Explanation:

According to section 41, compulsory dissolution occurs under the following circumstances:

(i)when all the partners or all except one are adjudicated insolvent, the firm is compulsorily, dissolved. When a partner is adjudged as insolvent, such member ceases to be a member.

(ii)If the business of the firm though lawful when the firm came in to existence, subsequently becomes unlawful, there has to be dLcsolution of the firm. This provision is based on Section 23 of Indian Contract Act. For a valid contract; the object, and consideration have to be lawful as defined in section 23. Again Section 56 of the contract Act, further provides that when the contract to do an act becomes unlawful after making the contract, such a contract becomes void. However if the firm is carrying on more than one activities or undertakings, the illegality of one or more of them shall not of itself result in the dissolution of the firm in respect of those adventures or undertakings which are still lawful.