Which of the following indicate the situation of compulsory dissolution?

When the business of the firm becomes illegal

The correct answer is option 3- When the business of the firm becomes illegal.

When the business of the firm becomes illegal is a situation of compulsory dissolution.

Compulsory Dissolution: A firm is dissolved compulsorily in the following cases:
(a) when all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract;
(b) when the business of the firm becomes illegal; or
(c) when some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

OTHER OPTIONS

• When a partner becomes insane- Dissolution by Court.
• On the death of a partner- Dissolution on certain contingencies.
• When a partner becomes permanently incapable of performing his duties as a partner- Dissolution by Court.