2011 (4) TMI 1208 - HC - Companies Law

Foreign Company Petition Not Barred for Lack of Business Presence in India

The court held that the petitioner, a foreign company, had not established a place of business in India as required by Section 591 of the Companies Act, ... Petition rejected as being barred by law - petitioner is a company, incorporated under the laws of Netherlands and has its registered office at Amsterdam, Netherlands, and its principal place of business is in the United Kingdom. Respondent Nos.1 and 2 are companies incorporated under the Companies Act, 1956. The petitioner and respondent No. 2 hold 24 per cent and 76 per cent respectively of the issued subscribed and paid-up equity capital of respondent No. 1 - respondent’s contention is that the petitioner, a foreign company, within the meaning of section 591(1)(a) of the Companies Act, 1956, has established a place of business in India, but has failed to comply with the provisions of section 592 and is, therefore, not entitled to institute the above petition in view of section 599 thereof – Held that;- application is, therefore, liable to be rejected on the ground that as the petitioner has not established a place of business in India, the provisions of section 599 do not apply. Company Application is dismissed Issues Involved:1. Whether the petition is barred by law under Section 599 of the Companies Act, 1956.2. Whether the petitioner, a foreign company, has established a place of business in India under Section 591 of the Companies Act, 1956.3. The implications of the Joint Venture Agreement (JVA) on the petitioner's rights and control over the respondent company.Detailed Analysis:1. Whether the petition is barred by law under Section 599 of the Companies Act, 1956:The respondent contended that the petition should be rejected as the petitioner, a foreign company, failed to comply with Section 592 and thus is barred from instituting the petition under Section 599. Section 599 states that a foreign company cannot bring any suit or legal proceeding until it complies with the provisions of Part XI of the Companies Act, 1956. The court concluded that since the petitioner has not established a place of business in India, Section 599 does not apply, and the petition is not barred by law.2. Whether the petitioner, a foreign company, has established a place of business in India under Section 591 of the Companies Act, 1956:The court examined if the petitioner, incorporated in the Netherlands, had established a place of business in India. The petitioner and respondent No. 2 held 26% and 74% of the equity shares of respondent No. 1, respectively. The court emphasized that merely holding shares or being part of a joint venture does not imply that the petitioner has established a place of business in India. The business of respondent No. 1 is distinct from the petitioner's business, and respondent No. 1 is not the petitioner's alter ego. Therefore, the court held that the petitioner has not established a place of business in India.3. The implications of the Joint Venture Agreement (JVA) on the petitioner's rights and control over the respondent company:The court analyzed the provisions of the JVA, which granted the petitioner certain rights, such as appointing directors and officers and requiring affirmative votes for certain decisions. However, these rights were deemed safeguards for the petitioner as a minority shareholder and did not confer management control over respondent No. 1. The court noted that these provisions do not merge the identities of the petitioner and respondent No. 1, and the petitioner remains an investor. The court also considered clauses related to business conduct and risk management but found they did not indicate the petitioner had established a place of business in India.Conclusion:The court concluded that the petitioner has not established a place of business in India, and thus, the provisions of Section 599 do not apply to bar the petition. The application for rejection of the petition was dismissed, and no costs were awarded.