Functional Dead Lock

In Lau v. Chu, [2020] 1 WLR 4656 House of Lords indicated, “just and equitable winding up may be ordered where the Company’s members have fallen out in two related but distinct situations, which may or may not overlap.” The first of these is labelled as “functional dead lock” of a paralyzing kind, clearly recognized as a ground for just and equitable winding up in Sailing Ship Kentmere Co., [1897] WN 58. The second of these is where a Company is a corporate quasi-partnership and an irretrievable breakdown in trust and confidence between the participating members has taken place. In the first type of these cases, where there is a complete “functional dead lock“, winding up may be ordered regardless whether the Company is a quasi-partnership or not. But in the second type of cases, a breakdown of trust and confidence is enough even if there is not a complete “functional dead lock”. Therefore, for invoking the just and equitable standard, the underlying principle is, Court should be satisfied either the partners cannot carry on together or one of them cannot certainly carry on with the other.

The advantage English Courts have is, irretrievable breakdown of relationship is recognized as a ground for separation both in a matrimonial relationship and in commercial relationship, while it is not so in India.

Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd., [Civil Appeal No. 440-441 of 2020].