In a ruling that reinforces the power of a well-drafted partnership deed, the Supreme Court has held that a firm with more than two partners does not automatically dissolve on the death of one—so long as the deed insists on continuity.
The case revolved around Indian Oil Corporation halting its kerosene supply to a three-member partnership firm after one partner passed away. Their justification? That the firm, by law, ceased to exist the moment a partner did.
But the apex court wasn’t buying it.
A bench led by Justices Pankaj Mithal and Ahsanuddin Amanullah reviewed the partnership agreement. Its terms were crystal clear: the death of a partner would not derail the business, and the surviving partners had the right to induct a qualified heir to keep things running. Business continuity was built into the bones of the agreement.
Indian Oil had challenged a Calcutta High Court order that directed it to resume the kerosene supply. The corporation leaned on Section 42 of the Indian Partnership Act, 1932, which says a partnership dissolves upon a partner’s death. But the Supreme Court set the record straight: that rule applies when there are only two partners. In multi-partner firms—especially where the deed foresees such events—Section 42 can take a backseat.
“The law is settled,” the court noted. “Where a firm has more than two partners and the partnership deed explicitly states that the firm shall continue despite the death of a partner, the firm does not dissolve.”
The justices didn’t stop there. They called out Indian Oil’s arbitrary move as disruptive and unwarranted, backing the High Court’s instruction to keep supplies flowing until the firm is properly reconstituted.
The verdict dismissed the appeal, sending a clear signal: a partnership is only as dead as its deed allows. In this case, the business lives on.
