Partnership Firm Disputes: Getting Your Accounts, Dissolving the Firm or Making a Clean Exit

What you're really asking the court for

Most partnership cases ask the court for some mix of three things. A full account of the firm's money. Dissolution of the firm. And payment of your share once the accounts are settled. Nearly every case also asks for interim orders, so nobody empties the bank account or sells off the stock while the suit is pending. The law behind it is the Indian Partnership Act, 1932, read with the Code of Civil Procedure, 1908 (CPC).

A partnership firm isn't a company. It has no legal existence separate from its partners, and every partner acts as agent of the others for the firm's business. That's why a falling-out between partners does damage so fast. One partner can still sign cheques, take orders and collect payments while the other is locked out. So the court's first job is to stop the bleeding. Then it works out, from the books, who owes what to whom.

We're talking here about ordinary partnership firms under the 1932 Act. That's the set-up most traders, manufacturers, contractors, distributors and family businesses in Delhi NCR use. A limited liability partnership (LLP) falls under a different law, the Limited Liability Partnership Act, 2008, and its internal fights go a different way. If your business is a private limited company, a dispute between shareholders usually belongs either on our page on shareholders' agreement disputes or, for oppression and mismanagement, before the NCLT. That's covered on ncltlawyers.in.

Does it count as a commercial dispute?

In most cases, yes. Section 2(1)(c) of the Commercial Courts Act, 2015 lists the disputes that count as commercial, and clause (xv) is 'partnership agreements'. So a dispute arising from the deed of a trading, manufacturing or service firm is commercial, and if it's worth Rs 3 lakh or more, it goes to a Commercial Court. That Rs 3 lakh is the 'specified value' under Section 2(1)(i), fixed by the 2018 amendment.

Valuing a partnership suit is harder than it sounds, because at the start you often have no real idea what your share is worth. Section 12 of the Act tells you how to value it. In a suit for accounts, you state the amount you reasonably estimate will be found due to you, and that figure decides the court and the court fee. Courts look at substance, though. A valuation kept artificially low to stay in a particular court tends to get questioned. Our page on which court hears your case covers value and jurisdiction in more depth.

The sections that settle most partner fights

Firm never registered? Section 69, and the way around it

Plenty of Delhi NCR firms never went near the Registrar of Firms. Others registered years ago and never touched the entry again when partners changed. Expect the other side to reach for Section 69 straight away. It's the standard opening move. Their line will be that you can't sue, because the firm isn't registered or because your name isn't shown as a partner. In a firm that's still running, that point can kill a suit for profits, or one to enforce a clause in the deed.

Section 69(3) is what rescues most cases. Even in an unregistered firm, a partner can still sue for dissolution, for accounts of the dissolved firm and to realise its property. So if the relationship is finished for good, the safer course is often to dissolve first. In a partnership at will, a notice under Section 43 does that. Then you sue for accounts and your share. When Advocate B.K. Singh reads a draft partnership plaint, the first thing he checks is whether it survives a Section 69 objection on its own words. A plaint that tries to enforce the deed in a running unregistered firm practically invites an application for rejection at the very first hearing. Better to fix it before filing.

There's a separate problem with outsiders. An unregistered firm can't sue its own customers for dues either. That has nothing to do with the fight between partners, but it bites. If you're still working together and the real issue is money owed by third parties, register the firm and bring the register up to date with today's partners before anyone files. Registration after filing generally won't save the suit.

What partners usually fight about

• Money taken out of the firm. One partner draws cash, runs personal expenses through the firm, or moves funds to a relative's account. Then the ledger shows 'drawings' nobody ever agreed to.
• Books kept from a partner. The working partner holds the accounts, the Tally data and the bank login. The sleeping or financing partner gets one figure a year from the accountant, and that's it.
• Competing business. A partner opens a new firm or proprietorship in the same line and quietly shifts customers, suppliers and staff across. Section 16 makes him account for the profit he earns that way.
• Retirement without settlement. A partner leaves, signs a retirement deed in a rush, and is then paid only his capital account. Nothing for goodwill, stock or receivables, or for property that's gone up in value since it was bought.
• Expulsion or lock-out. The majority changes the locks or simply tells a partner he's out. Unless the deed gives a power of expulsion and it's used in good faith, Section 33 says the expulsion isn't valid.
• Death of a partner. The heirs want the share. The surviving partners say the firm carries on and the heirs only get a fixed sum. Much of this turns on what the deed says about death.
• Property in a partner's name. Land, a shop or a vehicle was bought with firm money but registered in one partner's name. Now he says it's his.

Getting out without shutting the firm

You don't always have to dissolve the firm to leave it. Section 32 allows retirement with the consent of all partners, in the way the deed provides, or by written notice where the partnership is at will. The firm carries on with the rest of the partners, and what you're owed is the value of your share as it stood on the day you walked out.

And that value is where the fight usually is. The continuing partners tend to offer whatever's in your capital account in the last balance sheet. That figure often ignores goodwill. It also misses the true value of stock and machinery, receivables due next quarter, and any property still shown at its old purchase price. A fair settlement looks at what the business is really worth on the date you retire. A court asked to settle the accounts will do the same.

Until you're paid, Section 37 works for you. If the others keep using your money in the business, you can claim either the profits fairly attributable to your share or interest at 6 percent a year on it. Don't sign a retirement deed that says 'full and final settlement' until you've seen the accounts and have the figure in writing. Give public notice of your retirement under Section 72, too. Until you do, outsiders can hold you liable for the firm's later dealings.

If a partner has died

Section 42 says death dissolves the firm, unless the deed provides otherwise. Most professionally drafted deeds do. Usually the survivors carry on, and the deceased's share is paid to his legal representatives, or one of them joins as a partner. Look at that clause before you say anything to anybody.

Heirs usually hit a wall. They don't have the books, the bank won't discuss the account with them, and the surviving partners keep insisting that the share is worth very little. If the firm stood dissolved on death, the heirs can sue for accounts of the dissolved firm, and the three years under Article 5 of the Limitation Act run from the date of death. If the firm continued, they claim the share under the deed and Section 37. Either way you'll need a succession certificate or other proof of legal heirship sooner or later. Start that paperwork early, because it takes time.

From notice to decree, the usual path

This is how it usually goes in a Delhi NCR commercial court. Not every case needs every step. Many settle at the notice or mediation stage, once the accounts are finally on the table.

1. Get the records first

   Before anyone hears that a case is coming, get copies of the deed, the last three to five years of balance sheets and income tax returns, bank statements and GST returns. If you still have a login, download the statements today. Records tend to vanish once a dispute is out in the open.

2. Send a written notice

   The notice puts your position on paper. You demand inspection of the books under Section 12, demand accounts, give notice of retirement or dissolution if that's what you've decided, and warn against withdrawing firm funds. In a partnership at will, the Section 43 notice of dissolution fixes the date of dissolution. That date matters later. Limitation and the accounts both hang on it.

3. Decide if you need urgent relief

   If money is leaving the firm's account or stock is being moved, you may need an injunction at once. A suit that genuinely seeks urgent interim relief can be filed without going to mediation first, but the urgency has to show on the face of the plaint. No real urgency? Then mediation comes first.

4. Pre-institution mediation under Section 12A

   Without urgency, Section 12A of the Commercial Courts Act makes you mediate before filing, through the Legal Services Authority. It runs for three months, extendable by two with consent, and that time doesn't count against limitation. A settlement reached here is binding and can be enforced like an arbitral award. Take it seriously. Our page on pre-institution mediation explains how it works.

5. File the suit with every document

   The plaint asks for dissolution (or a declaration that the firm already stands dissolved), accounts, your share and interim relief. Commercial suit rules make you file every document in your power with the plaint, plus a statement of truth. The court fee valuation rests on your estimate of what will be found due. Estimate honestly.

6. Interim orders and the defence

   Urgent applications about bank accounts, books, receivers and the competing business get decided early, often at the first or second listing. The other partners have 30 days from summons to file their written statement. That can stretch to 120 days at the outside. Miss that and the right is gone.

7. Preliminary decree and taking accounts

   If the court finds there was a partnership and it should be dissolved, it passes a preliminary decree under Order XX Rule 15. That decree declares shares, fixes the date of dissolution and directs accounts. A local commissioner, often a chartered accountant or a retired judicial officer, then takes the accounts under Order XXVI Rule 11, and that part can be slow.

8. Final decree and recovery

   Then comes the money. Once the commissioner reports and the objections are dealt with, the court passes a final decree saying what each partner pays or gets. If the paying partner won't pay, the decree is enforced in execution, by attaching bank accounts, property and other assets.

Keeping the money safe while the case runs

Interim relief is often where a partnership case is really decided, because the final decree is only worth whatever is left in the firm by the time it's passed. The usual orders are injunctions under Order XXXIX of the CPC. They stop a partner from withdrawing money or operating the bank account alone, from selling firm property, or from steering customers to another business. Courts also order joint operation of the account, or two signatures for payments above a set amount. Our page on urgent injunctions explains what the court wants to see.

Where the partners can't run anything together, the court can appoint a receiver under Order XL of the CPC to take charge of the books, the stock or the whole business. It's a strong order. Courts use it with care, usually where there's a real risk of loss or the business has ground to a halt. The court receiver page explains when it's granted and how the receiver reports back.

In partnership files that reach Advocate B.K. Singh, proving the partner misbehaved is rarely the hard part. The problem is delay. The client waited months after the first warning sign, and by the time the case was filed the account had been run down and the stock sold. A partner who moves within days, with bank statements showing the withdrawals, has a much better chance of an order that actually protects the money.

How the accounts get settled in the end

Once the firm is dissolved, Section 48 sets the order in which money is applied. Losses, including any shortfall of capital, come first out of profits, then out of capital, and finally from the partners personally in their profit-sharing ratio. The assets go first to the firm's debts to outsiders. Outsiders first, always. Next come partners' advances (which aren't the same as capital), then each partner's capital, and only after all that is whatever's left split in the profit-sharing ratio.

Goodwill is a firm asset. It's valued and shared unless the deed says otherwise. Section 55 allows it to be sold, alone or with the rest of the property, and quite often the parties agree that one side keeps the business and pays the other his share of its value. Immovable property bought with firm money is firm property even if it's in one partner's name. It comes into the accounts at today's value, not the old book value.

The local commissioner goes through the books, the bank statements and each side's explanations, and files a report. Either side can object, and usually somebody does, so the court hears the objections and decides them before it passes the final decree. One habit helps a lot. Keep a running note of every unexplained withdrawal and every disputed entry, with dates, because it makes the commissioner's job quicker and the result more accurate.

Time and costs, stage by stage

Which court, and where

Territory comes first. Section 20 of the CPC lets you sue where the defendant partners live or work, or where the cause of action arose. With a partnership, that's normally the place the firm trades from. Some firms straddle the border, with a factory in Ghaziabad and an office in Delhi, say. Then you get to pick. Pick where the money and records are, because that's where an interim order has to work.

Next, value. Delhi splits commercial suits at Rs 2 crore. Up to that figure, the suit goes to the District Judge (Commercial Court) in whichever district complex has jurisdiction, be it Tis Hazari, Saket, Patiala House, Karkardooma, Rohini or Dwarka. Over it, the Delhi High Court's Commercial Division hears the suit on its original side. There's been a proposal since late 2025 to raise the district court ceiling. Confirm the current figure before you file. Our pages on Delhi's district commercial courts and the Delhi High Court Commercial Division have more.

Across the border in UP and Haryana, each district has a designated Commercial Court at District Judge level. Around Delhi that mostly means Ghaziabad, Gautam Buddh Nagar (Surajpur), Gurugram and Faridabad. Appeals lie to the Commercial Appellate Division of the Allahabad High Court, or to the Punjab and Haryana High Court. Under Rs 3 lakh? Not commercial. That dispute goes to the ordinary civil court.

What if the deed has an arbitration clause?

Most printed partnership deeds have one. If yours does and you file a suit anyway, the other partners can apply under Section 8 of the Arbitration and Conciliation Act, 1996, before they file their first statement on the substance of the dispute. The court will ordinarily send the matter to arbitration. Disputes over accounts, dissolution and shares are generally treated as arbitrable.

The court still has a role. Interim protection under Section 9 of the Arbitration Act comes from the court, and if the partners can't agree on an arbitrator, the High Court can appoint one under Section 11. We deal with those petitions on arbitrationlawyer.in. And if both sides are happy to stay in court, the clause can be waived by conduct. That happens, for instance, when the defendant files a full defence without asking for a reference.

What to bring to the first meeting

Mistakes that cost partners real money

• Signing a 'full and final' retirement deed in a hurry. Once it's signed, it's hard to reopen unless you can show fraud or coercion. Get the figure, and how it was worked out, in writing first.
• Waiting too long. Article 5 gives you three years from dissolution to sue for accounts of a dissolved firm. People lose track of when the firm was actually dissolved and find out too late. Our guide on limitation for money claims explains how the time is counted.
• Suing to enforce the deed in an unregistered firm. Build the case around dissolution and accounts instead. Section 69 doesn't bar those.
• Taking matters into your own hands. Pulling money out yourself 'to even things up', or locking your partner out, hands the other side a counter-claim. It also costs you credibility with the judge.
• Forgetting public notice. If you retire and don't give public notice under Section 72, you can stay liable to outsiders who keep dealing with the firm.
• Filing without the books. Commercial suit rules make you disclose the documents in your power along with the plaint. Bringing them in later needs the court's permission and a good reason. Our page on commercial suit drafting explains the disclosure rules.

Family firms, professionals, small factories: what changes

Family firms are everywhere in the trading markets of Old Delhi, Ghaziabad and Faridabad, and they rarely have clean books. Brothers or cousins run the firm, household expenses go through the firm account, and property sits in whichever name was handy at the time. These cases usually get rebuilt from bank statements and tax returns rather than the firm's own ledgers. Often a family partition suit is running alongside, and our advice is to keep the partnership claim and the family property claim apart, because each is easier to argue on its own.

Consultancies, contracting outfits and agencies are different. There's hardly any stock. Not much in fixed assets either. What's valuable is the client list, the contracts and the money due. So the quarrels are about who keeps which client, how half-finished work gets billed, and whether the partner who's leaving can take the team he built with him. On restraints, the deed alone won't stop a partner practising his profession once he's gone, since Section 27 of the Indian Contract Act, 1872 voids agreements in restraint of trade. Sections 36 and 54 of the Partnership Act are the exception. They permit limited, reasonable restraints on an outgoing partner, and on partners after dissolution, if the deed provides for them.

Small manufacturers and MSMEs usually fight over the factory, the machinery and the running contracts. If the shed is leased, the landlord's position matters. If the firm is a registered MSME supplier with dues from buyers, those receivables are firm assets, to be collected for everyone. In a bigger business with serious borrowings, think about the bank too. Dissolution doesn't wipe out the firm's debts. Every partner stays personally liable for them.

What to do this week

Get every bank statement you can. Copy the deed and the last few years' balance sheets and tax returns, and while you're at it, write down the dates you first noticed withdrawals or found yourself shut out. Sign nothing they send you. And don't withdraw money yourself to get back at them, however tempting it is when you can see them doing exactly that every week. If the bank account is at risk, don't wait for next quarter's accounts. A few weeks can decide whether there's anything left to divide.

If the dispute can still be settled across a table, a well-drafted notice and early mediation often get you further than years in court. If it can't, the route is a dissolution and accounts suit, with interim relief sought in time. After the decree, if the other side won't pay, recovery runs through execution of the decree.

Want your partnership deed, bank statements and accounts checked before you send a notice or sign a settlement? Share them with Advocate B.K. Singh's team through our contact page.