Dhani was one of five partners in the M/s Bright Light House, a partnership firm. In 1995, the partners signed a partnership deed outlining their responsibilities and rights. Each partner received 20% of the firm's asset

Goodwill is a partnership asset and means the benefit arising from a firm's business connections or reputation. "It is the advantage which is acquired by a business, beyond the mere value of the capital, stock fund and property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers". Though an intangible asset, it has value; and unless otherwise agreed in the partnership articles, upon dissolution it must be sold and the proceeds of sale distributed as capital. Where dissolution is caused by death, the estate of the deceased partner is entitled to share in the proceeds of the sale. If the goodwill is sold and there is no agreement as to its disposal, any partner can carry on the business, provided that by doing so he does not expose former partners to liability. But if by agreement the goodwill is assigned to any person, he can restrain partners. Similarly, a retiring partner is entitled to his share of the goodwill of the firm on his retirement. In the instant case, the partnership deed entitles Dhani to his share of goodwill of the firm on his retirement and to be paid within six months thereof. The payment of goodwill cannot be stopped just because the partnership is continuing with the other four partners. They will now be enjoying a higher share of partnership profits consequent to the retirement of Mr. Dhani. Goodwill of the firm needs to be valued on the date of retirement and Dhani's share of the overall goodwill (which is his profit-sharing ratio) will have to be paid to him and the other partners gaining on account of his retirement will bear the cost basis the share they gain in profits sharing. Sale of Goodwill Where goodwill is sold, either to a partner or to an outsider, the value is divisible among the partners in the same manner as they share profits and losses, unless otherwise agreed. The rights of the buyer and seller of the goodwill are as follows: (a) Buyer's rights: On the sale of goodwill the buyer may, unless the terms in the contract of sale provide otherwise: represent himself in continuing the business, maintain his exclusive rights to the use of the firm name, and solicit former customers of the business and restrain the seller of the goodwill from doing so. (b) Seller's rights: The vendors may enter into competition with the purchaser unless he is prevented by a valid restraint clause in the contract of sale.