Column: Legal

LEGAL
Going By The Book

If your JV partner has actively concealed material facts, your company can lawfully terminate the JVA.

By Diljeet Titus, Titus & Co. Advocates

Our joint venture partner appears to have fraudulently concealed some material facts from our company and we wish to terminate the joint venture agreement (JVA) on this ground? Can we do so?

The JVA is terminable at your option, if it is established that your company was induced to enter into the JVA on the basis of active concealment of facts by your joint venture partner, and that if your company had been informed of the true nature of facts, it would not have entered into the JVA.

However, in the absence of active concealment of facts, you cannot terminate the JVA if it is proved that had your company proceeded with ordinary diligence and made inquiries, which a prudent person is expected to have made in the circumstances, it would have discovered the true state of affairs. Courts have held that in the case of active concealment, as distinguished from mere silence or concealment, it is not incumbent to establish that the truth might have been ascertained if the party defrauded had proceeded with ordinary diligence.

In case of active concealment of facts, a plea that the party defrauded had the means of discovering the truth affords no defence to the defrauded party's right to terminate the contract. Thus, if your joint venture partner has actively concealed material facts, your company can lawfully terminate the JVA.

We are minority shareholders in a private company and a group of other shareholders have amended the articles of association of the company without following the prescribed procedure. Which forum can we approach to address our grievances?

If the amendment of the articles of association results in conduct of the affairs of the company, in a manner oppressive to your interests as members of the company or in a manner prejudicial to public interest, you can apply to the Company Law Board (CLB), to seek relief on grounds of oppression and/ or mismanagement of the company's affairs, provided you hold at least 10 per cent of the issued share capital of the company or you constitute at least 100 members or one-tenth of the members, whichever is less.

If the CLB is of the opinion that the affairs of the company are being conducted in a manner oppressive to you as shareholders or in a manner prejudicial to the interests of the company, it can pass orders to put an end to the state of affairs complained of.

If you do not qualify to seek relief from the CLB as aforesaid, you may apply to the Department of Company Affairs and make the application to the CLB under Section 388-B of the Companies Act, 1956, provided you make out a case to the satisfaction of the Department of Company Affairs.

We are a non-resident company and have obtained an arbitration award in our favour against an Indian company. Will the amount realised by us, pursuant to execution of the arbitration award, be taxable in India?

Taxability of any moneys realised pursuant to execution of the arbitral award in India depends on the nature of the receipt in the hands of your company. If it is a revenue receipt, it will be treated as income and will be taxable. If it is a capital receipt, it will be treated as a capital asset and be non-taxable.

The nomenclature given to moneys under the arbitral award is not decisive; the true nature and character of the receipt in the hands of your company has to be examined in each case. If the amount granted under the arbitral award is awarded as compensation for loss of business profits (which, if it had been received, would have been credited to your company's profits arising from its business), or if the receipt constituted circulating capital or stock-in trade of your company's business which may yield further profits in future, the receipt will constitute income and will be taxable as revenue receipt. On the other hand, if the amount awarded is with respect to loss of fixed capital asset or loss to profit-making apparatus, there will be no tax liability since it will be treated as a capital receipt.

The view expressed here should not be construed as legal opinion and is for reference only. Business Today and/or the author will not be responsible for any decision taken by readers on the basis of these views. Please send in your queries to legal.bt@intoday.com or Going By The Book, c/o Business Today, F-26, Connaught Place, New Delhi-1

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