Invenio Business Solutions Limited & Anor v Manish Goyal & Anor

Key legal principles and decision:

• The court applied the statutory duties of directors under the Companies Act 2006, notably section 172 (duty to act in good faith to promote the success of the company), section 174 (care, skill and diligence) and section 175 (duty to avoid conflicts), and relevant employment law principles on summary dismissal and gross misconduct.
• The judge found that the claimant proved that the first defendant, Mr Goyal, breached his duties in relation to an undocumented loan to an employee (the "AA" loan) and in respect of certain unauthorised travel expenses charged to the company credit card. Those breaches were sufficiently serious that, had they been disclosed, they would have justified summary dismissal and engaged the Bad Leaver mechanic in the articles.
• The claimants’ other allegations were not established: the court did not find against Mr Goyal on the accounting treatment of the FRCS contract, on the purchases of Apple IT products, or on the majority of the travel and other expense items. The court also found that Mrs Goyal did not bear responsibility for the breaches proved against Mr Goyal and was not guilty of serious misconduct on the pleaded bases.
• Because Mr Goyal had a duty to disclose his wrongdoing and failed to do so, the court granted declaratory and injunctive relief preventing him from denying that he is a Bad Leaver for the purposes of the IBSHL articles; an account order was made available if required and costs were ordered to follow the event.

Background and parties: The claimant companies are Invenio Business Solutions Limited and Invenio Business Solutions Holdings Limited. The defendants are Mr Manish Goyal, a founder and former finance director of Invenio, and his wife, Mrs Jyoti Goyal, a part-time employee and shareholder. The disputes arise from conduct alleged to have occurred before and after a 2019 share sale wherein the defendants acquired shares in the holding company (IBSHL).

Nature of the proceedings and relief sought: The claimants alleged multiple breaches of fiduciary and contractual duties by the defendants, advanced five principal factual grounds of complaint and relied on those matters (and one additional loan matter) to characterise the defendants as "Bad Leavers" under the IBSHL articles. The principal relief sought was declarations (including that the defendants were Bad Leavers), an account if appropriate, and a permanent injunction preventing the defendants from denying that they are Bad Leavers.

Issues for decision:

• Whether the defendants had breached directors’ and employees’ duties (Companies Act 2006 ss.172, 174, 175 and employment law principles) in relation to: (a) the undocumented Mauritian-rupee loan to employee AA and repayments routed through Mr Goyal; (b) accounting entries for the FRCS contract; (c) attendance and travel/ accommodation expenses for the Goyal family at a Mauritius retreat and other India trips; (d) a relocation expenses scheme for AA; (e) a series of corporate credit-card transactions and Apple product purchases; and (f) a loan to Brothers’ Housing Estate Limited (a company associated with Mrs Goyal).
• Whether, if wrongdoing had occurred and been disclosed, the conduct would have amounted to summary-dismissal grounds such that the Bad Leaver clause would have operated to the claimants’ advantage.
• Whether injunctive relief is an appropriate remedy to prevent the defendants from resisting a Bad Leaver designation where concealment of wrongdoing occurred.

Court’s reasoning and findings:

• The court analysed the duties in ss.172 and 174 and applied established authorities on the subjective nature of the section 172 inquiry, while recognising that unreasonable conduct may undermine assertions of honest belief. Employment law principles on gross misconduct and summary dismissal were applied in the context of the parties’ contracts.
• On the AA loan, the court found that an advance of about £40,000 had been made, that repayments were received into Mr Goyal’s personal account, and that there was no proper documentation of any novation or of the arrangement that repayments would be routed through him. That conduct amounted to a clear breach of duty by the finance director and, in the court’s view, would have justified summary dismissal.
• On the relocation expenses for AA, the court found that although some claimed items were of a quotidian nature, the decision to assist the employee was within legitimate managerial discretion and was not a breach of duty when judged in context.
• On the Mauritius retreat and related travel, the court accepted Mr Goyal’s evidence that bringing his wife and daughter was part of a family-oriented corporate culture and that some associated costs were incidental and not abusive; however, several other India trips and the charging of particular travel costs for a junior part‑time employee were not adequately justified and were found to be improper.
• On the HSBC card transactions and Apple product purchases, the court found insufficient evidence to establish misuse in relation to the Apple purchases but did find breaches in relation to particular travel costs charged to the corporate card.
• On the FRCS accounting treatment, the court had no expert evidence and was unable to conclude that the chosen accounting treatment was improper; that allegation failed.
• As to Mrs Goyal, the court found her role and seniority were limited and there was no evidence she knew of or caused the misconduct found against Mr Goyal; she was not liable and was not a Bad Leaver on the pleaded bases.
• The judge concluded that directors owe a duty to disclose their own misconduct and, applying the reasoning in relevant authorities, held there to be a sufficient nexus between Mr Goyal’s concealment and the potential profit he might obtain if permitted to avoid a Bad Leaver designation. Accordingly the court granted the declaratory and permanent injunctive relief sought to prevent Mr Goyal from denying he is a Bad Leaver; an account order was reserved if still required and costs were to follow the event.

First instance: The claim is allowed in part. The court found that Mr Goyal breached his fiduciary and contractual duties in relation to the undocumented AA loan and certain unauthorised corporate-card travel expenses; those breaches would have justified summary dismissal and would have engaged the Bad Leaver provision. Mrs Goyal was not found to have committed serious misconduct on the pleaded grounds. The court granted declarations and a permanent injunction preventing Mr Goyal (and insofar as necessary Mrs Goyal) from denying he is a Bad Leaver; an account order was made if still required and costs were ordered to follow the event. The judge dismissed other heads of claim (including the FRCS accounting complaint and the Apple purchases) for lack of proof or expert support.