IN THE SUPREME COURT OF INDIA,

APPELLATE JURISDICTION

___________________________________________________________________________
GMK Developers Limited
Naruto Airport Development Corporation
Civil Aviation Board of India
Board of Directors of GMK Developers Limited Appellants


v.


Competition Commission of India
Securities and Exchange Board of India
Mr. Aryan Baniwal
Mr. Palanisamy Respondents
___________________________________________________________________________














Written Submissions on behalf of the Respondents,
A 32
Counsel for the Appellants
ii
TABLE OF CONTENTS

INDEX OF AUTHORITIES ............................................................................................................. III
STATEMENT OF JURISDICTION ..................................................................................................... V
STATEMENT OF FACTS .............................................................................................................. VI
ISSUES RAISED ............................................................................................................................ X
I. WHETHER THE NON-COMPETE AGREEMENT AS ENTERED IN ITS ORIGINAL FORM OUGHT TO
STAND? ....................................................................................................................................... X
SUMMARY OF ARGUMENTS ....................................................................................................... XI
ARGUMENTS ADVANCED ............................................................................................................ 1
II. NARUTO DOES NOT HAVE AN OBLIGATION TO MAKE A MANDATORY TAKEOVER OFFER
UNDER THE SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS REGULATIONS, 2011
[TAKEOVER CODE] ..................................................................................................................... 4
PRAYER ..................................................................................................................................... 14


iii

INDEX OF AUTHORITIES

1. A Registered Society v. Union of India & Ors.,(1996) 6 SCC 530
2. Ajay Hasia v. Khalid Majid, AIR 1981 SC 487
3. Ananda Engineering Works Pvt. Ltd. v. State of Kerala Mineral & Metals Ltd.
AIR 1995 Ker 302
4. BALCO Employees Union (Regd.) Vs. Union of India & Ors. (2002) 2 SCC 333
5. Barrett v. Duckett, (1995) 1 B.C.L.C. 243.
6. C.K. Achutan v. State of Kerala, AIR 1959 SC 490.
7. CIT v. Madan Gopal Radhey Lal 1968 Indlaw SC 276; CIT v. Associated
Industrial Development Co. (P.)
8. Delhi Science Forum & Ors. v. Union of India & Anr (1996) 2 SCC 405
9. Delhi Science Forum & Ors. Vs. Union of India & Anr (1996) 2 SCC 405
10. Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989)
3 SCC 293.
11. F.C.I. v. Kamdhenu Cattle Feed Industries, AIR 1993 SC 1601.
12. Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC 344.
13. Trilochan Mishra v. State of Orissa
14. Haji T.M. Hassan Rawther Vs. Kerala Financial Corpn. (1988) 1 SCC 166.
15. M.P. Oil Extraction and Anr. v. State of M.P. & Ors (1997) 7 SCC 592.
16. Meerut Development Authority v. Association of Management Studies & Anr.
(2009) 6 SCC 17.
17. Notice for Acquisition filed by Orchid Chemicals and Pharmaceuticals Limited
and Hospira Healthcare India Private Limited, Combination Registration No.-
2012/09/79.
18. Notice for Acquisition given by Torrent Pharmaceuticals Limited and Elder
Pharmaceuticals Limited, Combination Registration No.- 2014/01/148.
19. Notice for Acquisition of United Spirits Limited by Relay B.V. (Diageo),
Combination Registration No. C- 2012/12/97.
20. Notice given by Synnex Corporation, Combination Registration No. C-
2013/10/136.
iv
21. Prabhudas bhai Bhikhabhai Patel v. State of Gujarat AIR 1981 Guj 117.
22. Prudential Assurance Co. Ltd. v. Newman Industries Ltd., (1981) Ch 257.
23. Ram Prasad Somani v. The Securities and Exchange Board of India, 69 SCL 168
(SAT).
24. Raunak International Ltd. v. I.V.R. Construction Ltd., AIR 1999 SC 393 : (1999)
1 SCC 492.
25. Re: Special Reference no.1 of 2012
26. Rhodia S.A v. SEBI, 2001 Indlaw SAT 27
27. Sandip Save v. Chairman, SEBI, 2003 41 SCL 47 SAT ;
28. State of Madhya Pradesh v. Nandlal, AIR 1987 SC 251
29. Subhkam Ventures v. Securities and Exchange Board of India, 2010 Indlaw SAT
12
30. Tata Cellular v. Union of India AIR 1996 SC 11
31. Technip SA v SMS Holdings, (2005) 5 SCC 465.
32. Union of India v. Walaiti Ram AIR 1971 SC 2295
33. Villianur Iyarkkai Padukappu Maiyam v. Union of India & Ors., (2009) 7
SCC 561
34. Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 6 SCC
613
v
STATEMENT OF JURISDICTION

The Appellants have approached this Honble Court under the following provisions:
1. GMK Developers Limited has approached this Honble Court under 53T of the
Competition Act, 2002; Article 132 of the Constitution of India, 1950.
2. Naruto Airport Development Corporation has approached this Honble Court under
53T of the Competition Act, 2002; 15(z) of the Securities and Exchange Board of
India Act, 1992.
3. Civil Aviation Board of India has approached this Honble Court under Article 132 of
the Constitution of India, 1950.
4. Board of Directors of GMK Developers Limited has approached this Honble Court
under Article 132 of the Constitution of India, 1950.
vi
STATEMENT OF FACTS

Background
A tendering process was initiated for the expansion of the Coimbatore airport (hereinafter as
Expansion Project) with the Civil Aviation Board of India (hereinafter CABI) inviting
expression of interest from potential developers. The basic requirements included that a
tenderer or its sponsor must have had experience of developing at least one international
airport either in India or abroad having a passenger capacity of 10 million per year and after
the completion of the shortlisting process, a cut-off period was to be notified to the shortlisted
bidders who would be asked to submit their bids which would be accepted on a first come-
first serve basis. As per this process, five different bidders were shortlisted to the next round
of selections. However, the Banana Crusaders Party (hereinafter BCP), a party which
focused on corruption issues protested against this tendering process, the CABI amended the
earlier terms of the tender from the first come-first served basis to that based on financial
and technical merits that were to be decided by a High-Powered Committee (hereinafter
HPC) which was to be established by CABI.
Selection of GMK and Tie-up with Naruto
GMK Developers (hereinafter GMK) were selected as the preferred bidder amongst the
shortlisted. Mr. Gambira Naidu and his family are the promoters of GMK holding a
substantial majority of the companys shares. Mr. Naidu and his family also have 5 seats out
of 10 on the board of directors of the company. In order to obtain additional financing for the
Coimbatore project, GMK approached various investors and selected Naruto Airport
Development Corporation, Japan (hereinafter Naruto) and the latter agreed to invest
US$350 million into GMK in exchange for a 24% equity stake in the company. Given its
investment in the company, Naruto also sought certain rights from GMK mainly the right to
nominate 2 members on the board of GMK and sought affirmative (or veto) rights in respect
of a list of significant matters pertaining to the commencement of new business by GMK,
issuing of preference shares, appointment of Chief Executive Officer (CEO) of GMK,
corporate restructuring of GMK, amendment of articles of association and winding-up of
GMK. These rights which were contained in the shareholders agreement were also to be
duly incorporated into the articles of association of GMK.
vii
A non-compete agreement was also contemplated among Naruto, GMK and the promoters of
GMK (hereinafter collectively as parties) and as per the agreement, the promoters of GMK
agreed to not enter either directly or indirectly into or be affiliated with any business relating
to the development and management of airports in South Asia during the term of the
Shareholders Agreement and for a period of six years following the termination of the
Shareholders Agreement. Both these agreements were entered into by the parties on
December 31, 2012.
Notification to the Competition Commission of India and Appeal to COMPAT
On January 15, 2013, the parties notified the Competition Commission of India (hereinafter
CCI) regarding the transaction and also filed the Shareholders and Non-Compete
Agreement with the CCI. On February 5, 2013, the CCI wrote to Naruto and stated that based
on the transaction documents, it was of the opinion that Naruto is in control of GMK for the
purposes of the Competition Act and with regard to the Shareholders Agreement, the CCI
found that there was no appreciable adverse effect on the competition in India since Naruto
did not have any operations in India. However, with regard to the Non-Compete Agreement,
the CCI did find the terms to have an appreciable adverse effect on the competition and
ordered the continuation period of the Non-Compete Agreement to be reduced from six to
two years and also to restrict the scope of the operation of these terms to South India. These
terms were unacceptable to the CEO of Naruto Mr. Ishikawa and hence the parties preferred
an appeal to the Competition Appellate Tribunal (hereinafter as COMPAT) against the order
of the CCI. The appeal was dismissed and hence the parties preferred an appeal to the
Supreme Court.
Notice by Securities and Exchange Board of India (SEBI) and Appeal to SAT
During the period when the matters were argued before COMPAT, Naruto received a show-
cause notice from SEBI asking it to explain as to why Naruto did not make a mandatory offer
to the remaining shareholders of GMK to acquire their shares. After hearing the response of
Naruto, SEBI passed an order which required Naruto to make a takeover offer to the
shareholders of GMK at an applicable price based on the fact that this should have been done
when the Shareholders Agreement was executed. Naruto was also ordered to pay 10%
interest p.a. for the period between the dates when the offer was required to be made and
when the offer was actually made. Naruto appealed against this order to the Securities
viii
Appellate Tribunal (SAT). SAT dismissed the appeal and upheld SEBIs order and against
this order, Naruto preferred an appeal before the Supreme Court.
When the parties were addressing the regulatory matters, in March 2013, Mr. Aryan Baniwal
a key leader of the BCP filed a writ petition before the Madras High Court challenging the
award of the expansion project to GMK. The petition alleged inappropriateness and illegality
in the contract awarding process and listed out serious allegations against the HPC which in
turn was based on a video clipping which showed Mr. Mudaliar, the public-relations officer
of GMK boasting to this wife as to how an all-expenses-paid 1-day trip abroad to certain
senior officials of the CABI some of whom may have been directly involved in handling the
project file. The board of GMK sent the DVD containing the video clipping to the Central
Forensic Sciences Laboratory (CFSL) in Hyderabad which after a thorough investigation was
unable to either confirm or deny the authenticity of the recording. Also, neither the
Government nor the Central Bureau of Investigation (CBI) found sufficient evidence to
conduct a further probe.
Quashing of the Award by the Madras High Court and Appeal to the Supreme Court
Accepting Mr. Baniwals argument that the tendering process was arbitrary and gave
unbridled discretion to the HPC, the Madras High Court admitted the writ petition and after
hearing the matter on merits quashed the award of concession agreement entered into by
GMK on July 16, 2012. The parties, along with CABI preferred an appeal to the Supreme
Court which was admitted.
Joint Suit in the Coimbatore District Court by Mr. Baniwal and Mr.Palanisamy and
Appeal to the Supreme Court
The main problem for the expansion project was the resettlement and rehabilitation of the
surrounding residents who were adversely affected by the project. A major point of dispute
was the possible noise pollution caused to the remaining residents as the plan involved flights
approaching the airport at a low height over the residential area inhabited by them. Mr.
Baniwal and Mr. Palanisamy acquired 50 shares each of GMK and both of them brought a
joint suit in the Coimbatore District for and on behalf of GMK against the directors of GMK.
According to them, the directors approval of GMK to enter into the agreement with the CABI
were in breach of their obligations in law towards Corporate Social Responsibility (CSR)
since this showed no concern to the environment and the community affected by the
expansion project and hence this amounted to a breach of the directors duties. The suit
ix
sought for a restraint against the directors of GMK from proceeding with any action with
regards to the expansion project and also sought for a declaration from the Court that if the
project were to continue, the board of GMK must be obligated to expend the necessary funds
in furtherance of the CSR obligations under applicable law. Based on these arguments, an ad-
interim injunction was granted by the District Court against the directors. The Court did not
rule on the CSR obligations since it opined that there was no certainty that the project would
in fact continue. Against these orders, the directors preferred an appeal to the Madras High
Court which was dismissed and hence the directors have been constrained to prefer an appeal
to the Supreme Court which was admitted.


x
ISSUES RAISED

I. WHETHER THE NON-COMPETE AGREEMENT AS ENTERED IN ITS ORIGINAL FORM
OUGHT TO STAND?

II. WHETHER NARUTO IS OBLIGED TO MAKE A MANDATORY TAKEOVER OFFER?


III. WHETHER THE TENDER PROCESS IS HIT BY ARBITRANINESS AND ILLEGALITY?


IV. WHETHER THE DERIVATIVE ACTION IS MAINTAINABLE?
xi
SUMMARY OF ARGUMENTS



I. THE NON-COMPETE AGREEMENT ENTERED INTO BETWEEN NARUTO , GMK AND
THE PROMOTERS OF GMK OUGHT TO STAND IN ITS ORIGINAL FORM

The non-compete agreement between Naruto, GMK and the promoters of GMK should stand
in its original form as it does not have any appreciable adverse effect on competition. Firstly,
the agreement does not reduce or eliminate competition in the relevant market. Secondly, the
time period stipulated under the agreement does not affect competition in the relevant market.

II. NARUTO DOES NOT HAVE AN OBLIGATION TO MAKE A MANDATORY TAKEOVER
OFFER UNDER THE SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS
REGULATIONS, 2011 [TAKEOVER CODE]

Naruto does not have an obligation to make a mandatory takeover offer under the Substantial
Acquisition of Shares and Takeovers Regulations, 2011 [Takeover Code] as it has not
triggered any of the requirements necessary to make a mandatory offer under the Code.
Naruto has not acquired control over GMK. Firstly, right to appoint two directors out of
twelve does not constitute the right to appoint majority of directors. Secondly, negative rights
as contemplated in the Shareholders agreement do not constitute control. Thirdly, even if
such rights can constitute control, they should relate to the day to day management of the
company. Fourthly, Naruto did not have any intention of acquiring GMK.

III. THE AWARD OF THE TENDER IS NOT ARBITRARY OR ILLEGAL
It is humbly submitted that the Honble High Court of Judicature at Madras ought not to have
quashed the tendering process as it cannot be subject to judicial review. Furthermore, the
award of the concession was sans because (i) CABI is not under an obligation to award the
concession to the highest bidder, (ii) The auction method need not always be followed, and
(iii) The HPC did not have unbridled discretion and finally the tender process of CABI is
within the bounds of law.

xii

IV. THE DERIVATE ACTION IS NOT MAINTAINABLE
It is submitted that the derivative action in the present case is not maintainable. First, the
action relates to the internal management of the company and hence is not subject to judicial
scrutiny. The primary rule of judicial non-intervention prevents the internal management of a
company from judicial review. Second, none of the exceptions to the Foss v. Harbottle
1
rule
are engaged. Third, the suit was not brought in good faith.





1
ARGUMENTS ADVANCED

I. THE NON-COMPETE AGREEMENT ENTERED INTO BETWEEN NARUTO , GMK AND
THE PROMOTERS OF GMK OUGHT TO STAND IN ITS ORIGINAL FORM
It is submitted that the non-compete agreement between Naruto, GMK and the promoters of
GMK should stand in its original form as the non-compete agreement in its original form
does not have any appreciable adverse effect on competition.
A. The non-compete agreement entered into between Naruto and GMK does not have an
appreciable adverse effect on competition
For the determination of appreciable adverse effect on competition under the Competition
Act, some of the factors considered are the facts and circumstances of the case, the
specifications of the relevant market and the actual or likely decline of competition in the
relevant market.
2
It is submitted that the non-compete agreement in its original form, does not
cause an AAEC. Firstly, the agreement does not reduce or eliminate competition in the
relevant market. Secondly, the time period stipulated under the agreement does not affect
competition in the relevant market.
1. The agreement does not reduce or eliminate competition in the relevant market

To determine whether the agreement has an AAEC, the relevant market for the purpose of the
agreement needs to be determined. The relevant market is further divided into the relevant
product market and the relevant geographical market.
In the present case, the relevant geographical market is the aviation infrastructure market in
India. To determine the relevant geographical market under the act, the market should
comprise of an area where the condition of supply or demand of goods or services is
distinctly homogenous and can be distinguished from the conditions in the neighbouring
areas.
3
Indias aviation sector is set to become the third largest in the world by 2020.
4
Not
only this but the twelfth Fifth Year Plan has also made air connectivity in tier two and tier
three cities a nationwide priority.
5
Furthermore, Indias aviation market is the ninth largest

2
T. Ramappa, Competition Law in India- Policies, Issues and Developments, 75 (2006).
3
. 2(s), The Competition Act, 2002.
4
Factsheet, 1.
5
Fourth International Conference on Civil Aviation- India Aviation 2014, a FICCI-KPMG Report,
available at http://www.ficci.com/publication-page.asp?spid=20371.
2
market in India and the biggest in terms of air cargo tonnage.
6
Indias aviation infrastructure
market can also be distinguished from its neighbouring areas in terms of its keenness to seek
private investment in the market unlike its neighbouring countries.
7
India is also expected to
experience a sharp increase in the demand for international travel
8
, while the neighbouring
countries like Bangladesh have very few projects lined up which are mainly concerned with
building ancillary buildings and services.
9
Therefore, it is submitted that the specifications of
Indian aviation infrastructure market are distinctly homogenous and can be distinguished
from the neighbouring areas. Another important aspect in determining the relevant market is
the intention of the parties. In Combination Registration No.- C-2012/12/97, the CCI stated
that Since [ ][ ] are slated to operate on a pan India basis, the relevant geographic market
for the assessment of the proposed combination is considered to be the whole of India.
10

GMK has a pan India presence and their operations are not limited to any particular part of
India.
Therefore, it is submitted that considering the intention of the parties and the specifics of the
aviation infrastructure industry in South Asia, the factors listed under 19(6) indicate that
South Asia is the relevant market for the purpose of the agreement.
Considering the aviation infrastructure market in India as the relevant market, it is submitted
that the agreement does not cause an AAEC due to the following reasons. The applicable
for the determination of AAEC of the agreement is 20(4). None of the conditions
mentioned under 20(4) are fulfilled.
The applicable for the determination of AAEC of the agreement is 20(4) - In Combination
Registration No.-2012/09/79, the CCI held that non- compete obligations must be
reasonable particularly in respect of the business activities, geographical areas and
person(s) subject to such restraint so as to ensure that such obligations do not result in an
appreciable adverse effect on competition.
11


6
Available at http://www.rncos.com/Market-Analysis-Reports/Indian-Aerospace-Industry-Analysis-
IM289.htm.
7
Available at http://tribune.com.pk/story/721154/senate-panel-told-china-to-build-new-gwadar-
international-airport/.
8
Ministry of Civil Aviation, Strategic Plan 2010-2015, available at
http://civilaviation.gov.in/cs/groups/public/documents/newsandupdates/moca_000783.pdf.
9
Available at http://www.caab.gov.bd/devlpmnts/currproj.html.
10
Notice for Acquisition of United Spirits Limited by Relay B.V. (Diageo), Combination Registration
No. C- 2012/12/97.
11
Notice for Acquisition filed by Orchid Chemicals and Pharmaceuticals Limited and Hospira
Healthcare India Private Limited, Combination Registration No.-2012/09/79.
3
The combined shares of Naruto and GMK qualify their agreement as a combination under 5
of the competition Act.
12
Combinations have been dealt with under 31(1) of the Act in a
number of cases.
13
31 deals with the orders of CCI on certain types of combinations. To
determine the AAEC of combinations under 31, conditions under 20(4) need to be
satisfied.
14
Therefore, it is submitted that to determine whether the non-compete agreement
causes AAEC or not, 20(4) should be applied.
None of the conditions mentioned under 20(4) are fulfilled- The CCI has held that as long
as the market is fragmented with the presence of several big players, the possibility of AAEC
is unlikely.
15
It has also held that even if the combined market share of a proposed
combination exceeds 50%, there is no threat of an AAEC if significant credible competitors
are present in the relevant market.
16
It is submitted that in the relevant market, several other
players are present. The aviation infrastructure market in India has a number of key players
and is marked by stiff competition. Two possible examples of the same could be the other
bids received for the Coimbatore project
17
and the fact that seven airports have been built in
India on the PPP model.
18
The aviation infrastructure market is a highly competitive one in
India with a number of credible competitors and hence there is no possibility of an AAEC,
Furthermore, the combination also does not lead to any entry barriers as the sector is a highly
regulated one and most of the bidding restrictions placed on the firms are by the state
authorities.
B. The time period stipulated under the agreement does not affect competition in the
relevant market.
The non-compete agreement stipulates a time period of six years following the termination of
the Shareholders agreement.
19
It is submitted that this time period does not affect
competition in the market as it is reasonable given the specifics of the aviation industry. It has

12
Clarification No. 24 to the Proposition.
13
Notice for Acquisition of United Spirits Limited by Relay B.V. (Diageo), Combination Registration
No. C- 2012/12/97; Notice for Acquisition filed by Orchid Chemicals and Pharmaceuticals Limited
and Hospira Healthcare India Private Limited, Combination Registration No.-2012/09/79; Notice for
Acquisition given by Torrent Pharmaceuticals Limited and Elder Pharmaceuticals Limited,
Combination Registration No.- 2014/01/148.
14
. 34, Notice for Acquisition of United Spirits Limited by Relay B.V. (Diageo), Combination
Registration No. C- 2012/12/97. .
15
Notice given by Synnex Corporation, Combination Registration No. C-2013/10/136.
16
Notice given by Etihad Airways and Jet Airways, Combination Registration No. C-2013/05/122.
17
Factsheeet, . 3.
18
Ministry of Civil Aviation, Strategic Plan 2010-2015, available at
http://civilaviation.gov.in/cs/groups/public/documents/newsandupdates/moca_000783.pdf.
19
Factsheeet, . 7.
4
been stated by the CCI that a non-compete agreement shall be reasonable in respect of the
duration over which such restraint is enforceable.20 To determine the reasonable time
period, the facts peculiar to the business to which the restraint is applied21, must be taken
into account. In the given case, the time period of six years is reasonable as airport
construction is a technological intensive project and has a high gestation period.22 The
execution of such projects has usually taken 60-76 months around the world.23 Therefore,
the stipulation of six years under the agreement is reasonable.
The appellants submit that since the non-compete agreement does not cause any AAEC in the
relevant market in India, it should be allowed in its original form as was stipulated by the
parties.

II. NARUTO DOES NOT HAVE AN OBLIGATION TO MAKE A MANDATORY TAKEOVER
OFFER UNDER THE SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS
REGULATIONS, 2011 [TAKEOVER CODE]

Naruto does not have an obligation to make a mandatory takeover offer under the Substantial
Acquisition of Shares and Takeovers Regulations, 2011 [Takeover Code] as it has not
triggered any of the requirements necessary to make a mandatory offer under the Code.
Under the Code, one of the following conditions needs to be satisfied in order to trigger a
mandatory takeover offer. (a) Acquisition of shares or voting rights entitling the acquirer and
the PACs to exercise 25% or more voting rights in the target company
24
, (b) Acquisition of
additional shares or voting rights entitling the acquirer and PAC to exercise more than 5%
voting rights in a financial year by an acquirer who along with PAC already holds 25% or
more but less than 75% shares or voting rights in the target company
25
, (c) Acquisition of
control by the acquirer over the target company.
26
The first two conditions are not in question

20
Notice for Acquisition filed by Orchid Chemicals and Pharmaceuticals Limited and Hospira
Healthcare India Private Limited, Combination Registration No.-2012/09/79. 10
21
Per Brandeis J., Board of Trade of City of Chicago v. US, 246 US 231 (1918) (Supreme Court of
United States).
22
Available at
https://www.crisilresearch.com/industryasync.jspx?serviceId=664#storyId#1290756158404#Id#256
#newsFeedId#undefined.
23
Changi Airport took seventy six months, Heathrow T5 took sixty months and the New Terminal T-
3 at the Beijing Airport took sixty months.
24
Regulation 3(1), Takeover Code 2011.
25
Regulation 3(2), Takeover Code, 2011.
26
Regulation 4, Takeover Code, 2011.
5
in the present case. With regards to the third condition, it is submitted that there is no
acquisition of control by Naruto over GMK.
Under regulation 4 of the Code, Irrespective of acquisition or holding of shares or voting
rights in a target company, no acquirer shall acquire, directly or indirectly, control over such
target company unless the acquirer makes a public announcement of an open offer for
acquiring shares of such target company in accordance with these regulations.
27
It is
submitted that Naruto has not acquired control over GMK as contemplated under Regulation
4 of the Takeover Code and hence is not obligated to make a mandatory takeover offer.
1. Naruto does not have control over GMK
Naruto has not acquired control over GMK. Control has been defined under the takeover
Code as including the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their shareholding or management rights
or shareholders agreements or voting agreements or in any other manner
28
. None of the
above mentioned conditions are satisfied in the given case. Admittedly, de facto control and
not just de jure control can also constitute control for the purposes of the Takeover
Regulations.
29
It is submitted, however, that Naruto does not have any form of control over
GMK. This is due to the following reasons. Firstly, right to appoint two directors out of
twelve does not constitute the right to appoint majority of directors. Secondly, negative rights
as contemplated in the Shareholders agreement do not constitute control. Thirdly, even if
such rights can constitute control, they should relate to the day to day management of the
company. Fourthly, Naruto did not have any intention of acquiring GMK.
A. Naruto does not have the right to appoint majority of the directors
Naruto can only appoint two out of twelve directors on the Board of GMK. In Ram Prasad
Somani vs. SEBI
30
, it was held that appointment of 5 out of 14 directors could not tantamount
to gaining of control over a company since they were in minority. Therefore, right to appoint
two directors out of twelve does not constitute the right to appoint majority of directors.
B. Negative rights do not constitute control

27
Regulation 4, Takeover Code, 2011.
28
Regulation 2(1)(e), Takeover Code, 2011.
29
Report of the Takeover Regulations Advisory Committee, 29, (2010); Gujarat Ambuja Cement
Case, Appeal No.44/2001.
30
69 SCL 168 (SAT).
6
The affirmative rights given to Naruto under the Shareholders Agreement are such that they
do not control the management or policy decisions of the company. In Subhkam Ventures
31
,
SAT limited the scope of Control by clarifying that veto rights (right to veto certain actions
proposed to be undertaken by the company) do not constitute control under the Takeover
Code. Relying on the definition of control in Blacks Law Dictionary
32
, the tribunal held that
the definition of control under the Code only implies proactive power and not reactive power.
The proactive power is the power through which the acquirer can command or direct the
company to take a certain action. The driving seat test devised in the case requires an acquirer
to be able to be in a position to steer the company in order to exercise control. Power by
which the acquirer can only prevent a company from taking certain actions in itself does not
constitute control. Therefore, mere veto rights over the actions of a company will not
constitute control.
It is submitted that the shareholders agreement only confers negative rights on Naruto with
respect to the affairs of GMK and it does not have the power to initiate any action or to
command or direct GMK in anyway. Therefore, Naruto does not have control over GMK.
C. Even if negative rights can constitute control, they should relate to the day to day
management of the company.
It is submitted that even if negative rights can lead to control, they should relate to the day to
day management of the company in order to constitute control.
33
US accounting systems
such as the GAAP make a distinction between participative and protection rights wherein the
former relate to the day to day management of a company while the latter do not.
34
The
Honourable Supreme Court has also recognized this distinction.
35
The rights granted to
Naruto under the shareholders agreement are only protective rights and not participative
rights since they do not relate to the day to day management of GMK. It is common practice
for investors to demand certain veto rights to protect their investment. The veto rights granted

31
Subhkam Ventures v. Securities and Exchange Board of India, 2010 Indlaw SAT 12 [Subhkam
Ventures].
32
Per BLACKS LAW DICTIONARY, 353 (Bryan A. Garner et al eds., 8TH edn., 2004)., Control -
The direct or indirect power to direct the management and policies of a person or entity, whether
through ownership of voting securities, by contract, or otherwise; the power or authority to manage,
direct, or oversee.
33
Subhkam Ventures, 2010 Indlaw SAT at 9.
34
Generally Accepted Accounting Principles [GAAP] are rules and principles for accounting used
in the United States of America
35
Vodafone International Holdings B.V. v. Union of India & Anr., (2012) 6 SCC 613 at 76.
7
to Naruto under the shareholders agreement are only to protect their interest in GMK given
their significant financial outlay in the company and hence do not amount to control.
Admittedly, the requirement of rights being related to day to day management of a company
was done away with in Rhodia S.A.
36
, but the case is not applicable here. In that case, SAT
deduced the ability of the appellants to control the acquirer not only through the veto rights
vested in the appellants. The appellant apart from funding the acquirers also completely
controlled the takeover bid of the wholly owned subsidiary of the acquirer on the target
company in U.K. therefore, it would be wrong to infer from the decision that veto rights over
significant corporate transaction of a company constitute control. The appellants in that case
exercised a degree of control over the company well beyond their affirmative veto rights.
D. Naruto did not have any intention to acquire GMK
Intention of the parties is also a relevant factor while determining the application of the
Takeover Code over a transaction.
37
To determine the intention, the conduct of the parties
should be looked into.
38
It is submitted that Naruto did not intend to acquire control over
GMK. The veto rights were sought only to protect the interest of Naruto in GMK
considering its significant financial stake in the company.
39
It is standard practice for
investors to demand certain affirmative rights to safeguard their investment. Furthermore, the
fundamental commercial arrangement underlying the transaction was that control over GMK
would lie with the promoters and Naruto did not have any interest in obtaining any
controlling rights over the company.
40


III. THE AWARD OF THE TENDER IS NOT ARBITRARY OR ILLEGAL
It is humbly submitted that the Honble High Court of Judicature at Madras ought not to have
quashed the tendering process as it cannot be subject to judicial review. [A]. Furthermore,
the award of the concession was sans [B] and finally the tender process of CABI is within the
bounds of law[C].
A. The tendering process is not subject to judicial review

36
Rhodia S.A v. SEBI, 2001 Indlaw SAT 27 [Rhodia S.A].
37
Sandip Save v. Chairman, SEBI, 2003 41 SCL 47 SAT [Sandip Save]; Technip SA v SMS
Holdings, (2005) 5 SCC 465.
38
CIT v. Madan Gopal Radhey Lal 1968 Indlaw SC 276; CIT v. Associated Industrial Development
Co. (P.)
Ltd. 1971 Indlaw SC 364.
39
Factsheet, 6.
40
Factsheet, 9.
8
It is conceded that policy decisions by Government are subject to judicial review, but, it is
submitted that, exercise of such power by the Courts is subject to certain inherent
limitations.
41

Judicial intervention in the legislatures and the administrations decision apropos economic
policy is an entrenched position of law,
42
arising mainly out of lack of expertise of the
judiciary on the same.
43
Courts need to exercise restraint in matters relating to economic
policies and should only strike down the governments actions in cases where they appear to
be plainly arbitrary, irrational or malafide.
44
The judiciary must not interfere with economic
policy until it is demonstrated to be violative of constitutional or legal limits on power or
abhorrent to reason
45
and the same is not discernible from the facts in the instant case nor
has the respondent established the same.
The Honourable Supreme Court in Delhi Science Forum v. Union of India
46
laid down that
policies cannot be tested in Court of Law unless and until, execution of the policy has
infringed upon any of the constitutional or statutory provisions. In the given fact-matrix, the
respondent has questioned the policy and not only the implementation, which is not tenable.
The award of tender was not arbitrary
The presumption of validity of State action holds that, such action, is reasonable and in public
interest. The burden of proof to establish that such action is unreasonable, arbitrary or
contrary to the professed norms or not informed by public interest rests with the party
questioning its validity.
47
It is humbly submitted that the method devised for award of
concession by CABI was not arbitrary as firstly, CABI is not stipulated to award the
concession to the highest bidder; secondly, it is not imperative to follow the auction method
and finally the discretion enjoyed by HPC was not unbridled.
CABI is not under an obligation to award the concession to the highest bidder
It is submitted that, just the incidence of the highest bid does not vest in the highest bidder a
right to contract.
48
Firstly, because the Government is, the guardian of the finances of the

41
Tata Cellular v. Union of India AIR 1996 SC 11 : (1994) 6 SCC 651.
42
R.K. Garg And Ors. v. Union Of India (1981) 4 SCC 675.
43
Peerless General Finance and Investment Co. Ltd. & Anr. v. Reserve Bank of India (1992) 2 SCC
343.
44
State of Madhya Pradesh v. Nandlal, AIR 1987 SC 251.
45
BALCO Employees Union (Regd.) Vs. Union of India & Ors. (2002) 2 SCC 333.
46
Delhi Science Forum & Ors. v. Union of India & Anr (1996) 2 SCC 405.
47
Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293.
48
F.C.I. v. Kamdhenu Cattle Feed Industries, AIR 1993 SC 1601.
9
State
49
, hence, it enjoys the right, to choose a person to their liking to fulfil contracts which
they wish to be performed.
50
Secondly, it is now settled law that the highest bidder need not
necessarily be awarded the contract,
51
since; criteria apart from price may play a role in such
contracts.
52
The right of the State to award the contract to a tender other than the highest
bidder has been upheld by courts.
53
Authorities have to take multiple considerations into
account while awarding contracts, a fact recognised and accepted by the judiciary.
54

Competitive rates serve as one of the many criteria involved in awarding of contracts.
55
Since
the goal of appellant was to expand and modernise the airport infrastructure speedily and not
revenue maximisation.
56
To fulfil the same purpose, HPC chose a developer with
experience.
57

Experience is a key factor in awarding contracts of such importance and complexity and the
same cannot be termed as an extraneous or irrelevant consideration

.
58
The judiciary has
time and again, reiterated that choosing an experienced bidder over the highest bidder is not
arbitrary.
59

When one entity is preferred over other, then, the aggrieved party ought not to claim
protection of Article 14
60
as

Article 14 of the Constitution is not infringed when the State
attempts to award the contract to the best person or the best quotation,
61
and the mere
exercise of this choice is not arbitrary.
62
The auction method need not always be followed

49
Tata Cellular v. Union of India AIR 1996 SC 11 : (1994) 6 SCC 651.
50
C.K. Achutan v. State of Kerala, AIR 1959 SC 490.
51
Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC 344; Trilochan Mishra v.
State of Orissa
AIR 1971 SC 733; Union of India v. Walaiti Ram AIR 1971 SC 2295.
52
Raunak International Ltd. v. I.V.R. Construction Ltd., AIR 1999 SC 393 : (1999) 1 SCC 492.
53
Puruxotoma Ramanata Quenim v. Makan Lalyan Tandel, AIR 1974 SC 651; Meerut Development
Authority v. Association of Management Studies & Anr. (2009) 6 SCC 17; T.M. Peer Mohammed v.
D.F.O. Tenmala, AIR 1974 Ker 192.
54
Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir, AIR 1980 SC 1992.
55
Delhi Science Forum & Ors. Vs. Union of India & Anr (1996) 2 SCC 405.
56
Fact Sheet para 1 and 2.
57
Fact Sheet para 5.
58
Ananda Egineering Works Pvt. Ltd. v. State of Kerala Mineral & Metals Ltd. AIR 1995 Ker 302
59
FCI Coop. Soc. v. FCI, AIR 1988 Knt 332; G. Rambabu v. Zonal Manager, FCI, AIR 1988 AP 304;
Omprakash Patwarika v. Union of India AIR 1982 Cal 340; Ananda Egineering Works Pvt. Ltd. v.
State of Kerala Mineral & Metals Ltd. AIR 1995 Ker 302.
60
C.K. Achutan v. State of Kerala AIR 1959 SC 490.
61
Tata Cellular v. Union of India AIR 1996 SC 11 : (1994) 6 SCC 651.
62
Tata Cellular v. Union of India AIR 1996 SC 11 : (1994) 6 SCC 651.
10
Although it is conceded that auction is one of the most appropriate methods for distribution
of government tenders but, it is submitted that the State may deviate from the auction method
for compelling reasons.
63

Courts have recognized that auction is the ordinary rule, it is not an invariable rule. The
Honourable Supreme Court in in Re: Special Reference no.1 of 2012
64
laid down that while
auctions may be the best way of maximizing revenue but revenue maximization may not
always be the best way to serve public good. Therefore, certain situations may demand
departure from the rule.
65
It is humbly submitted that public good is biggest determinant in
distributing government tenders. It is humbly submitted that, not holding of public auction
ought not conclude that the exercise of the executive power was carried out in an arbitrary
manner.
66

The HPC was not given unbridled discretion
It is submitted that the discretion given to HPC was not unbridled but was subject to an
objective selection criterion. The criteria had been formulated in order to carry out selection
of the awardee in a just, fair and non-arbitrary
67
manner. It is conceded in that A
Registered Society v. Union of India
68
, it was held that the non-disclosure of criteria amounts
to arbitrariness, it is submitted that the given fact matrix is distinguishable. In Registered
Society , the process was conducted without keeping any guidelines in view and without
inviting any applications which is in stark contrast to the given fact matrix wherein,
guidelines were stipulated for the award of the tender.
The process is not hit by illegality or mala fides
It is submitted that one ought to specifically plead mala fides and mere use of words such as
mala fide, corruption and corrupt practice is insufficient for the Court to deliberate upon
mala fides.
69
Under no circumstances can suspicion of wrong-doing take the place of proof in
such issues.
70
The allegations of illegality are based on hearsay evidence and are in no manner
cogent material
71
, which is essential to sustaining such allegations.


63
M.P. Oil Extraction and Anr. v. State of M.P. & Ors (1997) 7 SCC 592.
64
Re: Special Reference no.1 of 2012.
65
Haji T.M. Hassan Rawther Vs. Kerala Financial Corpn. (1988) 1 SCC 166.
66
Netai Bag & Ors. v. State of W.B. & Ors. (2000) 8 SCC 262; Villianur Iyarkkai Padukappu
Maiyam v. Union of India & Ors., (2009) 7 SCC 561.
67
A Registered Society v. Union of India & Ors.,(1996) 6 SCC 530.
68
A Registered Society v. Union of India & Ors.,(1996) 6 SCC 530.
69
State of Madhya Pradesh v. Nandlal, AIR 1987 SC 251.
70
Ajay Hasia v. Khalid Majid, AIR 1981 SC 487.
71
Ajay Hasia v. Khalid Majid, AIR 1981 SC 487.
11
IV. THE DERIVATE ACTION IS NOT MAINTAINABLE
It is submitted that the derivative action is not maintainable. First, the action relates to the
internal management of the company and hence is not subject to judicial scrutiny. The
primary rule of judicial non-intervention prevents the internal management of a company
from judicial review. Second, none of the exceptions to the Foss v. Harbottle
72
rule are
engaged. Third, the suit was not brought in good faith.

a) The action relates to internal management of the company

The rule of judicial non-intervention states that courts will not ordinarily interfere in the
internal management of a company at the behest of a dissatisfied shareholder.
73
The court
will not determine any question with regards to the internal management of the company
unless the suit has been brought by the company itself.
74
The rationale behind the same is the
presumption that the people managing the affairs of the company are the best judge of the
best interests of the company.
75
The rule is a corollary to the rule established in Foss v.
Harbottle.
76
The rule has certain exceptions; it cannot be used to protect actions hit by fraud,
illegality or oppressive character.
77
It is submitted that the rule of judicial non-intervention
can be invoked in the given case as none of the above mentioned exceptions are satisfied.
b) None of the exceptions to the Foss v. Harbottle rule are engaged.
i. The actions of the directors are not ultra vires or illegal
The actions of the directors are not ultra vires as they have complied with their statutory
duties under the Companies Act. First, the directors have fulfilled their CSR obligations
under the Companies Act, 2013. The appellant may argue that the directors overlooked their
broader duties under the shared value approach of CSR. It is submitted that no such
requirement is made out under the Companies Act. While it is admitted that the draft CSR
rules contained a provision referring to the shared value approach but it was subsequently
specifically omitted by the Ministry of Corporate Affairs.
78
In light of this specific omission,
it can be argued that the directors were mandated to fulfil their CSR obligations under CSR

72
Foss v. Harbottle, (1843) 2 Hare 461.
73
Narendra Kumar Berlia v. Om Prakash Berlia, CS No. 12 of 2009.
74
MacDougall v. Gardiner, (1875) 1 ChD 13.
75
Narendra Kumar Berlia v. Om Prakash Berlia, CS No. 12 of 2009.
76
Foss v. Harbottle, (1843) 2 Hare 461
77
MacDougall v. Gardiner, (1875) 1 ChD 13, 21-22.
78
Companies (Corporate Social Responsibility Rules), 2014.
12
regime. As far as the Companies Act is concerned, CSR obligations are governed by 135
read with schedule VII of the Act. These provisions are supplemented by the Companies
(Corporate Social Responsibility Rules), 2014. It is submitted that GMK has complied with
the obligations under the above mentioned provisions
79
and hence there is no breach of its
CSR obligations.
As far as breach of directors duties under 166(2) is concerned, it is submitted that the act
of approving the project by the directors of GMK is not in breach of 166(2). While it is true
that the directors refused to discuss the environmental implications of the project in any of
the board meetings, such refusal is protected by the rule of judicial non-interference. It is
presumed that the directors have acted in good faith and in the best interest of the company
and this presumption will have to be rebutted in order for the derivative action to be
successful.
80

It is submitted that the directors of GMK acted in good faith and in the best interest of the
company in not considering the implication of the project on the environment and the
community. While 166(2) places an obligation on the directors to consider the interests of
other stakeholders, there is preference stipulated in considering such interests under the Act.
The directors have the right to prefer the interests of shareholders over other stakeholders. It
might be argued that the directors have a duty to consider the interests of all the stakeholders
equally under the , while trying to attain the objects of the company. It is submitted that
common law jurisdictions with similar provisions have upheld the right of the director to
consider the interest of the shareholders above other stakeholders.
81

ii. The derivative action should not be allowed on the interest of justice exception
It is submitted that the interest of justice exception to the rule in Foss v. Harbottle was
rejected by the House of Lords in the Prudential
82
case. Hence, it cannot be used as an
exception to bring the derivative action. Even if it is held to be an exception, the suit is not
maintainable as it cannot be held to be in the interest of the company.
The derivative action was filed to protect the interest of the stakeholders in the project area. It
is submitted that even if the directors of GMK failed to take into account the interest of
community and environment, there was no wrong done to the company. Furthermore, it is not

79
Clarification No. 75 to the Factsheet.
80
Revlon Inc. v. MacAndrews and Forbes Holdings Inc., (1986) 506 A.2d 182.
81
Mills Acquisition Co. v. Macmillan Inc., (1989) 559 A. 2d 1261.
82
Prudential Assurance Co. Ltd. v. Newman Industries Ltd., (1981) Ch 257.
13
in the best interest of GMK to proceed with the suit as it will only hamper the clearance of
the project which cannot be held to be in the interest of GMK.
c) The suit is not brought in good faith
It is submitted that a derivative suit will not be allowed to proceed if there was some ulterior
motive involved in the filing of the suit.
83
In the present case, the action has been brought
with an intention to hamper the Coimbatore project. One of the members bringing the suit has
been actively seeking to obstruct the project.
84
Furthermore, the shares were brought by both
the members bringing the action from the same source
85
which strongly suggests the
possibility of wrongdoing. Furthermore, the action should not be allowed since an alternative
remedy is available in the form of writ petition in the High Court.
86





83
Barrett v. Duckett, (1995) 1 B.C.L.C. 243.
84
Factsheet, Pg. 7, 17.
85
Factsheet, Pg. 7, 17.
86
Franbar Holdings Ltd. v. Patel, (2009) 1 B.C.L.C. 1.
14

PRAYER

In light of the arguments advanced and authorities cited, the appellants respectfully request
this Court to adjudge and declare that:
I. The Non-Compete Agreement ought to stand on the terms originally envisaged by
Naruto, GMK and the promoters of GMK;
II. Naruto is not under an obligation to make a mandatory takeover offer to the
shareholders of GMK ;
III. The award of the airport development concession ought not to have been quashed;
IV. The derivative action is not maintainable.
And pass any other order that this Honble Court may deem fit in the interests of justice,
equity and good conscience.
All of which is humbly prayed,
32A.