Continuing Partners Cannot Pocket Decades of Appreciation in Firm Assets: Supreme Court Rules That Property of a Dissolved Partnership Must Be Liquidated at Its Realisable Value and Shared Among All Partners

Case Name: V. Sumitra Reddy and Another v. K. Ranganadha Reddy and Others

Date of Judgment: 9 September 2026

Citation: 2026 INSC 979

Bench: Justice Ujjal Bhuyan and Justice Vipul M. Pancholi

Held: The Supreme Court held that upon dissolution of a partnership firm, every partner has a two-fold right: first, to have the firm’s profits and losses determined as on the date of dissolution; and second, to receive a proportionate share in the residue remaining after the partnership assets are liquidated and its liabilities discharged in accordance with Section 48 of the Indian Partnership Act, 1932.

The date of dissolution is relevant for settling the firm’s accounts and determining its profits and losses, but it does not freeze the value of its unliquidated assets for all time. Where the partnership property has neither been sold nor lawfully taken over through a settlement with all partners, an outgoing partner’s share cannot be calculated using the historical value prevailing on the date of dissolution. The assets must be realised at their actual value when liquidation takes place.

The remaining partners cannot retain and commercially exploit the assets of the dissolved firm through a newly constituted partnership without purchasing those assets or settling the shares of the other partners. Such retention is unlawful and cannot enable the continuing partners to appropriate decades of appreciation in the property to the exclusion of an unpaid partner.

Summary: M/s Viraj Constructions was constituted as a partnership at will and had acquired approximately 3.27 acres of land at Begumpet, Hyderabad. Kasireddy Lakshmi Narayana Reddy held a 25% share in the firm. An earlier attempt to retire from the partnership against a promised payment failed, and the courts had conclusively held that he continued to remain a partner.

On 15 October 1983, he issued a notice calling upon the remaining partners to dissolve the firm, render accounts and pay his share in its profits and properties. He thereafter instituted a suit for rendition of accounts. The Trial Court passed a preliminary decree recognising his 25% share. In appeal, the High Court held that the partnership, being one at will, stood dissolved on 18 October 1983 when the dissolution notice was received and that the accounts had to be rendered up to that date.

During the final-decree proceedings, a dispute arose over the valuation of the partnership’s principal asset—the Begumpet land. The remaining partners argued that the plaintiff’s entitlement should be restricted to 25% of the property’s value as it stood on 18 October 1983. The plaintiff contended that the asset had never been liquidated and that he remained entitled to 25% of the amount realised upon its actual sale.

The High Court directed that unless the parties mutually settled their shares, the Advocate Commissioner should sell the land through public auction and deposit the proceeds before the Trial Court. After discharging the partnership’s liabilities, 25% of the sale proceeds was to be paid to the plaintiff.

Affirming this direction, the Supreme Court distinguished the retirement of a partner from dissolution of the entire firm. In a retirement case, the retiring partner’s share may crystallise on the date of retirement, particularly when the firm is lawfully reconstituted and the outgoing partner has transferred or settled his interest. By contrast, upon dissolution, Section 48 requires the firm’s assets to be applied towards its liabilities and the surplus to be distributed among the partners according to their respective rights.

The Court found that the partnership property was never purchased from the dissolved firm by the continuing partners, nor was the plaintiff’s share settled. Consequently, allowing the defendants to pay him according to the land’s 1983 value, after retaining and benefiting from the property for decades, would be grossly unfair and legally impermissible.

Decision: The Supreme Court dismissed the civil appeal and upheld the High Court’s judgment dated 9 April 2012. It directed the parties and the Advocate Commissioner to comply with the High Court’s directions concerning the public auction of the partnership property and distribution of the proceeds.