We are the 51 per cent foreign partner of an Indian joint venture (JV) company. Due to a deadlock, the JV is unable to conduct business and needs to be wound up. The JV does not have enough liquidity to pay all its creditors. The Indian partner is unwilling to participate in the voluntary winding up of the jv unless it is outrightly paid a certain sum of money from the fixed deposits of the JV as settlement of its claims as a shareholder in winding up. Can the jv make such a payment to our Indian partner?

Under the Companies Act, 1956, in a case of voluntary winding up, the company's assets can be distributed among shareholders only after satisfaction of the company's outstanding liabilities towards its secured creditors, workmen, employees, government authorities, etc. Voluntary winding up, as the name suggests, can be initiated by the company's shareholders on their own. To protect the company's funds from misappropriation before the voluntary winding up, the transfer of movable or immovable property of the company within one year before the passing of a shareholders' special resolution (with 75 per cent majority) for voluntary winding up may be rendered void, if such transfer is challenged and proved by the liquidator during the winding up process as a transfer not being in the ordinary course of business of the company or in good faith and for valuable consideration.

Payment to your Indian partner from the fixed deposits of JV to obtain its cooperation in winding up, within a year of passing of shareholder's resolution for winding up, is likely to be held as a transfer not being in the ordinary course of business of the company or in good faith (since it fraudulently interferes with the scheme of the Act concerning payment to creditors and others entitled to payment before shareholders and may deprive them from receiving their rightful dues in winding up) and therefore may be held void if challenged by the liquidator. Even if the payment is effected more than a year before passing of the shareholders' resolution for voluntary winding up, the court may hold the directors of JV personally liable for misapplication of JV's money. The JV should, therefore, not make payment to your Indian partner out of its fixed deposits.

Alternatively, you can wind up the JV through the High Court by applying under Section 433 of the Act on the ground that due to an absolute deadlock in management of the JV, it would be just and equitable to wind it up.

The consent of your Indian partner will not be required to proceed for winding up on just and equitable grounds. However, to obtain a winding-up order, you will need to convince the court that due to the deadlock, it is impossible for the JV to carry on its business or that the JV has lost its substratum and there is no plan or prospect for revival of its business.

I am a director nominated on the board of a company by a financial institution. The Income Tax Department intends to take action against the directors of the company concerning certain false statements made in the company's returns. Can I be held liable in such an action?

Your liability will depend whether or not you were actually involved in making false statements in the company's return. We assume that, similar to directors of most financial institutions (such as Unit Trust of India, Life Insurance Corporation, State Bank of India, and Industrial Development Bank of India), your immunity as a director of the company will be limited by the statute governing your FI to obligations or liabilities incurred by reason of only being a director of such company or for anything done or omitted to be done in good faith in discharge of your duties as a director.

Consequently, if the Income Tax Department proves that you acted beyond your statutory immunity vis-a-vis the false statements made in the returns (such as you conspired or willfully abetted the false statements), you may be held liable.

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