The Supreme Court has clarified the rules governing outgoing partner share valuation when a partnership at will is dissolved but its assets are settled much later. In V. Sumitra Reddy & Anr. v. K. Ranganadha Reddy & Ors., decided on 9 September 2026, the Court distinguished the date for closing business accounts from the date for valuing a partner’s interest in the residue of partnership assets—an important distinction where the firm owns appreciating immovable property.
The Court held that profits and losses should be calculated up to the date of dissolution. However, the outgoing partner’s proportionate interest in the remaining partnership assets was not frozen at their historical value on that date. On the facts of this case, the property had to be valued when its value was actually assessed during the final settlement proceedings.
The Court also observed that the assets of a dissolved firm cannot simply be retained and used by a reconstituted firm without settling the outgoing partner’s entitlement. Unless the partners agree to a market-value buyout or another settlement, liquidation and proportionate distribution may be necessary under the Indian Partnership Act, 1932. Read the judgment: 2026 INSC 979.
A delayed partnership settlement can create significant exposure where the firm owns land, buildings or other appreciating assets. Partnership deeds and dissolution arrangements should clearly address:
The distinction between the retirement of one partner and dissolution of the entire firm may also materially affect the outcome. S&S Law Associates handles partnership agreements, dissolution disputes, account settlements and related commercial proceedings.
