Question

brief in garner vs Murray rule

Answer 1

Under Section 42 of the Indian Partnership Act, 1932, if a partner of a firm becomes insolvent, the firm is dissolved. Insolvency means that the partner is unable to pay off his liabilities towards the Thus, if at the time of dissolution of the firm, any partner’s capital account shows a debit balance, he is to pay the amount as a debit to the firm, but if he is insolvent and can’t pay his debt due to the firm, the deficiency of capital will be borne by other solvent partners in accordance with the terms of agreement between them. If there is not such provision in the partnership agreement, the deficiency of capital will be borne by other solvent partners in accordance with the decision in the English. case of Garner Vs. Murray.    Unless otherwise agreed, the decision is Garner Vs. Murray requires

(a) That the solvent partner should, bring in cash equal to their respective shares of the loss on realization.

(b) That the solvent partners should.bear the loss arising due to the in solvency of a partner in the ratio. of their last agreed capitals i.e., Capital Ratio.

It should be noted that a partner having a debit balance or nil balance, will not have to bear the loss due to insolvency of a partner.