Section 34 of IPA : Section 34: Insolvency Of A Partner

Explanation using Example

Imagine a partnership firm named 'Creative Solutions' with three partners: Arjun, Bhavna, and Chetan. On June 1st, Chetan faces severe financial difficulties and is declared insolvent by a court order. According to Section 34(1) of The Indian Partnership Act, 1932, Chetan automatically ceases to be a partner in 'Creative Solutions' from June 1st, the date of the adjudication.

Furthermore, the partnership agreement between Arjun, Bhavna, and Chetan specifies that the firm will not dissolve in the event of any partner's insolvency. Hence, as per Section 34(2), after June 1st, Chetan's personal estate is not responsible for any business liabilities incurred by 'Creative Solutions', and likewise, the firm is not responsible for any personal liabilities Chetan incurs following his insolvency. This means that if Chetan incurs personal debts on June 2nd, 'Creative Solutions' will not be held liable for those debts.