On 18th October 2019, the Supreme Court in SP Misra & Ors Vs Moh. Laiquddin Khan & Anr has held that, provision in a partnership deed which provided for continuation of a partnership firm until completion of a specific venture, notwithstanding death of one of the partners of a two-partner partnership firm, by making the legal heirs of deceased partner automatically a partner and making them subject to the same liabilities and responsibilities as the deceased partner, was not enforceable.

For the aforesaid proposition, the Court relied upon Section 42(c) of Indian Partnership Act, 1932 which provided for dissolution of a partnership upon the death of a partner and noting that in this case, once the partnership comes to an end, by virtue of death of one of the partners, there would not be any partnership existing in which legal representatives of the deceased partner could be taken in.

The Court also deliberated upon the issue of whether the impugned clauses in the partnership deed, which purported to confer rights or impose obligations arising under it on any third party was enforceable, and noted that, in view of the principle ‘privity of contract’, such clauses would not bind the legal representatives of the deceased partner, without their acceptance.

This update has been contributed by Shahen Pradhan (Partner).