Which of the following indicates a situation of compulsory dissolution of a partnership firm?
- AWhen a partner becomes insane.
- BOn the death of a partner
- CWhen the business of the firm becomes illegal.
- DWhen a partner becomes permanently incapable of performing his duties as a partner
Solution & Step-by-step Explanation
According to Section 41 of the Indian Partnership Act, 1932, a firm is compulsorily dissolved: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 (business becomes illegal).When all partners or all but one partner become insolvent.Other options like insanity (A) or permanent incapacity (D) are grounds where a partner can sue for dissolution in court (Section 44), but they do not automatically trigger compulsory dissolution. Death (B) dissolves the partnership, but surviving partners might choose to carry on the business if agreed.