Return of premium on premature dissolution (Section 51) –

If a person pays a premium to become a partner for a certain specified period, but partnership ends before the expiry of that term, he is entitled to refund of premium. How much premium is to be refunded will depend on the terms on which he become a partner and the length of time for which he was a partner.

– If the partnership is at will there is no question of return of premium. However, if there is an agreement between partners in a partnership at will, which provides for refund of premium, or partner receiving the premium is acting fraudulently, premium may be refunded even in partnership at will. In a partnership at will, a partner cannot dissolve the partnership soon after receiving the premium and then retain the premium. (Feather Stone Haugh v. Turner)

In the following exceptional cases, even though the partnership is for fixed term, there would be no refund of premium on its premature dissolution –

a) When the dissolution occurs by death of a partner, there is to be no refund of premium unless there is an express stipulation in a contract between the partners (Ferns v. Carr). But if a person knowing himself to be in a dangerous state of health and suffering from a fatal disease conceals this fact and receives the premium, it is a case of fraud and premium will have to be refunded if there is premature dissolution due to death of a partner. (Mac Kenna v. Parkes)

b) When the dissolution of the firm is mainly due to the misconduct of a partner who paid the premium he is not entitled to any refund. The reason is that guilty person should not take advantage of his own wrong. But if the person receiving the premium is guilty (Bullock v. Crockett) or both the partners are guilty (Astle v. Wright) or where none of them is guilty (Atwood v. Mande) the court will order the refund of the premium.

c) When the dissolution is by an agreement but the agreement does not contain any provision for return of premium or any thereof, nothing is to be returned.

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