Discuss garner vs Murray rules . In it applicable in India?
Answers
Garner v/s Murray rule is very famous case in partnership law. It is applicable in case of dissolution of the firm. The rule says that the loss on account of insolvency of a partner is a capital loss which should be borne by the solvent partners in the ratio of their capital standing in the balance sheet on the date of dissolution of the firm. To find out the capital ratio, it is necessary to know whether the partners capital are fluctuating or fixed.
In case of fixed capital : The deficiency of capital of insolvent partner will be distributed in the ratio of capital shown in the balance sheet.
In case of fluctuating capital: the adjustment relating to reserve, undistributed profits, debit/credit balance of profit and loss, drawings, interest on drawings etc will be made to the partners capital account and then the deficiency of insolvent partner will be distributed in ratio of resulting capitals.
Use of this rule in India : Indian partnership Act 1932, does not object to the decision of Garner v/s Murray case. Therefore in the absence of any specific instruction this rule should be followed while solving the question. But the solvent partners are not required to bring the loss on realisation in cash because this has to be paid back to them.
The deficiency of capital account of insolvent partners should be divided among the solvent partners in the capital ratio.
2. If it is clearly mentioned to attempt the question according to Garner v/s Murray rule, the the solvent partners will bring the loss on realisation in cash otherwise not.
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