noted.
4. In the year 1964, the following persons constituted a partnership firm under the name and style of M/s Viraj Constructions:
(1) Kasireddy Lakshmi Narayana Reddy,
(2) Vallappareddy Sundara Ram Reddy,
(3) Vardhireddy Mohan Krishna Reddy,
(4) Vallappareddy Kodanda Ram Reddy, and
(5) Vallappareddy Sumitra Reddy.
4.1. Be it stated that Kasireddy Lakshmi Narayana Reddy is the father of the first respondent and the plaintiff in the original suit. Vallappareddy Sundara Ram Reddy is the father-in-law and father of appellant Nos. 1 and 2 i.e. Vallappareddy Sumitra Reddy and Vallappareddy Raja Gopal Reddy. Appellant No. 1 herself is the fifth partner of the aforesaid partnership firm.
5. The principal business of the partnership firm was carrying on construction works with the Railways. It is not in dispute that the partnership was at will. Terms and conditions of the partnership were reduced into writing in the partnership deed dated 31.12.1964.
6. A new partner, Vardhireddy Dashrat Rami Reddy, was admitted to the partnership firm on 13.12.1968 with the consent of all the partners. Accordingly, a new partnership deed dated 13.12.1968 came to be executed by and between the partners. The respective shares of profit and loss amongst the partners were divided in the following manner:
(1) Kasireddy Lakshmi Narayana Reddy- 25 percent out of 100.
(2) Vallapareddy Sundara Ram Reddy - 17 percent out of 100.
(3) Vardhireddy Dashrat Rami Reddy - 10 percent out of 100.
(4) Vardhireddy Mohan Krishna Reddy - 15 percent out of 100.
(5) Vallappareddy Kodanda Ram Reddy - 16 percent out of 100.
(6) Vallappareddy Sumitra Reddy - 17 percent out of 100.
7. In the course of its business, a landed property to the extent of Ac. 3.27 Guntas bearing survey Nos. 28/1, 28/2 and 28/3 situated at Begumpet, Hyderabad was acquired in the name of the partnership firm (though there appears to be some confusion regarding the actual date of purchase of the land, either 25.06.1966 or 05.09.1975).
8. Some of the partners mooted a proposal that if Kasireddy Lakshmi Narayana Reddy retired from the partnership firm, a promissory note for a sum of Rs. 22,500.00 towards his share would be executed. They also assured settlement of accounts as and when required. In response to such a proposal, Kasireddy Lakshmi Narayana Reddy decided to retire from the partnership firm. He circulated a letter dated 03.03.1970 to all the partners stating that he would be retiring from the partnership on and from 01.04.1970. As promised and assured, a promissory note was executed on 17.07.1970 in favour of Kasireddy Lakshmi Narayana Reddy for a sum of Rs. 22,500.00, agreeing to pay the said amount together with interest at the rate of 12 percent per annum.
9. As payment of the said amount was not made despite demand being made, Kasireddy Lakshmi Narayana Reddy instituted a civil suit being O.S. No. 128 of 1975 in the Court of Additional District Judge, Nellore for recovery of a sum of Rs. 30,457.50 being the amount due under the aforesaid promissory note dated 17.07.1970. Partners of the partnership firm contested the suit taking the stand that the partnership firm was not dissolved. Consequently, Kasireddy Lakshmi Narayana Reddy did not retire and continued to be a partner of the partnership firm. Therefore, he was not entitled to any
