Badyal v Badyal & Anor

In a dispute concerning family businesses operated as partnerships and a quasi-partnership company, the court held that assets acquired with business funds may be partnership property or held on trust for the partners, even where registered in one partner’s name. The statutory presumption is rebuttable, but legal title, separate accounts and tax treatment are not decisive.

Loss of mutual trust and confidence alone does not establish unfair prejudice or justify a just and equitable winding up. The court must identify conduct causing prejudice in the petitioner’s capacity as a member. Winding up is an exceptional remedy and will ordinarily be refused where a more appropriate remedy exists. A director’s exclusion may be justified by involvement in a competing business, particularly where the director funded or encouraged the competition.

The claimant, the eldest of three brothers, brought partnership proceedings concerning the ownership and accounting of UK and Indian properties and businesses. He also petitioned for the winding up of Paramount Powders (UK) Limited, or relief for unfair prejudice under the Companies Act 2006.

The principal disputes concerned whether assets funded by the family businesses belonged to the partnership or were held jointly, whether the second defendant breached duties through a competing business, whether payroll irregularities caused unfair prejudice, and whether the claimant’s removal as a director was justified.

1. Partnership assets. Sections 20(1)–(2) and 21 of the Partnership Act 1890 establish that property acquired with partnership funds is partnership property unless a contrary intention is shown. Registration in one partner’s name, separate accounting treatment and receipt of rents by that partner are relevant but not decisive. The disputed UK properties, and all Indian assets except the Farmhouse, were either partnership property or held by the claimant on trust for the three brothers in equal shares. The precise characterisation was left to the taking of accounts.
2. The Farmhouse. Although partnership funds contributed to its purchase, the evidence showed that it was bought as a gift for the parents and was not intended to be partnership property. The claimant nevertheless did not own it alone.
3. Unfair prejudice and winding up. Sections 994 and 996 of the Companies Act 2006 confer wide remedial powers. By contrast, winding up under section 122 of the Insolvency Act 1986 is a last resort. Applying Grace v Biagioli [2005] EWCA Civ 1222, breakdown of trust and confidence alone gave no right to withdrawal or relief. The claimant had to establish prejudice in his capacity as a member.
4. Competing business. The second defendant’s involvement in PPL/AMJ would have breached fiduciary duties absent consent or acquiescence. However, the business was conducted openly and the claimant and first defendant had consented to or acquiesced in it. The complaint therefore failed.
5. Trident. The claimant was involved in, funded and encouraged a competing company and encouraged key employees to join it. His exclusion as a director was consequently not unfairly prejudicial. The confidential-information allegation was not proved.
6. Disposition. The partnership was dissolved and orders for winding up and accounts were made. The petition for section 994 relief and winding up of Paramount Powders (UK) Limited was dismissed.

First-instance decision. No appellate history is stated in the judgment.