A firm is compulsorily dissolved when all partners or when all except one partner become involvent.
True
Explanation
The statement is correct as per the provisions of Compulsory Dissolution under the Indian Partnership Act. The textbook explicitly states under 'Compulsory Dissolution' that a firm is dissolved compulsorily when all the partners or all but one partner become insolvent, rendering them incompetent to sign a contract. This is because insolvent persons lose their contractual capacity, making it impossible for the firm to continue its operations legally.
Solution Steps
Step 1: Identify the type of dissolution mentioned - Compulsory Dissolution.
Step 2: Refer to the conditions for compulsory dissolution from the context.
Step 3: Verify that the statement matches condition (a): 'when all the partners or all but one partner, become insolvent.'
Step 4: Conclude that the statement is True.