According to the Garner v/s Murray rule
If a partner becomes insolvent and fails to pay his debit balance of
Capital A/c either wholly or in pans the unrecoverable portion is a loss to be
borne by the solvent partner. The question now arises is that, in what ratio
they will share this loss. Prior to the decisions in the leading case of garner vs.
Murray this loss was borne by the solvent partners in the profit sharing ratio
just like ordinary trading losses. But the rule laid down in Garner vs. Murray rule.
Garner, Murray rule, and Wilkins
They were equal partners with unequal Capitals.
The assets of the fine on dissolution, after satisfying all the liabilities to creditors
and advance from partners was insufficient to repay the capital in full. These
was a deficiency of £635 and the capital, account of Wilkins was showing a
debit balance of £263. Nothing could be recovered from Wilkins owing to
insolvency. The decision was given by Mr. Justice Joyce in 1904. His decision
was as under:
1. All the panner who are solvent should bring cash equal to their shone
of the loss on realization.
2. The loss arising as a result of the insolvency of a partner should be some
by the solvent partners in the ratio of their last agreed capitals. In case affixed
capital System, Capitals as per last Balance Sheet represent last agreed capitals.
In case of fluctuating capital system, however, all necessary adjustments like
reserves, undrawn profits or accumulated losses, drawing etc. are to be made
to get last agreed capitals. Excepting the profit or loss arising out of the realization
of assets &" liabilities. A partner who has nil or negative balance in his capital
account before dissolution does not contribute anything to the loss arising as
a result of the insolvency of partners.
 |
Criticism of Garner vs. Murray |
Criticism of Garner vs. Murray
Criticism of Garner vs. Murray: The most vigorous criticism of the above decision of Garner vs. Murray is:
1. It does not apply when the firm is having only two panners.
2. It considers only the book capital of the partners, ignoring the private estate'of the solvent'partners,
if a partner contributed more capital than that of the 'where'partners, he will have to bear more
burden than other panners contributing less capital
3.If any solvent panner withdraws capital immediately before dissolution make his capital balance
either nil or negative, sharing of the deficiency of the insolvent panner in the capital ratio shall not
only be unjustified also absurdApplicability of Gamer vs. Murray rule in India: See 48 Of India
partnership Act 1932 is similar with the section 44 of the partnership Act in Great Britain, under both
partnership Act 1932 is similar with the section 44 of the partnership Act in Great Britain, under both
section the deficiency of an insolvent panner is to be borne by the solvent panners in the ratios, of
their last agreed capitals. Therefore, it is Justified to assume that Garner vs. Murray rule will in India.
