Krishna Holdco Limited v Gowrie Holdings Limited & Ors

A fraudulent misrepresentation entitles a party to rescind a contract where the representee had no relevant knowledge of the fraud and restoration of the parties’ prior positions remains practically possible. Rescission is an all-or-nothing remedy and cannot ordinarily be severed to preserve selected contractual provisions.

The illegality doctrine is applied by considering the purpose of the prohibition, competing public policies and proportionality. Wrongdoing concerning concealed share ownership does not necessarily bar relief between the parties where rescission does not prejudice third-party claims.

For unfair prejudice purposes, a beneficial shareholder may rely on conduct occurring before registration where the beneficial interest and the relevant wrongdoing are established. Informed consent requires knowledge of all matters likely to have influenced the decision to acquiesce.

Krishna Holdco Limited was the beneficial owner of shares in Laxmi BNS Holdings Limited, although the ownership had been concealed through the Rewind Suite. Krishna sought relief under the unfair prejudice jurisdiction and rescission of agreements made in 2013 and 2016, alleging fraudulent misrepresentations and diversion of corporate value.

Gowrie Holdings conceded that a buy-out order should be made and that the 2016 Agreement should be rescinded. The principal contested issue was whether the 2013 Agreement had been induced by a misrepresentation that the Hathi family alone had provided £4.5 million of funding. The court also determined the consequences of rescission, valuation issues and the related Keycircle loan proceedings.

1. Disposition. The unfair prejudice Petition was allowed. The 2013 Agreement was rescinded, and Gowrie Holdings was ordered to acquire Krishna’s shareholding in LBNS. The valuation date was 25 June 2019. The Trade Debt Claim succeeded, but further submissions were required concerning the Loan Claim.
2. The representation that the Hathi family had provided £4.5 million of outstanding funding was false and had induced the 2013 Agreement. The representations concerning LBNS’s financial performance and the accuracy of the Equalisation Amount were not established.
3. There was no affirmation. Suspicion, or possession of facts from which the truth might have been discovered, was insufficient. The relevant question was whether Krishna knew that the representation was untrue and therefore knew of its right to rescind: applying SK Shipping Europe Plc v Capital VLCC 3 Corp [2020] EWHC 3448 (Comm).
4. Restitutio in integrum remained possible. The 2011 Completion Account was an effective written variation of the Colorama BPA and established that no Deferred Consideration remained payable. Rescission therefore did not reopen that issue. The parties could not preserve clause 8 of the 2016 Agreement selectively, since rescission operated on the whole agreement.
5. Applying Patel v Mirza [2017] AC 467, the illegality doctrine did not bar rescission. The relevant policy against misleading third parties was not undermined by rebalancing the parties’ rights inter se, while refusing rescission would allow the alleged wrongdoers to retain the benefit of fraud.
6. Consent to SYRI’s clinicals business was not fully informed. Since Krishna did not know that the 2013 Agreement was fraudulently induced and rescindable, its later acquiescence did not excuse the diversion of the corporate opportunity. LBNS was to be valued as if the clinicals business formed part of its operations.
7. A beneficial shareholder could rely on earlier conduct for unfair prejudice purposes. The court followed Lloyd v Casey [2002] 1 BCLC 454 and distinguished Re Bateson’s Hotels (1958) Limited [2013] EWHC 2530 (Ch).
8. The Alferez telesales business had not been shown to have been wrongfully diverted. Arun knew of its transfer to Gowrie Pvt and of that company’s ownership, so acquiescence barred the complaint. LBNS was not a quasi-partnership, and no pro-rata valuation followed on that basis.