1994 (5) TMI 277 - HC - Companies Law

Summary

Issues Involved:

1. Whether the petition seeking a winding-up order against respondent No. 3 company should be admitted.
2. Whether there has been a complete breakdown in the working relationship between the parties.
3. Whether the respondent No. 3 company has lost its substratum or abandoned its main objects.
4. Whether there has been a deadlock in the management of respondent No. 3.
5. Whether there has been a lack of probity involving serious oppression of the minority.
6. Whether the company is in substance an incorporated partnership and the grounds for dissolution of a partnership are available for winding up the company.
7. Whether the petitioner is entitled to terminate the agreement based on respondent No. 1's earlier agreement to acquire the shares of the petitioner at book value.

Detailed Analysis:

1. Admission of Petition for Winding-Up:
The court heard arguments to decide whether the petition seeking a winding-up order against respondent No. 3 should be admitted. The petitioner argued that due to a complete breakdown in the working relationship and significant differences in management philosophy, the company should be wound up. The respondent countered that the petition was an attempt by a multinational company to unlawfully dominate and destroy the respondents.

2. Breakdown in Working Relationship:
The petitioner highlighted that respondent No. 1 viewed the joint venture as his sole proprietary concern, while the petitioner emphasized the need for team work and transparency. Letters exchanged between the parties, particularly from January 1990 to September 1991, indicated significant differences in perception and management approach, leading to a breakdown in the working relationship.

3. Loss or Abandonment of Substratum:
The petitioner argued that respondent No. 3 had lost its substratum or abandoned its main objects, making it impossible to pursue them. The respondent, however, contended that the petitioner had violated the Joint Venture Agreement by not contributing the remaining Rs. 100 lakhs towards equity and not allowing the public issue.

4. Deadlock in Management:
The petitioner claimed that a deadlock in the management had occurred, making it impossible to resolve issues through internal company machinery. The court noted that no decision could be taken by the Board of Management without the consent of at least one Director from each party, indicating a deadlock due to the breakdown of confidence between the parties.

5. Lack of Probity and Oppression of Minority:
The court considered whether there was a lack of probity involving serious oppression of the minority. The petitioner argued that respondent No. 1's actions and refusal to sign the amended Joint Venture Agreement indicated a lack of probity. The respondent denied these allegations and argued that the petitioner was trying to wriggle out of the agreed terms.

6. Incorporated Partnership and Grounds for Dissolution:
The petitioner argued that the company was in substance a quasi-partnership, and the principles for dissolving a partnership should apply. The court noted that the letter dated 27th December 1990 indicated equal shareholding between the petitioner and respondent No. 1, suggesting a quasi-partnership. The court found prima facie merit in the petitioner's argument that the company functioned as a quasi-partnership.

7. Termination of Agreement:
The petitioner contended that respondent No. 1 had earlier agreed to acquire the petitioner's shares at book value, and the petitioner was entitled to terminate the agreement. The respondent countered that there had been no mutual termination of the agreement and that the petitioner had not taken steps for unilateral termination based on the grounds available in the Joint Venture Agreement.

Conclusion:
The court, after examining the documents and letters exchanged between the parties, found prima facie evidence of differences in management and a deadlock. The petition was admitted, but the publication of citations was withheld until the disputed questions were finally decided. The court directed the petitioner to file evidence by way of affidavits within six weeks, followed by the respondents' affidavits within six weeks thereafter, and rebuttal affidavits by the petitioner within three weeks. The matter was listed for further directions and arguments on 15-9-1994.

Order:
The petition is admitted, and the publication of citations is withheld until final decisions on the disputed questions. Evidence by way of affidavits is to be filed within the specified timelines, and the matter is listed for further directions and arguments on 15-9-1994.