Which of the following indicate the situation of compulsory dissolution?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → When the business of the firm becomes illegal
Compulsory dissolution happens by force of law, whatever the partners want: when all the partners, or all but one, become insolvent, or when the business becomes illegal or unlawful to carry on in partnership.
Why the other options are incorrect
Option (1) When a partner becomes insane — Incorrect. Insanity of a partner is a ground on which the court may order dissolution at the suit of a partner; it does not dissolve the firm by itself.
Option (2) On the death of a partner — Incorrect. Death is one of the contingencies on which a firm is dissolved subject to the contract between the partners; the others may agree to carry on.
Option (4) When a partner becomes permanently incapable of performing his duties as a partner — Incorrect. Permanent incapacity is again a ground for dissolution by the court, not compulsory dissolution.
NCERT (2026-27 edition): |