Badyal v Badyal & Anor

The court determined both a partnership dispute and a related petition concerning Paramount Powders (UK) Limited. Applying the statutory presumption in the Partnership Act 1890 (sections 20(1)-(2) and 21) and established company law principles on unfair prejudice and winding up, the judge concluded that the family businesses and many disputed assets were to be treated as family/partnership assets unless rebutted by clear evidence.

The Court found that the SPC partnership should be wound up and accounts taken; most of the UK disputed properties and the principal Indian assets (other than the Farmhouse) were either partnership property or held on trust for the three brothers in equal shares. The Farmhouse was held to have been purchased as a gift for the Father and not partnership property.

On the company/petition side, the judge rejected unfair prejudice relief under sections 994 and 996 of the Companies Act 2006 and refused a just and equitable winding up under section 122 of the Insolvency Act 1986. Key factual findings included adverse credibility findings against the petitioner (TSB), failures of disclosure (particularly concerning Indian shareholdings), and the conclusion that the petitioner had been involved in and funded a competing business (Trident). Allegations of payroll theft and misuse of confidential information were not proved.

Background and parties

This is a first instance trial between three brothers who operated jointly run UK powder coating businesses (SPC and PPUK) and related Indian ventures. The claimant/petitioner (TSB) is the eldest brother; the first and second defendants/respondents are his younger brothers (MSB and SSB). Proceedings comprised a Partnership Claim to wind up SPC and take accounts, and a Company Claim (petition) to wind up Paramount Powders (UK) Limited for just and equitable grounds and/or relief under the unfair prejudice provisions.

Nature of the claims/applications

• Partnership Claim: wind up the partnership(s), determine whether a range of UK and Indian assets are partnership property or held beneficially by the brothers, and take accounts.
• Company Claim/Petition: seek winding up of PPUK as just and equitable (Insolvency Act 1986 s122) and/or relief for unfair prejudice under Companies Act 2006 s994 and s996.

Issues framed by the court

• Which assets (UK Disputed Properties and Indian Assets) were partnership property or held on trust.
• Whether SSB breached fiduciary duties by setting up competing companies and whether PPUK had been unfairly prejudiced.
• Whether payroll irregularities and alleged misappropriation by SSB were proved.
• Whether TSB was involved in and funded Trident and whether his removal as a director was justified.
• Whether a just and equitable winding up of PPUK was appropriate as a last resort.

Court’s reasoning and findings

• The judge made careful credibility assessments: TSB was found to have exaggerated his role and in key respects to have given untruthful evidence; other witnesses (including the brothers and certain employees) were assessed individually and weighed accordingly.
• On partnership law principles (Partnership Act 1890 ss20–21 and related authorities), assets purchased with partnership funds are presumed partnership property unless a contrary intention appears. The judge found that many disputed UK properties and the Indian companies were acquired with joint/family funds and were therefore either partnership property of SPC or held on trust for the three brothers equally. The question whether particular assets are formally held by SPC or held on trust was left to the account in several respects because disclosure on Indian assets remained incomplete.
• The Farmhouse in India was an exception: it was held to have been purchased as a gift for the Father and not partnership property; under Indian intestacy the Father’s estate would give effect to joint family interests.
• Allegations of payroll theft and deliberate falsification for mortgages/benefit fraud were traced to the former accountant (Mr Bij) and were not proved against SSB; the judge accepted that payroll irregularities existed but that the evidence did not establish misappropriation by SSB.
• On Trident, the judge found on the totality of the evidence that TSB had been involved in, and had funded, Trident and had encouraged key staff to leave PPUK; supply from Paramount India and other factors indicated TSB’s involvement. Given those findings, removal of TSB as director was not unfairly prejudicial.
• The judge applied the established approach that just and equitable winding up is an exceptional remedy and that unfair prejudice remedies under s994 normally provide a better alternative. Applying O’Neill v Phillips and related authorities, the court concluded that winding up PPUK would be inappropriate and refused the petition and s994 relief.

Procedural outcome

The court ordered the winding up and taking of accounts in relation to the SPC partnership and dismissed the petition / claims for relief against PPUK. The precise allocation between partnership title and trust ownership of some assets was left to the account, and any monetary adjustments were to be resolved on detailed accounting.

This is a first-instance decision. The court ordered the SPC partnership to be wound up and the usual orders for taking accounts to be made, because the partnership had been dissolved and an account is required. The petition to wind up Paramount Powders (UK) Limited and the application for unfair prejudice relief under Companies Act 2006 section 994 were dismissed: the judge found that it would not be just and equitable to wind up the company and that unfair prejudice relief was not made out. The rationale drew on credibility findings (adverse to the petitioner), inadequate disclosure (particularly in relation to Indian assets), application of the statutory presumption in the Partnership Act 1890 regarding property acquired with partnership funds, and company law principles that winding up is a last resort where other remedies (such as buy‑out relief) are available.