Assets of a dissolved partnership cannot be retained by a successor firm without settling the former partners’ entitlements
V Sumitra Reddy v. K Ranganadha Reddy
Supreme Court of India | 2026 INSC 979
In a significant decision, the Supreme Court clarified that a partner's entitlement to undistributed assets of a dissolved partnership cannot necessarily be restricted to their value on the date of dissolution. It further held that a newly constituted partnership cannot retain assets of the dissolved firm without settling the former partners' entitlements.
Unlike partnerships with a fixed duration or LLPs, a partnership at will may be dissolved by any partner through written notice, triggering the settlement and distribution of the firm's assets. This distinction has significant commercial implications, as the remaining partners cannot simply continue using those assets through a new partnership without settling the former partners' entitlements. Consequently, even a single partner's decision to dissolve the firm may affect ownership of valuable business assets, disrupt operations and necessitate their liquidation in the absence of an agreed settlement.
SUMMARY OF FACTS
Viraj Constructions, a partnership at will, owned, among other assets, a parcel of land in Hyderabad.
In October 1983, KLN Reddy, a partner who held a 25% share, issued a notice seeking dissolution of the firm and settlement of accounts. Upon no response, he instituted a suit for rendition of accounts.
Meanwhile, the remaining partners continued the business through a new partnership and retained the Hyderabad land without settling KLN Reddy's entitlement.
In the suit, the High Court recognised the dissolution of the firm with effect from October 18, 1983, and directed settlement of accounts, raising the issue of the date of the valuation of land for Reddy’s share.
DECISION OF THE COURT
The Supreme Court held that upon dissolution of a partnership firm, a partner's entitlement to its undistributed assets cannot be restricted to their historical value on the date of dissolution.
A partnership at will may be dissolved by written notice, effective from the date specified therein or, in its absence, the date of communication.
A newly constituted partnership cannot retain or utilise the assets of a dissolved firm without settling the former partners' entitlements. Upon dissolution, the firm's assets must be applied towards discharging liabilities, repaying amounts due to partners, and distributing the surplus according to their respective shares.
Assets may be retained through an agreed settlement at market value, failing which they must be liquidated and the proceeds distributed proportionately. In the present case, the new partnership had neither purchased the Begumpet land nor settled KLN Reddy's share, rendering its retention of the property impermissible.
For valuation, the Court distinguished between the right to receive profits earned until dissolution and the right to receive a proportionate share in the remaining assets. While the date of dissolution determines the period for calculating profits and losses, it does not necessarily determine the valuation date of assets awaiting distribution.
Valuing the land at 1983 rates, despite its subsequent appreciation, would unfairly prejudice KLN Reddy and the prevailing valuation was upheld for distribution of the proceeds after discharging liabilities.
Absent a designated seat, the venue of arbitration does not displace the jurisdiction clause
Mahanadi Coalfields Ltd v. GSCO Infrastructure Pvt Ltd
Supreme Court of India | 2026 INSC 1038
The Supreme Court has held that in the absence of an agreed arbitral seat, the mere conduct of arbitration at a particular venue does not displace the jurisdiction of Courts identified under the contract.
The ruling reinforces the importance of contractual jurisdiction clauses in determining the appropriate forum for arbitration-related proceedings, particularly where the parties have not expressly designated a seat. For businesses undertaking projects across different locations, conducting hearings elsewhere or obtaining an arbitrator's appointment from a High Court situated in another city does not automatically alter the agreed jurisdictional arrangement.
Parties should expressly identify the arbitral seat and ensure that it is consistent with their jurisdiction clauses to avoid disputes over which Courts may entertain challenges to awards.
SUMMARY OF FACTS
Mahanadi Coalfields Ltd (MCL) awarded a contract to GSCO Infrastructure Pvt Ltd (GSCO) for excavation and transportation works in Sundargarh, Odisha. Although the contract contained no arbitration clause, it stipulated that contractual disputes would be subject to the jurisdiction of Courts where the work was executed.
Following disputes concerning contractual payments, GSCO approached the Orissa High Court, which referred the disputes to a sole arbitrator upon recording the parties' consent. The arbitral proceedings were conducted at Cuttack, Odisha, culminating in an award in GSCO's favour.
MCL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (Act), before the Courts at Sundargarh, Odisha.
GSCO challenged the jurisdiction of the Sundargarh Courts, contending that since the arbitrator had been appointed by the High Court situated at Cuttack and that the proceedings were conducted there, Cuttack was the juridical seat of arbitration according exclusive jurisdiction to the Courts at Cuttack.
The Orissa High Court accepted this contention. Aggrieved, MCL approached the Supreme Court.
DECISION OF THE COURT
The Supreme Court held that mere conduct of arbitral proceedings at a particular location does not, by itself, establish that location as the juridical seat of arbitration. In the absence of an express designation or agreement identifying Cuttack as the seat, its use as a venue for the arbitrator's convenience did not confer exclusive jurisdiction upon the Courts there.
Appointment of an arbitrator by a High Court does not automatically designate the city where that High Court is situated as the seat of arbitration. A High Court exercises jurisdiction throughout its territorial limits, and the competent District or Commercial Courts within those limits may entertain challenges to arbitral awards.
Moreover, the contractual terms expressly identified the Courts where the work was executed as having jurisdiction over disputes. Since the work was undertaken at Sundargarh, the Courts at Sundargarh were competent to entertain MCL's challenge under Section 34 of the Act.
Fraudulent initiation of insolvency proceedings does not automatically terminate CIRP
Orris Infrastructure Pvt Ltd v. Rakesh Kumar Gupta
Supreme Court of India | 2026 INSC 1070
The Supreme Court has ruled that while admission of insolvency proceedings initiated through fraud or collusion may be recalled, such findings do not automatically require termination of the Corporate Insolvency Resolution Process (CIRP).
The ruling protects the collective interests of creditors and other stakeholders from being defeated solely by misconduct at the initiation stage. For creditors, homebuyers, and prospective resolution applicants, it provides greater certainty that their participation in an ongoing CIRP will not necessarily be rendered ineffective by subsequent findings of fraud. However, continuation remains subject to an independent assessment of stakeholder interests. Affected parties should, therefore, actively participate in such proceedings and maintain records demonstrating the legitimacy of their claims and the commercial benefits of continuing the resolution process.
SUMMARY OF FACTS
Orris Infrastructure Pvt Ltd (Orris) entered into a development agreement with Three C Shelters Pvt Ltd (Three C) for a real estate project. Following delays in construction, homebuyers initiated proceedings before various forums seeking relief against Three C.
Meanwhile, Straight Edge Contracts Pvt Ltd (Straight Edge), claiming to be an operational creditor, initiated CIRP against Three C under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code). The application was admitted on the basis of an affidavit filed by a director of Three C acknowledging the alleged debt.
Orris and other stakeholders challenged the CIRP, alleging that it had been initiated through fraud and collusion between Straight Edge and Three C. The National Company Law Tribunal (NCLT) found that the alleged operational debt was fictitious and that the proceedings had been initiated collusively, but declined to recall the admission order.
On appeal, the National Company Law Appellate Tribunal (NCLAT) set aside the entire CIRP. Aggrieved by its termination, Orris and other stakeholders approached the Supreme Court.
DECISION OF THE COURT
The Supreme Court held that the NCLT may recall admission of insolvency proceedings initiated through fraud or collusion, but such recall does not automatically require termination of the CIRP.
Initiation of CIRP under the Code depends on certain foundational or jurisdictional facts, including the existence of debt. Fraudulent representation of such facts vitiates the assumption of jurisdiction, empowering the NCLT to recall admission, exclude the collusive applicant, and initiate action under Section 65 of the Code, which penalises fraudulent initiation of insolvency proceedings.
However, upon admission, CIRP transforms from proceedings between the initiating creditor and corporate debtor (in personam) into proceedings in rem (against the world at large), involving all creditors and stakeholders. Consequently, the initiating creditor no longer controls the process, which serves the collective objective of resolving corporate insolvency. Therefore, even where admission was fraudulently obtained, the NCLT must independently determine whether continuation would serve legitimate stakeholder interests, after hearing the resolution professional, the Committee of Creditors, and other affected parties.
Accordingly, the Supreme Court remanded the matter to the NCLT to determine whether proceedings should continue, considering all relevant circumstances, including the interests of homebuyers and ownership of the underlying project.
Dispute Resolution & ADR Newsletter - October 2026
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