SSRN Id2322609 PDF

A COLLECTION OF MOOT COURT PROBLEMS
ON CORPORATE LAW IN INDIA
Drafted and Compiled by:
Umakanth Varottil
Associate Professor
Faculty of Law
National University of Singapore
March 2020
Electronic copy available at: https://ssrn.com/abstract=2322609

PREFACE
Moot court competitions form an important co-curricular activity in the lives of law
students. Apart from equipping students with the skills required to prepare and argue a
case before a court or tribunal, it also introduces them to various areas of law and legal
issues that are contemporary in nature. By enabling teamwork, it also makes the entire
process an enjoyable experience. Moot courts have gradually acquired a great deal of
specialization, with competitions focusing on specific legal disciplines such as corporate
law, intellectual property, taxation, constitutional law, international law and so on.
Over the last several years, I have been called upon to draft moot court problems based
on corporate and commercial laws for internal selections at my alma mater, the National
Law School of India University, Bangalore, and on a few occasions for national level
corporate law and corporate governance moot court competitions in India (including for
the NUJS-Herbert Smith Freehills National Corporate Law Moot Court Competition).
Each time, I approach the task with some trepidation as it is usually daunting to draft
moot court problems that come closest to real-life situations that are challenging, well-
balanced and those that extract the talents of creativity and innovative thinking in young
legal minds. But, the process of identifying the relevant legal issues, building suitable
facts around them, and constructing controversies that enable a worthy legal battle has
been a substantially rewarding experience.
The purpose of posting this collection online is to make the material available more
widely to the legal academic community in India. Students may find the legal issues
posed by these problems of relevance. Others who wish to steer clear of dense legal
issues and rather pursue some general reading may find some of the fact situations
emanating from these problems of interest as they narrate the manner in which businesses
are formed and managed in India, and seek to capture the circumstances that give rise to
souring relationships that result in legal disputes.
This collection presently consists of 21 moot court problems drafted and used for
competitions from 2005 to 2020, but the hope is to update this collection on an ongoing
basis with newer problems as they are drafted and released.
I wish to acknowledge the contribution of Mr. Ananth Padmanabhan and Mr. V.

Niranjan, with whom I collaborated separately on two problems. Needless to add, each of
them carried the weight of the relevant problems largely on their own with minimal
contribution from me.
A couple of disclaimers are to be noted. First, some of the problems included may not be
their final version, and hence may carry some typographical or other minor errors.
Moreover, in several cases, clarifications have been issued based on questions from
participants, which are not included in this collection. Second, these problems are
intended purely to be works of fiction. Any resemblances to real persons, living or dead,

or to legal persons (such as companies) or to governments or courts are purely
coincidental.
I hope you enjoy reading these!
Umakanth Varottil
March 2020

Table of Contents
1. Internal Selection Rounds at the National Law School of India University,

Bangalore (2005) ......................................................................................................................... 6

Bangalore (2006) ...................................................................................................................... 13

Bangalore (2007) ...................................................................................................................... 20

Bangalore (2008) ...................................................................................................................... 26
5. NLS-NFCG National Level Corporate Governance Moot Court Competition

(2008) .......................................................................................................................................... 33

Bangalore (2009) ...................................................................................................................... 41

Bangalore (2010) ...................................................................................................................... 47
8. Third NUJS – Herbert Smith National Corporate Law Moot Court Competition
(2011) .......................................................................................................................................... 53

Bangalore (2011) ...................................................................................................................... 60
Bangalore (2012) ...................................................................................................................... 74
11. Fifth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2013) .................................................................................................................. 85
Bangalore (2013) ...................................................................................................................... 93
13. Sixth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2014) ................................................................................................................ 101
Bangalore (2014) .................................................................................................................... 111

15. Seventh NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2015) ................................................................................................................ 117
16. First GNLU Moot on Securities and Investment Law (2015) .............................. 128
Bangalore (2015) .................................................................................................................... 134
18. Ninth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2017) ................................................................................................................ 142
19. Tenth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2018) ................................................................................................................ 152
20. Fourth GNLU Moot on Securities and Investment Law (2018) .......................... 169
21. Twelfth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2020) ................................................................................................................ 178

Bangalore (2005)
Drafted by: Umakanth Varottil
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
JJ Diagnostics Private Limited - Appellant
v.
Dr. Manjari - Respondent
1. Technology has broken distance as a barrier to providing healthcare services

across continents. Recent developments like telemedicine have encouraged not
only transportation of high-quality medical services to areas that need them the
most, but have also facilitated the outsourcing of some of the healthcare-related
activities to destinations like India which possess a rich medical talent pool that
can provide high-quality services at a relatively lower cost.
2. Anticipating a boom in the healthcare outsourcing activity, Dr. Jomon Jacob

decided to quit his position as Head of Radiology with a leading Pune hospital to
set up a company in the teleradiology space. In September 2002, he formed JJ
Diagnostics Private Limited along with his wife Stella, and set up a new facility
that he took on lease in Pune. Since Dr. Jacob’s business model was fairly novel
and untested, he first decided to implement a pilot project with one customer,
before scaling up his operations. Towards this end, he commenced discussions
with the Terry Fox Foundation Cancer Centre in Moonvale, California offering to
provide them teleradiology services. Dr. Jacob’s model involved a process
whereby the Terry Fox Foundation would conduct diagnostic examinations on
patients at their hospital in Moonvale by using an imaging camera designed to
facilitate imaging of specific parts of the anatomy and organ functioning. The
image so captured by the camera would be processed by a computer at the
hospital and then transferred via satellite to JJ Diagnostics’ computers in Pune.
Dr. Jomon Jacob would review the images and prepare diagnostic reports based
on the images and send the reports back to the Terry Fox Foundation using a
customized software designed by him for this purpose.
3. The pilot project was a success. The Terry Fox Foundation discovered that
outsourcing part of its radiology activities significantly cut its costs as the salaries
for employing radiologists in California were skyrocketing. Apart from that, it

also quickened the process for preparation of reports by taking advantage of the
time difference as all images transferred by the Terry Fox Foundation by the end
of the day (U.S. time) would be processed by Dr. Jacob overnight (i.e. during the
day in India) so that all the reports were ready by the next morning in the U.S.
The management of the Terry Fox Foundation decided to award a 5-year contract
to JJ Diagnostics for teleradiology which would accrue an average revenue of
US$ 10 million per annum to JJ Diagnostics. Realising the potential for
teleradiology in the Indian healthcare sector, and based on the success of the pilot
project, JJ Diagnostics also received a contract from the Discovery Hospital in
New Delhi for a teleradiology project which would accrue an average revenue of
Rs. 5 crores to JJ Diagnostics.
4. Now that he had bagged huge contracts, Dr. Jacob had to scale up JJ Diagnostics’
human resources. He immediately placed advertisements in several national
newspapers and on job-related websites seeking applications for qualified
radiologists to take up employment with JJ Diagnostics. The candidates required a
minimum qualification of a masters’ degree in radiology from any reputed Indian
medical college. The advertisement stated that although not a must, a master’s
degree from a reputed U.S. or U.K. medical college was preferable.
5. Dr. Manjari is the only daughter of the owner of a prominent resort and
entertainment park worth about Rs. 30 crores in the hill station of Lonavla.
Although her father was keen that she takes up the responsibility of running the
family properties and businesses, which he had by then transferred in her name,
Dr. Manjari was a qualified radiologist and was keen to pursue the medical
profession. With an avid interest in the emerging field of teleradiology, she seized
the opportunity that she saw with JJ Diagnostics and applied for the post of
teleradiologist. In her application, she stated that she had a masters’ degree in
radiology from the University of Goa and also a further masters’ degree from the
University of Marlborough in the U.S. Since she had all the necessary
qualifications, in February 2003 she was recruited by Dr. Jacob for JJ Diagnostics
at an annual salary of Rs. 20 lacs after two rounds of interviews. Several other
radiologists were also recruited thereby increasing JJ Diagnostics’ strength of
teleradiologists to 30. Each team within JJ Diagnostics consisted of 5
teleradiologists headed by one experienced teleradiologist. Dr. Manjari headed a
team of 5 teleradiologists, whose work she had to supervise as part of her
responsibilities.
6. Since teleradiology was a specialized field, JJ Diagnostics had entered into a tie-
up with the American College of Teleradiologists in New Jersey, whereby certain
key teleradiologists of JJ Diagnostics will be sent for a 6 weeks’ training
programme to the American College of Teleradiologists to receive specialized
training in outsourced teleradiology. From each of its teams, 2 members were sent
for this training. From her team, Dr. Manjari and Dr. Johnny were chosen to
attend the programme, which they successfully completed in March-April 2003.

7. Upon taking up employment with JJ Diagnostics, each teleradiologist was
required to execute an employment contract with JJ Diagnostics. Apart from
remuneration and other terms of employment, the employment contract contained
the following terms:
(a) The employee shall work with JJ Diagnostics for a period of at least 5 years,
and in case the employee left his/her services within the 5-year period, then all
expenses incurred by JJ Diagnostics in training the employee had to be
reimbursed by the employee to the company;
(b) The employee shall maintain strict confidentiality in respect of all information
pertaining to customers received during the course of employment with JJ
Diagnostics;
(c) The employee shall comply with the provisions of (i) the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) and the privacy rules and
regulations issued thereunder, and (ii) other data protection and privacy laws
as are applicable in India;
(d) The employment contract can be terminated by either party by giving 3

months’ prior written notice; and
(e) In case of termination, the employee cannot be employed with another entity
carrying on a competing business, for a period of 2 years from the date of
ceasing to be employed with JJ Diagnostics.
8. As regards confidentiality and privacy, JJ Diagnostics’ lawyers specifically

drafted the aforesaid provisions in the employment contract since the customers
of JJ Diagnostics had imposed similar obligations on it in the services contract
between the customers and JJ Diagnostics for provision of teleradiology services.
For instance, the Terry Fox Foundation has imposed strict confidentiality
obligations on JJ Diagnostics which also required it to comply with the provisions
of HIPAA while dealing with health information of its patients. The contract with
the Terry Fox Foundation was governed by the laws of California, with the
appropriate courts in California being conferred to decide disputes among parties.
Further, the Discovery Hospital, in its contract with JJ Diagnostics, required the
latter to maintain confidentiality of patient information and also mandated
compliance with data protection and privacy laws as are applicable in India. In
view of this, the obligation of JJ Diagnostics to comply with data protection and
privacy laws were passed on to the employees under the employment contracts.
9. Over the next few months, JJ Diagnostics received orders from several other
hospitals, both in India and overseas. JJ Diagnostics also consistently grew its
employee strength from 30 to 85 teleradiologists. Its annual revenue for the
financial year 2003-2004 was approximately Rs. 75 crores. In June 2004, Dr.

Jacob also received an award from the Indian Medical Council recognizing his
pioneering role in the promotion of outsourced healthcare services for India.
10. Much to his shock and disbelief, in August 2004, Dr. Jacob received notice from a
court in Moonvale, California of a suit filed by the Terry Fox Foundation against
JJ Diagnostics seeking damages of US$ 15 million for breach of its confidentiality
obligations by JJ Diagnostics under its contract with the Terry Fox Foundation.
The notice claimed that several patients of the Terry Fox Foundation had initiated
a suit against its hospital in Moonvale on the ground that their records pertaining
to diagnostic information was divulged by the hospital or its agents thereby
causing severe harm and damage to the patients, including the death of two
patients. The claim of US$ 15 million included an amount of US$ 10 million
towards the death of the two patients. Upon conducting an internal enquiry, the
Terry Fox Foundation found that all its systems and controls were fully
operational and that the data that was leaked related only to patients whose
radiology reports were outsourced to JJ Diagnostics and not to those patients
whose reports were prepared internally by the hospital. The Terry Fox Foundation
therefore had strong reason to believe that the leak occurred at JJ Diagnostics’ end
and hence brought about a suit against the later for recovery of damages. A
similar action was filed by the Discovery Hospital against JJ Diagnostics in the
High Court of Judicature at New Delhi, alleging that JJ Diagnostics had leaked
information due to which its patients have sued the hospital, although no deaths
were reported among patients of the Discovery Hospital.
11. Dr. Jacob was a shattered man. In order to salvage the reputation of his company,
his lawyers recommended that he conduct an internal probe to determine the
cause of such leakage, if any. A retired judge of the Patna High Court, who
conducted the probe, submitted his report to JJ Diagnostics. Dr. Jacob was even
more shocked to know the results of the probe. It directly linked the leakage of
information to Dr. Manjari, who was until then considered to be a bright and
sincere radiologist with an unblemished track record in the company.
12. It was found that during her visit for training to the U.S., Dr. Manjari had met one
Dr. Ross. Even after her return to India, she maintained contact with Dr. Ross
over email and telephone. Dr. Ross had a pharmaceutical company which
manufactured a specialized drug by the name of Arnoxica to treat and completely
cure lung cancers at an early stage. Over time, Dr. Ross succeeded in luring Dr.
Manjari into providing him with information regarding patients of the Terry Fox
Foundation Cancer Centre in Moonvale, California whose radiology reports
indicated early signs of lung cancer. It was not clear whether Dr. Manjari had
received any monetary reward or other benefit for providing this information.
With this, Dr. Ross’s sales representatives began targeting patients whose
diagnostic reports suggested early signs of lung cancers to buy Arnoxica. On this
basis, over 500 patients began using Arnoxica. However, it was found that
Arnoxica had certain properties due to which, when administered to persons with
high blood pressure, it would cause a cardiac arrest. This fact was unknown to Dr.

Ross, and this resulted in the death of two patients of Terry Fox Foundation
Cancer Centre. Dr. Ross and his team also targeted patients of the Discovery
Hospital, some of whom were using Arnoxica.
13. Further, Dr. Ross’ father (Mr. Ross Sr.) was the General Manager of Lifeline
Assurance Inc., a leading life insurance company in California. They also had an
arrangement with the Terry Fox Foundation to insure all patients at their
hospitals. In order to assist his father in managing his risk, Dr. Ross decided to
provide information regarding patients of Terry Fox Foundation received from
Dr. Manjari to his father. Based on this information, Lifeline Assurance Inc.
rejected the insurance applications of about 150 patients of Terry Fox Foundation
Cancer Centre in Moonvale, California. Although no reason was provided for the
rejection by Lifeline Assurance Inc., this was done to prevent patients whose
radiology reports suggested signs of lung cancer from obtaining insurance
policies. The claims against the Terry Fox Foundation also consisted of those
from patients who did not receive insurance policies on this count.
14. On September 15, 2004, Dr. Jacob confronted Dr. Manjari with this matter. Dr.
Manjari broke down and confessed to having passed on vital patient information
to Dr. Ross. Dr. Jacob, being a passive and generally accommodating gentleman,
decided not to dismiss Dr. Manjari from employment with the company. Instead,
he offered to Dr. Manjari that she could terminate her employment by giving 3
months’ notice as required under her employment contract. Therefore, on the very
same day, Dr. Manjari submitted her resignation letter terminating her
employment effective 3 months from the date of the letter.
15. On October 16, 2004, Dr. Manjari addressed a detailed email to Dr. Jacob. In that,
she alleged that she has been put to considerable mental strain and agony during
her tenure at JJ Diagnostics which has adversely affected her professional and
personal life. She alleged that she was forced by Dr. Jacob to resign from the
company, much against her own wishes. Further, she also alleged several
instances of harassment by other employees of the company. As an example, she
mentioned that her team member Dr. Johnny had the habit of rubbing shoulders
with her each time they were passing through the office corridors in opposite
directions. This, she says, is a deliberate act on the part of Mr. Johnny as it has
occurred on various occasions over a long period of time. Further she states in her
email that during a few overseas trips, in spite of repeatedly requesting him not to
do so, Dr. Johnny would ensure that his seat on the airplane was next to that of
Dr. Manjari, and that he would constantly attempt to engage in a conversation
with her, without enabling her to take any rest during a long and tiresome journey.
Further, his conversations were often very rude and impolite. In fact, on one
occasion, he told Dr. Manjari with reference to a lady sitting across the aisle, that
“the female over there is very cute”. Dr. Manjari strongly protested against this
and told Dr. Johnny that this was denigrating and humiliating of women. In her
letter, Dr. Manjari wrote to Dr. Jacob that this amounted to sexual harassment
suffered by her and that she needs to be appropriately redressed.
10

16. To this Dr. Jacob replied. He stated that Dr. Manjari’s resignation from the
company was purely voluntary and no compulsion whatsoever was applied on
her. He further set up a committee consisting of himself (as chairman) and Stella
(who was by then the Head of Administration of JJ Diagnostics) to look into
allegations of sexual harassment. Dr. Jacob further wrote in his email that upon
conducting a background check, it was found that Dr. Manjari had not received a
degree from the University of Marlborough as she had claimed in her application
for employment. Therefore, apart from divulging confidential information
regarding patients, she had also committed fraud on JJ Diagnostics by lying about
her educational qualifications. As regards the sexual harassment allegations, the
committee headed by Dr. Jacob heard Dr. Manjari in detail and thereafter
convened a meeting on December 10, 2004 to hear Dr. Johnny.
17. However, from December 1, 2004, Dr. Manjari stopped reporting for work with JJ
Diagnostics. She had accepted a lucrative offer from Onco Teleradiology Private
Limited, a Mumbai-based company offering teleradiology services. She was
offered a salary which was significantly higher than what she was being paid with
JJ Diagnostics.
18. On January 10, 2005, JJ Diagnostics initiated a suit against Dr. Manjari in the
Court of the District Judge at Pune claiming the following reliefs:
(a) recovery of damages from Dr. Manjari to the extent of all amounts that JJ
Diagnostics was required to pay the Terry Fox Foundation and Discovery
Hospital under its contract with them and under the suits that have been filed
against JJ Diagnostics and which are pending before the courts in the U.S. and
in New Delhi;
(b) recovery of all amounts expended by JJ Diagnostics towards training Dr.

Manjari;
(c) recovery of additional amounts by way of damages for defrauding JJ

Diagnostics by wrongly stating that she had received her degree from the
University of Marlborough;
(d) ordering attachment of the property owned by Dr. Manjari’s in Lonavla

towards payments of the aforesaid damages; and
(e) injunction restraining Dr. Manjari from being employed with Onco
Teleradiology Private Limited or any other company carrying on business that
competes with JJ Diagnostics, for a period of 2 years from the date of her
termination of employment.
19. Dr. Manjari refuted all these claims stating that she had no legal obligation to
make payment of the damages as sought for by JJ Diagnostics and hence there
11

was no question of attachment of her property. She further made a counter-claim
before the court that JJ Diagnostics was required to pay her damages and also
tender an unconditional apology for the various acts of oppression committed
against her, including forcing her to resign from the services of the company and
being subjected to constant acts of sexual harassment.
20. After examining the merits of the case, the Court of the District Judge at Pune
dismissed the suit of JJ Diagnostics and also the counterclaims made by Dr.
Manjari. As against this order of dismissal, JJ Diagnostics has preferred an appeal
to the High Court of Judicature at Bombay. Before this Court, the Respondent,
Dr. Manjari, has not taken up any argument of jurisdiction, but only those of
sexual harassment, and hence the Court has decided to directly take up the matter
on merits.
--------------- x ----------------
12

Bangalore (2006)
IN THE HIGH COURT OF JUDICATURE AT MADRAS
APPELLATE JURISDICTION
Finance Mart India Limited … Appellant
v.
Scarlet Designs India Limited and Another … Respondent
1. There is no doubt whatsoever that Formula 1 racing has acquired a prominent

status in the modern sporting world. The eyeballs that this sport captures comes
next only to the Olympics and the World Cup Football tournament, captivating
audiences all over the globe with its thrilling speeds and its delicate overtaking
maneuvers. This sport commands substantial incomes in the form of advertising
and other revenues running into millions of dollars, making it an intensely
competitive sport with each team requiring to do well, perhaps with a podium
position each time, in order to ‘stay in the race’ and earn enough revenues to
survive.
2. Gone are the days when winning teams relied heavily on the skills and endurance
of their drivers. This is the age of new technology. Teams with better technology
on their cars such as aerodynamics and traction control perform far better than
teams without such technology, even though the latter teams may have skilful
drivers. Hence, all teams are scrambling to procure the services of the best
companies in the software services and information technology sector to enhance
the software systems on their cars to ensure better performance.
3. For the last few years, the sport had been dominated by the Italian team named
Prancing Horse. This team was known for its superior technology in the form of
software that is placed on the systems in the car. This team was virtually
unbeatable. However, in the 2005 championships, the team was shockingly
defeated by the Cool Blue team, which seemingly had a superior car. It was
13

evident that the straight-line speed of the Cool Blue car was far better than that of
the Prancing Horse car. Being displeased with the performance of the car, the
Prancing Horse bosses commissioned the services of their engineers to identify
the problem. After weeks of testing, the problem was discovered. The Prancing
Horse car had an aerodynamic design that was suited to maintaining downforce
on the cars at bends, but this design was not suited for straight-line driving. This
design considerably slowed the car down on straight-lines as it did not provide
enough downforce for the cars and also created a drag on their speed. This was
stated as the reason for the declining performance of the Prancing Horse team.
4. Prancing Horse then contacted Scarlet Design Services plc, its outsourced design
services supplier in London. The aerodynamic designers of Scarlet Design, after
examining the problem, came up with a possible solution in October 2005. They
recommended that although the wings of the car were in the proper position of
30% degree angle to drive on bends, they have to be lowered by 10% on straight-
lines than they are during bends. This would ensure optimal downforce created by
wing position both on bends and straight-line. However, this necessitated
installation of software in the car that would detect whether the car is at a bend or
at a straight-line and then automatically send a signal to the design system to
adjust the wing position that is optimal for that part of the race track. If installed,
this system would ensure that the Prancing Horse car maintains high speeds both
at bends and straight-lines and thereby increase the overall performance of the
team and its standings.
5. Impatient to resolve this problem, Prancing Horse issued a work order to Scarlet
Design under the design services agreement already existing between them for
Scarlet Design to either create software or to outsource its creation (but with full
responsibility remaining with Scarlet Design) so that the software could be
implemented in the Prancing Horse cars in the next ensuing season starting March
2006. This project was to be undertaken by Scarlet Design for a fee of US$ 4
million.
6. As Scarlet Design was essentially a design services company, it did not have
sufficient resources to develop software and was on the look out for a software
company for this activity to be outsourced. India, being the hub of software
development activity, was on its radar screen. With the assistance of the British
Trade Commission in India, it identified AutoSoft Services India Limited as a
potential service provider. AutoSoft Services is a reputed Indian company based
in Chennai specializing in developing software for the automotive industry, with
annual revenues of over US$ 500 million. Although it was primarily in the
business of developing products such as ‘Full Speed’, which was software to be
installed in acceleration systems and ‘Full Stop’ which was software to be
installed in braking systems, it was also capable of developing unbranded
customized software. It did not have any specific product that altered the angle of
the wing in a moving car and hence AutoSoft Services offered to develop such
software specifically for Scarlet Design.
14

7. After intense negotiation of over a month, a master services agreement was
entered into by AutoSoft Services whereby it agreed to develop software for
Scarlet Design for the purposes and on the specifications indicated by it in the
agreement. Although the entire agreement was negotiated by officials of Scarlet
Designs plc based in London, for some tax and other structuring reasons unknown
to AutoSoft Services, Scarlet Design decided to have this agreement executed by
its wholly owned subsidiary in India with its registered office in Chennai, being
Scarlet Design Services India Limited. The master services agreement was
executed between Scarlet Design Services India and AutoSoft Services on
December 4, 2005 in Conmare Hotel, Chennai in a glittering ceremony that was
attend by Mr. Ramaseshu, Chairman of AutoSoft Services and Mr. Motorazzi,
Chairman Emeritus of Scarlet Design (who specifically flew down in his personal
jet from London for this event) as also an array of local film stars and politicians
(with most of these politicians having previously been film stars themselves).
8. In order that the software can be successfully operated in the Prancing Horse cars
in the 2006 season commencing in March, it was stated in the agreement that the
software would be delivered by AutoSoft Services to Scarlet Design Services
India in usable form on or before February 15, 2006. AutoSoft Services also
agreed to make available the services of 2 of its expert engineers to assist in
installation and implementation of the software at Scarlet Design’s engineering
facility near London and also in Prancing Horse’s testing centre in Monza, Italy.
Under the agreement, Scarlet Design Services India was to pay a fee of US$ 3.5
million (denominated in Indian rupees on the date of payment as per the
prevailing exchange rate) to AutoSoft Services for the software development
services. Of this, an amount representing 10% of this fee was paid on the date of
signing the agreement. Another 10% was payable on February 1, 2006 and the
balance 80% was payable upon delivery of the software by AutoSoft Services to
Scarlet Design Services India in usable form. During the negotiations, one the
most heavily debated clauses was the one on governing law and jurisdiction.
Although Scarlet Design Services India insisted on the master services agreement
being governed by English law and subject to the courts in England and AutoSoft
Services was insisting on the agreement being governed by Indian law and subject
to the courts of appropriate jurisdiction in Chennai, in view of there being no
resolution in sight, the parties decided to leave this open-ended in the agreement.
Therefore, the final executed agreement did not have a clause containing
governing law or jurisdiction of courts.
9. Now that he had bagged the contract, Mr. Ramaseshu wanted to recover the
amount of US$ 3.5 million receivable by AutoSoft Services at the earliest. He
then thought of Finance Mart India Limited, a non-banking finance company
owned by his brother-in-law Mr. K.V.N.S. Mani, which was engaged in the
financial services business, including in structured finance products such as
securitization and factoring. Mr. Ramaseshu decided that he could assign the
amount of 90% of the fee still receivable from Scarlet Design Services India to
15

Finance Mart and obtain the money up front from Finance Mart. After initiating
discussions with Mr. Mani, it was decided between the two companies that
AutoSoft Services will assign its receivables of 90% of US$ 3.5 million that was
still payable to it by Scarlet Design Services India in consideration for which
Finance Mart will pay an up front amount of 88% of the total fee amount. The
advantage for AutoSoft Services was that it received the amount at the outset
without waiting for the software to be delivered after a few months, for which it
was worth foregoing the difference of 2% of the amount. The difference was the
price it had to pay for getting the cash before it was due and this cash could be
deployed by AutoSoft Services in its other activities such as the ongoing
construction of its new facility near the Sriperumbudur race track.
10. While all the commercial aspects relating to the transaction had been finalized,
Mr. Ramaseshu discussed the matter with his long-standing lawyer friend who
had visited him for dinner the night before the signing was scheduled. The lawyer
advised him not to assign the receivables to Finance Mart as that would establish
a direct relationship between Scarlet Design Services India and Finance Mart.
Instead, he suggested another structure whereby the same result could be achieved
without establishing that relationship. He recommended to Mr. Ramaseshu to alter
the transaction structure such that AutoSoft Services declares itself as a trustee
over the receivable amount in favour of Finance Mart such that the latter becomes
the beneficiary of a trust created for the purpose of holding the receivables. This
would not alter the relationship between AutoSoft Services and Scarlet Design
Services India as AutoSoft Services continued to be the legal owner of the
receivables and its contractual relationship with Scarlet Design Services India
remains unaffected. After much persuasion, Mr. Ramaseshu convinced Mr. Mani
to adopt this structure. On December 22, 2005, AutoSoft Services executed a
declaration of trust document declaring itself as a trustee in respect of the
receivables (due from Scarlet Design Services India) with Finance Mart being the
sole beneficiary of such trust, for which Finance Mart paid AutoSoft Services
consideration of an amount representing 88% of the fees due from Scarlet Design
Services India to AutoSoft Services. AutoSoft Services also provided a guarantee
to Finance Mart that in the event that Scarlet Design did not make payment under
the master services agreement, then AutoSoft Services would itself under the
guarantee make good such payment to Finance Mart, subject to a maximum
amount of 50% of the total fee payable under the master services agreement. No
notice of this transaction was provided by AutoSoft Services to Scarlet Design
Services India as Mr. Ramaseshu did not want their relationship to be affected in
any way.
11. Work progressed in full swing with a team of 25 AutoSoft Services engineers
developing the software for Scarlet Design. In the meanwhile, AutoSoft Services,
being a listed company, announced its financial results on January 14, 2006 in
respect of the quarter ending December 31, 2005. In a note to its financial
statements, AutoSoft Services mentioned that it had transferred all its receivables
under the Scarlet Design contract to Finance Mart, for which it had received cash
16

consideration representing 88% of the total receivables and that it was now only a
trustee in respect of those receivables. A financial analyst of Scarlet Design
spotted this information on the Reuters website and informed his management
about this. Annoyed at not having been informed about this, the managing
director of Scarlet Design sent an email to Mr. Ramaseshu on January 16, 2006
questioning him as to why they were not informed of such a material development
in relation to their contract. This email went unresponded by AutoSoft Services.
12. Towards the third week of January 2006, certain serious financial irregularities
were discovered in AutoSoft Services’ books. It came to light that the profits and
viability of the business model of AutoSoft Services was being overstated all
along and upon arriving at the correct financial numbers, AutoSoft Services was
in fact deep in the red. The creditors of AutoSoft Services began fretting and on
January 27, 2006, certain banks and financial institutions being creditors AutoSoft
Services initiated winding up proceedings against the company in the High Court
of Judicature at Madras. Mr. K.V.N.S. Mani was too a very worried man, and was
visibly upset with Mr. Ramaseshu for not disclosing any of these matters before
the transaction was conducted with Finance Mart just a month ago. In spite of the
family relationships, he decided not to have any business dealings with Mr.
Ramaseshu and was not only interested in recovering the monies that he had spent
in purchasing the receivables that AutoSoft Services was owed by Scarlet Design.
13. Despite all these unsavoury developments, the dedicated engineering team of
AutoSoft Services continued to work on the software for Scarlet Design.
Similarly, Scarlet Design India too made payment of the 10% fee that was due on
February 1, 2006 by way of a cheque drawn in favour of AutoSoft Services and
which was handed over to it on that date. On February 9, 2006 (within the original
stipulated time period), the engineers of AutoSoft Services handed over a set of
compact discs (CDs) containing the software to representatives of Scarlet Design
Services India at its office in Chennai. The country manager of Scarlet Design
Services India, on the very same day, flew out with the CDs to Monza for testing
the software along with the engineers of Scarlet Design from London and
Prancing Horse’s local technical team. Upon testing, it was found that the
software’s reaction was about 2 seconds late compared to the time at which it was
expected to operate to change the car’s wing position. In other words, when the
car emerged out of a bend on the track and reached a straight-line, the software
would react 2 seconds later to change the wing position to the straight-line
position. This created severe problems in the running of the Prancing Horse car.
14. Two senior engineers of AutoSoft Services were immediately summoned to

Monza. Despite working on it for several days and despite calling for additional
engineers from Chennai, this software glitch could not be rectified. It was already
February 25, 2006 and the cars had to be readied for the season commencing the
next month. The senior officials at Prancing Horse and Scarlet Design were left
with no option but to put off the launch of the new model of the Prancing Horse
cars and also the installation of the new design system on them. They had to
17

continue to operate the cars on the previous year’s design. This caused severe
hardship to the team and its already sagging morale. Unable to forgive the
situation, Prancing Horse decided to sack Scarlet Design as its car systems
designer and terminated its contract with them. A visibly upset Mr. Motorazzi, in
addition to uttering several profanities at Mr. Ramaseshu and his family members,
publicly announced that Scarlet Design was not going to pay a single pie to
AutoSoft Services for the software that it had provided.
15. This sent shivers through Mr. Mani’s spine. He had to somehow recover the
monies that Finance Mart had paid AutoSoft Services for acquiring interest in the
receivables owed by Scarlet Design. Finance Mart’s lawyers advised Mr. Mani
that since Finance Mart had the beneficial interest in the receivables, it could
recover the receivables from Scarlet Design by initiating action against it.
However, since it had no privity with Scarlet Design, Finance Mart was advised
to bring about an action against AutoSoft Services as the trustee requiring it to
recover the receivables from Scarlet Design on behalf of Finance Mart. While it
addressed a legal notice to AutoSoft Services in that respect, the latter stated that
it refuses to cooperate with Finance Mart in any such action and also contended
that the receivables were not validly assigned to Finance Mart.
16. In these circumstances, Finance Mart was left with no option but to initiate a civil
suit against Scarlet Design Services India in the High Court of Judicature at
Madras. In this suit, filed on May 19, 2006, Finance Mart prayed for the following
directions: (i) that it is the beneficial owner of the balance amount payable by
Scarlet Design Services India to AutoSoft Services under the master services
agreement, (ii) that the said amount should be paid by Scarlet Design Services
India, and (iii) that Scarlet Design Services India wrongly made payment of the
installment of 10% to AutoSoft Services in spite of having knowledge of the
transaction between AutoSoft Services and Finance Mart and that this amount too
should be paid by it to AutoSoft Services. Although AutoSoft Services was also
made a co-defendant in the suit, they remained unrepresented throughout the
proceedings.
17. In this suit, Scarlet Design Services India made an appearance through its legal
counsel and contended the following:
(a) that Scarlet Design Services India had already filed a suit in the court at
London and obtained an ex parte order dated May 9, 2006 from that court
declaring that no payment is required to be made by Scarlet Design
Services India to AutoSoft Services or Finance Mart in view of the failure
of the software that was developed by AutoSoft Services. The London
court also directed AutoSoft Services to refund the 20% consideration it
had already received from Scarlet Design Services India. It contended that
in view of the order of the London Court, the suit by Finance Mart was not
maintainable at all. In response to this, Finance Mart amended its plaint to
include another prayer seeking directions against Scarlet Design Services
18

India from executing the order of the London court as it was wrongly
delivered without jurisdiction;
(b) that the suit is not maintainable as it should have been filed by AutoSoft
Services as the trustee and that Finance Mart as a beneficiary is not
entitled to file a suit and hence the suit must fail for improperly joining
parties;
(c) that no amount was payable by Scarlet Design Services India to AutoSoft
Services as the software goods were not delivered in ‘usable’ form;
(d) that the assignment of the receivables by AutoSoft Services to Finance

Mart did not constitute a ‘true sale’ and hence Finance Mart did not have
any ownership or other interest in the receivables so as to recover the same
from Scarlet Design Services India.
(e) that it was not given notice of the transaction between AutoSoft Services
and Finance Mart and hence its payment of 10% of the fees to AutoSoft
Services on February 1, 2006 was valid under law.
18. The High Court of Judicature at Madras exercising its original jurisdiction
determined that it had jurisdiction in this matter and issued an injunction against
Scarlet Design Services India from executing the London court’s order. However,
it upheld Scarlet Design Services India’s contentions on the merits and hence
dismissed the suit.
19. Against this order, Finance Mart has filed an appeal before the appellate division
of the High Court of Judicature at Madras. Aggrieved by the order of the civil
judge assuming jurisdiction over the subject matter of this suit and the injunction
issued against it relating to the London court’s order, Scarlet Design Services
India filed a cross-appeal. The High Court of Judicature at Madras has decided to
treat Finance Mart’s appeal principally and to club Scarlet Design Services
India’s appeal along with it and hear both the appeals together. In both the
appeals, AutoSoft Services was joined as a co-respondent, but as in the case of the
civil suit, they remain unrepresented in the appeal as well. Hence, the appeal is to
be heard with effectively two parties being Finance Mart and Scarlet Design
Services India.
------------- x -------------
19

Bangalore (2007)
Farewell Bank Limited … Appellant
v.
PowerCraft Publications Limited & Others … Respondents
1. Hobart Murdech is an Australian-born media mogul with an innate interest in

ruling the media industry. In his quest to control newspapers, magazines, radio
and television stations, the film industry, the Internet and other forms of
media, he has indulged in and fought several hostile acquisition battles during
his lifetime, and has achieved veteran status in acquiring and turning around
media companies. He has a particular interest in buying media companies that
are in the red (primarily because their valuations are low and he gets them for
a low price), turning them around through his astute business and management
skills and reaping high profits from those ventures. He also sells turned
around companies within two years at a valuation that is 20 to 25 times higher
than the price at which he purchased the stock. In two cases, Murdech had
even resorted to stripping the assets of companies after taking them over and
then selling those assets for a profit. More recently, he relentlessly pursued
Warren Stock Journal (WSJ), the highly reputed English financial news
journal, and bid a price as high as 60% premium to the ruling market price,
before he successfully weathered opposition from WSJ’s controlling
shareholders who finally caved in and agreed to sell their stake to Murdech
who will acquire a controlling stake in WSJ.
2. India too has appeared prominently on Murdech’s radar screen. He has been
watching India’s emergence as an economic superpower and was quick to
take an interest in India’s television industry. His company, Galaxy TV Inc.,
beams several programmes in English, Hindi and other regional languages
from its broadcasting hub in Hong Kong to homes and establishments in
India. Some of the soap operas and their characters in those programmes have
20

also attained iconic status in India. Not to mention, the venture has turned out
to the highly profitable to Murdech.
3. Murdech has also been closely watching developments on the nuclear energy
front. While the nuclear deal between India and the US (in the form of the 123
agreement) was nearing closure and the formalities largely completed, he
foresaw significant business interest in Indian nuclear energy sector, and
showed an avid interest in playing this game too. As always, Murdech’s
strategy was to control information and news in his favourite business areas.
His eyes fell upon “India Energy”, a scientific magazine that publishes
specialty articles of a scientific and business nature that caters to the
community interested in India’s energy sector. Having been published for
over 50 years, India Energy had an impeccable reputation in the scientific
industry and was highly regarded by both scientists as well as business
professionals for its cutting-edge articles and unflinching comments on the
energy industry and its regulation. It is not in Murdech’s nature to leave a
brand like that untouched. His superior business sense told him that by
focusing on the path-breaking area of nuclear energy (whose importance has
been accentuated by the 123 agreement), India Energy would be set to achieve
greater heights. Not only will its circulation increase manifold, it could build a
brand that was worth millions of dollars and therefore make it attractive to any
suitor at a later date.
4. Without any further ado, Murdech contacted Mr. Anil Thakore, the Chairman
and CEO of PowerCraft Publications Limited (PowerCraft), the company that
publishes the India Energy magazine. Anil Thakore held 80% of the shares of
PowerCraft, with the other 20% being held by 15 of his family members. The
fact that Murdech approached him came as a sort of life-saver to Thakore.
Despite its glorious years, India Energy, which was PowerCraft’s only
business, was beginning to suffer losses. Its net worth had eroded in the
financial year ending March 31, 2006 and pressure was mounting from
creditors to repay amounts owed to them. Although the board of directors of
PowerCraft discussed the issue at length at its board meeting held on June 16,
2006, they resolved not to refer the matter to the Board for Industrial &
Financial Reconstruction (BIFR). Thakore’s options were drying up, and
hence he was keen to explore options for a sell-off. In this backdrop,
Murdech’s overtures were very welcome to Thakore.
5. After intense discussions over a week, Murdech and Thakore struck a deal
whereby Murdech would acquire all of the shares of PowerCraft from its
existing shareholders at an aggregate purchase price of Rs. 75 crores.
Murdech agreed to such a high price despite PowerCraft’s current financial
condition because he foresaw extremely good prospects for India Energy’s
nuclear publication foray. Murdech identified Galaxy Publications India
Private Limited (Galaxy India), an Indian company, to acquire the shares of
PowerCraft. Galaxy India is a wholly owned subsidiary of Galaxy TV Inc.,
21

Hong Kong, a Murdech group company. Galaxy India was set up as a special
purpose vehicle for the sole purpose of holding PowerCraft shares and for no
other business. After further investigation into the affairs of PowerCraft,
Galaxy India signed a share acquisition agreement with the shareholders of
PowerCraft on November 14, 2006 to acquire all the shares of PowerCraft.
The agreement was to close and be given effect to on November 30, 2006
when all the shares would in fact be transferred. The intermediate time period
was set for parties to get all the formalities in place – such as for Murdech to
infuse funds into Galaxy India and for Thakore to obtain all the necessary
governmental approvals to consummate the sale transaction.
6. By November 29, 2006, Galaxy India was fully capitalized by Galaxy TV Inc.
to the extent of the amount required for the acquisition, and Thakore obtained
all necessary governmental approvals for completing the transaction. The
transaction was in compliance with applicable regulations for investment in
the print media sector. That being the case, the transaction was consummated
on November 30, 2006 and Galaxy India became the sole shareholder of
PowerCraft. Out of this, 6 shares were held by officials of the Murdech Group
as nominees for and on behalf of Galaxy India.
7. Matters were not smooth-sailing, however, in the Murdech camp. Murdech

had made a bid for WSJ at an aggregate price of GBP 2 billion. This was to be
financed partly by the Murdech group funds to the extent of GBP 200 million,
with the balance GBP 1.8 billion being leveraged from banks and financial
institutions globally. The deal was structured as a leveraged buyout. However,
with the fears of a meltdown in the US sub-prime lending market looming
large, several of the banks and financial institutions that promised funds to the
Murdech group to leverage the WSJ acquisition backed out of the transaction.
Since they had not yet signed definitive agreements with the Murdech group,
these banks were able to renege on their commitments with impunity. Starved
for funds on this deal, Murdech was left with the Hobson’s choice of either
pulling out of the WSJ deal or dipping into his kitty of funds to scrape the last
penny to finance the transaction. Murdech knew he was fighting the deal of
his lifetime, and he could not let it slip away from his hands. Therefore, he
decided to raise funds for the WSJ deal by liquidating some assets, applying
brakes on other acquisitions and engaging in other financial restructuring
maneuvers. One such financial maneuvering involved the financing of the
PowerCraft acquisition by the Murdech group.
8. The financial difficulties of the Murdech group surfaced on November 17,

2006, merely 3 days after it had signed the PowerCraft transaction. Any
breach of the share acquisition agreement would invoke damages payable to
PowerCraft’s selling shareholders. Apart from deepening financial difficulties
of the Murdech group, a breach would also severely damage Murdech’s
reputation as a businessman. Hence, he approached one of the selling
shareholders of WSJ, Mr. Warren Gourmet to lend him the GBP equivalent of
22

Rs. 75 crores required for the Murdech group to finance the acquisition of the
entire shareholding of PowerCraft. Gourmet, a rich and shrewd business man
(whose wealth would be further enhanced by his gains from the WSJ gains)
agreed to provide the said sum of money to the Murdech group. There was,
however, a catch in the financing by Gourmet. He wanted the Murdech group
to provide some form of security or collateral for the loan given to it for
purchasing the PowerCraft shares at least to the extent of 50% of the value of
the loan. But, the Murdech group had secured or liquidated all its assets to
finance the WSJ acquisition and had no clear assets that it could offer
Gourmet as collateral. During the negotiations, Murdech told Gourmet to
initially provide funds in the form of an unsecured loan and further added,
“please give me some time. I will arrange to provide, within 60 days from the
date of the loan, security over assets held by any of my groups companies or
companies that would become my group companies by that date”. This
promise was reduced to writing in the form of a letter from the Murdech group
to Gourmet that was worded precisely in the same terms as set forth above.
On the basis of this undertaking, Gourmet provided the loan to Galaxy Inc.,
which utilized the funds to capitalize Galaxy India that then paid the amount
as share purchase consideration to the shareholders of PowerCraft on
November 30, 2006 to complete the purchase of the entire shareholding of
PowerCraft.
9. After completion of the transaction, on or around December 15, 2006,

Gourmet began mounting pressure on the Murdech group to provide
collateral. Gourmet’s fear was accentuated due to market rumours that the
Murdech group was in the throes of a financial crisis. Murdech group
executives conducted a study of their assets and realised that the only assets of
the group that were yet unsecured in favour of creditors were the assets of
PowerCraft itself (which by then had become a Murdech group company).
The assets consisted of a valuable portfolio of intellectual property in the form
of copyright over several distinguished papers and reports that were carried in
India Energy. An intellectual property valuer was appointed, who estimated
the value of the copyright to be Rs. 40 crores. Hence, the Murdech group
decided to assign the copyright portfolio by way of a security to Gourmet. The
transaction was structured such that a guarantee would be first executed by
PowerCraft in favour of Gourmet whereby PowerCraft guaranteed repayment
of the loan given by Gourmet to Galaxy Inc. In order to secure its obligations
under the guarantee, an assignment deed was drafted and agreed to be
executed by PowerCraft in favour of Gourmet. All other appropriate
governmental approvals required for creating security over assets in favour of
non-residents were obtained. With these requirements in place, the guarantee
and assignment deed were executed on December 26, 2007. Necessary forms
were also filed with the Registrar of Companies.
10. PowerCraft’s worsening financial situation added to the Murdech group’s

woes. As the Murdech group had to divert all its financial and managerial
23

resources towards the WSJ acquisition, insufficient attention was paid to
PowerCraft’s financial position. The India Energy magazine had skipped the
last 3 months of publication, which dented its reputation severely. This was
because of a recent exodus of key journalists and authors from the magazine.
Its creditors began tightening their grip on the company too. One among such
creditors was Farewell Bank, which had lent a sum of Rs. 25 crores to
PowerCraft in June 2004 in the form of an unsecured loan. Farewell’s loan
was for a term of 2 years, and PowerCraft had defaulted on both interest
payments as well as principal repayment. Farewell Bank, after attempting
conciliatory methods for recovery of dues and failing thereon, decided to take
legal action against PowerCraft. On February 15, 2007, it filed a winding up
petition against PowerCraft as PowerCraft failed to respond to its notices for
recovery delivered to it on January 8, 2007 and January 15, 2007. The petition
was filed in the Bombay High Court as PowerCraft’s registered office was
situated in Mumbai. After hearing both parties, on March 31, 2007 the
Bombay High Court ordered winding up of PowerCraft.
11. Farewell Bank discovered that the winding up order was worthless to it
because all of the existing assets of PowerCraft in the form of the copyright
were secured in favour of Gourmet. Farewell Bank was advised that the only
manner in which it could lay its hand on the copyright portfolio of PowerCraft
is to challenge the creation of the security in favour of Gourmet. It was further
advised that the transaction by which PowerCraft secured its copyright
portfolio in favour of Gourmet constituted “financial assistance” and
“fraudulent preference” and hence cannot stand in law. If that were the case,
then Farewell Bank would also be able to bring about a sale of the copyright
portfolio to recover sums due to it from PowerCraft.
12. Farewell Bank filed a suit against Gourmet, PowerCraft, Galaxy India and
Galaxy Inc. on the original side of the Bombay High Court on April 15, 2007
seeking the following reliefs:
(a) a declaration that the guarantee and security created by PowerCraft in

favour of Gourmet is void and not sustainable in law due to lack of
consideration received by PowerCraft;
(b) a declaration that the guarantee and security created by PowerCraft as

aforesaid is void ab initio as it constitutes “financial assistance”;
(c) a declaration that the guarantee and security created by PowerCraft as

aforesaid is void ab initio as it constitutes “fraudulent preference”;
(d) a declaration in the alternative invoking equity that the dues outstanding to
Gourmet should be “equitably” subordinated to the dues outstanding to
Farewell Bank; and
24

(e) an order for recovery of the amount of Rs. 25 crores from Galaxy Inc.
being the ultimate shareholder of PowerCraft as the entire series of
transactions involving PowerCraft that were undertaken by the Murdech
group constituted a sham.
13. While the aforesaid suit was being heard by the Bombay High Court, certain
additional matters emerged. PowerCraft had undertaken an offering of bonds
in the United States in 2002. An amount of US$ 500,000 of the offering was
taken up by Farewell Bank. However, owing to alleged misrepresentations in
the prospectus which came to light in 2005, a large class action suit was filed
by investors in the PowerCraft offering. The New York Supreme Court
awarded damages to the tune of US$ 5 million, that included exemplary and
punitive damages as the misrepresentations in the prospectus were heinous in
nature. Farewell Bank’s share in the damages came to the tune of US$
550,000, including for loss of profits. In order to recover on the judgment
awarded by the New York Supreme Court (as none of PowerCraft’s assets lay
outside India), the Farewell Bank filed a suit against PowerCraft in the
Bombay High Court to recover on the New York Supreme Court judgment.
14. Since both the suits above had issues of commonality, the Bombay High
Court decided to combine both the suits and hear the matters together. As
there were no preliminary objections raised by the defendants/ respondents,
the suit was heard by the Bombay High Court on merits and was dismissed.
The plaintiffs/appellants then preferred an appeal to the Division Bench of the
Bombay High Court.
---------------- x -----------------
25

Bangalore (2008)
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Appeal No. 1
Rampura Sugarcane Growers Association … Appellant
v.
Carbon Inc. … Respondent
Appeal No. 2
Rampura Sugarcane Growers Association … Appellant
v.
Chandrappa & Sons Limited

Mercury Metals India Limited … Respondents
1. The village of Rampura in the Mara district of Karnataka is well-known for its
sugarcane crop. Situated on the banks of river Cauvery, large tracts of its land are
well-endowed with irrigation from the river that makes it conducive for growing
sugarcane. Most farmers in this area rely heavily on the sugarcane crop. Such
reliance has not at all been misplaced, since the bumper crop over the last several
years has rewarded them with great fortunes. Most of the farmers have been able
to marry their children off, while others have been able to send them to good
schools and universities, all thanks to nature’s gift in the form of abundance of
sugarcane in the region and the resulting wealth and prosperity that it brings.
2. The farmers in Rampura have not lent their fortunes completely to the will of
nature. They have been progressive in using latest variety of hybrid seeds that are
imported from Holland and also high-quality pesticides that are manufactured in
Germany. For this they owe their gratitude to Mr. Keshava Rao, the bright, young
26

and energetic manager of Bharat Seed Bank Limited, which is a bank that focuses
primarily on financing the agricultural and rural sectors. Mr. Rao has been kind
enough to put the farmers of Rampura in touch with these manufacturers of seeds
and pesticides and also obtaining significant discounts on commercial terms in
favour of the farmers. Over and above this, Mr. Rao has sanctioned loans on
behalf of Bharat Seed Bank that have been lent to several farmers in Rampura,
which were used by them to purchase seeds and pesticides. The only downside so
to speak was that these loans required the farmers to mortgage their residential
properties in favour of the Bank. The farmers did not bat an eyelid in mortgaging
properties because the financial gains from these new-age seeds and pesticides
were excellent as they have seen on a sustained basis for the last few years.
3. But, one fateful night, on January 3, 2007, everything changed for the farmers of
Rampura. When they went to work on their fields the next morning, each of the
farmers found their field ridden with some slimy substance that emitted a strong
and repulsive odour (even stronger than that of kerosene). Things did not look
good and they were almost certain that their crops would now be destroyed. With
bewilderment, the farmers first approached Mr. Keshava Rao, as he was not only
their banker, but more than that – one may say, a friend, guide and philosopher.
He advised the farmers to file a complaint with the local police station, which
they did by the noon of January 4, 2007. The local police merely recorded the
statement of two farmers who visited the police station, but refused to conduct
any further investigation and did not go to the farm site either.
4. In the meanwhile, Mr. Rao telephoned his friend in the Centre for Agricultural
Sciences (CAS), a non-governmental organisation (NGO) that works for the
benefit of the agricultural sector in India. The friend, Mr. Sanjay Lall, who was
then in Bangalore, immediately rushed to the scene and collected samples of the
substance in bottles. With his 20 years’ experience in this field and through the
extensive database maintained by CAS, Mr. Lall suspected that the slimy
substance could be some harmful chemicals that may have been accidentally
emitted into a tributary of the Cauvery river by certain metal smelters situated in
Adipura, a small industrial town which was located 7 kilometres from Rampura.
Since these smelters are situated upstream on the Cauvery river, the substance
may have flowed with the river and reached downstream in the Rampura region.
Mr. Lall, again with his expertise and experience, realised that this could escalate
into a colossal problem. He knew that these smelters emitted harmful chemical
substances, which they were required to dispose off at designated disposal sites
situated several miles away. The disposal had to be done in a controlled manner
so that the substance would be placed several metres below the earth so as to
avoid damage to plants and animals. This was even a condition of the approvals
granted to them by the pollution control authorities. Mr. Lall immediately
addressed an email to the head of the pollution control authority explaining the
occurrence of events in Rampura that day.
27

5. Over the next few days, the pollution control authorities completed their
investigation and were able to get to the bottom of the problem. It was found that
the substance emanated from the largest copper smelter in Adipura, owned by
Chandrappa & Sons Limited. Examination of samples revealed that the substance
contained sulphuric acid, some amount of arsenic and other toxic substances that
were harmful to plants and aquatic life. It was also revealed that there was a
leakage of harmful chemicals from the storage facility of the copper smelter on
account of corrosion. This occurred despite an internal maintenance and safety
check that was carried out on the plant (and specifically its liquid emission
storage facility) by the smelter’s employees on December 4, 2006 that found the
plant in healthy condition. Following this accident, the pollution control
authorities were now certain that all the sugarcane crops in the Rampura region
were destroyed together with the soil and it would be at least another 5 years
before the region could see another successful sugarcane crop season. If these
plants were consumed, it would cause grave risk to the health of human beings
and animals as well, although there has been no report yet of any harm caused to
human beings, except that two cows owned by Mr. Gowda, a rich farmer in the
region, died within a day of consuming the polluted sugarcane.
6. All these revelations left the farmers devastated. What was even more painful was
that Mr. Rao, who was very friendly and helpful to them until now began cracking
the whip. Under orders from his head office, he started vigorously following up
on loan repayments. In two cases where loans were overdue, Bharat Seed Bank
actually succeeded in going to the district court and obtaining orders to attach the
homes of the defaulting farmers. Following this, two farmers, whose homes were
attached, even committed suicide. The region, which experienced prosperity till
then, soon witnessed despair and agony. Something had to be done. How can
Chandrappa & Sons Limited get away after committing such a heinous crime in
the name of business activity?
7. With the help (and tremendous influence) of two members of legislature

representing the Mara district, the farmers were able to initiate legislation in the
Karnataka State Assembly and caused the enactment of the Rampura Sugarcane
Growers Protection Act, 2007. Under this enactment, the Rampura Sugarcane
Growers Association (hereinafter the “Association”) was established with the
purpose of initiating claims against non-compliant firms that were responsible for
the water pollution tragedy in the Cauvery river that occurred on the night of
January 3, 2007. The Association was also given the powers to initiate recovery
suits, such as for breach of duty and the tort of negligence, against polluting units
and claim damages in those suits on behalf of all the farmers, and finally to
determine the distribution of damages and compensation amounts among
aggrieved farmers. Section 4 of the Rampura Sugarcane Growers Protection Act,
2007 is in pari materia with Section 3 of the Bhopal Gas Leak Disaster
(Processing of Claims) Act, 1985, except that the powers of the Central
Government under the Bhopal Act are exercisable by the Association under the
Rampura Act.
28

8. Exercising its powers under the Rampura Sugarcane Growers Protection Act,
2007, the Association initiated a civil suit against Chandrappa & Sons Limited in
the district court of appropriate jurisdiction at Mara. In this suit, Carbon Inc, a
company incorporated in the State of Delaware, was also joined in as a defendant.
At this stage, it may be appropriate to describe the corporate structure of
Chandrappa & Sons Limited, and the precise reason for including Carbon Inc as a
defendant in this case. Carbon Inc is a leading multinational company that has
operations in 45 different countries carrying on the business of smelters in various
types of metals. In most countries, Carbon Inc carries on business by establishing
its own branches, while in other countries it establishes separate companies that
are its subsidiaries. In 1997, Carbon Inc wanted to establish operations in India,
and was looking for an opportunity to acquire an existing smelter business rather
than to start one from scratch as a greenfield venture. At that time, Carbon Inc
came across Mr. Chandrappa who was in the business of smelter in Mara district.
Mr. Chandrappa, his sons and a few other family members were 100% owners of
Chandrappa & Sons Limited, which was carrying on the business of the copper
smelter at Adipura. In fact, this was the only business that Chandrappa & Sons
Limited had. After protracted negotiations, Carbon Inc decided to acquire the
entire share capital of Chandrappa & Sons Limited, except for three shares which
continue to be held by Mr. Chandrappa and his two sons, all holding one share
each. During the time of acquisition, Carbon Inc seriously contemplated carrying
on the business has its branch in India (as it does in most countries) rather than
through a subsidiary. That meant that Carbon Inc would acquire the business from
Chandrappa & Sons Limited rather than acquired the shares of that company.
However, Carbon Inc. was advised by its general counsel that in order to protect
itself from any legal risk and exposure to liability in an environmentally sensitive
area, it would be appropriate to carry on the business in a separate legal entity in
India so that the parent company, Carbon Inc, can be insulated from any potential
liability. That is the reason why Carbon Inc decided to acquire the shares of the
company and not the business. It is precisely for this reason that Carbon Inc
decided not to even use its name in the identity of the Indian company, and
decided to retain the old name so that the persons dealing with the company and
the public would not be generally aware of Carbon Inc’s involvement in
Chandrappa & Sons Limited. In other words, it opted to distance itself from the
Indian company as much as possible due to fear of legal and reputational
concerns.
9. It is on account of the ownership pattern of Chandrappa & Sons Limited, and due
to the fact that nearly all of the shares of Chandrappa & Sons Limited are held by
Carbon Inc, that the Association decided to bring the suit against Carbon Inc as
well. In the district court, the judge held that Chandrappa & Sons Limited as well
as Carbon Inc were jointly liable for damages payable to the Association (on
behalf of the farmers) as Chandrappa & Sons Limited was nothing but an alter
ego of Carbon Inc and an agent of Carbon Inc (as the relationship here was one of
agency, and that the principal, being Carbon Inc, would be responsible for all the
29

actions of the agent, being Chandrappa & Sons Limited). The amount of the
damages payable was adjudged at Rs. 36 crores. Against this, both Chandrappa &
Sons Limited as well as Carbon Inc preferred an appeal to the single judge of the
Karnataka High Court. On appeal, the single judge of the High Court partially
reversed decision of the district court and held that while Chandrappa & Sons
Limited was liable for payment of the compensation amount, Carbon Inc was not
liable as the smelter business in Adipura did not belong to it, but to its subsidiary
Chandrappa & Sons Limited. The Association later, however, found that
Chandrappa & Sons Limited had a business which has a net worth of only Rs. 5
crores, and would not be in a position to satisfy the entire compensation amount
of Rs. 36 crores. On the other hand, the Association also found that Carbon Inc is
a much larger company with worldwide assets and operations and would be in a
better position to discharge the judgment on compensation, and hence the
Association would be at the great disadvantage if it is not able to secure a
judgment against Carbon Inc. Therefore, the Association preferred an appeal
before the division bench of the High Court. This appeal was preferred by the
Association against Carbon Inc. On the other hand, Chandrappa & Sons Limited
preferred a cross-appeal against the single judge’s order in which it did not
dispute that leakage from its smelter caused the accident, but disputed that
compensation needs to be paid. Chandrappa & Sons instead offered to provide an
unconditional apology to the people of Rampura, and that even if compensation is
required to be paid, the quantum of compensation should not be more than Rs. 1
crore at the most.
10. While the appeal was pending, Carbon Inc decided to sell off its business
worldwide to Mercury Inc, which is another global conglomerate. The deal was
signed on June 1, 2008. As part of this global transaction, the parties decided to
provide for a special treatment regarding the transfer of the Indian part of the
business, which was vested in Chandrappa & Sons Limited. Mercury Inc had an
Indian subsidiary by the name of Mercury Metals India Ltd (MMIL) in which it
held in 70% of shares. The balance of 30% of the shares of MMIL was held by
the public, and the shares of the company are listed on the Bombay Stock
Exchange as well as the National Stock Exchange. Under the global sale
transaction, it was decided that the Indian leg of the sale would be given effect to
by way of a merger of Chandrappa & Sons Limited into MMIL. As part of the
merger, all assets, liabilities (whether existent, accruing or contingent), claims,
properties and employees of Chandrappa & Sons Limited will be transferred to
and vested in MMIL. Towards this end, Chandrappa & Sons Limited as well as
MMIL filed a scheme of arrangement under Sections 391 to 394 of the
Companies Act, 1956 before the High Court of Karnataka. The High Court
ordered the convening of requisite meetings of shareholders and creditors of both
the companies. The meetings of shareholders and creditors were duly held, and
the scheme was approved by them. A petition was then filed before the High
Court for sanction of the scheme by the court.
30

11. Although the Association did not oppose the merger until then as it was under the
impression that it could continue to press its claims with MMIL, it later found out
that MMIL was a company which is under severe financial strain. Having a
negative net worth, its liability is worth more than its assets, and it had already
defaulted on its loans to various banks and financial institutions. Given this
situation, it was unlikely that MMIL would be in a position to pay the
compensation amount of Rs. 36 crores that was awarded by the court against
Chandrappa & Sons Limited. Therefore, the Association realised that that it needs
to fight this merger tooth and nail, failing which its chances of being able to
recover any amount of compensation whatsoever would be near to nothing.
12. The Association launched a three pronged attack against the merger. It filed three
different sets of objections to the petition (filed by Chandrappa & Sons Limited
and MMIL) before the High Court and prayed that the merger ought not to be
sanctioned. The three different types of objections filed by the Association are set
forth below.
13. First, the association pleaded that it is an "interested party" in the merger as it
holds a judgment debt of Rs. 36 crores against the amalgamating company, which
is Chandrappa & Sons Limited. Since the merger would reduce the ability of
Chandrappa & Sons Limited (as succeeded by MMIL) to pay the judgment debt,
it affect the interests of the Association and the farmers that it represents. Hence
the association argues that the merger should not be sanctioned.
14. Second, the association pleaded that it is a creditor of the company to the extent of
the compensation amount, and since its interest as a creditor is adversely affected,
and hence the merger scheme should not be sanctioned.
15. Third, the Association in the meanwhile purchased 10 shares of MMIL on the
stock exchange. Being now a shareholder of MMIL, it alleged that the scheme is
adverse to the interests of MMIL shareholders because the exchange ratio of 3
MMIL shares being issued to shareholders of Chandrappa & Sons Limited for
every 1 share of Chandrappa & Sons Limited held by them does not represent the
true value of MMIL shares, and that the ratio ought to be at least 6 MMIL shares
for 1 share of Chandrappa & Sons Limited. The Association also an alleged that
only one valuer's report was obtained by the parties and placed before the court,
which indicated a valuation of 3:1 as set out in the scheme. The Association also
alleges that the valuation report was obtained from Messrs ESB & Co, and that
the valuer was in fact an interested party. Mr. E.S. Basava Reddy, the senior
partner of ESB & Co. was a director on the board of Chandrappa & Sons Limited.
Hence, the Association alleged that there was hardly any independence in the
valuation process, and that the companies should have also obtained additional
valuation reports before fixing the share exchange ratio for the merger. The
Association pleaded that the court should reject the merger as it is against the
interests of MMIL’s shareholders.
31

16. To this, Chandrappa & Sons Limited as well as MMIL strongly rebutted the
arguments of the association. They pleaded that the association was neither an
interested party not a creditor and that it was only a “meddlesome interloper” in
the merger proceedings, having maliciously purchased shares only with the
purpose of thwarting the merger process.
17. The single judge of the High Court of Karnataka hearing the objections of the
Association to the merger held that the Association did not have any locus standi
to object in the merger proceedings and therefore the application containing the
objections of the Association were dismissed.
18. Against this order, the association preferred an appeal before the division bench
of the High Court. The division bench decided to combine the two appeals of the
Association in the interests of convenience and expediency. The first appeal
relates to the order for compensation where the respondent is Carbon Inc. The
court also has before it the cross-appeal filed by Chandrappa & Sons Limited
questioning the award of compensation by the single judge of the High Court, but
the court decided not to hear the dispute regarding the compensation in these
proceedings, and decided to leave this question for determination at a later stage
after making a decision on the principal questions. The second appeal relates to
the amalgamation process where the respondents are Chandrappa & Sons Limited
and MMIL. In both the cases, the appellant is the Association.
19. The matters are now being heard together in a composite hearing.
---------- x ----------
32

5. NLS-NFCG National Level Corporate Governance Moot Court Competition
(2008)
IN THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Kensington Steels and Alloys Limited

& Ors … Appellants
v.
Securities and Exchange Board of India

The Stock Exchange, Mumbai
National Stock Exchange of India Limited … Respondents
--------
1. Kensington Steels and Alloys Limited (KSA) is a major Indian steel

manufacturing and trading outfit. Started in 1910 by the late Kalyanji Dadaji, the
doyen of Indian industry, it has grown in strength over the decades and weathered
many a storm to attain its present turnover of Rs. 3,000 crores per year. Over a
period of time, the mantle of the company was passed down two generations to
now be vested with Kalyanji Dadaji’s grandson Ashwin Dadaji, who is the
present managing director and chief executive officer of KSA. Aswhin, who holds
a PhD in metallurgy from the prestigious MIT, is regarded an expert in the steel
industry, with his technical and commercial knowledge of the industry being
unparalleled.
2. As an entity, KSA is incorporated in Maharashtra, with its registered office in

Mumbai. While it has been run primarily as a family concern, the need for huge
amounts of capital for setting up new facilities compelled it to access the public
markets. Being a shrewd businessman, Ashwin realized the limitations of
continuing as a family concern in an increasingly competitive environment, and
therefore to expand the capital base of the company by inviting outsiders in the
form of the public. Therefore, in 1998, KSA’s shares were listed on the stock
exchanges (Bombay Stock Exchange and National Stock Exchanges) after it
issued 30% shares in an initial public offering (IPO) at Rs. 500 per share for a
total amount of Rs. 750 crores. Following the IPO, several investors began trading
33

in the shares of the company, and the company was even in the BSE Top 100
companies of the Bombay Stock Exchange for several months. The present issued
and authorised share capital of KSA (as per its balance sheet) is Rs. 1,350 crores.
As regards the share capital, 54% is currently held by the Dadaji family,
approximately 30% by foreign and domestic financial institutional investors and
the balance by the general public (retail investors). Due to the fact that KSA was a
steel bellwether for a number of years, and owing to the late Dadaji’s charisma
and goodwill, several retirees too invested large sums of money (both during the
IPO and subsequently) and therefore hold a substantial number of shares.
3. As for the board and managerial set up, the board of directors of KSA is chaired
by Mr. Kesubai Dadaji, the septuagenarian father of Ashwin. Kesubai managed
the company for about 2 decades after Kalyanji’s demise and until he passed on
the day-to-day management of the company to Ashwin in 1995. Kesubai was
instrumental in the company’s success by foreseeing the importance of modern
technology and hence entering into two technical collaborations in the 1970s with
a Russian company that helped it advance over competitors who were largely
using local technology in their operations. One of the reasons for Ashwin’s
takeover of day-to-day management was Kesubai’s flailing health. After surviving
two severe heart attacks and with rapidly diminishing eyesight, Kesubai adopts a
minimal role in the company and does not attend office with any sense of
regularity. Nevertheless, his grit and determination has ensured that he has not
missed a single board meeting in the last 10 years and that he also acts as a
constant source of advice, guidance and support to Ashwin in his management of
the company.
4. Apart from the chairman, the board consists of 6 other directors:
(i) Ashwin Dadaji, the MD&CEO;
(ii) Alpana Dadaji, the wife of the chairman, and the mother of the
MD&CEO. Alpana has a degree in home sciences from the University of
Colorado;
(iii) Rustom Meheronji, a chartered accountant with 30 years’ experience and a

managing partner of Meheronji & Co. Rustom, who is also the chairman
of the audit committee of KSA, has been a close friend and confidante of
Kesubai for nearly 25 years now. They were regular golfing buddies and
the annual vacation which the Dadaji and Meheronji families undertake
together has become a ritual. Kesubai always consulted Rustom on all key
decisions he took with respect to KSA, and Rustom’s advice almost
always never seemed to fail. So strong was the cordiality between the two
that it was unthinkable that either of them will undertake a course of
action that will adversely affect the interest of the other. Owing to this
close relationship with his father, Ashwin was keen on Rustom continuing
34

on the board, at least during his father’s lifetime. That being said, neither
Rustom nor Meheronji & Co. were formally appointed as auditors to KSA
(whether as statutory auditors or internal auditors). At most, some of
Rustom’s colleagues provided some simple advice on service tax matters
occasionally to KSA, but at no point did Meheronji & Co. charge KSA
anything in excess of Rs. 1 lac per year as fees.
(iv) Darren Girvinson, the managing partner of Lotus Partners, which is a

London-based private equity firm. In 2002, when in need of additional
funds for expansion, KSA issued 7% shares to Lotus through a preferential
allotment. One of the conditions for Lotus’ investment in KSA was that
the Dadaji family will always vote to ensure the appointment of at least
one person nominated by Lotus as a director of KSA. In other words, it
was the expectation that Lotus will always be represented by one nominee
director on KSA’s board. Darren, who has been Lotus’ nominee since
2002, is a tough customer. He constantly demands (and usually obtains)
detailed information regarding the company’s operations and financials.
Ashwin and other managers also dread board meetings where Darren is
present as he always asks incisive questions regarding the company’s
policy and strategy. All this Darren does because like any private equity
investors he is concerned about ensuring rewarding returns from this
investment in KSA at the time Lotus exits from its investment in KSA. It
is perfectly logical from a commercial standpoint for private equity
players (and their nominee directors) to be concerned about protection of
their own investment rather than the interest of the company or other
shareholders or creditors.
(v) Professor Rosh Baxter, a world renowned metallurgist and steel industry
expert. His contribution to KSA has been phenomenal as he helped
introduced world class technology to make KSA products stand out from
the rest of the pack, and also help in setting production processes that
substantially reduced cost. Rosh was incidentally Ashwin’s PhD
supervisor at MIT, and they have continued their friendly association even
thereafter. Ashwin’s PhD work was path-breaking, largely due to the in-
depth contribution of Rosh, and the two also obtained a series of patents in
their joint names arising from that work. However, they have not been
able to commercially use their patents as their new technology is not
expected to take off on a commercial scale at least for a decade.
(vi) Arindam Sinha, who is the Secretary of the National Steel Workers’
Union, a powerful body representing the interests of employees in the steel
industry. One of the secrets of KSA’s success has been its emphasis on
employee welfare. Consistent with that approach, it was thought necessary
to represent the workers’ interest on the board (a concept that is quite alien
to Indian companies, although it is commonplace in countries like
Germany). Arindam is generally known to be a fighter for workers’ rights,
35

but in a couple of recent instance he was accused of “selling out” to
managements. Even in KSA’s case, during a wage settlement 2 years ago,
workers were unhappy with the settlement Arindam negotiated on their
behalf, as they found him to be too “soft” towards the Dadajis. The “KSA
Chronicle” an employee magazine of the company reported talk among
the employees that Arindam may even have “cut a side deal” with Dadajis
in that instance, although no one was willing to confirm those allegations
with any concrete evidence.
Apart from those mentioned above, the directors had no other relationships either
with the company or other directors.
5. While the business of the company was rapidly expanding since its IPO, and so
was the share price of KSA, the year 2007 began with a grim note. There were
signs of a recession and the steel industry began suffering a set back. Steel prices
were plummeting, while costs were soaring. Furthermore, KSA was party to
several potential receipts as well as financial obligations in foreign currency. For
example, KSA was expecting to be paid in foreign currencies such as US dollars
and British pounds under long term steel supply contracts it had entered into with
customers. On the other hand, KSA also carried financial obligations in foreign
currency for loans obtained from foreign lenders (in Japanese yen and Singapore
dollars) in the form of external commercial borrowings (ECBs). The increasing
volatility in various currencies introduced substantial complexity to KSA’s
operations. It was becoming a financial nightmare, and Jay Maheshwari, the chief
financial officer (CFO) of KSA was indeed in a fix. This, despite Jay being a
qualified chartered accountant, who has been at the helm of financial affairs at
KSA for about a decade now. But, a chance meeting with one of his former
colleagues at Arden Bank brought some sunshine into Jay’s professional life. Jay
and Maya had previously worked together in the treasury division of Arden Bank.
While Jay moved on to his role at KSA, Maya rose up the ranks to become Head,
Corporate Banking at Arden Bank. Maya mentioned to Jay about certain
derivative products that were available to companies like KSA to manage risks
arising from their complex foreign exchange transactions. She also mentioned that
several companies with foreign exchange exposure were successfully availing of
these derivative products, and that at least 8 banks were in this business already.
6. After making some initial enquiries, Jay found that such derivatives may help
manage KSA’s foreign exchange exposure as well. Derivatives are options, swaps
and similar transaction involving different currencies. Companies are able to enter
into transactions with banks involving two or more currencies. The products are
such that if one currency (to take the US dollar) were to appreciate with reference
to another currency (to take the Swiss franc), then the bank selling the product
would pay the customer company. On the other hand, if the US dollar were to
depreciate against the Swiss franc, then the customer company would have to pay
the bank instead. Such contracts were entered into after studying markets trends
over past periods. In order to mitigate his risk against various currencies, Jay
36

conducted an analysis of past movement of various currencies. He found that the
US dollar always appreciated (at least since 2000) against all the other currencies
that KSA had an exposure to. Based on this, he found it to be advantageous to
enter into derivative transactions to protect against further appreciation of US
dollars against other currencies. He then worked out a proposal with Arden Bank
whereby Arden would pay KSA if the US dollar were to appreciate beyond its
value on a fixed date with respect to certain other currencies, while KSA would
pay Arden if the value of the US dollar were to depreciate below its value on a
fixed date (less a margin of 1%). Jay was confident that KSA would always get
paid by Arden since the past trend has always shown an appreciation of the US
dollar against the other currencies.
7. In order to take this forward, Jay prepared a detailed proposal about the derivative
product and explained as to how this would benefit KSA in managing its foreign
exchange exposure. He first discussed this with Ashwin, who was initially
skeptical about this whole concept, primarily because he understood very little of
it (being a person with a metallurgical background). But, after about 3 meetings
with Jay, Ashwin was able to perceive some general benefit that may enure from
such transactions, although he could still not fully grasp the fine points of
financial derivatives. He instead suggested that an audit committee meeting be
convened to consider this proposal as it involved financial and accounting
matters. Jay, however, cautioned Ashwin that a decision needs to be taken at the
earliest as foreign currency movements were becoming increasingly complex and
without such derivative transactions KSA may be unprotected against such risks.
On April 1, 2007, a meeting of the audit committee was convened to consider the
proposal. The committee (chaired by Rustom Meheronji, with the other members
being Ashwin Dadaji and Arindam Sinha) met to consider the proposal. Jay
explained the proposal to the audit committee, which again had difficulty in
grasping the intricate details of the proposal. Even though all members of the
audit committee were conversant with balance sheets and other accounting
statements, this was too much for them to comprehend. Rustom, though a
chartered accountant, was not entirely familiar with these new types of financial
accounting involving derivatives. But after detailed explanation by Jay, even
Rustom began to generally see some overall benefit to the company from the
derivatives. The audit committee, after an hour of further deliberations, decide to
recommend to the board that the company enter into derivative transactions with
Arden Bank. During the audit committee deliberations, there was also discussion
of the possibility of KSA engaging expert financial consultants to study the
proposal and to advise the board of the risks, but this idea was dropped when
initial enquiries revealed that their charges were exorbitant (US$ 950 per hour).
8. In the meanwhile, Rustom, as the chairman of the audit committee, received an

anonymous letter in his office. This was a letter from an employee that
highlighted several risks from entering into such derivative transactions,
explaining point-by-point the dangers to the financial situation of the company
that may arise through these transactions. The letter also stated that it has been
37

sent anonymously by the employee owing to fear of victimization by Jay, who is
spearheading the derivative deal with such vigour that he may indeed quell any
opposition to his proposal, and may then persecute the complaining employee
who is also at risk of being fired. Rustom realized that this was in response to a
general email sent by Ashwin to all employees calling upon them to bring to the
attention of management any wrongdoings or unusual behaviour by any other
employees. The email also suggested a preference to avoid anonymous
complaints so as to ensure that there are no “hoaxes” carried out, and that it would
be difficult to follow up on anonymous complaints. Rustom immediately brought
this to Ashwin’s attention, and they decided to ignore the complaint as it was
anonymous, and further they were hard pressed for time and wanted to complete
the transactions at the earliest. In any event, since the letter was anonymous there
was no need to act on it.
9. The proposal was then taken up at the board meeting on April 24, 2007, which
was attended by all directors, except Baxter and Girvinson. However, all directors
had received notice of the meeting. The meeting began with a presentation by
Maya who described the derivative product and its benefits to KSA. This was
followed by a presentation by Jay who recommended that the company go ahead
with the proposals. This was followed by a discussion during which the board
members essentially looked to Rustom for his comfort levels, as he was not only
the audit committee chairman but the lone financial expert on the board. Rustom,
somewhat hesitatingly though, nodded in favour of the proposals. In the presence
of the directors, Kesubai telephoned Baxter who stated that he had no opinion on
the matter (not being a financial expert). Girvinson was not reachable. The
directors then present voted in favour of a resolution authorizing Jay to enter into
the derivative transactions as contained his proposal.
10. Fortunately for Jay, the US dollar continued climbing during the next quarter as
well, due to which Arden Bank paid a sum of Rs. 2 crores to KSA (as payment
was due quarterly under the contract). However, the tides were turned from the
July-September quarter in 2007 with the outbreak of the subprime crisis in the
US. With this, alas the US dollar began depreciating, much to the dismay of Jay.
This went on for several months thereafter. Because of the negative movement of
the currencies under the contracts, the July-September quarter of 2007 saw KSA
incurring an obligation of Rs. 148 crores towards Arden Bank, and the October-
December quarter saw KSA’s obligation rise to Rs. 285 crores. This was just
unfathomable even a few months ago, but the subprime crisis undid it all. In its
October meeting, KSA’s board took one strategic decision – not to honour its
payment obligations to Arden Bank. It was found that other customers in the same
position as KSA were refusing to comply with their payment obligations to banks
under derivative contracts alleging that these contracts were void as they were
contrary to law. Consequently, it even addressed a letter to Arden Bank stating
that the derivative contracts are void and that it does not intend to make any
payments under the contract.
38

11. On November 1, 2007, Arden Bank initiated proceeding before the Bombay High
Court for recovery of the amounts due from KSA, and notice of the same was
issued to KSA. No order has been passed in those proceedings that are still
pending before the court. Due to the fact that no order has been passed, the audit
committee of KSA did not find it necessary to disclose this in its quarterly
financial statements ending December 31, 2007. The audit committee obtained a
legal opinion from M/s. LawLegal, the solicitors of KSA, to the effect that the
based on the merits of the cast, it is highly unlikely that Arden Bank would
succeed in the suit. However, the legal opinion contained a standard caveat that in
matters pending before court, it is possible that the outcome may be different from
what is expected. On this basis, the audit committee approved those accounts,
which were also subsequently certified by Ashwin (as CEO) and Jay (as CFO) as
required by law.
12. This trend only continued in the following year as well. The quarter of January-
March 2008 too saw the derivative contracts creating a payment obligation of Rs.
95 crores from KSA to Arden Bank. What was even more disconcerting was the
fact that on May 9, 2008, the Bombay High Court passed its order upholding the
validity of the derivative contracts and ordering KSA to pay all outstanding
amounts to Arden Bank together with interest and costs. This was a big blow to
KSA’s financials, which were already fragile owing to poor industry conditions.
On the following day, the share price of KSA fell to such an extent that trading
had to be suspended on both exchanges for 2 hours. This was exacerbated by
Arden Bank’s press release that it was initiating winding up proceedings against
KSA, and that it had already issued a notice in that behalf. Between May 10 and
May 31, 2008, the stock price had fallen from Rs. 550 to Rs. 120.
13. The investors became distraught. Lotus Partners threatened to initiate action
against KSA for failure to protect its interest as a shareholder, as it saw its
investment value denude substantially. The retiree investors were even more
affected as they saw their life savings diminish in a matter of few months. Two of
the retirees took the initiative of enquiring into the matter further and wrote letters
to the company seeking an appointment with the Dadajis. But, that was to no
avail. They even visited the offices of KSA several times but were told that the
Dadajis were not available. They were left with no option but to seek legal
recourse. Towards this end, they formed an association (duly registered under
law) by the name of “KSA Investors’ Association”. The Association wrote letters
to the stock exchanges and the Securities and Exchange Board of India (SEBI)
requesting that action be taken against KSA and its directors for violating the
corporate governance requirements under the listing agreements entered into by
KSA with the stock exchanges.
14. Both SEBI and the stock exchanges took serious note of the matter and
consequently issued notice to KSA. After hearing the Association as well as KSA,
the stock exchanges passed order delisting the shares of KSA from their board.
Similarly, SEBI held hearings and passed adjudication orders against KSA for
39

violation of the listing agreement. It imposed a fine of Rs. 20 crores on KSA.
Further, pursuant to Section 11B of the Securities and Exchange Board of India
Act, 1992, SEBI passed an order prohibiting KSA or any of its directors from
accessing the capital markets for a period of 2 years from the date of the order.
The principal grounds on which SEBI found against KSA were that (i) the
constitution of the board of directors of KSA and its audit committee were not in
accordance with the requirements of the listing agreement; (ii) the conduct of the
board in approving the derivative transactions was not in compliance with
corporate governance norms (in particular the listing agreement); (iii) the act of
ignoring the employee’s warnings about entering into such transactions was not in
compliance with the ethical conduct required by the listing agreement, and (iv)
the non-disclosure of the pending suits by Arden Bank in the financial statements
for the two quarters between July and December 2008 made the financial
statements and the certifications misleading thereby causing losses to the
investors (the reason being that had the investors known of these suits in advance,
they could have sold their shares before the prices fell further).
15. Against the orders of the stock exchanges and SEBI, appeals have been preferred
by KSA as well as its directors to the Securities Appellate Tribunal (SAT). They
have not raised any procedural objections or contentions regarding the process of
enquiry followed by the stock exchanges and SEBI, all of which are assumed to
have been complied with as required by law.
16. The matter is placed for hearing and arguments before SAT.
---------------- x --------------
40

Bangalore (2009)
IN THE SUPREME COURT OF INDIA
Kings Partners … Appellant
v.
KID Constructions Private Limited

Delro Industries Limited
Mr. Inamdar … Respondents
1. Mr. Inamdar is a real estate tycoon with a fairly successful track record. Over the
last two decades, he has (through his network of partnership firms established
along with his close family members) developed several residential and as well as
commercial projects that have earned him quite a fortune. However, Mr. Inamdar
faced a bleak period during 2001-2002 when there was a significant downturn in
real estate prices. At that point in time, he had several projects that were under
construction, and many of them had no takers, due to which he had to
substantially reduce the prices of the units so as to make them saleable. This
brought about substantial losses to Mr. Inamdar resulting in erosion of his wealth.
2. Mr. Inamdar is an eternal optimist, and when the markets witnessed a recovery a
few years later, in 2004-2005, he was ready to begin new projects for construction
after acquiring land for that purpose. The lack of available funding from his own
resources was a dampener to his spirits. He realised that the only way to restart his
business was either to collaborate with another industry player in order to
modernise his business practices or to raise funding by way of equity or debt from
financial investors. After initiating discussions with various potential
collaborators and investors, he decided to join hands with an industry player as
well as a financial investor. Of course, in this arrangement, Mr. Inamdar would
41

end up ceding his autonomy and flexibility to operate his business, but that was a
small price to pay in order to achieve his dreams of becoming the biggest real
estate player in the country.
3. After prolonged negotiations, he was able to arrive at a basic understanding with

Delro Industries Limited (DIL), which is a conglomerate engaged in several
business activities ranging from the hotel industry, to manufacturing and to
shipping. DIL is controlled by the Raj family and its shares are listed on the
Bombay Stock Exchange. DIL was willing to infuse a sum of Rs. 50 crores into
the business. Mr. Inamdar himself was capable of investing Rs. 25 crores. The
balance needed to fulfil the total capital requirement was Rs. 25 crores. This he
managed to secure from Kings Partners, which is a leading private equity firm in
the real estate space, based in New York.
4. In order to effectuate this agreement, a private limited company by the name of

KID Constructions Private Limited (KCPL) was formed on February 9, 2005 in
which the real estate business would be housed. While Mr. Inamdar and DIL Ltd
would be involved in the day-to-day management of the company, Kings Partners
would only be a financial investor. The parties finalised the shareholding pattern
such that it mirrored the proportion of the investment made by each party.
Therefore, DIL took up a 50% shares in KCPL, while Mr. Inamdar and Kings
Partners took up 25% shares each in KCPL. The parties also entered into a
shareholders agreement on April 14, 2005 that reflected the terms and conditions
of the arrangement involving the investment by all parties in KCPL.
5. All the broad terms and conditions of the shareholders agreement were
incorporated into the articles of association of the company (with the relevant
provisions being extracted below):
C. The board of the company shall consist of four directors, of which two
shall be nominated by DIL and one each by Mr. Inamdar and Kings
Partners.
D. In the event that any of the shareholders (the “Selling Party”) desires to
sell, pledge, encumber or otherwise deal with the shares it holds in the
Company, it shall first make an offer to the other parties (the “Receiving
Parties”) at a proposed price (the “Offered Price”) and give the Receiving
Parties a period of 28 days to determine whether they wish to purchase
those shares or not. In the event the Receiving Parties decide to purchase
the shares, then the Selling Party shall sell the shares to the Receiving
Parties (in proportion to the shares held by them in the Company at the
relevant time) at the Offered Price. If the Receiving Parties decline the
offer or do not respond within the period of 28 days, then the Selling Party
shall be free to sell the shares to any other person at the Offered Price.
Provided that the restrictions in this Article shall not be applicable to the
42

sale by any party of a maximum of 1% shares in the Company in any
financial year.
E. The Company shall undertake an initial public offering (IPO) on or before

January 1, 2009. In the event that the Company has been unable to
undertake an IPO by such date for any reason whatsoever, Kings Partners
shall have the option (but not the obligation) by issuing a notice to Mr.
Inamdar and DIL to sell its shares to them at a fair market value to be
determined by a Big-4 accounting firm. Upon receipt of such notice, Mr.
Inamdar and DIL shall be required (in the proportion of their then existing
shareholding in the Company) to purchase Kings Partners' shares at
predetermined price, such that all the shares of Kings Partners are
purchased.
F. On any matter that is presented for voting at a meeting of the shareholders

of the Company, DIL and Mr. Inamdar shall cast their votes in the same
manner as may be determined by agreement between them. In case of
disagreement, Mr. Inamdar shall vote his shares in the company in the
manner specified by DIL.
Moreover, the main objects in the memorandum of association of KCPL stated

that the business shall be limited to carrying on real estate and construction
business in the city of Delhi.
The shareholders agreement also contained a dispute resolution clause which

required the parties, in case there was a dispute in connection with the agreement,
to submit to arbitration by a sole arbitrator to be appointed jointly by the parties.
However, this clause was not incorporated into the articles of association of
KCPL.
6. KCPL began its operations in late 2005 by acquiring two pieces of land in the city
of Delhi, one for a residential project and another for a commercial project. Due
to the heavy demand for these projects triggered by the upswing in the Indian real
estate market, they were sold out by early 2006, and for this reason the company
was required to meet the schedule for handover of position by early 2007, which
it quite comfortably did. Riding on the property boom of the season, the company
made hefty profits of Rs. 45 crores for the financial year ending 2006-2007.
7. Owing to the success of these projects, both Mr. Inamdar and DIL were keen to
utilise these profits to expand the business operations to other growing cities in
India, primarily Pune and Jaipur. However, Kings Partners was not all that bullish
about the Indian real estate market, and considering the sub-prime crisis that had
begun to rear its ugly head in the U.S. at the time, it was keen to take the profits of
the company out in the form of dividends in order to meet its liquidity
requirements in the U.S. and to minimise any future risks. Mr. Inamdar and DIL
were not in agreement with this view as they thought it too premature to distribute
43

profits and were keen to deploy the same in further business expansion. They
decided to convene an extraordinary general meeting (EGM) of KCPL to change
the objects clause to cover the whole of India rather than merely the city of Delhi.
8. On July 15, 2007, an EGM was held at which the resolution to amend the objects
clause in the memorandum of association of KCPL was passed, and thereby the
territory for conduct of business of the company was expanded from the city of
Delhi to all of India. While Mr. Inamdar and DIL voted in favour of the resolution
for such amendment (which was put forward by way of a poll), Kings Partners
voted against. This was found to be the beginning of the souring relationship
between Kings Partners and its other two collaborators in the business.
9. While Kings Partners began consulting its lawyers on various options as to its
stake in KCPL, Mr. Inamdar found himself to be in urgent need of a sum of Rs.
50 lakhs in order to meet his obligations under a family settlement. In this
connection, he had no option but to approach but his previous white knight and
current collaborator, DIL. The latter agreed to provide the sum, but was unable to
loan the amount to Mr. Inamdar owing to some internal requirements, but was
willing to pay it to Mr. Inamdar as consideration for a possible purchase of 0.5%
of Mr. Inamdar’s shares in KCPL. With his hands somewhat tied, Mr. Inamdar
had no option but to agree to this arrangement. Consequently, on December 1,
2007, he sold 0.5% of his shares to DIL for the sum of Rs. 50 lakhs.
10. Subsequently, the lawyers of Kings Partners came up with their recommendations
on how to improve its position in KCPL. One piece of advice was that Kings
Partners should increase its stake in the company to beyond 25% if it was to
protect its interests better. Kings Partners then began to initiate discussions with
DIL and as well as Mr. Inamdar to purchase additional stake from either or both
of them. However, both of them flatly refused this proposition, thereby further
straining their relationship with Kings Partners.
11. In May 2008, Kings Partners was shocked to receive some potentially devastating
information. It found that Mr. Inamdar, again in need of further funds, had sold
10% of his shares in KCPL to Chrome Ventures, a real estate fund based in
Connecticut, which is a competitor of Kings Partners – the sale was effected in
accordance with applicable foreign investment regulations. As an aside, it is to be
noted that Kings Partners’ internal policy was to ensure that it did not stay
invested in any company where its competitor has an investment, and such a
transfer of shares in KCPL was not something it would ever favour. The transfer
of the shares was to be registered at a board meeting of the company scheduled
for June 5, 2008, for which meeting the director nominated by Kings Partners on
the board duly received notice. The transfer, Kings Partners alleges, was made in
blatant violation of the provisions of the shareholders agreement and the articles
of association of KCPL. On June 1, 2008, upon the advice of its lawyers, Kings
Partners filed a civil suit in the Delhi High Court seeking an injunction, and
alternatively damages worth Rs. 45 crores. The Delhi High Court, after hearing
44

the parties, refused to grant an interim injunction or any other relief. Therefore, at
the board meeting on June 5, 2008, the 10% shares were duly registered in favour
of Chrome Ventures, with Kings Partners’ director handing in the only dissenting
vote. Subsequently, after hearing the merits of the case, the Delhi High Court
dismissed Kings Partners’ suit in a final judgment.
12. Kings Partners was now resigned to the fact that it does not have a bright future in
KCPL. Therefore, the only way forward was for it to exit the company. This
could potentially be done in an IPO where Kings Partners could offer its shares to
the public at the public offering price. In any event, the deadline for an IPO was
January 1, 2009. However, the other shareholders in the company were opposed
to the idea of an IPO considering the already sagging capital markets in India and
the possibility of obtaining a very low valuation for the company's shares.
13. That left Kings Partners with only one realistic option, which was to require DIL
and Mr. Inamdar to acquire its shares at the prescribed valuation. Therefore,
Kings Partners promptly issued a notice on January 1, 2009 to DIL and Mr.
Inamdar calling upon them to acquire Kings Partners’ shares in the company. To
this, DIL and Mr. Inamdar replied on January 10, 2009, stating that they are under
no obligation to do so and that they refuse to purchase the shares. Kings Partners
made its way back to seek relief from the Delhi High Court on what it sees as
another blatant violation of the shareholders agreement and the articles of
association. Much to its dismay, the Delhi High Court refused to grant any relief
(either interim or final) after hearing the parties, including on the merits of the
case.
14. In the meanwhile, the other shareholders at the company came to the conclusion
that Kings Partners’ nuisance value was the best offering it brought to the
company, and it was therefore beneficial to boot it out of the company, but at the
terms to be set by the majority shareholders. They therefore came up with an
ingenious scheme (ably supported by their lawyers) to squeeze Kings Partners out
of the company. They proposed a scheme of a reduction of share capital of KCPL,
whereby the 25% share capital of Kings Partners only (and not any other
shareholder) will be reduced by way of repurchase by the company under the
scheme. For this purpose, the majority shareholders appointed M/s. Kode & Co, a
small-sized chartered accountant firm based in Ghaziabad to come up with a
valuation of the shares of KCPL. Kode & Co. came to the conclusion that the
value of the Rs. 10 per share was fair and that was the amount that the company
ought to pay Kings Partners for the reduction of their capital. This was on account
of the slump in the real estate market in India due to the ongoing global financial
crisis. While Kode & Co’s valuation has taken into account all necessary
parameters, there is no dispute to the fact that a valuation by a Big-4 accounting
firm would have been considerably more liberal in favour of a higher valuation
that would have benefited Kings Partners.
45

15. On February 15, 2009, the board of KCPL met to consider the scheme of
reduction of capital on the terms set forth above. The resolution was duly passed,
again with the director nominated by Kings Partners dissenting. The matter was
also approved at an EGM of the company held on March 15, 2009. The company
sought the approval of the Delhi High Court, at which time King Partners filed its
objections stating that the scheme of reduction of capital was in violation of the
law. However, after hearing the parties and noting that all creditors of KCPL had
approved the scheme, the Delhi High Court sanctioned the scheme on June 26,
2009.
16. Having lost its case on three occasions before the Delhi High Court, and on
available appeals, Kings Partners decided to approach the appellate Court of last
resort in order to pursue its claims. The Supreme Court of India, after having
granted leave, decided to consolidate all the appeals and to hear and pass
judgment on them in a composite manner.
---------- x ----------
46

Bangalore (2010)
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Martin Ventures Inc. … Appellant
v.
Megamart Limited
Raman Arneja
Krish Arneja
Arneja Retail Private Limited … Respondents
1. Megamart Limited has been engaged in the business of wholesale cash and carry
trading of household products for the last few years. Its customers are principally
hotels, manufacturing and services companies and retailers. The products it sells,
consisting of multiple brands, are sourced from various manufacturers and
suppliers both within India as well as abroad. It has enjoyed tremendous success
in its business, being only one of 3 such cash and carry wholesalers with a
national reach.
2. Megamart was initially established in 2002 as a joint venture in Bangalore

between Martin Ventures Inc., a U.S. based retailer, and Arth Enterprises Limited,
an Indian company being the flagship vehicle of the Arneja Group (consisting of
Indian resident individuals). Martin Ventures held 40% shares in Megamart, while
Arth Enterprises held the remaining 60%. Due to the increasing capital
requirements of Megamart fuelled by its growing business, it was decided by the
two promoters that Megamart must access the Indian capital markets.
Consequently, Megamart made an initial public offering of shares, in which the
company issued new shares and Martin Ventures sold part of its shares as an
“offer for sale”. Megamart’s shares were listed on the National Stock Exchange
on May 18, 2006, following which Martin Ventures held 16%, Arth Enterprises
35%, with the remaining shareholding held by the public. Such shareholding
pattern continues to date. The relevant provisions of the memorandum and articles
of association of Megamart are set out in the Appendix.
3. The board of Megamart consists of 7 directors (all in a non-executive capacity),

out of whom 2 are nominees of Arth Enterprises, 1 a nominee of Martin Ventures
and the remaining independent. Mr. Raman Arneja and Mr. Krish Arneja are
47

directors representing Arth Enterprises, while Mr. Chuck Arendale is the director
representing Martin Ventures. The independent directors truly have no connection
whatsoever either to the company or the promoters and are otherwise of
unimpeachable integrity.
4. In recognition of Megamart’s expertise and the market share it had cornered in the
cash and carry wholesale trading business, it was approached in early 2007 by
Venus Capital Private Limited, a domestic venture capital fund dedicated towards
investing in the retail trading sector. Venus Capital was keen on partnering with
Megamart to commence retail operations whereby the new venture would set up
retail outlets at transport hubs (such as airports, railway stations, bus stations)
across the country primarily to cater to the travel and related needs of passengers.
Mr. Menon, the chief investment officer of Venture Capital, contacted his former
classmate Mr. Krish Arneja to make a proposal. Over dinner one evening, Mr.
Menon spelt out his plans for the new retail operations. Mr. Arneja was instantly
elated with the proposal as he saw tremendous potential in the proposed business.
Considering the vast increase in mobility of the Indian population, there was no
limit to the earning potential from retail operations at transport hubs. However,
Mr. Arneja sought some time from Mr. Menon so that he could discuss the
proposal within his organisation and that matters may be progressed thereafter.
5. Mr. Krish Arneja first brought this to the attention of his brother Raman.
Although the idea was appealing, they were not optimistic about the chances of
Megamart venturing into this new business. During the establishment of the joint
venture, Martin Ventures had indicated its preference of staying outside the
purview of retail trading, keeping in mind the sensitive issues surrounding this
sector, many of which were highly political in nature as well. The Arnejas felt that
Martin Ventures is unlikely to have altered their position on this issue, and will
likely object vehemently if the retail proposal were brought to the attention of
Megamart’s board of directors. At the same time, Venus Capital’s retail proposal
was too attractive to ignore, particularly if it were to be lapped up by a
competitor.
6. The Arnejas went back to Mr. Menon with a slightly altered plan. They informed
Mr. Menon that owing to various restrictions, including those imposed by Martin
Ventures, it would not be possible for Megamart to collaborate with Venus
Capital on the retail business. However, the Arnejas were willing to set up a new
company Arneja Retail Private Limited, which could commence the retail
business after receiving investment from Venus Capital. In any event, there was
no non-compete arrangements between Arnejas, Arth Enterprises and Martin
Ventures that would come in the way of such a business. After protracted
negotiations between the parties, the new business venture through Arneja Retail
was formed. Arneja Retail leased various retail spaces across the country, entered
into contractual arrangements with suppliers and, on May 12, 2008, announced
the launch of the business.
48

7. Coincidentally, May 12, 2008 was also the date for the board meeting of
Megamart. Towards the end of the board meeting, which was held after Arneja
Retail’s launch, the Arnejas brought to the attention of the board the details of the
new business. It is not clear whether it was a matter deliberately orchestrated or
whether it was pure inadvertence, but Krish also mentioned about how Venus
Capital had first expressed its interest to collaborate with Megamart and that was
the genesis for the retail idea. Mr. Chuck Arendale was livid with this turn of
events. Not only did he rue the loss of a possible blockbuster business opportunity
for Megamart, but he was even more concerned with the situation where the
Arnejas were likely to divert all their time and attention away from Megamart’s
business and into the new retail venture, thereby cannibalising Megamart. Mr.
Arendale wished to consider the matter in detail with his superiors in Martin
Ventures and sought to convene another board meeting in about a month’s time.
In the meanwhile, the publicity surrounding Arneja Retail’s launch did not go
well at all with Megamart’s investors. There was bloodbath on Megamart’s
counter and its stock slid so rapidly that the circuit breaker had to be deployed by
the stock exchange. By the end of the trading week, the stock had dropped from
Rs. 800 per share to Rs. 550 per share, and thereafter it more or less stabilised at
that level.
8. The next board meeting of Megamart was held on June 15, 2008. Mr. Arendale
registered Martin Ventures’ strong objection to the conduct of the Arnejas and
requested the board to consider appropriate action for their conduct. During this
meeting, one of the independent directors, Mr. Jayaram (a reputed business
professor who is known not to mince his words), enquired whether there were any
arrangements between Megamart and Arneja Retail. To that, Mr. Krish Arneja
mentioned that there was a supply contract entered into between Megamart and
Arneja Retail by which the former would supply several products to the latter at a
discount of 1% to the price at which they are sold in Megamart’s wholesale
stores. Mr. Jayaram, visibly upset with the answer, enquired as to why this was
not brought to the attention of the board. Mr. Krish Arneja responded that the
contract was signed by the manager of the company who had been conferred the
authority to sign all supply contracts with customers and that this contract was
entered into in the normal course of business.
9. All of these events further infuriated Mr. Arendale. After consulting with Martin
Ventures’ lawyers, both in the U.S. and in India, Mr. Arendale called for a further
board meeting at which a resolution was moved to seek the board’s approval for
the company to initiate legal action against the Arnejas and Arneja Retail. The
matter was discussed and deliberated extensively, with the Arnejas being asked to
recuse themselves from several discussions. Finally, when the resolution was put
to vote, only Mr. Arendale and Mr. Jayaram were in favour of the company
initiating a suit against the Arnejas while the other directors opposed the
resolution thereby making it a failure.
49

10. Being left with no other option, Martin Ventures initiated a civil suit on behalf of
Megamart (which was included as a defendant) against the Arnejas and Arneja
Retail seeking the following two remedies:
a. Recovery by Megamart of damages for the actions of Arnejas in diverting

business to Arneja Retail, at least to the extent of Rs. 250 per share of
Megamart. Since Megamart had 1 crore shares issued and outstanding, the
total damages claim was for Rs. 250 crores.
Alternatively, recovery by Martin Ventures at the rate of Rs. 250 per share
to the extent of the total number of shares (representing 16%) held by it.
b. Repudiation of the supply contract entered into between Megamart and

Arneja Retail.
11. The court of first instance dismissed the suit finding a lack of jurisdiction citing
Section 10GB of the Companies Act, 1956.
12. Martin Ventures has preferred an appeal before the Karnataka High Court which
has decided to hear on all issues, including on merits.
----- x -----
50

APPENDIX
Memorandum of Association
III. The main objects of the Company to be pursued after incorporation are:-
1. (a) To trade in any articles, goods, rights, possessions of any nature and of any use
being industrial, commercial, household, technical and in such process to buy, sell
acquire, lease any merchandise, goods or property of any form whatsoever as
authorised dealers, stockists, agents, brokers, factors and render all such services in
the ordinary course of business to market the goods in a consumable state. (b) To
carry on the business of importers, exporters, buyers, sellers, dealers, stockists,
suppliers, wholesalers, retailers, jobbers, contractors, storers, lessors, hirer of goods
of every description and goods, components, sub-components, consumables,
peripherals or products or articles involved in the goods and to act as agents for any
products or articles involved in the goods and to act as agents for any such articles,
goods or any services for Indian or overseas principals. (c) To carry on, in any mode,
the business of storekeepers in all its branches and in particular to buy, sell and deal
in goods, stores, consumable articles, chattels and effects of all kinds.
...
Articles of Association
34. Subject to the terms of these Articles, no action shall be taken by the Company or the
Board or committee meeting thereof or at any General Meeting with respect to any of
the following matters without the prior written consent of each of Martin Ventures and
Arth Enterprises or the affirmative vote of the directors nominated by Martin Ventures
and the directors nominated by Arth Enterprises as the case may be:
(i) alteration of the provisions of the Articles of Association of the Company;
(ii) commencement of a new line of business not part of the then existing business;
(iii) issuance of further shares or securities to any person (including existing

shareholders);
(v) reduction of Share Capital or any buy back of Securities;
(vii) any change in the constitution of the Board or in the number of Directors other
than as expressly provided in this Agreement;
(viii) declaration of dividend;
(ix) adoption of audited annual accounts;
(x) apply to a court to wind up the Company;
51

(xi) any merger, de-merger or other corporate restructuring by way of a scheme of
amalgamation, arrangement or compromise;
(xii) remuneration of the Managing Director and the Joint Managing Director; and
(xiii) approval of annual business plan and annual budget.
52

8. Third NUJS – Herbert Smith National Corporate Law Moot Court
Competition (2011)
Jay Jadeja
Motoparts (India) Limited … Appellants
v.
Truckz Valves GmbH … Respondents
1. Jay Jadeja is an automotive engineer with 30 years’ experience in the field. After
having worked with several leading companies around the world, he decided to
return to India during mid-2004 to give vent to his entrepreneurial aspirations.
Essentially an environmentally conscious individual, Jay was keen to introduce a
new (and greener) technology for the manufacture of automobile exhaust systems.
Certain socially oriented automobile companies in India immediately caught on to
Jay’s idea and agreed in-principle to deploy Jay’s exhaust systems in vehicles
manufactured by them, subject to finalisation of the detailed terms and conditions
including price.
2. Jay then had to build a corporate framework within which he could nurture his
business idea. Due to the long years Jay spent abroad, he was not confident about
foraying into the Indian market on his own. He decided to partner with an Indian
business group that could contribute the local expertise and marketing network
(especially for the aftermarket). Jay’s search for such a partner led him to
Motoparts (India) Limited. Motoparts is a company predominantly owned by Mr.
Kapra, with the remaining shareholding spread across 50 other members of Mr.
Kapra’s extended family. Motoparts has long been in the business of sourcing and
supplying automotive spare parts and servicing automobiles at its various outlets in
15 cities across India.
53

3. After several rounds of discussions between Jay and Mr. Kapra, they came to an
agreement regarding the broad terms of their partnership. It was decided that the
business of manufacturing the exhaust systems will be housed in a new company
Exhaust Systems (India) Private Limited (with the corporate brand “ExSys”), which
was incorporated on November 7, 2004 with its registered office in Chennai’s
Sriperumbudur industrial area, where the company’s plant was also to be located.
The company was incorporated with a paid-up share capital of Rs. 10 crores with
Jay and Mr. Kapra holding 50% shares each, and with Jay and Mr. Kapra also
being the first directors of the company. Subsequently, after Mr. Kapra discussed
the exhaust system proposal with his family members, they all expressed great
interest in participating in the new business, and hence it was decided that Mr.
Kapra will transfer all of the shares held by him in ExSys to Motoparts. Jay
provided his concurrence, and the transfer of shares was given effect to on
December 7, 2004, such that Jay and Motoparts became equal shareholders in
ExSys. On the same day, the board of ExSys appointed Jay as its managing
director.
4. Now that the corporate structure was in place, Jay began expending his resources to
get the business off the ground. Upon finalising the business plan, he found that he
needed an additional financing of Rs. 5 crores to tide him through the requirements
of initial capital outlay such as leasing the land, building the factory and purchasing
equipment. Neither Jay nor Motoparts possessed liquid funds to invest for the
purpose. They were not keen to approach a private equity fund, venture capital firm
or other financial investor for fear that such investor was likely to seek extensive
rights on matters pertaining to the company and its business, which would stifle the
ability of existing shareholders to manage the company in an optimal fashion. After
a few days of brainstorming, Jay and Mr. Kapra were able to arrive at a consensus
regarding only one avenue, and that was to borrow the additional funds from
Truckz Valves GmbH, a previous employer of Jay with whom he continued to
enjoy excellent relations. Truckz considered this a passive financial investment and
was not interested in exercising any control over ExSys or its management.
5. The initial euphoria was short-lived as Truckz’s Indian lawyers advised their client
against lending to an Indian company due to the extensive restrictions imposed by
Indian law on borrowings by Indian companies from overseas lenders. Instead, the
lawyers suggested that a more optimal structure would be for Truckz to invest in
unsecured compulsorily convertible debentures, which they assured was a
straightforward method of financing ExSys’ business. Jay was uncomfortable
borrowing on the basis of any instrument that would provide the holder thereof a
right to obtain equity shares in ExSys, but he was left with very little choice as the
company desperately needed the financing. In order to protect his interest in ExSys
and that of Motoparts, he devised (with the able assistance of his lawyers) the
following clauses in the Subscription Agreement to be entered into between Truckz
and ExSys, which were acceptable to Truckz (hence finding their way into the final
document):
54

i. On the fifth anniversary of this Agreement, each unsecured compulsorily
convertible debenture (“Debenture”) shall automatically, and without
further act or deed, be converted into one equity share of the Company.
ii. The Debentures shall not be sold, mortgaged, secured, charged or in any
way disposed by the holder thereof without the prior written approval of
all the shareholders of the Company.
iii. The shareholders of the Company shall have the option, exercisable by
providing a written notice of at least 30 days, to purchase the Debentures
from the holder/s thereof in the same proportion as such shareholders
hold shares in the Company. Upon expiry of the notice period specified in
the preceding sentence, the holder/s of the Debentures shall be obligated
to transfer the Debentures to the shareholders at a price that represents
the aggregate of (i) the amount invested in the Debentures, and (ii) a
return of 10% of the amount invested in the Debentures.
iv. The provisions of clauses (b) and (c) shall apply mutatis mutandis to the
equity shares arising out of conversion of the Debentures.
Jay insisted on these protective measures to ensure that control over the company
remains with himself and Motoparts, and that the proposed financing does not in
any way result in a dilution of the existing shareholding interests.
6. The negotiations surrounding the subscription agreement were concluded on

January 10, 2005, and parties were preparing to sign the agreement late that
evening. However, during the eleventh hour, Mr. Kapra’s nonagenarian mother,
who returned from her periodic consultation with the astrologer, insisted that
signing ceremony be postponed to January 14, 2005, which was an auspicious day.
The parties verbally agreed that no text of the subscription agreement would be
altered and that Truckz commits to a postponement of the formal signing merely
out of respect for Kapra family’s beliefs.
7. On the rescheduled date of January 14, 2005, the subscription agreement was
formally signed. On the same day, the articles of association of ExSys was
amended to include the following clauses:
aa. The Company and the shareholders shall give full effect to any
arrangements by which the Company has obtained (or may in the future
obtain) funds for its business, either by way of issue of shares, stock,
bonds, warrants or any other instruments, whether or not convertible into
equity shares of the Company. Nothing contained in these Articles shall be
deemed to constrain the Company from performing its obligations under
those arrangements.
55

ba. The board of directors of the Company shall consist of 3 directors.
Motoparts Limited shall be entitled to nominate 2 directors, and Jay shall
be entitled to nominate 1 director. The parties shall take all necessary
steps, including by exercising their voting rights, to ensure that the
composition of the board shall be in compliance with the provisions of this
clause (ba).
Article (aa) above was introduced after the existing article (a), which read as
follows:
a. The Board may, at any time in its absolute and uncontrolled discretion,
decline to register any proposed transfer of shares in the Company.
Article (ba) was introduced at the insistence of Mr. Kapra, who was uncomfortable
with the complexity of the arrangements entered into with Truckz. Mr. Kapra
wanted to ensure that he had sufficient representation on the board to protect his
family’s interests if the deal with Truckz were to go awry.
8. Upon signing the subscription agreement, ExSys issued 50 lakh convertible

debentures to Truckz at a price of Rs. 10 per debenture. The proceeds for the issue
were utilised effectively by ExSys, which was able to launch its new exhaust
system branded “Greensys” by December 2005. The company broken even by mid-
2007 and was generating splendid profits thereafter. It even commenced a separate
division for designing and producing exhaust systems for Formula 1 cars. Under the
stewardship of Mr. Mike Formstone, a race car designer, who was poached by Jay
from a leading car manufacturer, the Formula 1 division (which was christened
“Rockforce”) turned out to a main cash cow for ExSys.
9. However, by late 2008, the financial crisis had engulfed the globe and the
automotive sector too was badly affected. Truckz sank deep into the red. It began
liquidating its assets so as to pay off its creditors. In the same vein, it wished to sell
its convertible debentures held in ExSys. While it would have been most logical to
attempt a sale of the debentures to ExSys’ existing shareholders, time was of the
essence, and Truckz could not afford to initiate long-winding discussions with Jay
and Mr. Kapra. Even if negotiations were to succeed, Truckz feared that dealing
with a complex regulatory maze to effect the sale would result in loss of precious
time.
10. Truckz’s misery was tempered by a windfall that emanated from unexpected
quarters. Lori Wagons Limited, a UK based automobile company offered to pay
Truckz 150% of the latter’s initial investment in order to purchase the convertible
debentures held in ExSys. Unexpected this was because Truckz and Lori Wagons
were caught in protracted litigation spanning 3 countries and several years, that had
soured the relationship between the two companies. Moreover, the cause for such
litigation can be pinpointed to none other than Jay Jadeja. Lori Wagons was Jay’s
employer for 10 years before he decided to terminate that employment and join
56

Truckz. Since the two companies were intense competitors in the marketplace, Lori
Wagons feared that Jay was likely to use his experience gained with it as also
possible proprietary information to its detriment in the course of employment with
Truckz. Soon after Jay’s departure from Lori Wagons, a few of its customers
transitioned to Truckz, and it was a matter of great speculation that Jay was the
cause for that. The parties were therefore embroiled in years of litigation over these
matters in the UK as well as Germany.
11. On October 16, 2008, Truckz declared itself to be a trustee of the convertible
debentures held in ExSys for the benefit of Lori Wagons. In consideration for such
declaration of trust, Lori Wagons paid Truckz 150% of its initial investment to
ExSys. The parties decided on such an arrangement as opposed to a direct sale
because they did not desire to invite the attention of ExSys (and particularly Jay) to
the arrangement. They were almost certain that if a direct transfer of shares was
attempted, the board of ExSys would never approve such transfer. The declaration
of trust was made by Truckz Vales in writing, with such document expressly
governed by the laws of India. This arrangement continued for several months, and
interest payments received by Truckz from ExSys were paid over to Lori Wagons
under the trust arrangement.
12. In the meanwhile, certain developments occurred within ExSys. Differences of

opinion loomed regarding the manner in which the Rockforce business should be
managed. While Mike Formstone was in favour of rapid expansion of the business
by higher leveraging, Jay wished to adopt a more cautious approach. After months
of prolonged discussions, no breakthrough was in sight, and Mike therefore
approached Jay with a proposal whereby Mike would carry out a management
buyout of the Rockforce business. Although Jay was initially reluctant, he agreed to
the proposal because, that way, he could at least get rid of a business he was not too
keen on operating. An added advantage was that he did not have to deal with
Formstone, who he found to be an abrasive character. After discussions, it was
decided that the Rockforce business would be hived off (by way of a slump sale)
for nominal consideration into a newly incorporated wholly-owned subsidiary of
ExSys called Rockforce Systems Limited. The plan was that all the shares of
Rockforce Systems would then be transferred to Formstone Investment Co. Pvt.
Ltd., a personal investment company of Mike Formstone established in India for
the sole purpose of implementing the management buyout of Rockforce. The
parties agreed upon a price of Rs. 25 crores for transfer of the shares.
13. The parties entered into the relevant legal agreements on February 9, 2009 to give
effect to the management buyout of the Rockforce business. The transactions were
completed within a period of 10 days thereafter. During the completion ceremony,
when Jay enquired with Mike as to how he managed to arrange funds to complete
the acquisition, he was flabbergasted with the response he received. Mike stated
that he had signed up for part funding from certain international banks and the
remaining from Truckz. Jay was unable to fathom how Truckz could fund this
acquisition since it was committed to ExSys. Jay decided to dig deeper, and found
57

that Truckz had provided financing to Formstone Investment Limited to the extent
of Rs. 10 crores in the form of subscription to compulsorily convertible debentures
of that company. Truckz’s fortunes had quickly reversed and it was again flush
with funds that enabled it to invest. On this occasion, Truckz had taken an
additional step to protect its interests. In order secure the periodic returns (in the
form of interest) on the convertible debentures in Formstone Investment, it obtained
a pledge of the shares held by Formstone Investment in Rockforce Systems. Truckz
was also keen on obtaining a guarantee from Rockforce Systems that would ensure
fulfillment of payment obligations under the debentures issued by Formstone
Investment to Truckz. Such a guarantee by Rockforce Systems was not possible as
it was bound by a negative covenant provided to other lenders of that company.
Hence, it was decided that Rockforce Systems would provide a comfort letter to
Truckz stating that “it shall make reasonable endeavours to ensure that sufficient
funds are placed with Formstone so as to enable it to comply with payments
obligations under the secured compulsorily convertible debentures issued to
Truckz”.
14. Jay also probed matters further at Truckz’s end. He was distraught that Truckz had
betrayed him by investing indirectly in the Rockforce business. An investment in
ExSys as well as Rockforce was sure to create a conflict of interest. Although it
was a tough nut to crack, Truckz relented and then disclosed how it had got rid of
its investment in ExSys to Lori Wagons through the trust arrangement, and
therefore it did not foresee any conflict of interest.
15. All of this was too much for Jay to handle. He sensed that Lori Wagons had paid a
high premium for the convertible debentures in ExSys just so that they could cause
trouble in the company, hold Jay’s back against the wall and squeeze some
payments out of him in the pending litigation with Lori Wagons. He also
discovered that Truckz had struck a bargain in the trust arrangement that it would
be exonerated from any liability to Lori Wagons, which would focus its actions
entirely upon Jay. He then consulted his lawyers to determine the course of action.
16. Based on legal advice, the first step Jay initiated was to send on March 15, 2009 a
joint notice (along with Motoparts) to Truckz requiring it to sell the convertible
debentures in ExSys to its shareholders in accordance with clause (iii) of the
subscription agreement. Truckz replied within a week rejecting the request and
stating that they were merely a bare trustee of the convertible debentures, and they
no longer held any other interest so as to be able to sell the debentures to
shareholders of ExSys. Truckz also stated in its reply that in any event it was not
obligated to sell the shares to ExSys’ shareholders as such a commitment was “not
worth the piece of paper on which it was written”.
17. Left with no other option, Jay and Motoparts initiated legal action against Truckz in
the High Court of Judicature at Madras in order to obtain suitable remedies in
respect of the convertible debentures held by Truckz in ExSys. In addition, they
also sought to invalidate Truckz’s financing of Formstone’s investment company
58

that enabled the latter to acquire shares in Rockforce, on the ground that the same
violated various Indian laws and regulations. Truckz did not dispute the jurisdiction
of the Indian courts, but strongly resisted the merits of the plaintiffs’ case on all
counts.
18. The High Court at Madras rejected the claims of Jay and Motoparts at the original
level as well as appellate level. As they preferred a further appeal, the Supreme
Court of India has decided to hear the matter, and has granted leave for the purpose.
The parties have provided an undertaking to the court that the debentures in ExSys
will not be converted into equity shares, pending resolution of the dispute by the
Hon’ble Court, and that they would thereafter be converted subject to the outcome
of the Court’s decision.
----- x -----
59

Bangalore (2011)
Drafted by: Ananth Padmanabhan & Umakanth Varottil
IN THE SUPREME COURT OF INDIA AT NEW DELHI
Kokil Kabootar & Ors. v. Sabrina & Ors. (SLP (C) Nos……. of 2011)
Sabrina v. Kokil Kabootar & Ors. (SLP (C) Nos……. of 2011)
Pradeep Iyer & Ors. v. Advaita Pvt. Ltd. (SLP (C) Nos……. of 2011)
Hamara Finance v. Kokil Kabootar (SLP (C) Nos……. of 2011)
(All appeals clubbed to be heard together)
1. Picturesk Inc. is a company incorporated in the State of Delaware, United States

of America, with a large presence in the entertainment industry. In May 2002,
Picturesk produced a mega movie ‘Navitar’ directed by 3-time Oscar winning
director Madhav Nandi Saravanan, a person of Indian origin settled in the U.S. for
several years. This movie turned out to be the biggest hit of all times and raked in
about $3 billion. Apart from this, Picturesk Inc. has produced several blockbuster
films in the past. Mr. Peter Coolio is the CEO of Picturesk Inc.
2. DS Films Pvt. Ltd. is a closely held company incorporated in 1977 under the
Indian Companies Act, 1956. In 1952, Mr. Dildar Kabootar, the grandfather of
Mr. Kokil Kabootar, who is the present Chairman and Managing Director of DS
Films, made the first blockbuster post-Independence in Bollywood. At the end of
a journey largely filled by sweet box office successes and infrequently marred by
setbacks in the form of disaster movie releases, Mr. Dildar saw himself through to
numero uno status as a film producer. Between 1952 and 1964, Mr. Dildar
produced various hit movies with the then reigning star Shiny Kapoor, under the
banner Kabootar Productions. Soon the two of them were giving joint interviews
to CineBlitz, the only filmi magazine of those days, stating that ‘we are not
friends, we are family’. Mr. Shiny Kapoor also inaugurated a studio with all state
of the art facilities in those days by the name ‘Kabootar Film Studio’, for which
funds were arranged by Mr. Dildar. Mr. Kapoor made a public announcement that
from now on, all his films will be shot in the studio of his “brother” Dildar. This
60

created a lot of positive buzz about the Studio, and soon it became the most
sought after film studio in India.
3. Mr. Dildar’s son, Yash Kabootar, took over the reins of Kabootar Productions in
1965. Till then, Kabootar Productions was only a sole proprietorship. With the
entry of Yash into the business, they converted it into a partnership with Dildar,
the by now ageing star Shiny Kapoor, and Yash as partners. All the assets of the
sole proprietorship used for the business were transferred to the partnership. The
partnership firm, though not registered, started collecting royalties for the earlier
releases and the new films were being released under the same banner. From 1965
to 1974, business went on as usual though Yash was not considered by the
industry to be as enterprising and dynamic as his father. The senior Dildar passed
away in 1971 and Yash, who looked up to Shiny as a father figure, continued the
partnership with him. Based on Shiny’s advice, Yash decided to make an
unconventional movie for those days titled ‘Doley’. This movie, starring two
unknown actors in the lead role, a superstar in a supporting role, and a debutante
as the villain, went on to become the biggest blockbuster of all times. It was such
a huge hit that it compensated for all the box office duds that Yash churned out
thereafter. The music of this film was also a huge hit.
4. Shiny, who by now felt that both Yash and he should be immunized from
personal liability, suggested that they dissolve the partnership ‘Kabootar
Productions’ and convert it into a closely held private limited company. In
accordance with Shiny’s wishes, a new company by name DS Films Pvt. Ltd.
with its registered office at Mumbai was incorporated on 1st March, 1977. The
authorized share capital of this company was Rs.10 lakhs, split up as 10000 shares
of Rs. 100 each. The entire share capital was fully paid up. Mr. Yash held 7500
shares and Mr. Shiny held 2500 shares.
5. A deed of dissolution of the partnership ‘Kabootar Productions’ dated 31st March,

1977 was executed. The relevant clauses of this deed, to which both Yash and
Shiny were signatories and referred to as ‘partners’, provided as follows:
Cl. 2 Dissolution and Vesting of Assets – Kabootar Productions is hereby

dissolved with immediate effect and all assets owned by this partnership,
movable or immovable in character, as well as all liabilities and
obligations, shall stand transferred to DS Films Pvt. Ltd.
Cl. 3 Intellectual Property Rights – (1) All the Intellectual Property Rights
belonging to Kabootar Productions, including copyrights in sound
recordings shall vest with DS Films Pvt. Ltd.
(2) Notwithstanding the above vesting of IPRs, all the rights in film
‘Doley’ shall vest with and stand assigned to a separate entity specifically
created for such purpose and to be incorporated under the Companies Act
as a private limited company.
61

Cl.4 Relinquishing of Rights – Both partners hereby agree that they
relinquish all right, title and interest they may have had in the assets of
Kabootar Productions and that all such right, title and interest shall be
vested with DS Films Pvt. Ltd. As the consideration for such
relinquishment of right, each partner would be paid Rs. 35 lakhs each
from the account of DS Films Pvt. Ltd.
DS Films Pvt. Ltd. was not a party to this deed of dissolution.
6. Both partners accordingly received Rs. 35 lakhs in pursuance of the deed of

dissolution, from DS Films Pvt. Ltd. Subsequently, another entity, Doley Media
Pvt. Ltd. with its registered office at Mumbai was created with authorized share
capital of Rs. 2 lakhs, split up as 2000 shares of Rs. 100 each, and the entire share
capital was fully paid up. Mr. Yash and Mr. Shiny owned 1000 shares each in this
company. Doley Media Pvt. Ltd. started administering all the rights in the film
‘Doley’ including licensing of rights for theatrical re-releases due to the extreme
popularity of this film, television broadcast, radio broadcast and physical sales of
the sound recordings in this film, character merchandise, synchronization, etc.
7. This arrangement carried on for a while, with DS Films Pvt. Ltd. registering
continuous losses as a result of Mr. Yash not being able to strike gold, or even
copper, with his new releases such as ‘Zakhmi Bhoot’, ‘Hum Dono Dushman’,
‘Anyaay Ka Anth’ etc. Doley Media Pvt. Ltd. was being managed admirably,
with the able guidance of Mr. Shiny, who kept giving excellent suggestions on
milking the cash cow ‘Doley’. Shiny and Yash were the only directors in both the
companies.
8. In 1994, Yash transferred his shares in DS Films Pvt. Ltd. and Doley Media Pvt.
Ltd. to his son, Kokil. In 1995, Shiny transferred his shares in both the companies
to his granddaughter, Sabrina, who had returned from Harvard after completing
her MBA. Kokil and Sabrina thus became the new face of DS Films Pvt. Ltd. and
Doley Media Pvt. Ltd. Both of them were extremely ambitious and wanted to
catapult the companies into the next league, but they also developed severe
differences of opinion from the very beginning.
9. During her Harvard days, Ms. Sabrina got to interact with Mr. Peter Coolio, who
was pretty impressed with the fact that she belonged to a family that runs a big
production house in India. He was amazed to hear that Doley Media Pvt. Ltd.
rakes in annual profits of Rs.1.5 crore only from one movie made way back in
1970s. He was quite keen on exploring business avenues in a post-liberalisation
India where audience interest was slowly, yet steadily, opening up to different
genres of films. He made it a point to catch up with Sabrina even after she left for
India, and they became Facebook friends.
10. After Sabrina and Kokil took over the reins of the two companies as the only
directors in both, these companies started raking in more profits. While Kokil was
62

the managing director (MD) in DS Films Pvt. Ltd., Sabrina held the post of MD in
Doley Media Pvt. Ltd. DS Films Pvt. Ltd. had a spate of successful blockbuster
releases such as ‘Sher the Cheetah’, ‘Du Bong’ and ‘Eveready’, and its net profits
for the year 2009-’10 was Rs. 201 crores. However, there was serious
disagreement between Sabrina and Kokil over the management of DS Films Pvt.
Ltd. Sabrina had objected to producing several movies including the three
blockbusters mentioned above, on the ground that they were hardcore action
movies while she preferred watching soft romantic movies. She felt that
unjustifiable costs were being borne on these films with expensive outdoor shoots.
Unfortunately, the few flops that DS Films Pvt. Ltd. suffered at the box office
between 1996 and 2010 were all movies of the romantic / chick flick genre, and
this was being cited as a reason by Kokil to continue making heavy budget action
films where the risk was much higher (but as was the reward). Apart from that,
Sabrina also expressed, time and again, that Kokil was relying on unsavoury
characters to finance his movies and this should not be the case for a production
house of such repute as DS Films Pvt. Ltd. For instance, Lucky Ebrahim, an
underworld don, was allegedly financing Bollywood films through a shady non-
banking financial institution ‘Hamara Finance’ and a company incorporated under
the Companies Act, 1956, promoted by Civic Chandran. The Securities Exchange
Board of India and Reserve Bank of India had been investigating the activities of
Hamara Finance for quite a while. Sabrina expressed the view that there should be
more funding by foreign investors, whether through the debt or equity route, to
give a global presence and respectable reputation to DS Films Pvt. Ltd. Despite
this, DS Films Pvt. Ltd. borrowed approximately Rs. 50 crores from Hamara
Finance for producing the three blockbusters mentioned above.
11. Sabrina also felt that Kokil was not taking an active interest in protecting the legal
and financial interests of DS Films Pvt. Ltd. and was merely pulling on due to his
goodwill. She expressed concern that DS Films Pvt. Ltd. was charging, on an
average, about 30% lesser royalty from each content user – FM radio stations,
telecom companies for the purpose of ring tones and caller tunes, television
channels for the purpose of broadcast – than the industry standard. DS Films Pvt.
Ltd. was not a member of any copyright society and therefore was missing out on
the power of collective bargaining. She also pointed out that a recent Copyright
Board order issuing compulsory licenses to FM radio broadcasters under Section
31 of the Copyright Act, 1957, in respect of the sound recordings in films
produced by DS Films Pvt. Ltd. for an abysmally low rate of royalty was
uncontested before the Board and unchallenged before the High Court, leading to
loss of revenue to the tune of Rs. 26.5 crores annually. Mr. Kokil’s standard
response to all of this, in true Virender Sehwag mode, was ‘Sab theek ho jayega.
(Everything will be alright)’
12. In May 2010, Mr. Peter Coolio came to India and there was a closed door
conference at Hotel Trident in Mumbai between him, Sabrina and Kokil, where
Kokil came out with some very valuable business proposals for the way ahead. He
pointed out that Doley Media Pvt. Ltd. is a classic instance of how, with effective
63

rights management, maximum revenues can be earned from even one blockbuster
movie. He suggested that there are now several such blockbusters in the portfolio
of both DS Films Pvt. Ltd. and Picturesk Inc. and it would be better to have a
common licensing strategy wherein they could bundle all their rights and license
it. Mr. Coolio was quite impressed with this idea while Sabrina felt that there
would be few takers for an assortment of Hindi and English films or their sound
recordings. She felt that they should get into movie production as a joint venture
without bothering about creating a licensing entity. Kokil opined that DS Films
Pvt. Ltd. did not see much value addition in collaborating with any foreign
production house as they could not bring much on to the table except probably
financing, which considering the robust health of the company was anyway not a
problem in recent times. Sabrina disagreed, stating that creative efforts cannot be
viewed in such simplistic fashion. The meeting reached a deadlock but all three of
them agreed that they would work out a suitable joint venture arrangement soon
enough.
13. Soon after the meeting, Sabrina and Kokil had an open discussion where Kokil
told her that differences that she may have with him should not stall further
progress with Picturesk Inc. Sabrina finally agreed, based on a concession by
Kokil that he would do the needful to address all her concerns pertaining to the
running of DS Films Pvt. Ltd. Based on this, Sabrina initiated further
communication with Coolio and a Memorandum of Understanding was finally
arrived at between DS Films Pvt. Ltd., Doley Media Pvt. Ltd., and Picturesk Inc.
dated 26th August 2010. In accordance with the terms of this tripartite MoU, the
three parties would take steps to incorporate a new company, Advaita Pvt. Ltd.
(name proposed by Kokil in a subsequent meeting who also verified with the
Registrar of Companies that it is an available name), with equal shareholding held
by each of these parties, to carry on the business of licensing content from each of
these parties on exclusive licensee basis and sub-licensing it further to various
content users such as FM radio stations, telecom companies, television
broadcasters, etc. The rate of royalty payable to each party for any kind of license
would be the same. There was also a dispute resolution clause in this MoU stating
that any disputes, arising out of, in connection with, or in any manner relating to,
the terms of this MoU would be resolved by issuance of a notice in writing to the
other parties with a window period of 14 days from the date of receipt of such
notice to resolve the same. Upon failure to amicably resolve the dispute within the
14 day period, the dispute would be referred to a panel of three arbitrators, with
one arbitrator being appointed by each party.
14. On 15th October 2010, there was a bomb blast in Benaras and it was felt that
Lucky Ebrahim had orchestrated the same. It was reported in the newspapers that
all financial institutions that purportedly had connections with Lucky Ebrahim
and their funding patterns would be under investigation and that the Central
Bureau of Investigation was even expected to make some arrests in this regard.
Coincidentally, Mr. Kokil planned the outdoor shoot of DS Film Pvt. Ltd.’s new
film ‘Kaal Dhamaal’ in Paris around the same time and the same went on for four
64

months, unusual even by DS Film’s standards. During this period between
October 2010 and end of January, 2011, the day to day affairs of DS Films Pvt.
Ltd. was being handled by Sabrina. It was as if Kokil had abandoned the rest of
business activity with sole focus on that outdoor shoot.
15. When Kokil returned to India in the first week of February, 2011, he realized that
Advaita Pvt. Ltd. had indeed been incorporated but the shareholders in this
company were Sabrina and Picturesk Inc., with 40% of the shares being held by
Sabrina and 60% by Picturesk Inc. The authorized share capital was Rs. 15 crores,
split up as 1,50,000 shares of Rs. 1000 each. This was fully paid up. Advaita Pvt.
Ltd. had in fact been incorporated on 15th November 2010 itself, and had started
sub-licensing content owned by DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. to
different content users. Advaita Pvt. Ltd., in the limited time since its
incorporation, was already being perceived as quite aggressive with the
negotiations carried on with prospective content users including FM radio
stations, telecom companies, and others. Kokil came to know of an agreement
dated 17th November 2010 entered into between DS Films Pvt. Ltd. and Doley
Media Pvt. Ltd. on the one hand (referred to as ‘licensors’ in the Agreement), and
Advaita Pvt. Ltd. (referred to as ‘licensee’) on the other. This Agreement was
signed by Sabrina in her capacity as Managing Director of Doley Media Pvt. Ltd.
and Director of DS Films Pvt. Ltd. The material clauses of this Agreement are :
Cl. 2 – The licensors hereby grant the licensee the sole and exclusive
license and right to exploit all the copyrights owned by the licensors (ie.
their individual repertoire), whether at present or to be acquired in the
future, for all the purposes mentioned in Section 14 of the Copyright Act,
either by itself or through other entities in such appropriate manner as the
licensee deems fit including by way of sub-licenses.
Cl. 3 – In consideration for such absolute and exclusive vesting of rights

in the licensee, the licensee shall pay royalty to the licensors computed as
20% of the revenue generated by exploitation of each licensor’s
repertoire. The licensee will ensure, at all times, that the repertoire of DS
Films Pvt. Ltd. and Doley Media Pvt. Ltd., are kept separate and provided
as two different packages to all content users, with differential pricing or
royalty rates for each package depending on the discretion of the licensee.
The licensee shall earmark at all times 20% of the revenue generated by
the repertoire of DS Film Pvt. Ltd. for royalty payment to DS Film Pvt.
Ltd., and 20% of the revenue generated by the repertoire of Doley Media
Pvt. Ltd. for royalty payment to Doley Media Pvt. Ltd.
Cl.4 – In case of non-payment of royalty due by the licensee for use of any
repertoire, the rights vested in the licensee shall revert to the respective
licensor who owned that repertoire.
65

Cl. 5 – If the licensee does not exercise the rights granted under Clause 2
in such manner as considered satisfactory and in the best interests of
maximization of revenue generation by the licensors, each licensor shall
be entitled to a reversion of rights in its favour, in respect of its individual
repertoire.
Cl. 8 – The licensors shall be the owners of the original plates within the
meaning of the Copyright Act, 1957.
Cl. 9 – The licensee shall not directly or indirectly supply or make

available to any individual / firm / company / corporation / any other
person for the purposes of manufacturing and selling records the whole or
any part of the sound track or recorded tape thereof or any other
materials made or to be made available to the licensee under this
agreement.
Cl. 10 – The licensors shall not without the prior written consent of the
licensee:
(a) assign all or any of their rights or obligations whatsoever under this
agreement; or
(b) appoint an agent to collect on their behalf any monies due under the
provisions of this agreement.
Cl. 13 – (1) The validity period of this agreement, subject to clauses 4 and
5, shall be 10 years and the rights will revert to the licensors in respect of
their individual repertoire upon expiry of this period.
(2) Notwithstanding the above, the licensors shall be free to terminate this
agreement after giving one month notice in writing if there is a breach by
the licensee, of the obligation cast upon it under Clause 9.
16. On 14th February 2011, Kokil issued a letter in his capacity as Managing Director
of DS Films Pvt. Ltd. and Director of Doley Media Pvt. Ltd. terminating with
immediate effect the agreement dated 17th November 2010. He also issued
strongly worded legal notices on the very next day to Sabrina, Picturesk Inc. and
Advaita Pvt. Ltd. calling upon them to immediately cease and desist from
infringing the copyrights owned by DS Films Pvt. Ltd. and Doley Media Pvt. Ltd.
In the meantime, he came to know that a similar arrangement existed between
Picturesk Inc. (‘Licensor’) and Advaita Pvt. Ltd. (‘Licensee’) vide another
agreement dated 17th November 2010. He procured a copy of this agreement
using informal means, and upon perusal saw the following clauses in that
Agreement:
Cl. 2 – The licensor hereby grants the licensee the sole and exclusive
license within the territory of India to exploit all the copyrights owned by
the licensor, whether at present or to be acquired in the future, for all the
66

purposes mentioned in Section 14 of the Copyright Act, either by itself or
through other entities by way of sub-licenses.
Cl. 3 – In consideration for such permissive license, the licensee shall pay
royalty to the licensor computed as follows:
a) 5% of the revenue generated by exploitation of the licensor’s
reproduction right, regardless of the medium in which the copyrighted
work is reproduced.
b) 30% of the revenue generated by exploitation of the licensor’s public
performance or ‘communication to the public’ right, regardless of the
medium in which such public performance takes place.
c) 25% of the revenue generated by exploitation of the licensor’s rental
rights.
Cl.4 – Upon non-payment of royalty due by the licensee for use of the
licensor’s repertoire, the licensor shall have the option of terminating this
license agreement one month after putting the licensee to notice in writing
of such non-payment.
Cl. 5 – If the licensee does not exercise the rights granted under Clause 2
in such manner as considered satisfactory and in the best interests of
maximization of revenue generation by the licensor, the licensor shall
have the option of terminating this license agreement one month after
putting the licensee to notice in writing of the valid reasons that have led
the licensor to form this subjective opinion. The licensor shall however
exercise this option only after attempting to work out the present license
agreement with the licensee on a non-exclusive basis for a trial period of
two months.
Cl. 8 – The licensee shall not directly or indirectly supply or make

available to any individual / firm / company / corporation / any other
person for the purposes of manufacturing and selling records the whole or
any part of the sound track or recorded tape thereof or any other
materials made or to be made available to the licensee under this
agreement.
Cl. 10 – The licensor shall not without the prior written consent of the
licensee:
(a) assign all or any of its rights or obligations whatsoever under this
agreement or
(b) appoint an agent to collect on its behalf any monies due under the
provisions of this agreement.
17. Mr. Kokil took strong exception to the differential treatment meted out to DS
Films Pvt. Ltd. and Doley Media Pvt. Ltd. on the one hand, and Picturesk Inc. on
the other. He also realized by 15th March 2011 that Advaita Pvt. Ltd. had no
67

intention to stop collecting revenues on behalf of DS Films Pvt. Ltd. and Doley
Media Pvt. Ltd. under the licenses issued to various content users. In the first half
of March itself, Advaita Pvt. Ltd. had already entered into 25 new licensing
arrangements in respect of the repertoire belonging to DS Films Pvt. Ltd. and
Doley Media Pvt. Ltd. Without any other options left, Kokil initiated proceedings
before the Original Side of the Bombay High Court by way of a suit for copyright
infringement (‘1st suit’), against Sabrina, Picturesk Inc. and Advaita Pvt. Ltd. The
plaintiffs in this suit were DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. in that
order. These plaintiffs sought an interim injunction restraining the three
defendants from in any manner whatsoever using or exploiting the copyrighted
works owned by the plaintiffs, pending disposal of the main suit. Advaita Pvt.
Ltd. took the plea in their counter to the interim injunctions that the plaintiffs had
assigned all rights in the copyrighted works to Advaita Pvt. Ltd. and that they had
no prima facie case for any injunction.
18. Kokil also initiated another suit (‘2nd suit’), again before the Original Side of the
Bombay High Court, alleging that Sabrina had deprived DS Films Pvt. Ltd. and
Doley Media Pvt. Ltd. of an excellent business opportunity by incorporating
Advaita Pvt. Ltd. in a manner contrary to that envisaged in the MoU dated 26th
August 2010, and praying for a declaration that Sabrina’s shares and a fraction of
Picturesk Inc.’s shares being 4/15th of the total shares of Advaita Pvt. Ltd. actually
belonged to DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. The plaintiffs in this
suit were Kokil, DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. in that order. The
defendants were Sabrina, Picturesk Inc. and Advaita Pvt. Ltd. in that order. These
plaintiffs sought interim injunctions restraining the 1st defendant from in any
manner whatsoever exercising any rights as a shareholder in respect of all shares
held by her in the 3rd defendant, and restraining the 2nd defendant from in any
manner whatsoever exercising any rights as a shareholder in respect of shares
constituting 4/15th of the total shares in the 3rd defendant.
19. As counter measure to the above suits, Sabrina filed applications under Section 8
of the Arbitration & Conciliation Act, 1996, in both these suits. She also filed
applications under Or. 7 Rule 11 of the CPC in both these suits seeking rejection
of the plaint, subject to her applications under Section 8 being disallowed, but
conceding that on pecuniary and territorial jurisdiction, these suits would lie
before the Bombay High Court without any further leave required from the High
Court. She also filed a separate suit (‘3rd suit’) before the Original Side of the
Bombay High Court seeking a declaration that DS Films Pvt. Ltd. and Doley
Media Pvt. Ltd. were in substance quasi-partnerships with Kokil and Sabrina as
its equal partners and that their assets may be distributed in like fashion after
dissolving these quasi-partnerships. The plaintiff in this suit was Sabrina, and the
defendants were Kokil, DS Films Pvt. Ltd. and Doley Media Pvt. Ltd., in that
order. She sought an interim injunction in this suit restraining the 2nd and 3rd
defendants from claiming any right in the assets covered within the Schedules to
the Plaint being all those assets purportedly belonging to DS Films Pvt. Ltd. and
Doley Media Pvt. Ltd., including the renowned Kabootar Film Studio, and all
68

intellectual property rights purportedly belonging to DS Films Pvt. Ltd. and Doley
Media Pvt. Ltd. All three defendants filed an application under Or. 7 Rule 11 of
the CPC seeking rejection of the plaint, but conceding that on pecuniary and
territorial jurisdiction, these suits would lie before the Bombay High Court
without any further leave required from the High Court.
20. In the 1st week of April, Advaita Pvt. Ltd. authorized a leading law firm by name
‘Asterisk Law’ to conduct investigation into online piracy. Within a few days, it
came to light that many websites were running something akin to internet radio
where the user may or may not have the opportunity to choose the content but
could certainly hear songs from popular films. The songs could however not be
downloaded from any of these sites. The most popular of such sites was
‘www.avaaantratantra.com’, run by Mr. Pradeep Iyer, a self-proclaimed anarchist
and pirate from Bangalore who celebrated the cause of free content. Advaita Pvt.
Ltd. as the sole plaintiff immediately filed a suit for copyright infringement (‘4th
suit’) against 50 defendants, before the Original Side of the Bombay High Court.
The 1st two defendants were Mr. Pradeep Iyer and ‘www.avaantratantra.com’ and
the next 48 defendants were unidentified defendants carrying on similar activity
named as ‘Janardhan Diwakar’. Mr. Pradeep Iyer being a lawyer by training
immediately filed an application under Or. 7 Rule 11 of the CPC seeking rejection
of the plaint on various grounds. He questioned the authority and legality of
Advaita Pvt. Ltd.’s incorporation vis-à-vis the provisions of the Copyright Act,
1957, and Advaita Pvt. Ltd.’s locus standi to maintain this suit in respect of
content that was only licensed to it by Picturesk Inc., DS Films Pvt. Ltd. and
Doley Media Pvt. Ltd. He also contended that all of Picturesk Inc.’s content was
foreign works from U.S. without any scope for protection in India. Prof.
Salvaraghavan, an MHRD-IPR chair professor in the Gorakhpur Law School,
sought to implead himself in this suit and contended that suits against unidentified
defendants would lead to extreme abuse and should never be entertained, and that
the reliefs sought in this suit, both final and interim, were harsh and oppressive
and against the provisions of law.
21. The prayer in this suit for permanent injunction was that the defendants may be
restrained from infringing, in any manner whatsoever, the copyright in the
musical and literary works incorporated in the films produced by Picturesk Inc.
and DS Films Pvt. Ltd., and the film “Doley”. The plaintiff had also filed
applications :- (a) for interim injunction restraining the defendants from
infringing, in any manner whatsoever, the copyright in the musical and literary
works incorporated in the films produced by Picturesk Inc. and DS Films Pvt.
Ltd., and the film “Doley”, and (b) for a direction to all Internet Service Providers
to block access to the website ‘www.avaantratantra.com’ and all other websites
carrying on similar activity. One of Prof. Salvaraghavan’s fundamental objections
was that unidentified defendants would never be in the best position to come to
Court and show whether the plaintiff in the first place had any valid rights to
maintain the suit, and extreme abuse of the Court process would occur in all such
69

cases, the mismatch between the rights of the sole plaintiff in this case and the
prayer asked for in the suit itself being an example of such abuse.
22. By this time, Hamara Finance had managed to come out of its difficulties at least
temporarily, and Mr. Civic Chandran, who was in Geneva from September 2010
to January, 2011 and back only in February, 2011 in India, got to know from the
newspapers and the industry circles about the creation of Advaita Pvt. Ltd. and
subsequent developments such as the spate of law suits. Hamara Finance
immediately moved an application in the first suit, to implead itself. In this
application, Hamara Finance contended that the copyright in the films ‘Sher the
Cheetah’, ‘Du Bong’ and ‘Eveready’ were assigned to it by way of security vide
assignment deeds dated 25th June 2004, 4th July 2005, and 5th August 2006
respectively. The application also stated that Hamara Finance was advised by its
lawyers that given the urgency of the transaction, they need not register any
charge with the Registrar of Companies under the Companies Act, 1956 for the
assignment. The clauses in all these assignment deeds entered into between DS
Films Pvt. Ltd. on the one hand (‘Producer’) and Hamara Finance (‘Assignee’) on
the other, are the same except for changes in the movie title (left blank in these
clauses and filled in with appropriate name subsequently) and date of the
agreement and read as follows:
Cl. 2 – The Assignee hereby agrees to finance Rs. 25 crores for the
production of the film ……… which the Producer assures to return on
demand made in writing with interest computed at 36% per annum.
Cl.3 – The Producer hereby assigns all the right, title and interest in the
copyrights of the film ……… and all underlying literary and musical
works and sound recordings to the Assignee.
Cl. 4- (1) The Assignee agrees not to enforce this assignment until it raises
a demand on the Producer for repayment of the Rs. 25 crores with interest
and till such period, the Producer is permitted to exploit the copyrights of
the film ……… and all underlying literary and musical works and sound
recordings.
(2) The Producer undertakes to keep alive, at all times, an unconditional
bank guarantee for Rs. 15 crores in favour of, and payable on demand by,
the Assignee, which the Assignee shall be entitled to invoke upon breach
of this Agreement by the Producer.
(3) The Producer also undertakes not to create any right, title or interest
whatsoever in any third party over the copyrights of the film ……… and
all underlying literary and musical works and sound recordings, during
the validity of the present assignment.
Cl. 5 – The parties agree, declare and confirm that the above rights
assigned in favour of the Assignee shall be operative immediately on
70

signing this agreement and will continue till the entire amount is repaid by
the Producer in accordance with the terms of this Agreement.
23. Apart from the application for impleadment, Hamara Finance also filed another
application for interim injunction in this suit, for restraining the plaintiffs as well
as the defendants from exploiting or using, in any manner whatsoever, the
copyrights of the films ‘Sher the Cheetah’, ‘Du Bong’ and ‘Eveready’ and all
underlying literary and musical works and sound recordings therein, pending the
disposal of the main suit.
24. Since these assignment deeds were entered into by Kokil, on behalf of DS Films
Pvt. Ltd. in his capacity as Director, without the concurrence of Sabrina who
always viewed Hamara Finance with a suspicious eye, he did not want the bank
charges for the guarantees in respect of these films to be paid from the account of
DS Films Pvt. Ltd. Moreover, it was normal practice for Kokil to receive the
entire Rs. 25 crores in his name and on his account and he would use the money
for production purposes. He chose to therefore pay the bank charges himself
though the guarantees of different dates were issued by OCOCO Bank at the
behest of DS Films Pvt. Ltd., its prized customer, in favour of Hamara Finance.
The relevant portions of the main clause in all these bank guarantees is identical
except for the name of the Film and the date of the Assignment deed and reads as
follows:
The Bank hereby irrevocably and unconditionally guarantees to Hamara

Finance that DS Films Pvt. Ltd. shall repay the sum of Rs. 25 crores lent
to DS Films Pvt. Ltd by Hamara Finance vide Assignment Deed dated
………… in respect of production costs of the film ………along with
interest computed at 36% per annum upon demand made in accordance
with the terms of such Assignment Deed, and in the event of failure on the
part of DS Films Pvt. Ltd. to honour this commitment, the Bank shall
indemnify and keep Hamara Finance indemnified to the extent of Rs.
15,00,00,000/- (Rupees Fifteen Crores Only) against any loss or damage
that may be caused to or suffered by Hamara Finance by reason of any
breach by DS Films Pvt. Ltd. of any of the terms and conditions of the
Assignment Deed dated ……….
The decision of Hamara Finance as to whether DS Films Pvt. Ltd. has
failed to or neglected to perform or discharge or honour its duties,
obligations and commitments as aforesaid and as to the amount payable
to Hamara Finance by the Bank herein shall be final and binding on the
Bank.
25. On 15th April, 2011, Civic Chandran, in his capacity as Chairman and Managing
Director of Hamara Finance, addressed a letter to the concerned branch of
OCOCO Bank wherein he stated : In the light of the agreement between DS Films
Pvt. Ltd. and Advaita Pvt. Ltd., a third party, in respect of the copyrights in the
films ‘Sher the Cheetah’, ‘Du Bong’ and ‘Eveready’ that were already assigned
71

to Hamara Finance vide assignment deeds dated 25th June 2004, 4th July 2005,
and 5th August 2006, Hamara Finance hereby invokes in full the bank guarantees
issued by your Bank indemnifying us to the extent of Rs. 15 crores for breach by
DS Films Pvt. Ltd. of the conditions in these three assignment deeds. We call
upon you to make the payment of Rs. 15 crores at the earliest.
26. Immediately, Mr. Hiralal, the Branch Manager of OCOCO Bank, contacted Kokil
about the invocation, and the very next court working day, ie. 18th April 2011,
Kokil as sole plaintiff initiated a suit against Hamara Finance and OCOCO Bank
as defendants in that order for a permanent injunction restraining the 1st
respondent from encashing the three bank guarantees in question and the 2nd
respondent from making payment of Rs. 15 crores or any other sum to the 1st
respondent under these bank guarantees. Kokil managed to get an ex parte order
of injunction from the Bombay High Court subject to the condition that he would
keep the bank guarantees alive. Soon enough, Hamara Finance moved an
application to vacate the ex parte order of injunction granted in respect of
encashment of these three bank guarantees.
27. The Chief Justice of the Bombay High Court felt that the issues raised in all these
five suits arise from the same set of transactions and hence all the applications in
these suits ought to be heard together and disposed by a Full Bench of 5 judges,
keeping in mind the economic and legal significance of the multifarious issues
raised. All the parties arrived at a consensus that they waive their right to intra-
court appeal against the order that would finally be passed by the Full Bench.
Hearings before the duly constituted Full Bench went on for the months of May
and June and all the applications were reserved for orders. On 8th July, 2011, the
Full Bench came out with its verdict.
28. The decision of the Full Bench was, in gist, as follows:
(a) The applications filed by Sabrina under Section 8 in the 1st and 2nd suits are
allowed. The application filed by Hamara Finance is not to be entertained and
they will have to file a separate suit paying separate court fees, if they wish to
obtain an injunction as sought for. The application under Or. VII Rule 11 filed
by Sabrina is infructuous.
(b) The application under Or.VII Rule 11 filed by the defendants in the 3rd suit is
allowed and the plaint is rejected.
(c) The application under Or.VII Rule 11 filed by Pradeep Iyer is rejected and the
interim prayers sought for by the plaintiff in the 4th suit are granted.
(d) The application filed by Hamara Finance in the 5th suit is rejected.
29. Kokil, DS Films Pvt. Ltd., Doley Media Pvt. Ltd. and Hamara Finance preferred
Special Leave Petitions against part (a) of the Order dated 08.07.2011. Sabrina
72

filed Special Leave Petition against part (b) of this Order. Pradeep Iyer and Prof.
Salvaraghavan filed Special Leave Petitions against part (c) and Hamara Finance
filed Special Leave Petition against part (d). The Hon’ble Supreme Court was
pleased to admit all these Special Leave Petitions on 3rd August, 2011, and
decided to hear and dispose expeditiously all these appeals in the month of
September, 2011 itself. The Hon’ble Court also observed that there were inherent
contradictions in the Full Bench’s order and hence, all applications as initially
filed before the High Court would be heard and the hearing of the appeals need
not be confined to the specific applications in which the Order has been passed.
For example, Kokil, DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. in their appeal
against part (a) would not be confined to arguing why Section 8 should not have
been invoked but also why an injunction should be granted to stop the infringing
conduct by the defendants in that suit. Even if the Supreme Court came to the
view that Section 8 ought not to have been invoked, it was still open to Sabrina to
argue her application under Or. VII Rule 11.
General Instructions
Code A will appear for Kokil, DS Films Pvt. Ltd. and Doley Media Pvt. Ltd. in the 1st ,
2nd and 3rd suits, for Pradeep Iyer and Salvaraghavan in the 4th suit and for Kokil in the 5th
suit.
Code B will appear for Sabrina, Picturesk Inc. and Advaita Pvt. Ltd. in the 1st and 2nd
suits, for Sabrina in the 3rd suit, for Advaita Pvt. Ltd. in the 4th suit and for Hamara
Finance in the 5th suit.
‘Suit’ in this context means the appeals from the suits before the Bombay High Court.
73

Bangalore (2012)
Drafted by: V. Niranjan & Umakanth Varottil

(Civil Appellate Jurisdiction)
Special Leave Petition (Civil) No. 13154 of 2012
Slick Operator plc

… Petitioner
versus
Harish Kamath and another
… Respondents
and
Special Leave Petition (Civil) No. 13167 of 2012
Harish Kamath
… Petitioner
versus
Slick Operator plc and others
… Respondents
________________________________________________________________________
1. Slick Operator plc [“Slick”] is one of the largest oil and gas companies in the world.
It is incorporated in London and its CEO, Mr Josep Stark, had become something of
an icon in business circles for his stewardship of Slick ever since he was appointed in
2004. An important plank of his strategy has been to transform Slick from a
predominantly regional, to a global company with a presence in virtually every
country of commercial significance. Slick did this through alliances as well as
acquisitions, and its holdings are, for business convenience and fiscal advantages,
consolidated in a complex network of group companies. Unsurprisingly, Mr Stark has
a strong business network, and, for deals in India, has in the past worked closely with
Mr Harish Kamath. Mr Kamath, now a consultant based in Chennai and Bangalore,
had retired as the Chairman of one of India’s largest private banks and is widely
respected for his unimpeachable integrity and flair in executing complex deals. After
his retirement, he incorporated a company called India Holding Co Pvt Ltd
[”IHCPL”], of which he was then the CEO, to be used as a vehicle for making
strategic investments. Several projects interested him, but Mr Kamath was initially
74

contemplating a venture capital investment of about £10 million, through IHCPL, in a
promising engineering project in Himachal Pradesh [“the Himachal Pradesh project”].
2. In 2001, Slick’s management was concerned that its business had somewhat stagnated
in recent years. Its CEO at the time, Mr Gaunt, appointed a new CFO, Caroline
Brooks, with responsibility to raise further capital, improve trading volumes in Slick
shares, and build relationships with financial institutions to raise debt at cheaper rates.
Mrs Brooks was also placed in charge of Slick’s investment department. Unusually
for the industry, her package included a bonus component calculated as a share of
additional profits, a lump sum of £5 million annually for every £200 million raised as
fresh capital and a 10% share of any annualised return in excess of 20% on
investments made at her direction. One of Mrs Brooks’ first decisions was to invest a
sum of £3 billion in the shares of an offshore company that was owned by a Swiss
bank. Initial apprehension as to the propriety of this investment was somewhat
allayed when the bank declared a substantial dividend for the years 2002 and 2003.
More investments of this kind were made, taking the total to about £10 billion. The
Board was informed by Mrs Brooks that all these offshore companies were owned by
respected financial institutions whose names could not be publicly disclosed; that an
annualised return of atleast 30% was guaranteed, and that the companies in question
would return the £10 billion investment with a premium of 35% by 2013.
3. Unsurprisingly, Mrs Brooks spared no effort in trying to raise funds for Slick to
expand, and established contact with several companies and financial institutions. Mr
Kamath, whose working relationship with Slick had started in 2000, was among those
approached to make a substantial investment in Slick. He indicated to Mrs Brooks
that if he did decide to invest in Slick, he would, for reasons of tax mitigation and
administrative convenience, use IHCPL as the investment vehicle. Slick had no
objection to this, since many investors used this model. A standard brochure was
prepared personally by Mrs Brooks, but, for reasons of confidentiality, not emailed or
sent by post to the potential investors. Instead, Slick arranged for investors, including
Mr Kamath (along with two other IHCPL Directors), to visit London and read the
only available copy of the brochure in Mrs Brooks’ office. The brochure made the
following three representations: (i) Slick had entered into an agreement with the
Saudi Arabian Government under which, for a payment of £150 million per year, it
would have first option to operate any oil field in that country after 2015 (when
existing agreements would come to an end); (ii) the said agreement would be
disclosed to the market once operations began in 2015 and (iii) exercise of this option
was expected to result in an increase of atleast 45% in its revenues, some of which
would be passed on to shareholders as dividend, subject to legal restrictions at the
relevant time. Slick offered to allot shares (a minimum of 50,000) at £50 per share,
which was higher than the market price. Some investors, including Mr Kamath, asked
for a copy of the agreement, but were told that this was a “take it or leave it deal”
offered to them as a goodwill gesture and that the agreement could not be publicly
disclosed until the first year of operations.
4. Mr Kamath was in something of a dilemma because he had to choose between the
Himachal Pradesh project and the Slick investment, because he did not have enough
75

money to invest in both. On the strength of the representations in the brochure, he (as
did many other wealthy investors around the world) eventually decided to invest in
Slick by purchasing 200,000 shares. He caused IHCPL to issue equity shares to
generate capital equivalent to this amount (£ 10 million), all of which were allotted to
him. IHCPL, after receiving these funds, instructed its agent to purchase 200,000
shares from Slick as a private placement, at the agreed price of £50 per share. IHCPL
transferred the necessary amount to the agent’s client account in Chennai, and the
agent purchased the shares on 24 April, 2004. 1 IHCPL was unwilling to give up the
Himachal Pradesh project, because the potential returns were very high, and decided
to make that investment by borrowing funds. It was expected that the eventual returns
would leave it a considerable profit, even after paying interest. Accordingly, IHCPL
borrowed a sum of £10 million from Barclays Bank, at 16 % interest, which would
otherwise have been provided by Mr Kamath, without interest. Necessary regulatory
approvals for the borrowing have been obtained, and the legality of this borrowing is
not in doubt.
5. In late 2005, with the economy in robust shape, Mr Kamath decided that the time was
ripe for making substantial investments in global blue-chip companies. He did not
have the financial wherewithal to make these investments himself, but his
considerable reputation for investment management made it easy for him to raise
funds, both as equity and debt. IHCPL was his preferred investment vehicle. IHCPL
shares were issued to the equity investors, and the interests of those who invested
through debt were safeguarded by appointing lenders’ representatives to the Board of
Directors. There were five equity investors - Mr Stark, who personally invested a
considerable sum, two companies that he introduced [“the Stark companies”], and
two venture capital funds that invested because of Mr Kamath’s reputation [“the VC
Funds”]. Three large American banks invested through debt [“the American banks”],
after obtaining the necessary regulatory approvals or dispensations (the validity of
which are not in doubt). Naturally, Mr Kamath’s holding in IHCPL was diluted, but
he was content with this, because his loss of control was more than compensated by
the fact that his shares would benefit from any appreciation in value arising out of the
investments made by IHCPL. As of date, the shareholding pattern in IHCPL is: (a)
Mr Kamath – 30 %; (b) Mr Stark and the Stark companies together – 40 %; (c) the
VC Funds – 30 %. The Board consists of eleven directors – three appointed by the
American banks, four by Mr Stark and the Stark companies and two each by Mr
Kamath and the VC Funds. Although Mr Kamath is not himself a Director, he has
been employed by IHCPL as the Head of the Investment Department.
6. IHCPL’s investment portfolio began to show impressive returns on its investments,
including the Slick shares, which rose steadily, if not spectacularly, between 2004 and
2007. By this time, it was well-known in the industry that Slick was on the lookout
for major acquisitions, because it could complete these at a knock-down price in view
of the downturn in the economy, using its sizeable cash reserves. In 2008, it was
1
IHCPL obtained permission from the Reserve Bank of India and the legality of this purchase is
not in issue in this proceedings.
76

rumoured that the Government of India was open to selling its stake in Smooth Oil
and Gas Corporation [“SOGC”]. SOGC is one of Asia’s largest companies, with a
market capitalisation of nearly £28 billion. In June 2008, the Government confirmed
that it would invite offers for its 76% stake in SOGC, but made it clear that this would
be no ordinary bidding process. A global tender would be floated and offers would be
invited only from companies with global assets of atleast £20 billion. Each bidder
would be required to submit a detailed proposal as to the integration of SOGC’s
business with its own, and other matters relevant to a qualitative assessment of the
bid. The Government clarified that it would select a winner based on both quantitative
(highest bidder) and qualitative (strength of proposals) criteria, and, in accordance
with a direction of the Supreme Court on the exploitation of natural resources, subject
each applicant to a “fit and proper person” test.
7. Slick was interested in acquiring SOGC, but realised that there were formidable
obstacles, not least of which was a recent comment that Slick’s reporting practices in
respect of investments were not entirely transparent. Slick contacted Mr Kamath, who
confirmed that Slick would, in addition to being among the highest bidders, need a
qualitative proposal of the highest order to overcome these disadvantages. After
several discussions, Mr Stark asked Mr Kamath to facilitate the acquisition. Mr
Kamath’s reply to this email, dated 19 June, 2008, is set out at Annexure – I.
8. Shortly before Mr Stark and Mr Kamath met in London, Slick incorporated three
wholly owned subsidiaries in the Cayman Islands, the British Virgin Islands and
Mauritius, respectively. Of these, Slick Consolidated Holdings Ltd [“SCHL”], the
Cayman entity, was intended to be used to create a more efficient structure for the
acquisition of SOGC. The memorandum of association provided that its business was
confined to holding shares of companies in which the Slick group is interested. It has
taken a small office on lease in the Cayman Islands, for which the rent is paid by
Slick to the owner. SCHL’s articles of association provide that: (i) any vote available
to SCHL in respect of shares it holds in companies which Slick is interested shall be
exercised solely on Slick’s directions; (ii) the maximum level of expenditure it may
incur is £25,000 a month, beyond which it requires the prior written approval of
Slick; (iii) the Board of Directors of SCHL shall be entirely nominated by Slick and
that (iv) any profit earned by SCHL shall be wholly repatriated to Slick. These
provisions are not inconsistent with the company legislation in the Cayman Islands.
9. Mr Stark and Mr Kamath met in London soon after, and concluded the Facilitation
and Acquisition Agreement [“FAA”] on 16 July, 2008. The parties to the FAA were
Mr Stark, Slick and Mr Kamath. Under the FAA, which was stated to be governed by
Indian law, Mr Stark and Mr Kamath agreed to incorporate a Special Purpose
Vehicle, Slick Investments Pvt Ltd [“SIPL”] in Chennai. Clause 8.6 of the FAA
provided that Slick or any group company chosen by Slick would be allotted 90% of
the issued shares of SIPL for a payment of £900,000, while 10% would be allotted to
Mr Kamath or any company chosen by him, for a payment of £100,000. It was agreed
that Mr Kamath’s £100,000 contribution would be borne by Slick. The FAA provided
that Mr Kamath would, in consideration of this 1/10th stake, use his best endeavours
to facilitate the successful acquisition by Slick of the Government’s stake in SOGC in
77

the manner prescribed in the FAA. This included the preparation of the reports
needed for the qualitative assessment, making presentations and representations to the
Government, highlighting Slick’s track record etc., at Mr Kamath’s expense. The
FAA indicated that Slick would submit a bid of around £30 billion.
10. It was clear at the outset that Slick did not wish to fund the acquisition from its own
funds, because the sheer size of SOGC would stretch its resources to breaking point
and make any other acquisition impossible in the near future. Accordingly, the FAA
provided that Slick would contribute no more than £1 billion towards the acquisition,
in the form of preference shares or equity shares in SIPL (in which Mr Kamath would
take his 1/10th share, without payment). It was Mr Kamath’s responsibility to find
external investors for raising the remaining £29 billion, partly as equity, and partly as
debt (to ensure that Slick did not lose control). The parties were concerned that a
leveraged buy-out could adversely affect the bid’s qualitative assessment, but went
ahead because the Government had not expressly restricted this, and because it was
expected that only a small portion of SOGC’s assets would be leveraged.
11. After the FAA was signed, Mr Kamath undertook extensive work to facilitate the
acquisition. He prepared detailed reports about Slick’s proposals for integrating
SOGC with its business, its track record, labour relations etc., and made a number of
representations and presentations to various Government officials. He also supervised
a public relations campaign that emphasised the close links between Slick and India,
and the large number of Indians on Slick’s rolls. It is accepted by both parties to this
appeal that Mr Kamath’s work was of the highest quality.
12. Mr Kamath also managed to find external investors, but most of them refused to
subscribe to equity in SIPL, preferring debt with a charge over the property of SOGC
or other appropriate security. Even with these investors, Mr Kamath had a shortfall of
about £8 billion, since Slick was to contribute no more than £1 billion. Slick, along
with three other shortlisted companies, was asked to submit its final proposal for
qualitative assessment (including financing plans) by December 2008. By this time, it
was also common knowledge that Slick’s competitors were proposing to finance the
deal through their own reserves, with little or no debt.
13. By October 2008, Mr Kamath had to accept that he could not raise funds from
external investors, particularly because even the investors he had found would, at
best, invest as creditors, not shareholders. Slick did not wish to lose this deal, and, left
with no alternative, indicated to Mr Kamath that it would raise the funds needed for
the acquisition. Mr Stark approached Slick’s largest lenders in Australia and England,
and at short notice managed to raise loans of £15 billion secured by Slick’s
immovable property in those countries. Slick contributed £15 billion from its own
funds.
14. As a result, however, the acquisition structure had to be substantially modified. A
new SPV, Slick Holdings India Ltd [“SHIL”] was incorporated in New Delhi, and its
shares were held by Slick (49%) and SCHL (51%). Mr Kamath was not allotted any
shares in SHIL. When he wrote to Mr Stark asking about this, Mr Stark assured him
that he would be appropriately compensated, but that nothing should be done to
78

jeopardise the deal at this late stage. Mr Kamath continued to undertake extensive
work to ensure the success of the bid. The bid was submitted in accordance with the
tender conditions, with SHIL as the purchaser. It was accepted by the Government of
India on 12 January, 2009, and SHIL acquired control over SOGC. The parties to this
appeal do not dispute that Mr Kamath’s efforts were instrumental in persuading the
Government to accept the revised bid with SHIL as the vehicle.
15. The SOGC acquisition was well-received in the Indian press, again due in no small
measure to the efforts of Mr Kamath. SHIL was now a valuable business because it
was obvious that it had acquired one of the most profitable companies in Asia. In
March 2009, Mr Kamath raised the question of his fee. Mrs Roberts, Slick’s Finance
Director, replied to this by an email dated 21 March, 2009, which is set out at
Annexure – II. Mr Kamath rejected this offer out of hand and negotiations
continued.
16. In August 2009, the Financial Times ran a sensational story accusing Mrs Brooks of
having practised a fraud on Slick in 2003 and 2004, by investing about £10 billion in
offshore companies that appeared to be in the control of Swiss banks. It was reported
that these companies were actually controlled by the Government of Iran, through the
Swiss banks, which under Swiss law were entitled to not disclose the identity of the
ultimate owner; that Mrs Brooks was not only aware of this but had been promised a
fee by the Government of Iran for every investment she brought in; that she had
collected this fee from the Government of Iran and also claimed bonus payments
from Slick; and that the new Government which had come to power in Iran in the
recent elections had resolved not to pay any debt owed to a list of “imperialist multi-
national companies”, of which Slick was one. The Financial Times predicted that
Slick would have to write off the entire investment because prospects of enforcing
any judgment against the Government of Iran were virtually non-existent. Slick
immediately placed Mrs Brooks on suspension and soon after dispensed with her
services. But the panic that ensued in the market was catastrophic for its investors,
many of whom lost their life-savings when the share price plummeted.
17. Mr Kamath immediately wrote to Mr Stark expressing his dismay at the loss he had
suffered on his investment in Slick, and sought assurances that this would not affect
the Saudi Arabian contract that was to commence in 2015. Mr Kamath was shocked
to learn that Mr Stark was himself unaware of any such contract, and IHCPL sold its
200,000 Slick shares on 19 August, 2009, at £5 per share. The sale was ratified by the
Board. He instructed his solicitors to more closely examine the circumstances in
which the Slick shares had been acquired. On their advice, he contacted the Directors
and other shareholders of IHCPL and urged them to initiate legal proceedings against
Slick to recover damages for this loss. Mr Stark indicated that he would not vote, but
the Stark companies and the VC Funds informed Mr Kamath that they were not keen
to bring any such claim, because it was not in the company’s long term interest to
become embroiled in acrimonious litigation involving an important business partner.
As a result, Mr Kamath wrote to IHCPL and Slick, calling upon Slick to compensate
IHCPL for the loss caused to it by Slick’s deceit, measured by the difference between
purchase and sale price, and for all consequential losses. He received no response,
79

and negotiations as to his fee for the SOGC acquisition also completely broke down
in the turmoil.
18. Mrs Brooks had been arrested and was the subject of a Serious Fraud Office
investigation, and it emerged that Slick, at her direction, had also transferred assets to
group companies in other jurisdictions, including SCHL. Although there was no
doubt that Mr Stark had not been party to the fraud practised on Slick by Mrs Brooks,
questions were raised about the lack of supervision by the Board and the CEO, and
Mr Stark resigned. With the informal approval of the Government of India, which did
not wish a Slick group company to be associated with SOGC, the Slick group sold its
interest in SOGC to an American company, at a profit.
19. Mr Kamath filed two suits in the Madras High Court, C.S. No. 19 and C.S. No. 20 of
2010. Leave to sue was granted under the Letters Patent because part of the cause of
action had arisen within the jurisdiction of the court. In C.S. 19 of 2010 [“the first
suit”], Mr Kamath sought a decree in his favour, for the benefit of IHCPL, holding
Slick liable to pay damages for the tort of deceit, measured by the difference between
the purchase price (£50) and the sale price (£5), plus the interest IHCPL had paid
Barclays Bank on the £10 million loan (as a consequential loss). In C.S. No. 20 of
2010, Mr Kamath sought a quantum meruit decree holding Slick, SCHL and Mr Stark
jointly and severally liable to pay him for the services he had rendered in facilitating
the acquisition of SOGC. He sought the equivalent of 1/10th of the value of the SPV
(SHIL), and, in the alternative, £200 million. In view of the importance of these
actions, the High Court ordered the trial of both suits to be expedited, and evidence to
be taken on a day-to-day basis. Mr Stark, who had insubstantial assets, took no part in
these proceedings and Mr Kamath’s focus was to obtain decrees against Slick and
SCHL. Written statements were filed by Slick in the first suit, and by Slick and SCHL
in the second suit.
20. In the first suit, the judge heard testimony from all relevant witnesses. Slick could not
seriously contest that the three representations in the brochure were false, and were
known by Mrs Brooks to have been false. The judge decreed the suit on 14 March,
2011 in Mr Kamath’s favour (for the benefit of IHCPL), finding that:
a. Mr Kamath is entitled to bring a derivative action against Slick in the
circumstances of this case.
b. The tort is in this case “located” in India, not England. Therefore it is
unnecessary to apply a choice of law rule, and Indian domestic law applies.
c. Under the Indian law of damages for deceit, Mr Kamath is entitled to recover
the difference between the purchase price and the real value of the shares on
the date of purchase, but not the difference between the purchase price and the
sale price. He is also not entitled to recover the interest paid to Barclays Bank,
because this is a consequential loss.
21. In the second suit, the judge heard all relevant testimony. An expert witness on
investment banking testified that the market value for the services Mr Kamath
80

rendered was around £100 million, bearing in mind the complexity of the deal, but
that ordinarily consultants were not given an equity stake as fees. The accuracy of this
testimony is not challenged by Mr Kamath. The judge reserved orders and decreed
the suit against all the defendants on 16 April, 2011, with the following findings:
a. Slick is liable in restitution, for it enjoyed the benefit of Mr Kamath’s
services. Although there can be no contractual claim under the FAA since an
entirely different structure was used, the cost of the 1/10th share of the
investment vehicle in return for which Mr Kamath was “requested” to render
his services can be taken into account as the measure of Slick’s enrichment.
b. SCHL is jointly and severally liable to make restitution in this amount,
although it was not a party to the FAA, because:
i. Once the corporate veil is lifted, SCHL is deemed to have been a party
to the FAA, since Slick was a party, and hence made a request;
ii. In any case, even if it is not deemed to be a party, SCHL enjoyed the
benefit of Mr Kamath’s services for the purposes of the Indian law of
restitution;
22. First appeals were filed challenging these decrees. In respect of the first suit, the
Division Bench dismissed Slick’s appeal and allowed Mr Kamath’s appeal on 11
December, 2011, finding that:
a. The trial judge correctly held that Mr Kamath is entitled to bring a derivative
action.
b. The tort is “located” in England. It is therefore necessary to apply the Indian
choice of law rule.
c. Applying the law mandated by that rule, Mr Kamath is entitled to a decree
(for the benefit of IHCPL) for £45 per share plus the interest on the £10
million loan, because:
i. The plaintiff has shown that deceit is actionable in principle in both the
forum (India) and England. It is not necessary to establish he is
entitled to the same damages in both countries in order to sue on a
foreign tort;
ii. Heads of damages are not a matter of procedure. Further, the court is
entitled to apply the “flexible exception” in favour of the lex loci delicti
since this issue has “the most significant relationship” with England;
iii. In any event, Indian law also allows Mr Kamath to recover £45 per
share, as well as interest on the £10 million, and the trial judge erred in
holding that it does not.
23. On the second suit, the Division Bench, on 19 January, 2012, held that:
81

a. Slick is liable to make restitution. But the FAA is irrelevant as a measure of
the enrichment because it was abandoned. The measure of enrichment would
ordinarily be £100 million, but the Court is entitled to take into account the
offer of £200 million as the value the defendant placed on the service
rendered. Therefore Mr Kamath is entitled to a decree against Slick for £200
million.
b. SCHL is not liable to make restitution, because:
i. It did not enjoy the benefit of Mr Kamath’s services for the purposes
of the Indian law of restitution.
ii. Although the trial judge rightly lifted the corporate veil as between
SCHL and Slick, this does not make SCHL a party to the FAA, and it
cannot be said that it made any “request”. In any event, the FAA is
irrelevant since it was abandoned.
Therefore SCHL’s appeal is allowed and the decree against it is set
aside.
24. Special Leave Petitions were filed against these orders. In view of the importance of
these questions of law, the Supreme Court, on February 3, 2012, passed an order
tagging the SLPs, and directed that these be listed for final hearing on a non-
miscellaneous day in September. The Court has indicated that counsel should address
the following issues:
a. First Suit
i. Whether Mr Kamath is entitled to bring a derivative action in the
circumstances of this case?
ii. Whether the tort of deceit is in this case “located” in India or England,
and whether the application of the law mandated by the Indian choice
of law rule entitles Mr Kamath to recover, for the benefit of IHCPL:
1. £45 per share?
2. Interest paid on the £10 million loan?
b. Second Suit
i. Whether the measure of Slick’s enrichment is the pre-acquisition cost
of a 1/10th stake in SHIL, or £200 million, or £100 million?
ii. Whether SCHL is at all liable to make restitution, and in particular:
1. Whether SCHL was enriched?
2. Whether, in any event, the consequence of lifting the corporate
veil is that SCHL is deemed to have been a party to the FAA?
82

Annexure – I
Subject: Facilitation of SOGC Acquisition

Date: Thu, 19 Jun 2008 11:03:00
From: hk@kamathconsultants.in
To: jstark@slick.co.uk
Dear Josep
Thank you for confirming that you wish to compete for the acquisition of SOGC. I will,
as ever, be pleased to assist you, but I am sure you will understand that this is no ordinary
deal. It is the biggest acquisition you have attempted to date, and both of us know the
challenges ahead. If I am to act as your consultant to facilitate this, I would expect that
we agree an equity package. I am sure you will agree that this is not the sort of deal in
which facilitation is compensated by mere commission.
I look forward to hearing from you.
With kind regards

Harish
Subject: Re: Facilitation of SOGC Acquisition

Date: Thu, 19 Jun 2008 15:17:00
From: jstark@slick.co.uk
To: rc@kamathconsultants.in
Dear Harish
Certainly. Let us conclude an agreement on that basis when we meet in London.
Yours
Josep
83

Annexure – II
Subject: Fee proposals

Date: Sat, 21 Mar 2009 10:14:00
From: hroberts@slick.co.uk
To: hk@kamathconsultants.in
Cc: josep@slick.co.uk
Dear Mr Kamath
Josep has asked me to respond to your email concerning your fee, and I do so on his
behalf and under his authority.
At the outset, I would like to take this opportunity to thank you for all your efforts in
doing this deal. We recognise that we would have been unable to acquire SOGC without
your assistance.
I conveyed your request for a fee equivalent to the cost of a 1/10th stake in SHIL to Josep.
While our Agreement did provide that you would receive a 1/10th stake in SIPL, I am sure
you will agree that the structure of the deal fundamentally changed. Our original
agreement was that you would be responsible for raising funds to complete the
acquisition. In the event, the entire £30 billion either came from Slick or was raised by
Slick. Without intending to undermine your efforts in this matter, we are of the view that
the Agreement is of no assistance in arriving at what fee should be paid to you.
We are willing to pay you £200 million, which I hope you will agree is considerably
higher than what consultants instructed by the purchaser ordinarily charge for facilitating
a deal of this type. I look forward to your response, and to our continued cooperation in
the future.
With kind regards,

Helen
84

11. Fifth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2013)
Securities and Exchange Board of India … Appellant
v.
LinkPark Investment Partners LLC … Respondent
&
Securities and Exchange Board of India … Appellant
v.
Freddie Balsara
Mike Bennington
Purple Floydeon Investments Private Limited … Respondents
1. Novio Software Systems Limited is a niche technology company based in Mumbai,

India (where its registered office is situated) that focuses on developing gaming
software that can be accessed on computers and handheld devices. Its success in
developing the Laughing Cows game has catapulted it into the major league of global
gaming players. The game involves players skillfully aiming and maneuvering
objects across a scientifically determined trajectory to strike bovine creatures, which
perform a Rangram-style waltz before disintegrating. The game’s popularity can be
measured by the fact that millions of children and adults alike around the world
instantly developed an addiction to it. Needless to add, Novio’s financial success can
be measured by the millions of dollars that it began to rake in within a short span of
time. Buoyed by its accomplishments, in 2010 Novio listed its shares on the Stock
85

Exchange, Mumbai (BSE) and the National Stock Exchange of India Limited (NSE).
Despite adverse market conditions, its initial public offering was oversubscribed at a
substantial premium.
2. Novio’s founder and chief executive officer is Freddie Balsara, an engineer and a
gaming addict, who had a successful stint with a gaming company in Finland before
his return to India. Freddie and his family, being the promoters of Novio, hold 37%
shares in the company, with the remaining shares held by diverse shareholders. The
board of Novio consists of Freddie, his wife Hannah and 4 other directors. Freddie is
the only director who acts in an executive capacity.
3. Since its listing, Novio has been developing a suite of gaming offerings, most of
which have been successful, with some failures too. Unknown to the market, Novio
had been developing the next generation blockbuster offering codenamed “The
Messenger”. During early 2012, the company found itself in need of further funding
to complete the development and testing of The Messenger. Since the market
conditions were not appropriate for another public offering, and since Freddie did not
wish to leverage the assets of the company through borrowings, a private offering of
shares was zeroed in as the most viable option. After discussions with various
potential investors, Freddie and his team selected LinkPark Investment Partners LLC,
a New York-based private equity fund as the investor for the next round of funding in
Novio. Apart from raising capital, LinkPark was an attractive option as the firm had
extensive experience in investing in gaming companies around the world, and also
provided strategic inputs and handholding to its portfolio companies. Novio also
considered itself lucky that LinkPark was willing to invest, because it was extremely
picky about its investments (and would turn down more opportunities than it
accepted) and had an immaculate track record in investing in gaming companies that
were hugely successful.
4. After the broad terms of the valuation and other details were struck between the
parties, the lawyers were left with the task of finalizing the structural details. It was
decided that LinkPark would invest in 10% shares of Novio (post-issue) at a price of
Rs. 1,500 per share, which was at a 5% premium over the then prevailing market
price. In addition to this, it was an essential term of LinkPark’s investment that it also
obtains a call option on an additional 16% shares in Novio. With these mandates, the
lawyers on both sides drafted and negotiated the transaction documents.
5. On March 15, 2012, LinkPark and Novio entered into a Share Subscription-cum-
Shareholders Agreement in order to enshrine the terms and conditions on which
Novio will issue, and LinkPark will invest in, 10% shares of Novio. Two of the key
clauses in the Agreement are extracted in the Annex. These clauses were also
incorporated into the articles of association of Novio.
6. Separately, on the same day, Freddie executed a side-letter in favour of LinkPark,

which stated that in case there is a dilution in LinkPark’s shareholding within 3
months from the date of completion of the investment, whether on account of issue of
86

shares upon exercise of employee stock options or the conversion of pre-existing
convertible instruments, then Freddie will sell, or procure the sale from other
shareholders of, further shares such that LinkPark’s shareholding will be maintained
at 10% during the 3-month period following completion of the initial investment.
7. On the same day, i.e. March 15, 2012, LinkPark entered into a Call Option
Agreement with Freddie and Hannah in relation to their shareholding in Led Skinnard
Investment Limited, an Indian company with its registered office in Mumbai. Freddie
and Hannah (along with some nominees) hold 100% shares of Led Skinnard. The Call
Option Agreement provides that within a period of 18 months from the date of the
Agreement, LinkPark has the option, exercisable by giving 30 days’ written notice, to
acquire all of the shares of Led Skinnard held by Freddie, Hannah and their nominees.
Led Skinnard’s only asset is a holding of 16% shares in Novio. It has no other assets
or businesses. Therefore, the strike price of the call option was fixed such that the
value of Led Skinnard’s shares represented its 16% shares in Novio at the value of
Rs. 1,500 per share, which is the same price at which Novio would issue shares to
LinkPark. In consideration for the grant of the option, LinkPark agreed to pay Freddie
and Hannah an aggregate option fee of Rs. 1 lac, which was subsequently in fact paid.
8. The LinkPark investment was first discussed formally by the board of directors of
Novio during its meeting on March 15, 2012. The notice convening that meeting was
sent to the stock exchanges by Novio on March 13, 2012, in which it was simply
stated that “the Company will consider and, if found satisfactory, approve an issue of
shares to an investor”. Following the board meeting, the formal transaction
documents were executed on March 15, 2012, and Novio immediately sent out
another notice to the stock exchange on the same day disclosing LinkPark’s proposed
10% investment and the price at which it was to be made. However, no disclosures
were made regarding Freddie’s side letter or the Call Option Agreement.
Subsequently, Novio held its shareholders’ meeting on April 14, 2012 and obtained a
special resolution approving the issue of 10% shares to LinkPark. The very next day,
the shares were duly issued and allotted to LinkPark, which then became a
shareholder of the company. On that day, LinkPark also separately notified the stock
exchanges of its investment in Novio.
9. The transaction was well received by the stock markets. Upon announcement,
Novio’s stock rallied upwards due to bullishness expressed by the markets. The share
price has since remained stable and has not dropped below the transaction price of Rs.
1,500 per share. The proceeds of the issue of shares to Novio were immediately
deployed into the development of The Messenger game, which was unveiled to the
world in October 2012 at a mega launch during the Annovar Tech Fair in Germany,
turned out to be a great success.
10. During early May 2012, a key employee of the company converted a large number of
employee stock options into shares of Novio that resulted in a dilution of LinkPark’s
shareholding to 9.83%. As Freddie had undertaken to top up any shortfall, he
contacted several of his family member and friends and convinced them to sell some
87

of their shares to LinkPark. By way of negotiated transactions effected on May 15,
2012, LinkPark acquired a further 0.17% shares from family members and friends of
Freddie so as to regain its originally contemplated shareholding of 10%. The
transactions were effected at prices ranging from Rs. 1525 to Rs. 1575 per share.
11. Sometime during June 2012, Novio and Freddie received a notice from the Securities
and Exchange Board of India (SEBI) seeking further details of the issuance of shares
to LinkPark. Specifically, SEBI requested for copies of all transactions documents,
including agreements and letters entered into between the parties, which Novio and
Freddie duly provided within 3 days. Subsequently, on July 10, 2012, LinkPark
received a show cause notice from SEBI seeking its response as to why it should not
be required to make a mandatory open offer to the shareholders of Novio (other than
the promoters) to purchase their shares at a minimum price as prescribed in applicable
regulations issued by SEBI pursuant to the SEBI Act, 1992. Furthermore, the show
cause notice also required LinkPark to demonstrate as to why it should not be subject
to penalties for failing to make the mandatory open offer and also for other technical
violations of applicable regulations issued under the SEBI Act. In its notice, SEBI
also directed LinkPark to annul the call option in respect of the shares in Led
Skinnard, being void and unenforceable as it violated various corporate and securities
laws applicable in India.
12. LinkPark, with the assistance of its lawyers, prepared a reply to SEBI’s show cause
notice. It was also given the opportunity to make submissions in person before SEBI.
Thereafter, on August 13, 2012, SEBI’s wholetime director issued an order
mandating LinkPark to make an open offer to the other shareholders of Novio to
acquire their shares at a price no less than Rs. 1575 per share, and imposing a penalty
of Rs. 1 crore for failure to comply with provisions of regulations issued by SEBI.
The order also required LinkPark to treat the call option over the Led Skinnard shares
as void, and restrained it from exercising the option.
13. LinkPark preferred an appeal to the Securities Appellate Tribunal (SAT). After
hearing the parties, on October 16, 2012 SAT ruled in favour of LinkPark, holding
that SEBI had erred in requiring LinkPark to make a mandatory open offer, in holding
it in breach of the regulations issued by SEBI and in treating the call options as void.
SAT reversed SEBI’s order on all counts.
14. During the time that Novio and LinkPark were dealing with the notices received by
SEBI above, Freddie was delivered another knockout blow. Towards the end of July
2012, Freddie received a notice from SEBI seeking information regarding his possible
contravention of several regulations issued by SEBI. The notice stated that during a
random surveillance conducted by the NSE on Novio’s scrip, certain unusual
transactions were detected during early March 2012. These were reported to SEBI.
Upon probing further, SEBI found that, among other transactions, a total of 50,000
shares of Novio (representing approximately 0.2% of its share capital) were
purchased on March 7, 2012 by Purple Floydeon Investments Private Limited, India’s
largest hedge fund. These shares were purchased both on and off the market at an
88

average price of Rs. 1,400 per share. Purple Floydeon was managed by Mr. Mike
Bennington, who was a smart technopreneur as well as a financial whizz. His success
emanated from his clever (but aggressive) strategy of investing in tech stocks.
15. During its investigations, SEBI found a link between Freddie and Mike. It transpired
that the two were college buddies who continued to stay in close touch. They were
both graduates of the prestigious HarvMit institution from where they obtained their
engineering degrees. Coincidentally, the spouses of both Freddie and Mike were from
the same batch of HarvMit. Although born and bred in California, Mike and his
family relocated to Bangalore and made India’s Silicon Valley their home. Not only
did Freddie and Mike speak to each other (either in person or over the telephone) at
least once a week, but the close ties between the families also meant they went
together on at least two vacations a year. During their vacations, meetings or
conversations, it was common for them to discuss matters relating to the tech and
gaming industries as each felt they could gain much from obtaining the perspectives
of the other. In May 2012, when Freddie was required in accordance with the side
letter to make good the shortfall in LinkPark’s shareholding, he had approached Mike
to request him to sell some of Novio’s shares held by Purple Floydeon, but that
ultimately became unnecessary because Freddie’s relatives and other friends offered a
substantial number of shares that was sufficient to make good the shortfall.
16. At a more formal level, Mike also provided business and financial consultancy
services to Novio under a consulting agreement entered into between the two parties.
Under this agreement, Mike is required to provide strategic advisory services to
Novio on a quarterly basis (or more often, if required) on various matters pertaining
to the business and financial aspects of the company. In return for these services,
Novio is required to pay an annual consulting fee of Rs. 10 lacs to Mike. Although
Freddie has been keen for Mike to join the board of directors of Novio, he has been
hesitant to give effect to this desire because he feared the cooptation of a friend onto
the board may not be perceived well by the stock markets generally, or even by
LinkPark more specifically.
17. Amongst other information received by SEBI in response to the notice to Freddie was
his itemized mobile telephone bill for the calendar month of March 2012. SEBI found
that between March 1, 2012 and March 7, 2012, there were 125 short text messages
sent from Freddie to Mike, during which period he received 89 short text messages
from Mike. For the remainder of March 2012, there were only an aggregate of 41
messages flowing back and forth between Freddie and Mike. During this period, there
were no telephone calls made from the mobile phones of Freddie and Mike to each
other. Considering the oddity in the communication pattern, SEBI sought to obtain
further information from Freddie by requiring him to provide the contents of his text
messages, which he vehemently denied access to. SEBI also sought to obtain the
records of the text messages from his mobile telephone operator, Creedtel, which
equally strongly rejected the request. SEBI then initiated proceedings before the
Bombay High Court, seeking an order against Creedtel that would compel it to
89

provide the contents of text messages, which proceedings are still pending. No order
has yet been passed by the Bombay High Court.
18. In any event, based on the available information, SEBI issued a show cause notice to
Freddie, Mike and Purple Floydeon in connection with a possible violation of the
SEBI Act and regulations issued thereunder. The noticees made their submissions to
SEBI and were also granted a hearing. On facts, it is not disputed that Novio’s quest
for a large investment in the company was well known even in February 2012, and
therefore matters were indeed in public domain, although the identity of the investor
or the precise terms of the investment were known only on March 15, 2012 when the
announcement was made by the company. Moreover, it is also not disputed that
Purple Floydeon is a short-term trader and is accustomed to trading constantly in
securities of various companies. However, for the year 2012, the trades in question
represented Purple Floydeon’s first investment transaction in Novio, although during
the period its investments and divestments occurred frequently in other companies.
19. After reviewing the submissions and providing a hearing to the parties, on August 20,
2012 the SEBI wholetime member found that by trading in the Novio scrip Purple
Floydeon was guilty of violating regulations issued by SEBI, and that so were Freddie
and Mike. It debarred all three from accessing the capital markets, imposed a penalty
of Rs. 50 lacs on Purple Floydeon and Rs. 10 lacs each on the two individuals, and
also ordered Purple Floydeon to compensate all investors who sold their shares to
Purple Floydeon on March 7, 2012, with the loss per share being the amount
representing the difference between Rs. 1575 and the sale price at which the investor
sold the shares to Purple Floydeon.
20. Freddie, Mike and Purple Floydeon preferred appeals before the SAT. The SAT
reversed the order of SEBI, and held that there was insufficient evidence to return a
finding of violation of regulations issued by SEBI. SAT also found that SEBI does
not have the power to seek transcripts of telephone calls and short text messages
either from the noticees or the mobile telephone companies.
21. Aggrieved by the orders of the SAT as set out in paragraphs 13 and 20 above, SEBI
has preferred appeals to the Supreme Court of India. Since the two orders arise out of
the same set of transactions, the Supreme Court has decided to club the appeals and
hear all the issues together in a consolidated manner.
----- x -----
90

Annex
Extracts from the Share Subscription-cum-Shareholders Agreement
3.1 Board Composition
The Board shall comprise 6 (six) directors. Of these, 2 (two) directors shall be
nominated by LinkPark.
7.1 Affirmative Rights
Subject to the terms of this Agreement, no action shall be taken by the Company
or the board or committee thereof or at any general meeting or at any meeting of
the board or committee thereof or by resolution by circulation with respect to any
of the following matters without the prior written consent of LinkPark or the
affirmative vote of LinkPark’s nominee directors, as the case may be:
(i) alteration of the provisions of the articles of association of the Company;
(ii) commencement of a new line of business;
(iv) issuance of further shares or securities to any person (including

shareholders);
(v) reduction of share capital or any buy back of securities;
(vi) approval of variation of rights of shares;
(vii) any change in the constitution of the board or in the number of directors
other than as expressly provided in this Agreement;
(viii) declaration of dividend;
(ix) adoption of audited annual accounts;
(x) application to a court to wind up the Company;
(xi) any merger, de-merger or other corporate restructuring by way of a

scheme of amalgamation, arrangement or compromise to be undertaken
by the Company;
91

(xii) remuneration of the managing director and other senior personnel;
(xiii) approval of annual business plan and annual budget;
(xiv) transactions with any shareholder or any affiliate of the shareholders of

an amount exceeding Rs. 2.5 crores cumulatively per financial year;
(xv) creation of any security or encumbrance on the assets of the Company, or

of any indebtedness, or the granting of any guarantee in excess of Rs. 25
crores outside the ordinary course of business in any given financial year
or such other limit prescribed by the board from time to time;
(xvi) capital expenditures or disposals (including business or asset acquisitions

or disposals) for the use of the Company in excess of Rs. 5 crores in any
given financial year or such other limit prescribed by the board from time
to time outside the ordinary course of business;
(xvii) appointment or replacement of the auditor; and
(xviii) delegation of any of the above matters to a committee or an individual.
----- x -----
92

Bangalore (2013)
IN THE HIGH COURT OF DELHI AT NEW DELHI
Old-Age Pensioners’ Relief Fund Management Limited … Appellant
v.
Bharat Steels and Alloys Limited … Respondent
1. In the wake of India’s independence, the country adopted a socialist policy.

Accordingly, the government placed substantial emphasis on import substitution
through the development of domestic heavy industries. One such bellwether was
the steel industry, which was necessary for construction and infrastructure
development. It was in this context that Bharat Steels and Alloys Limited (Bharat)
was established as a company with the Government of India owning 100% of its
shares. The company witnessed tremendous success within a short span of time,
and has continued to perform well ever since. As a “navaratna”, it is a proud
member of the elite rank of government-controlled companies in India.
2. In the late 1990s, the Government decided to float Bharat’s shares to the public
and to list them on the stock exchange. On May 9, 2000, Bharat’s shares were
listed on the Stock Exchange, Mumbai after an overwhelmingly successful public
offering of 10% of Bharat’s shares. Both retail and institutional shareholders took
up the public offering, and the Government of India continues to hold a
significant 90% shares in the company. Certain extracts from the articles of
association of Bharat are set out in Appendix A and those from the prospectus
pursuant to which the public offering was made are set out in Appendix B.
3. Among the offerees in the public offering was the Old-Age Pensioners’ Relief
Fund (Old-Fund), an investment trust domiciled in the tiny principality of
Lichtenstein. Although the trust itself has been registered in Lichtenstein, neither
are any of the managers of Old-Fund nor its investors located in that jurisdiction.
The operations of Old-Fund and its managers are run out of its principal office in
Luxembourg. Old-Fund has 3 trustees, of whom one is based in Lichtenstein (only
to satisfy local tax residency requirements) and the other two are based in
Luxembourg. The investment manager of Old-Fund is the Old-Age Pensioners’
93

Relief Fund Management Limited (Old-Man), established in Luxembourg. Under
an agreement between Old-Fund and Old-Man, the latter undertakes all the
management activities of Old-Fund. Although the investments are held in the
name of the trustees, it is Old-Man that is authorised to make all investment
decisions and to exercise various shareholding rights in companies in which Old-
Fund has invested, including initiating legal action on behalf of Old-Fund.
4. Old-Fund is an aggressive and profit oriented hedge fund, which deals through its
unique short-term strategies. The fund’s trading in securities around the world
using unique strategies has raked in enormous profits for its investors. It goes
without saying that Old-Man as the manager of the fund has also been rewarded
quite generously for its profit-making capabilities. Old-Man is renowned to be an
activist hedge fund, shaking up boardrooms around the world by engaging in
battles with managements of companies in which it invests in order realise greater
value and returns for its own investors. It does have an impeccable track record of
success in these battles.
5. Old-Man invested in Bharat with a lot of fanfare. It took up a 2% stake in Bharat

through the public offering as it had significant hopes and calculated expectations
regarding the further growth of the steel sector in India. Knowing that the
Government of India substantially owned Bharat, Old-Man was confident that the
Government would stand behind the venture and that it would backstop any of
Bharat’s business or financial problems.
6. The Government of India and Bharat, however, adopted a more cautious approach
towards Old-Fund. Given the aggressive nature of Old-Fund’s investment
strategy, they were unsure if Old-Fund would liquidate its investment at the
slightest sign of decline, whether of the company’s fortunes or of the country’s
economy. A sudden withdrawal of Old-Fund’s investment (being sizeable) would
cause a systemic risk not only to the Indian stock markets but also to the economy
as a whole. Nevertheless, the Government decided to take a calculated risk in
allocating the 2% shares in Bharat’s share capital to Old-Fund.
7. The reason for the Government’s interest in Old-Fund is also relatable to another
strength that it brings to the table. Old-Fund is a leading trader on derivatives in
steel and other commodities. This was found to be of substantial interest to
Bharat’s own business prospects, and there was much attraction in maintaining a
strong relationship with Old-Fund. Although there was no legal commitment to
that effect, there was an informal understanding between Mr. Gupta, the
managing director of Bharat and Mr. Gilles, the chief fund manager of Old-Man,
that upon the investment by Old-Fund in Bharat, the parties would explore in
good faith the possibility of entering into certain trading or derivative contracts in
steel or other commodities so as to further effectuate their close business and
investment relationships.
94

8. Consequently, following the public offering of shares, Bharat and Old-Fund
began negotiating the possibility of entering into certain derivative transactions.
However, in late 2000 there was a change of guard at Bharat, whereby the
Government replaced Mr. Gupta with Mr. Rajan as its managing director. Mr.
Rajan, a career bureaucrat was a risk-averse gentleman, and it took the industry
by surprise as to how he would be able to run a business that requires enterprise
and risk-taking. He vehemently opposed any proposal for Bharat to enter into any
derivative transactions, due to which the plans with Old-Fund had to be shelved.
These plans were reinstated when Mr. Rajan’s term came to an end in late 2005
and he was replaced by Mr. Banerjee, who was appointed by Bharat through an
international selection process. Having been at top positions in several
international commodities companies, Mr. Banerjee was considered to be more
astute as an industry veteran, and was also known to be enterprising and
somewhat aggressive in his risk perception.
9. This further change of guard rekindled the talks between Bharat and Old-Fund
regarding a possible derivatives transaction. After further negotiations, on January
10, 2007, Bharat and Old-Man (on behalf of Old-Fund) entered into a swap
arrangement (on an over-the-counter (OTC) basis) whereby Bharat would be
guaranteed a fixed-price for its steel products for the next 5 years from the date of
the agreement. Hence, irrespective of the market price of steel in the international
markets, the swap arrangement would ensure that Bharat receives the benefit of
the fixed-price for a specified tonnage of the product. The arrangement would
result in an annual settlement. For example, at the end of the year 1, if the market
price of steel were higher than the fixed-price, then Bharat would have to pay the
difference to Old-Fund in respect of the specified tonnage. On the contrary, if the
market price of steel were lower than the fixed-price, then Old-Fund would have
to pay the difference to Bharat for the same tonnage. In order for providing the
swap arrangement, Old-Fund charged Bharat a fee of US$ 500,000 per year. Old-
Fund in turn hedged its risk arising out of the swap transactions by entering into
further derivatives transactions by adopting counter-positions in the international
derivatives markets.
10. The swap arrangement was memorialized between Bharat and Old-Fund by
executing the ISDA Master Agreement with an appropriate schedule that detailed
the above transactions. Mr. Banerjee signed the agreement on behalf of Bharat.
Although he considered obtaining the approval of the board prior to signing the
agreement, he believed it was within his authority as a managing director to sign
such agreements. He in any case briefed the members of the board through the
telephone, although the two independent directors of Bharat were not reachable
and were informed of the signing of the agreement only after the fact. When the
derivatives personnel of Old-Fund enquired with Mr. Banerjee if all the internal
compliances within Bharat were duly completed, he answered in the affirmative.
Although the derivatives personnel of Old-Fund requested for a copy of the
memorandum and articles of association of Bharat, that was not handed over.
Moreover, since Old-Fund has “Chinese walls” between the derivatives team and
95

the investment team, its derivatives personnel were unable to obtain further
information regarding Bharat from their colleagues on the investment side.
11. As far as the commodities are concerned, in addition to steel, coffee was also
included as a subject-matter of the swap arrangement as that was another product
which experienced substantial price fluctuation. Bharat was of the view that it
could take a long-term bet on coffee prices, and also earn some additional income
beyond its normal business of steel manufacturing, marketing and selling. Hence,
the arrangements relating to both steel and coffee were included in the schedule to
the ISDA Master Agreement between Bharat and Old-Fund. Certain other
relevant provisions in the schedule to the ISDA Master Agreement in this case
include the fact that the agreement would be “governed by and construed in
accordance with the laws of the Republic of India, without regard to the principles
of conflicts of laws”, and that the English courts would have non-exclusive
jurisdiction in case of disputes under the agreement.
12. Based on this scheme of things, matters played on well for Bharat in the first 4
years. The market price of steel and coffee were marginally below the fixed-price
under the agreement, and therefore Old-Fund was required to pay (and indeed did
pay) Bharat the differential amount, which aggregated to US$ 2.5 million over the
4-year period. However, matters took on a drastic turn in the 5th year. There was a
substantial increase in the price of steel and coffee, which almost tripled
compared to their market price in the previous years. Hence, when the agreement
was finally closed out at the end of the 5th year, Bharat was left with an obligation
to pay Old-Fund a sum of US$ 15 million in accordance with the terms of their
swap arrangement. While approximately 75% of this arose on account of adverse
fluctuation in the steel prices, the balance 25% was relatable to fluctuation in the
coffee prices.
13. This took Bharat’s management by shock, as that it a completely unexpected turn
of events. Through a journalistic scoop, this incident also attracted some level of
unwanted publicity in the press. Naturally, it also resulted in an uproar in
Parliament, with the opposition baying for blood and seeking the resignation of
the Heavy Industries Minister. In order to assuage the opposition and also to
maintain a strong face, the Heavy Industries Minister issued a direction to Bharat
to the effect that Bharat should not pay any amount to Old-Fund under the swap
arrangement. This direction was issued through the President of India.
14. Due to the considerable pressure, Bharat filed a civil suit on the original side of
the Delhi High Court seeking a declaration that the swap arrangement reflected in
the ISDA Master Agreement (together with appropriate schedules) entered into
between Bharat and Old-Fund is void and illegal and in any case not binding on
Bharat, and that Old-Fund should be restrained from enforcing the agreement
against Bharat (Suit No. 1). In that suit, Bharat also sought an anti-suit injunction
against Old-Fund in the event that Old-Fund were to approach the English courts
seeking relief against Bharat. At the initial stage, the Delhi High Court granted an
96

anti-suit injunction. After hearing the parties on the merits, the court passed a
final order in which it declared the swap arrangement to be null and void and not
binding on Bharat, and confirmed the anti-suit injunction. In its order, the court
also made an observation that Old-Fund was well within its rights to initiate
appropriate action for recovery against Mr. Banerjee. Against this order, Old-
Fund preferred an appeal to the division bench of the Delhi High Court, thereby
continuing to pursue its claim against Bharat (Appeal No. 1). It decided not to
pursue any action against Mr. Banerjee as it was not hopeful of any meaningful
recovery out of his personal assets.
15. While the aforesaid dispute was ongoing between Bharat and Old-Fund, it also
gave rise to another round of acrimony between the parties. That related to the
investment by Old-Fund in Bharat. Although Old-Fund had great expectations
from the investment in Bharat, the financial returns on the investment turned out
to be miniscule. It was found that although Bharat had a stellar board of directors,
with two independent directors, it operated simply as an extension of the
Government of India. It did not take any decisions independent of the
Government and paid short shrift to the interests of the minority shareholders in
Bharat. The principal reason for Old-Fund’s consternation is the opaque pricing
policy of Bharat. A substantial part of Bharat’s steel was being sold to other
government entities in India at a substantial discount to the market price.
Although steel prices in the international markets were quite attractive, Bharat
sold only a part of its products internationally, and took a policy decision to sell
most of its output to other Indian government-owned undertakings at a subsidized
rate. This policy was irrational from a financial standpoint and significantly hurt
the minority shareholders of Bharat, although it enabled the Government to gain
some political capital by ensuring the supply of subsidized steel to governed-
owned units, which in turn sold their products or services to the citizens at lower
prices.
16. Old-Fund began discussions with the senior management of Bharat to compel
them to enter into product supply arrangements either with government
undertakings or otherwise at market rates and not at subsidized rates. But, their
calls went unheeded, and after a point of time the management of Bharat even
refused to engage in discussions with Old-Fund. The last straw that broke the
camel’s back was the Heavy Industries Ministry’s directions issued to Bharat
through the President of India requiring Bharat to ensure that it maintains
adequate supply of steel at subsidized rates to specific governmental undertakings
for the next 10 years. Pursuant to these directions, Bharat entered into long-term
supply agreements with 3 governmental undertakings to supply steel for the next
10 years at subsidized rates. This related to nearly 60% of Bharat’s total steel
output.
17. Angered by this move, Old-Fund initiated a two-pronged strategy to rectify the
situation created by Bharat. First, Old-Fund filed a suit before the original side of
the Delhi High Court to seek a declaration rescinding the long-term supply
97

agreements between Bharat and the 3 government undertakings and restraining
Bharat from performing under these agreements (Suit No. 2). Among other things,
Old-Fund’s contention was that the board of directors of Bharat was merely a
puppet of the Government of India, which pulled all the strings. Moreover, even
though it was listed on the stock exchange, Bharat’s board of directors did not
consist of the minimum number of independent directors required under the
corporate governance norms in India as set out in the listing agreement. This
constituted a violation of law, and hence Old-Fund sought relief as an affected
minority shareholder. The Delhi High Court, after hearing the parties on the
merits of the case, refused to grant the declaration sought by Old-Fund. Against
this, Old-Fund sought an appeal before the division bench of the Delhi High Court
(Appeal No. 2).
18. Old-Fund’s second strategy involved the initiation of arbitration proceedings

under the Agreement Between the Republic of India and the Belgo- Luxembourg
Economic Union for the Promotion and Protection of Investments (the Investment
Treaty). After providing the requisite notice, arbitrators were appointed and the
proceedings conducted in accordance with the Investment Treaty at The Hague.
The arbitral tribunal, after hearing the parties, adjudged in favour of Old-Fund and
issued an award against Bharat ordering a payment of compensation to the extent
of US$ 25 million on grounds set out in the Investment Treaty. Armed with this
award, Old-Fund initiated enforcement proceedings against Bharat in the Delhi
High Court (Suit No. 3). The court dismissed Old-Fund’s plea after hearing the
matter on merits. Against this order, Old-Fund has sought an appeal before the
division bench of the Delhi High Court (Appeal No. 3).
19. Since there was an element of commonality between all the appeals by Old-Fund
against Bharat, the Division Bench of the Delhi High Court decided to consolidate
Appeal Nos. 1, 2 and 3 and hear them in a composition manner.
----- x -----
98

APPENDIX A
Extracts from the Articles of Association of Bharat
60. The managing director of the Company shall exercise substantial powers of
management and shall exercise all powers and authorities conferred upon such
person either in the Companies Act or in these Articles, provided that the
managing director shall only enter into agreements in excess of Rs. 3 crores with
the prior approval of the board of directors in a meeting.
75. … The appointment of directors of the Company shall be approved by the

President of India.
77. Notwithstanding anything contained in all these Articles the President of India
may from time to time issue such directives or instructions as may be considered
necessary in regard to conduct of, business and affairs of the Company and in like
manner may vary and annul any such directive or instruction. The Directors shall
give immediate effect to the directives or instruction so issued. In particular, the
President will have the powers:
(i) to give directives to the Company as to the exercise and performance of its
functions in matters involving national security or substantial public
interest;
(ii) to call for such returns, accounts and other information with respect to the
property and activities of the company and its constituent units as may be
required from time to time ;
(iii) to determine in consultation with the Board annual, short and long-term
financial and economic objectives of the Company.
Provided that all directives issued by the President shall be in writing addressed to
the managing director. The Board shall, except where the President considers that
the interest of national security require otherwise, incorporate the contents of
directives issued by the President in the annual report of the Company and also
indicate its impact on the financial position of the Company.
99

APPENDIX B
Extracts from the Prospectus Issued by Bharat for its Public Offering of Shares
Risk Factors
The interests of the GoI as our controlling shareholder may conflict with your interests as
a shareholder.
Under our Articles of Association, the President of India may issue directives with
respect to the conduct of our business or our affairs for as long as we remain a
government owned Company. For instance, under Article 75 of our Articles of
Association, the President of India, by virtue of holding a majority of our Equity Share
capital, has the power to approve the appointment of our directors, including the
chairman and managing director. The interests of the Government of India (GoI) may be
different from our interests or the interests of our other shareholders. As a result, the GoI
may take actions with respect to our business and the businesses of our peers and
competitors that may not be in our or our other shareholders' best interests. The GoI
could, by exercising its powers of control, delay or defer or initiate a change of control of
our Company or a change in our capital structure, delay or defer a merger, consolidation,
or discourage a merger with another public sector undertaking.
In particular, given the importance of the steel industry to the economy, the GoI has
historically played a key role, and is expected to continue to play a key role, in
regulating, reforming and restructuring the Indian steel industry. The GoI also exercises
substantial control over the growth of other allied industries in India which are dependent
on the steel we produce and could require us to take actions designed to serve the public
interest and not necessarily to maximize our profits.
100

13. Sixth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2014)
MiniBankAG … Appellant
v.
Acero Steels Limited … Respondent
1. Acero Steels Limited is a leading manufacturer and exporter of iron ore pellets.
90% of its inventory is exported, primarily to the United States (US) and to
countries in continental Europe, with a small percentage of its sales flowing
eastward to China and a few ASEAN nations. Acero has been in this business for
over 20 years, and has enjoyed tremendous success. The business was built from
scratch by Mr. Yatin Asher, who was then a metals trader. His son, Mr. Manoj
Asher, is now running the business as the managing director of the company.
While the registered office and corporate office of Acero are in Prabhadevi,
Mumbai, its main plant is located in Panvel, on the outskirts of Mumbai.
2. In 2006, Acero drew up plans to undertake a significant expansion of its

production capabilities and sought to establish a new plant at Ranjangaon, near
Pune, with a manufacturing capacity of five million tonnes per year. After
prolonged deliberations, the board of Acero approved the expansion plan, which
became inevitable given that Acero had to previously turn down many lucrative
supply contracts on account of its inability to fulfill them due to the lack of
manufacturing capacity.
3. In order to finance its expansion plans, Acero approached a number of banks and
financial institutions for financial support. In doing so, it enlisted the services of
Brady Advisors Limited, a boutique advisory firm that specialises in debt
financing. Brady and its financially talented managing advisor, Mr. Kunal
Prakash, were well known for driving a hard bargain on behalf of companies that
intend to borrow monies from various lenders. Their expertise also extended to
101

formulating and implementing plans for restructuring of debts in case any of their
clients faced financial difficulties.
4. As part of the plans for financing the proposed Ranjangaon plant, Acero and
Brady approached MiniBank AG, a Swiss bank. Although MiniBank had a branch
office in Mumbai from where it carried out its lending operations, the key
financing decisions were taken from its regional office in Singapore. Mr. Pascal
Berger, the Asia Operations Director of MiniBank visited Mumbai to meet with
Acero and Brady, and after some discussions it was agreed that MiniBank would
lend US$ 50 million to Acero.
5. The transaction was structured as a medium term-loan facility. While the loan was
to be disbursed in two tranches of US$ 25 million each, the repayment by Acero
was to be made upon the expiry of four years from the date of each disbursement.
Interest was payable on a quarterly basis in arrears commencing the date of
disbursement. On December 22, 2006, Acero and MiniBank entered into a
Facility Agreement setting out the detailed terms and conditions of the loan and
the security package. Simultaneously, Coronation Bank, an Indian banking
company, was appointed as facility agent and security trustee under the loan. The
principal terms and conditions of the Facility Agreement are extracted in
Appendix A. Upon the advice of MiniBank’s Indian solicitors, M/s. Lex
Legalistics & Partners, the Facility Agreement and the charge created thereunder
were not registered with the Registrar of Companies (RoC) under the Companies
Act, 1956. Simultaneously with the execution of the Facility Agreement, the
disbursement of the first tranche of US$ 25 million was completed.
6. Acero had also obtained term loans and working capital facilities from other
lenders at the same time, and began the process of acquisition of land for the
Ranjangaon plant. By December 2007, the land was acquired and the construction
of the plant had commenced. In the meanwhile, the order book of Acero was
building up steadily due to heavy demand from around the world for its iron ore
pellets. During quarterly meetings with lenders, Mr. Manoj Asher displayed
tremendous optimism regarding the future financial prospects for the company.
7. However, by mid-2008, the tide had turned the other way. The world was
beginning to get engulfed in the global financial crisis, triggered by the downfall
of the subprime lending market in the US. Slowly but surely, the impact was
becoming visible on Acero’s business. Some of its large orders from the US
markets began getting cancelled. Although Mr. Manoj Asher was beginning to
worry, he very ably disguised his emotions and put up a brave face at the lenders’
meeting held for the 2nd quarter of 2008-2009. Matters were, however, drastically
precipitated in September 2008 with the collapse of Lehman Brothers whereby
the already distressed global financial markets began experiencing volatility and
turbulence.
102

8. In its meeting in October 2008, the board of directors of Acero took the position
that this was only a minor blip in the global financial markets and that this is
unlikely to substantially affect commodities prices, which would hold up. Hence,
it decided to press on with its long-term plans. Consistent with this outlook, on
October 17, 2008 Acero issued a notice to MiniBank under the Facility
Agreement for drawdown of the second tranche of the loan of US$ 25 million.
Within two days of receipt of the notice from Acero, MiniBank responded in
writing to state that it was under no obligation to disburse the second tranche
under the terms and conditions of the Facility Agreement. Although Acero
initiated discussions with MiniBank to persuade them of the need for the second
tranche, their pleas fell on deaf years as MiniBank’s management had by then
taken a strategic view of imposing a lending freeze as a result of the market
downturn due to which they would not make any further disbursements of loans.
9. Due to a deadlock in the discussions between Acero and MiniBank regarding the
drawdown of the second tranche under the Facility Agreement, Acero initiated
legal proceedings before the Bombay High Court seeking specific performance of
MiniBank’s legal obligations under the Facility Agreement. A single judge of the
Bombay High Court granted Acero’s pleas, against which MiniBank preferred an
appeal before the division bench of the High Court (Appeal No. 1).
10. By the end of 2009, it became evident to Acero’s board that the global financial
crisis was much more serious and impactful than it had initially thought. By then,
the business of the company was adversely affected, and it did not have sufficient
cash flow to service its debts, primarily due to default in payments by its
customers. Acero was unable to meet its interest payment obligations from the 3rd
quarter of 2009-2010, and it also defaulted on repayment obligations (of principal
amounts) under two facility agreements with different lenders that became due
during that period. Upon the first default by Acero of the interest payments under
the Facility Agreement with MiniBank, MiniBank informed Acero in writing of
the occurrence of an Event of Default under the Facility Agreement.
Approximately 10 weeks after the occurrence of the Event of Default, MiniBank
registered its charge pursuant to the Facility Agreement with the RoC under the
Companies Act. This it did so upon receiving further advice from Lex Legalistics
& Partners.
11. After declaring an Event of Default under the Facility Agreement, MiniBank
instructed Acero to deposit all amounts received from its customers under the
Nominated Account maintained with it in accordance with the terms and
conditions of the Facility Agreement. Although Acero immediately began making
payments into the Nominated Account, MiniBank issued standing instructions
permitting Acero to withdraw monies from the Nominated Account without any
restrictions. These standing instructions were revoked only about six months after
the date of the occurrence of the Event of Default, following which Acero was
unable to withdraw amounts from the Nominated Account.
103

12. Acero had no choice but to go back to the drawing board with the assistance of its
advisor, Brady. In early 2010, it was decided that the only way Acero can survive
this onslaught was by initiating a corporate debt restructuring. On February 9,
2010, Acero convened a meeting of its creditors where it proposed a debt
restructuring package. It proposed that all unsecured creditors would receive 70
cents on the dollar in full repayment of the amounts due to them. In other words,
the unsecured creditors will be required to take a 30% “hair cut” on their amounts.
In the meeting, almost all of the unsecured creditors indicated their preference for
this proposal since they were better off receiving partial repayment up front rather
than to remain with the uncertainty that they may not be able to recover their
amounts in a timely manner, if at all. As far as secured creditors are concerned,
the proposal was that they would be eligible to receive the full amounts owed to
them, but only in 2017, regardless of their contractual dates of repayment. In other
words, the secured creditors will be required to grant a moratorium on principal
repayments until then. Interest will accrue until then, although they will now
become payable annually regardless of the contractual periodicity of interest
payments.
13. Acero’s debt restructuring plan was taken up in accordance with the Corporate
Debt Restructuring (CDR) mechanism prescribed by the Reserve Bank of India
(RBI). However, since some of the lenders (including MiniBank) were not within
the CDR mechanism prescribed by the RBI, it was decided to implement the
restructuring through a scheme of arrangement under the Companies Act, 1956.
Acero drafted and proposed a scheme, and approached the Bombay High Court to
convene meetings of the different classes of creditors. It proposed meetings of
four classes of creditors, each of which had to approve the scheme in accordance
with the Companies Act. The classes are as follows:
(a) Secured creditors with fixed charge;

(b) Secured creditors with floating charge;
(c) Unsecured creditors; and
(d) Preferential creditors.
14. The class meetings were convened under the auspices of the Bombay High Court
on June 23, 2010. The scheme received overwhelming approval of each class of
creditors as required under the Companies Act. Returning to MiniBank, it was
against the debt restructuring proposal from the outset. Despite its strong
objections voiced at the initial lenders’ meeting, Acero decided to ignore them
and to proceed with the scheme. MiniBank was placed under the category of
unsecured creditors. This class comprised of the largest number of creditors and
those holding the largest amounts of credit in value. Hence, MiniBank’s
objections were overshadowed by the brute majority possessed by the other
unsecured creditors. It is also the case that MiniBank would not have been
successful in preventing the scheme from proceeding had it been classified as a
secured creditor with floating charge, as it would have been the lone dissenting
voice in that category. The class of secured creditors with fixed charge had only
104

one creditor with a small outstanding, and hence the only possibility of a
successful dissent from MiniBank was if it was classified as a secured creditor
with fixed charge.
15. As a next step, Acero filed a petition before the Bombay High Court for sanction
of the scheme of arrangement for debt restructuring of the company as it had
received the requisite majority of the different classes of creditors. MiniBank, in
the meanwhile prepared and filed strong objections to the petition insisting that
the class meetings were wrongly convened and held, and that the requisite
majorities were incorrectly obtained. Accordingly, its case was that the scheme
must not be sanctioned or permitted to be implemented. Although MiniBank
could have initiated winding up proceedings against Acero, it resisted itself from
doing so upon advice from M/s. Lex Legalistics & Partners. As such, there are no
winding up proceedings pending against Acero. Also, Acero does not qualify as a
“sick industrial company”.
16. While Acero’s petition for the sanction of the scheme of arrangement and
MiniBank’s objections were being heard by a single judge of the Bombay High
Court, Mr. Pascal Berger was shell-shocked as he received some further facts and
information in August 2010 regarding the restructuring proposal from another
foreign bank that was also a lender to Acero. That bank had initially objected to
Acero’s scheme, but subsequently caved in to support it as it realised it was better
off going with the majority and recovering some amount of its loan rather than
holding out and remaining exposed. Mr. Berger was informed that about two
months prior to Acero’s default on interest payments on various loans (including
from MiniBank), Acero had struck a deal with Coronation Bank, its largest lender
in value, to make a prepayment of about 25% of the debts due to it. Acero duly
made that repayment to Coronation Bank. Mr. Berger was of the view that by
structuring the transaction to occur prior to the default and the debt restructuring
process, Coronation Bank was effectively obtaining a benefit that was unavailable
to the other creditors upon whom the restructuring scheme was simply being
thrust. Moreover, it also came to light that at the time of such prepayment, Acero
also granted a floating charge in respect of part of the borrowings from
Coronation Bank (representing Rs. 20 crores) that was hitherto unsecured. To the
extent of that amount, Coronation Bank’s status was converted from that of an
unsecured creditor to that of a secured creditor with floating charge. At the same
time, it was also the case that the alteration of the status of Coronation Bank to the
extent of Rs. 20 crores outstanding was unlikely to alter the majorities in respect
of each of the classes that had approved the scheme of arrangement.
17. After these facts came to light, MiniBank amended its objections to the scheme of
arrangement before the Bombay High Court by adding an additional ground on
which it sought the court to reject the scheme as these arguably important pieces
of information were not disclosed to the creditors or the court by Acero while
proposing the scheme of arrangement. After prolonged hearings on the various
objections placed by MiniBank, the single judge of the Bombay High Court
105

sanctioned the scheme of arrangement in November 2011. Aggrieved by this
decision, MiniBank has preferred an appeal before the division bench of the
Bombay High Court (Appeal No. 2).
18. Having felt it was a victim of a conspiracy, MiniBank decided it was necessary
for it to take a bold and aggressive stance against Acero. It replaced its solicitors
with M/s. Amittessay & Co. On October 25, 2010, it initiated criminal
proceedings before the Sessions Court in Mumbai against Acero, its board, some
of its officers as well as Coronation Bank and some of its officers, for fraud and
criminal breach of trust on account of Acero having made preferential payments
to Coronation Bank and created security in its favour, both in a manner that
caused significant detriment to the interests of the other creditors.
19. Upon receipt of a copy of the complaint filed by MiniBank, Acero filed a petition
before the Bombay High Court under section 482 of the Criminal Procedure
Code, 1973 seeking to quash the criminal proceedings filed against it. Among
other grounds raised by it, Acero stated that neither Mr. Manoj Asher nor its
board were aware of the arrangement between Acero and Coronation Bank for the
prepayment of part of the loan and for creation of security. The entire transaction
was given effect to on behalf of Acero by the Finance Manager of Acero, Mr.
Shiv Sheth. Although Mr. Sheth was not on the board of Acero and was reporting
directly to the chief financial officer Mr. Pramath Shah (who was a director of
Acero), Mr. Sheth was authorised to undertake all interaction on behalf of Acero
with its lenders. Mr. Sheth was also responsible for spearheading the corporate
debt restructuring on behalf of Acero. After hearing the parties, in November
2011, a single judge of the Bombay High Court exercised his jurisdiction under
section 482 to quash the criminal proceedings against Acero. Aggrieved by this
decision, MiniBank has preferred an appeal before a division bench of the
Bombay High Court (Appeal No. 3). This appeal concerns Acero only, and
separate appeals were filed on behalf of its board, officers, Coronation Bank and
its officers, which are the subject matter of separate proceedings.
20. It has been decided to club the three appeals preferred by MiniBank against
Acero, and to hear them in a composite fashion. The hearing of the appeals was
being considerably delayed. In the meanwhile, MiniBank received an attractive
proposal from Vulture Distressed Assets Fund LP. (Vulture Fund), a debt fund
specialising in distressed debts, whereby Vulture Fund was willing to purchase
50% of the outstandings from Acero to MiniBank at a discounted rate of 20%.
Hence, for half of the outstandings, MiniBank would be able to obtain 80% of the
debt value from Vulture Fund as opposed to 70% from Acero under the debt-
restructuring scheme (even if continued to be treated an unsecured creditor). The
amount representing 50% of the outstandings from Acero were assigned by
MiniBank in favour of Vulture Fund pursuant to an Agreement for Assignment by
Way of Securitisation entered into between MiniBank and Vulture Fund. Under
this Agreement, while the part of the debt (representing 50%) under the Facility
Agreement was assigned to Vulture Fund, MiniBank was appointed as a
106

collection agent of Vulture Fund by which it would continue to collect the dues
from Acero, and carry out such actions as may be necessary, to give full effect to
the Agreement for Assignment by Way of Securitisation with Vulture Fund.
----- x -----
107

Appendix A
Principal Terms and Conditions of the Facility Agreement dated December 22, 2006
Entered Into Between Acero and MiniBank
2. Definitions
“Material Adverse Change” means any material adverse change in the business,
results of operations, assets, liabilities, or financial condition of Acero, as
determined from the perspective of a reasonable person in MiniBank’s position.
3. Facility; Disbursements
The facility of US$ 50 million (the “Facility”) shall be disbursed by MiniBank to

Acero in two tranches. The first tranche of US$ 25 million shall be disbursed on
the date of this Agreement. Within a period of two years from the date of this
Facility Agreement, Acero shall be entitled to draw down the second tranche of
US$ 25 million by providing at least 30 days’ written notice to MiniBank. Within
the period stipulated in the notice, MiniBank shall disburse the second tranche
amount to Acero, so long as there has not occurred a Material Adverse Change
or any event or circumstance that would reasonably be expected to result in a
Material Adverse Change.
15. Security
(a) In consideration of MiniBank granting the Facility to Acero, Acero as

beneficial owner hereby agrees that upon the occurrence of any of the
Events of Default, all outstandings under the Facility shall become due
and payable immediately and MiniBank shall be entitled to a charge over
all the debts due to Acero from its customers. Acero hereby
unconditionally and irrevocably agrees that such charge shall be deemed
to be granted to MiniBank immediately upon the occurrence of the Event
of Default, without the need for any further consent, agreement, conduct
or act on the part of either party.
(b) For the purposes of Clause 15(a) above, the following events shall
constitute “Events of Default”:
(i) failure of Acero to pay on the due date any amount payable to
MiniBank pursuant to this Facility Agreement;
(ii) failure of Acero to comply with any material provision of this

Agreement that does not relate to any payment obligation;
108

(iii) where any representation or statement made or deemed to be made
by Acero in this Facility Agreement or any other document
delivered by or on behalf of Acero under or in connection with this
Facility Agreement is or proves to have been incorrect or
misleading in any material respect when made or deemed to be
made; and
(iv) where any legal action or proceeding has been initiated in relation
to the appointment of a liquidator, receiver, administrator, or any
other similar officer in respect of Acero or any of its assets.
(c) Upon the occurrence of an Event of Default, Acero shall pay any amount
received from its customers into a nominated and blocked bank account
(the “Nominated Account”) of Acero maintained with MiniBank. Unless
otherwise indicated by MiniBank in writing, Acero shall not utilise the
funds deposited into the Nominated Account except for paying the sums
owed by Acero to MiniBank under this Agreement. Upon full satisfaction
of all the Outstandings, Acero shall be free to utilise the funds available in
the Nominated Account without the prior consent of MiniBank.
16. Covenant
So long as any part of the Facility or any other amount under this Facility
Agreement remains outstanding, Acero shall not, except with the prior written
consent of MiniBank, create or permit to be created any mortgage, charge,
pledge, lien, or other encumbrance on any of its property to secure any
indebtedness.
20. Ranking of Obligations
All the obligations and liabilities of Acero hereunder rank, and will rank, either
pari passu in right of payment with or senior to all other unsubordinated
indebtedness of Acero.
23. Assignment of Rights
Acero expressly recognises and accepts that MiniBank shall be absolutely entitled
to, and has full power and authority to sell, assign or otherwise transfer in such
manner and on such terms as MiniBank may decide (including if deemed
appropriate by MiniBank reserving a right to MiniBank to retain its power to
proceed against Acero on behalf of the purchaser, assignee or transferee) any or
all outstandings and dues of Acero, to any third party of MiniBank’s choice.
Acero shall not assign this Facility Agreement or any of the rights, duties or
obligations of Acero hereunder, except with prior written consent of MiniBank.
109

25. Governing Law
This Facility Agreement and any dispute or claim arising out of or in connection
with it or its subject matter, existence, negotiation, validity, termination or
enforceability (including non-contractual disputes or claims) shall be governed
by, and construed in accordance with, the laws of India.
26. Dispute Resolution
The parties submit all their disputes arising out of or in connection with this
Facility Agreement to the exclusive jurisdiction of the appropriate courts in
Mumbai, India.
----- x -----
110

Bangalore (2014)
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
1. India is one of the fastest growing civil aviation markets in the world, and is set to
become the third largest by the year 2020. In order to absorb such growth, it is
necessary that the aviation infrastructure development is also kept apace. Given
that a substantial part of the growth is likely to be witnessed in medium-sized
cities and towns, it is imperative that the airport infrastructure in these areas is
developed rapidly.
2. Consistent with this approach, a tendering process was initiated for the expansion
of the Coimbatore airport. Currently, the Coimbatore airport is short of capacity in
comparison with the growth of business and leisure travellers in and out of the
city. Airlines operating from Coimbatore only serve a few Indian cities and
111

merely two international destinations. Due to the dire need for expansion and
modernisation of the Coimbatore airport, the Civil Aviation Board of India
(CABI) (whose legal status and authority are in pari materia with that of the
Airports Authority of India) invited expressions of interest from potential
developers. The basic criteria included that a tenderer or its sponsor must have
had experience of developing at least one international airport either in India or
abroad that has a passenger capacity of 10 million per year. Thereafter, upon
completion of the shortlisting process, a cut-off period would be notified to the
shortlisted bidders who would be asked to submit their bids, which would be
accepted on a “first-come-first-served” basis.
3. Accordingly, the expressions of interest poured in and applying various stipulated

criteria, five different bidders were shortlisted to the next round of selections.
While the CABI was in the process of fixing the cut-off period for the bidding to
commence on the stipulated terms, the Banana Crusaders’ Party (BSP), a political
party whose manifesto was built upon the ideal of zero-corruption, began training
its guns on the Coimbatore airport tendering process. The BSP not only began to
write letters to the Civil Aviation Minister and the CABI about possible duplicity
in the tendering process, but several of its leaders also staged a “sit-in” protest at
the entrance of the Coimbatore airport for nearly 3 days, which resulted in severe
disruption to the operation of the airport. In order to avoid significant opposition
to the project, the CABI amended the terms of the tender to provide that instead of
a “first-come-first-served” criterion, the tender would be awarded to one among
the shortlisted bidders based on merits measured by technical and financial
criteria to be decided by a High-Powered Committee (HPC) to be established by
the CABI. The HPC would consist of (i) the Secretary, Ministry of Civil Aviation,
(ii) Chairman, CABI, and (iii) a senior representative of the Ministry of Law.
4. Based on the revised criteria, the HPC selected GMK Developers Limited as the
preferred bidder among those that were shortlisted. It turned out that GMK was
the second highest bidder in financial terms. The highest bidder was Dependence
Developers Limited, who the HPC believed did not have as much experience as
GMK. Accordingly, a concession agreement in the prescribed format was entered
into by CABI and GMK on July 16, 2012.
5. GMK Developers Limited has over the years acquired the status of the strongest
airport developer in the country. Its experience of having developed several
greenfield airports as well as expansion of existing ones is unparalleled. GMK
successfully raised capital through a public offering of shares in 2007, when it
listed its securities on the National Stock Exchange. Mr. Gambira Naidu and his
family are the promoters of GMK holding a substantial majority of the company’s
shares. Mr. Naidu and his family also have 5 seats out of 10 on the board of
directors of the company. Given the background and experience of GMK and its
promoters, its success in bagging the Coimbatore airport project did not come as a
surprise to anyone.
112

6. In order to obtain additional financing for the Coimbatore project as well as newer
projects (either in existence or in contemplation), GMK began approaching
investors to obtain a potential stake in GMK. After negotiation with various
prospective players, it zeroed in on Naruto Airport Development Corporation,
Japan, which has developed several airports both within and outside Japan.
Naruto agreed to invest US$350 million into GMK in exchange for a 24% equity
stake in the company. Given its significant financial outlay, Naruto sought certain
rights from GMK and its promoters under a shareholders’ agreement. Naruto
sought to nominate 2 members on the board of GMK. In addition, it sought
affirmative (or veto rights) in respect of a list of significant matters that consisted
of (i) amendments to the articles of association of GMK, (ii) commencement of a
new business by GMK, (iii) merger, demerger or corporate restructuring of GMK,
(iv) issuance of shares by way of a preferential allotments, (v) the appointment of
the chief executive officer (CEO) of GMK, and (vi) winding-up of GMK. These
rights contained in the shareholders’ agreement were also to be duly incorporated
into the articles of association of GMK.
7. Simultaneously, a Non-Compete Agreement was also envisaged among Naruto,

GMK and the promoters of GMK. In that agreement, the promoters of GMK
agreed not to 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 (6) years
following the termination of the Shareholders’ Agreement”.
8. After protracted rounds of negotiations, the Shareholders’ Agreement and the

Non-Compete Agreement were entered into between the Naruto, GMK and the
promoters of GMK, on December 31, 2012. On January 15, 2013, the parties
notified the Competition Commission of India (CCI) regarding the transaction.
They also filed copies of the Shareholders’ Agreement and the Non-Compete
Agreement with the CCI. On February 5, 2013, the CCI wrote to Naruto of its
opinion that based on the transaction documents Naruto is in control of GMK for
the purposes of the Competition Act. As regards the Shareholders’ Agreement,
the CCI found that there is no appreciable adverse effect on competition due to
the fact that Naruto does not have any operational presence in India. However, as
regards the Non-Compete Agreement, the CCI found its terms to indicate an
appreciable adverse effect on competition, and ordered that the scope of the non-
compete arrangement be altered to “the development and management of airports
in South India during the term of the Shareholders’ Agreement and for a period of
two (2) years following the termination of the Shareholders’ Agreement”.
9. The order of the CCI was found to be unacceptable to Naruto. Its CEO Mr.
Ishikawa insisted that the terms of the deal documentation were approved by
Naruto’s board who he felt will be unwilling to reconsider the deal. Also, Mr.
Ishikawa was uncomfortable with the CCI ruling that the present arrangement
confers control upon Naruto as the fundamental commercial arrangement
underlying the transaction was that control over GMK will always remain with
113

the promoters, and that Naruto was not interested at all in obtaining any
controlling rights over the company. The non-compete on its present terms was
also an integral part of the deal, any change to which would amount to a deal-
breaker.
10. After further discussions, Naruto, GMK and the promoters preferred an appeal to
the Competition Appellate Tribunal (Compat) against the order of the CCI. After
hearing the parties on the merits, the Compat dismissed the appeal and upheld the
CCI’s order. Not satisfied with this, the parties further preferred an appeal to the
Supreme Court.
11. During the period when the matters was being argued before the Compat, Naruto
received a show-cause notice from the Securities and Exchange Board of India
(SEBI) asking it to explain why it did not make a mandatory takeover offer to the
remaining shareholders of GMR to acquire their shares. It transpired that upon
deciding on the notification from the parties, the CCI forwarded a copy of its
order together with the relevant documents to SEBI “merely by way of intimation
so as to consider possible violations of securities laws considering that GMK is a
public listed company”.
12. Naruto responded to SEBI’s show-cause notice and, along with its
representatives, attended a hearing before SEBI arguing as to why it should not be
required to make a mandatory takeover offer. Thereafter, SEBI passed an order
requiring Naruto to make a takeover offer to the shareholders of GMK at the
applicable price based on the fact that it should have announced the offer upon the
execution of the Shareholders’ Agreement. It was also ordered to pay interest at
the rate of 10% per annum for the period between the dates when the offer was
required to be made and when it actually made the offer.
13. Irked by this additional burden befallen upon Naruto, in consultation with its
lawyers it decided to prefer an appeal against the SEBI order to the Securities
Appellate Tribunal (SAT). After hearing the matter on merits, the SAT dismissed
Naruto’s appeal and upheld SEBI’s order. Against this, Naruto further preferred
an appeal before the Supreme Court.
14. During the time that Naruto, GMK and the promoters were addressing the
regulatory matters discussed above, the underlying business of GMK itself
became the subject-matter of a legal dispute. In March 2013, Mr. Aryan Baniwal,
a key leader of the BSP filed a writ petition before the Madras High Court
challenging the award of the Coimbatore airport expansion project to GMK. The
petition alleged inappropriateness and illegality in the contract awarding process.
It listed out serious allegations against the HPC. It was alleged that a video
clipping circulating on the Internet showed a public-relations officer of GMK, Mr.
Mudaliar, boasting to his wife about how he had arranged for an all-expenses-paid
10-day trip to Bangkok and Pattaya for certain senior officials of the CABI, some
of whom may have been directly handling the Coimbatore airport project file. It
114

transpired that following an emotionally violent domestic argument between the
Mudaliar couple, the wife posted her secret recording of this conversation on
YouTube as a form of retribution. Although it was immediately picked up by
various news channels, the clipping itself was taken down soon thereafter,
partially as a result of some patch up effort by Mr. Mudaliar. As the BSP’s whole
existence was built upon the plank of anti-corruption, it vehemently pursued the
issue so as to extract the truth. GMK, its board as well as the promoters denied
any knowledge of Mr. Mudaliar’s alleged conduct. Nevertheless, being a
company focused upon stringent corporate governance principles and business
ethics, the board of GMK decided to verify the authenticity of the recording, and
hence sent a DVD containing the same to the Central Forensic Sciences
Laboratory (CFSL) in Hyderabad. After rigorous forensic investigation, the CFSL
was unable to either confirm or deny the authenticity of the recording. Neither the
Government nor the Central Bureau of Investigation (CBI) found sufficient
evidence to conduct a further probe.
15. Mr. Baniwal’s assertion in his writ petition was based on the strength of these
allegations. He argued that due to the alleged misconduct of GMK officials and
their complicity with the CABI, the whole tendering process was grossly vitiated.
Moreover, his concern was that even the revised tendering process for the
Coimbatore expansion project conferred unbridled discretion on the HPC. He
argued that terms of the tender ought to have provided for the concession to be
awarded to the highest bidder among those shortlisted. Any other method would
reek of arbitrariness and mala fides. Mr. Baniwal’s arguments found considerable
persuasion with the Madras High Court, which admitted the writ petition and after
hearing the matter on merits quashed the award of the airport development
consession to GMK. In other words, the Madras High Court annulled the
concession agreement dated July 16, 2012.
16. This came as an absolute jolt to Naruto, GMK and the promoters. Not only was
Naruto’s investment in GMK in jeopardy, but the underlying project which
required the investment was itself called into question. After exhausting all
remedies before the Madras High Court without avail, they decided to prefer an
appeal to the Supreme Court, which was admitted. CABI was also an appellant in
that appeal.
17. GMK’s woes seemed to continue unabated. The main bone of contention for the
Coimbatore airport expansion project was the resettlement and rehabilitation of
surrounding residents who would be adversely affected by the project. Moreover,
the proposed plan for the airport expansion included the construction of a new
runway. A core 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 residential areas inhabited by them. The BSP took upon itself the task
of espousing the cause of those residents as well. It decided that rather than
invoke the writ jurisdiction of High Court, it might be better off seeking to
impede GMK’s actions through a private remedy. It devised what GMK later
115

termed as a “sinister plot”. One April 5, 2013, Mr. Baniwal acquired 50 shares of
GMK in the market. At the same time, Mr. Palanisamy, a local politician who was
a resident in the neighbouring area of the Coimbatore airport also acquired 50
shares of GMK. A Baroda-based broker made parallel orders for Mr. Baniwal and
Mr. Palanisamy, and the funding for the acquisition is said to have come from two
finance companies (one for each acquisition) that were owned by the same
individual and who operated from the same address. Thereafter, Mr. Baniwal and
Mr. Palanisamy brought a joint suit in the Coimbatore District Court for and on
behalf of GMK against the directors of GMK. This suit was brought on ground
that GMK and its directors were in breach of their obligations under law towards
corporate social responsibility (CSR) due to their blatant lack of concern for the
environment and the community within which the Coimbatore airport project is
intended to operate. According to them, the directors’ action of approving the
proposal for GMK to enter into the concession agreement with the CABI and to
pursue the Coimbatore airport project amounts to a breach of directors’ duties.
For these reasons, the suit sought for restraint against the directors of GMK from
proceeding with any action in pursuit of the Coimbatore airport expansion project.
It also sought a declaration from the court that even if the project were permitted
to continue, the board of GMK must be obligated to expend the necessary funds
in furtherance of their CSR obligations under applicable law.
18. After hearing the parties, the Coimbatore District Court granted an ad-interim
injunction against the directors from proceeding with matters relating to the
Coimbatore airport project. As for the declaration regarding the CSR obligations,
the court refused to intervene on the ground that the matter was premature
considering that there is no certainty that the project itself would in fact proceed.
19. This was the final straw that broke the camel’s back. The directors of GMK had
no option but to exercise their appeal, including before the Madras High Court, all
of which were to no avail as they were dismissed after hearing the parties on the
merits of the appeal. Hence, the directors were constrained to prefer an appeal to
the Supreme Court, which was admitted.
20. All the appeals pertaining to GMK as discussed above have been clubbed to be
heard together by the Supreme Court.
*****
116

15. Seventh NUJS – Herbert Smith Freehills National Corporate Law Moot
Court Competition (2015)
IN THE HIGH COURT AT CALCUTTA
Celltone plc … Appellant
v.
1. IndMobile Telecoms Limited

2. 5G Star Networks Limited
3. Band Bank
4. M/s. Darsh Legal Associates … Respondents
1. IndMobile Telecoms Limited is a successful telecom equipment company in

India. It manufactures and sells mobile network equipment to various telecom
services companies. It has also been a member of the Nifty 50 for the last two
years. The company has been piloted by the energetic Mr. Sardar, who is its
chairman and managing director. Mr. Sardar and his family are the promoters of
IndMobile as they hold a total of 35% shares in the company.
2. Although flush with success, IndMobile set its sight on loftier ambitions. It wishes
to become a player in the telecom services industry rather than to be a mere
supplier. Hence, when the Government of India announced the grant of licences
for the 5G mobile networks to be established in the metro cities in India, it
decided to bid for those licences. For this purpose IndMobile Telecoms Limited
set up a wholly owned subsidiary 5G Star Networks Limited in Kolkata, in which
the telecom services business will be housed.
3. In 2013, the Government of India conducted separate bidding processes for each
metro area, with the condition that no single entity or group can submit bids for
more than three metros. 5G Star duly submitted the bid documents to the
Government of India for the Kolkata, Chennai and Hyderabad areas. The bidding
117

process was highly competitive given the lucrative nature of the market. The
Government first shortlisted bidders on the basis of technical criteria. The
shortlisted bidders were in turn evaluated on the basis of financial and other
criteria, after which the bids were announced. Due to the phenomenal nature of
the bids placed by 5G Star, it was successful in bagging the licences for Kolkata
and Hyderabad. It was trounced in Chennai by an existing influential telecom
service provider. Following the award of the licences, the actual licence
agreements were executed between the Government and 5G Star for the Kolkata
and Hyderabad metro areas on November 1, 2013.
4. During the bidding process, IndMobile began in parallel to scout for potential
partners to be brought into its 5G business. Mr. Sardar was well aware of
IndMobile’s limitations. Having been a telecom equipment player, he knew that
establishing and managing a telecom services company was a different cup of tea
altogether for which he did not possess expertise within the company. That
expertise necessarily had to be sourced from elsewhere. For this purpose, he
approached Vegus Investment Advisors, a boutique M&A investment banking
firm. Vegus in turn prepared an information memorandum, which it used to
ascertain interest from various telecom players in 5G Star. After discussions with
several potential players, IndMobile (based on Vegus’ advice) decided to invite
Celltone plc, a leading telecom services company in the UK. The partnership was
finalised at a dinner meeting one wintry night in London between Mr. Sardar and
Mr. Barrett, the CEO of Celltone. The parties shook hands on a deal in which
Celltone would acquire 49% shares of 5G Star at a total value of US$ 490 million.
This was of course subject to the conduct of satisfactory due diligence by Celltone
and the drafting, negotiation and execution of definitive deal documentation
between the parties.
5. In order to help accomplish the deal in India (particularly as to its legalities),

Celltone appointed M/s. Lexman Associates, a leading Indian law firm. It also
appointed DBAD Partners, a leading accounting firm, to advice on accounting
and taxation aspects. Given that it was Celltone’s first foray into the Indian
market, it adopted a rather cautious approach, and decided to conduct a full-blown
due diligence. It began with a two-day kick-off meeting in Kolkata where
Celltone and its advisors attended a series of presentations by 5G Star, IndMobile
and their representatives on various matters pertaining to the business of the
companies. Celltone was rather interested in understanding the licensing process
for the 5G networks and the robustness of the same. During the presentation by
5G Star representatives on licensing, Mr. Gangston, the Celltone project manager
leading the deal quizzed intensively on the process and as to what measures were
adopted to ensure that the award of licence was foolproof. Specifically, he voiced
Celltone’s zero-tolerance policy towards corruption. The 5G Star representatives
responded to Mr. Gangston’s concerns and assured him that the process was
transparent and entirely above board. Following the presentations, Celltone and
their lawyers and accountants were given full access to all the relevant books and
records of 5G Star and (to the extent necessary) those of IndMobile. The lawyers
118

and accountants subsequently prepared detailed due diligence reports and
submitted the same to Celltone.
6. Given that Celltone was entering a new market and due to the sensitivities
involved in the licensing process, Mr. Gangston decided to conduct a further
background check on his own on various matters. Through Vegus, he was able to
obtain access to some customers of IndMobile as well as some former and current
employees of that company. During one such meeting, a former employee of
IndMobile revealed the rather flexible approach of the company towards its
dealings with the government. She mentioned that in the past the company had
entertained government officials in expensive restaurants and showered them with
gifts. She was however unable to tell the value of these gifts and whether they
were significant in nature. These revelations were of great concern to Mr.
Gangston. However, he was pacified by Mr. Dhanlal, the managing partner of
Vegus, who mentioned that this was not uncommon in the developing world,
where it is otherwise impossible to do business. Mr. Gangston was somewhat
conflicted. On the one hand, there was a lurking fear in his mind given Celltone’s
strict policies. But, on the other hand, the 5G Star deal was too important to be
scuttled. He therefore decided not to escalate this issue to the senior management
and board of Celltone.
7. Along with the due diligence, the parties also negotiated and agreed upon the
terms of the legal documentation. On October 3, 2013, a Share Acquisition
Agreement (SAA) was executed between Celltone, IndMobile and 5G Star. Under
the terms of the SAA, Celltone was to subscribe to 40% shares of 5G Star, for
which the company would undertake a new issue of shares. This would be for a
consideration of US$ 400 million that Celltone would pay 5G Star. Celltone
would acquire the remaining 9% (representing 125,998 shares) from IndMobile
for a consideration of US$ 90 million that it would pay IndMobile. Upon
completion of the transaction, Celltone would hold 49% of 5G Star on a fully
diluted basis. The relevant terms and conditions of the SAA are contained in
Appendix A.
8. On November 25, 2013, upon satisfaction of all the conditions precedent, Celltone
completed the acquisition under the SAA and became the owner of 49% shares in
5G Star, with the remaining 51% shares being held by IndMobile. Upon closing,
the necessary formalities involving the filings with the Reserve Bank of India, the
Registrar of Companies, and the like were duly completed. One of the conditions
precedent in the SAA related to the issue of a closing legal opinion by the legal
counsel representing IndMobile and 5G Star, which was M/s. Darsh Legal
Associates. Accordingly, on November 25, 2013, Darsh Legal issued a legal
opinion, the relevant paragraphs of which are contained in Appendix B. At the
time of issuing the opinion, Darsh Legal also obtained the requisite confirmations
from IndMobile and 5G Star. It was a condition of the issue of the legal opinion
that Darsh had to obtain professional liability insurance worth at least US$ 100
million, which it in fact obtained from ProInsure.
119

9. Celltone, IndMobile and 5G Star also entered into an Escrow Agreement dated
November 25, 2013 with Band Bank. Under this arrangement, Band Bank as the
escrow agent is to hold 10% of the consideration payable by Celltone to
IndMobile and 5G Star respectively (i.e. the escrow amount). The escrow amount
is to be held for a period of three years from the Closing Date to be applied
towards satisfaction of any indemnification obligations of IndMobile and 5G Star
that may arise under the SAA. In the absence of such claim, the escrow agent is to
pay over the respective shares of the escrow amount to IndMobile and 5G Star at
the end of the said three-year period.
10. After the acquisition of the 49% stake by Celltone in 5G Star, the parties got
down to business to exploit the licence for the Kolkata and Hyderabad metro
areas. Orders were placed for millions of dollars’ worth of equipment, and loans
were arranged from banks and financial institutions. Although the business
aspects were proceedings smoothly, the parties experienced a temporary hiccup in
December 2013 when Navro Telecom Limited, one of the losing bidders for a
licence in the Kolkata metro area filed a writ petition before the Calcutta High
Court challenging the award of the licence for the Kolkata metro area to 5G Star.
Matters became somewhat compounded by the sensational nature of the
allegations made by Navro Telecom. Navro stated in its writ petition that Mr.
Bantha Ranga, a project manager in IndMobile (who was subsequently transferred
to 5G Star) is alleged to have promised significant favours as well as cash and
other gifts to Mr. Debaraya, one of the members of the Government committee
that was deciding upon the bids for the Kolkata metro area. It is alleged that Mr.
Ranga paid a sum of Rs. 2,50,000 by way of consulting fees to a company fully
owned by Mr. Debaraya and his wife on the pretext of obtaining strategic
advisory services from that company. This sum was paid from 5G Star and shown
towards payment of consulting fees in its books. No details were available
regarding the precise nature of the services provided by Mr. Debaraya’s
consulting company to 5G Star, if at all.
11. Mr. Sardar was livid with these revelations in the writ petition. He did not in his
wildest imagination expect his employees to act in such a manner. Of course, he
had some inkling about the wayward habits of Mr. Ranga, including making all
kinds of promises to government officials, but he never imagined that Mr. Ranga
would actually execute those promises and make payment of such significant
sums of money from the company’s account. 5G Star decided to put up a strong
defence against the challenge to its licence for the Kolkata metro area. However,
that was not good enough. The Calcutta High Court decided that the allegations
made against the bidding process for the Kolkata metro area were rather serious
and given the law laid down by the Supreme Court of India in this field, it ordered
a cancellation of the licence awarded to 5G Star for the Kolkata metro area. This
came as a significant shock to 5G Star and its two principal shareholders.
Although the Hyderabad licence was unaffected, this development effectively
meant that about half the business of 5G Star was in disarray. 5G Star decided to
120

put up a strong fight and preferred a special leave petition to the Supreme Court,
which was dismissed at the admission stage itself.
12. The information regarding the shaky nature of the licence granted to 5G Star
came as a shock to Celltone, being a significant shareholder in 5G Star having put
in enormous amounts of money into the company. While it was still assessing its
situation, Celltone’s miseries intensified with a series of further bad news that
poured in. During a discussion between Mr. Gangston and the operational
personnel of 5G Star, a serious discrepancy was found in the financial projections
pertaining to the Hyderabad metro area. Celltone operated on the assumption that
the projected monthly average revenue per unit (ARPU) for the Hyderabad metro
area was Rs. 250. During due diligence, DBAD Partners had advised Celltone that
the components that went into the calculation of ARPU may not be uniform
across countries or even among different telecom operators. Hence, it would be
best to clarify this with 5G Star. Mr. Beanman, the Vice-President (Finance) of
Celltone, who was leading the accounting due diligence effort, raised this issue
during a telephone conference call with the finance personnel of 5G Star. During
the conference call, the 5G Star personnel explained that the projected monthly
ARPU of Rs. 250 was without regard to discounts and rebates that may be offered
to customers. During this discussion, however, the connectivity was poor and the
conference call kept getting dropped with the participants having to rejoin a
number of times. While 5G Star was under the impression that they had disclosed
this information to Celltone, the fact remains that during the frustrating moments
of the conference call marred by continuous disruptions, that information was not
properly received and assimilated at the Celltone end. In fact Mr. Beanman
remarked to his colleagues sitting along with him that if this was the quality of the
telecom network in Kolkata and Hyderabad, then 5G Star had a promising
outlook with its superior quality services. As they were subsequently caught up
with other sticky negotiation points, neither Mr. Beanman nor his colleagues had
the opportunity clarify as to what components went into the computation of the
projected monthly ARPU for the Hyderabad metro area. It was only after the
closing of Celltone’s investment in 5G Star that it was discovered the projected
monthly ARPU figure of Rs. 250 provided by 5G Star was without regard to
discounts and rebates. The net figure taking these aspects into account would be
only Rs. 175, which would significantly alter the valuation of the shares of 5G
Star. In other words, Celltone was left with the stark reality that it had
considerably overpaid for its stake in 5G Star.
13. When Celltone was still licking its wounds, it was delivered another blow. It
received a legal notice from the lawyers of Grovera Inc., a telecom consultancy
company based in Greenwich, Connecticut. The legal notice claimed that
IndMobile had agreed with Grovera to sell the 125,998 shares in 5G Star that it
ultimately sold to Celltone. The notice included a document titled “Letter of
Intent”, which is set forth in Appendix C. The notice claimed that the sale of the
125,998 shares in 5G Star to Celltone was illegal and that Celltone must
121

immediately transfer those shares to Grovera at a price of US$ 40 million. No
other document was signed between IndMobile and Grovera.
14. Following this series of unsavoury events, Celltone through its legal advisors
Lexman Associates decided to undertake remedial actions. It issued instructions
to Band Bank to release the escrow amount and pay it to Celltone’s designated
bank account in the UK on account of the breach of the terms and conditions of
the SAA by IndMobile and 5G Star. Band Bank immediately consulted its own
lawyers and replied that it has been advised not to so release the escrow amount to
Celltone.
15. Celltone filed three civil suits before the Calcutta High Court as follows.
(i) Its first suit was against IndMobile and 5G Star pursuant to the SAA. It
sought a refund of the purchase consideration of US$ 490 million that it
had paid for the acquisition of shares in 5G Star, or alternatively damages
for an equivalent amount.
(ii) It filed a suit against Band Bank seeking release of the escrow amount in
favour of Celltone pursuant to the terms of the Escrow Agreement.
(iii) It filed a suit against Darsh Legal Associates seeking damages to the tune
of US$ 490 million against it for rendering an incorrect legal opinion for
which it is to be held liable.
16. In parallel, Celltone also initiated an arbitration claim against the Government of
India under the Agreement Between the Government of the Republic of India and
the Government of the United Kingdom of Great Britain and Northern Ireland for
the Promotion and Protection of Investments, on the ground that the action of
cancellation of the licence for the Kolkata metro area amounted to an
expropriation of its investment in 5G Star. The arbitrators are yet to be appointed.
17. In the meanwhile a single judge of the Calcutta High Court heard Celltone’s civil
suits and dismissed all of them on their merits. Celltone has preferred an appeal
against all the orders to a division bench of the Calcutta High Court, which has
decided to club all the appeals and hear them together. None of the parties has
raised any issue regarding the jurisdiction of the court, which they all accept.
*****
122

Appendix A
Extracts from the Share Acquisition Agreement dated October 3, 2013
2. Definitions
“Company” means 5G Star Networks Limited;
“Purchaser” means Celltone plc;
“Sale Shares” means 125,998 shares representing 9% of the share capital of the
Company to be sold and transferred by the Vendor to the Purchaser pursuant to this
Agreement;
“Vendor” means IndMobile Telecoms Limited.
6. Representations and Warranties of the Vendor and the Company
The Vendor and the Company hereby represent and warrant to the Purchaser as follows:
6.1 The Vendor is the sole legal and beneficial owner of the Sale Shares, free and
clear of all liens and the Vendor is absolutely entitled to sell and transfer the Sale
Shares in accordance with the terms and conditions of this Agreement.
6.2 The Company and the Vendor are limited liability companies duly incorporated
and organised and validly existing under the laws of India having the full
corporate power and authority to enter into this Agreement and to perform their
respective obligations under this Agreement.
6.3 This Agreement and the execution, delivery and performance constitutes a legal,
valid, and binding obligation on the Vendor and the Company, and is enforceable
against them in accordance with its terms.
6.4 There are no rights of first refusal, non-disposal undertakings or other restrictions
whatsoever on transfer in respect of the Sale Shares and the Sale Shares are freely
marketable by the Vendor, and would create a valid title of the Purchaser to the
Sale Shares.
6.5 The Company at all relevant times has the corporate power and all licenses,
authorisations, consents and approvals required under applicable law to own its
assets and to carry on business as conducted now or from time to time and is duly
qualified to do business in each jurisdiction where the nature of the assets owned
123

or leased by it or the activities conducted by it and as proposed to be conducted
make such qualification necessary.
6.6 The latest audited balance sheet and profit and loss account of the Company and
the latest unaudited balance sheet provide a true and fair view of the financial
condition of the Company and there have been no subsequent events, which, to
the best knowledge of the Vendor and the Company, and after due enquiry, would
materially alter the financial condition of the Company.
6.7 To the best knowledge and bonafide belief of the Company and the Vendor, the
Company is neither in, nor has at any time been in, violation of any applicable
law or regulation which is likely to result in any material liability or criminal or
administrative sanction of a material nature to the Company or otherwise have a
material adverse effect on the ability of the Company to conduct its business as
currently conducted or as contemplated to be conducted.
6.8 All books and records relating to operating income and expenses of the Company
furnished or made available to the Purchaser were those maintained by Company
in the normal course of business and are true and correct and accurately reflect the
matters contained therein.
10. Indemnification
10.1 In the event of any breach by the Vendor or the Company of any representation,
warranty, covenant or agreement made or given by the Vendor or the Company in
this Agreement, the Vendor and the Company undertake to indemnify and hold
harmless the Purchaser to the extent of any and all damages (including without
limitation all losses, costs, damages, fines, fees, penalties, out-of-pocket expenses
under the applicable law, fees and expenses of attorneys, accountants and other
expenses) suffered or incurred by the Purchaser, resulting from or consequent
upon or relating to such breach of representation or warranty, covenants or
agreement by the Vendor or the Company.
10.2 Notwithstanding clause 10.1 above, the maximum liability of the Vendor and the
Company for purposes of indemnification under this clause 10.2 shall be the fifty
percent (50%) of the total consideration paid by the Purchaser to the Vendor and
the Company respectively under this Agreement, provided that this clause 10.2
shall not apply in case of fraud or deliberate omission by the Vendor or the
Company, as the case may be.
10.3 All representations and warranties of the Parties contained in this Agreement shall
survive for a period of three (3) years from the closing date (the “Indemnification
Period”) and upon the expiration of the Indemnification Period, all representations
124

and warranties to which such Indemnification Period relates to shall automatically
expire without any action from the Parties hereto.
125

Appendix B
Legal Opinion dated November 25, 2013 issued by M/s. Darsh Legal Associates
To: Celltone plc
Sub: Acquisition of Shares in 5G Star Networks Limited
1. We have acted as legal advisors to 5G Star Networks Limited (the “Company”)

and to IndMobile Telecoms Limited (the “Vendor”) in relation to the acquisition
by Celltone plc (the “Purchaser”) of 49% shares in the Company by way of a
Share Acquisition Agreement dated October 3, 2013 (“SAA”).
2. For the purposes of this opinion, we have assumed that:
(a) All statements as to matters of fact (other than matters on which we are
expressing an opinion herein) contained in the SAA are true, accurate and
complete.
(b) There are no facts or circumstances in existence and no events have

occurred, which render the SAA void or voidable, or repudiated or
frustrated, or capable of rescission for any reason, and in particular but
without limitation by reason of the lack of consideration, default, fraud or
misrepresentation. The SAA and other documents perused by us do not
indicate any such facts, circumstances or events.
3. Based on and subject to the aforesaid assumptions, we are of the following

opinion:
(a) The Company and the Vendor have been duly incorporated and have all
the requisite corporate power and authority to enter into the Transaction
Documents and to perform their respective obligations thereunder.
(b) The execution, delivery and performance of the SAA do not, and will not
result in a breach of, violate, or otherwise conflict with or contravene any
of the terms and provisions of any law, contracts or any of the
constitutional documents of the Company and the Vendor, as applicable.
(c) Based on confirmation from the Company, it is qualified to carry on its

business in all jurisdictions where it carries on such business, except
where failure to do so would not have a material adverse effect on the
financial condition of the Company.
126

Appendix C
August 16, 2013
From: IndMobile Telecoms Limited

23 Chowringhee
Kolkata
India
To: Grovera Inc.

34 Office Tower Park
Greenwich, CT
USA
Sub: Letter of Intent
This represents our agreement and understanding regarding the purchase by Grovera Inc.
from IndMobile Telecoms Limited of 125,998 shares in 5G Star Networks Limited.
Grovera shall purchase the said shares from IndMobile for a total consideration of US$
40 million. Prior to the sale of the shares to Grovera pursuant to this arrangement,
IndMobile shall be restricted from selling, transferring or creating security over these
shares in favour of any other person. The parties shall negotiate in good faith the detailed
definitive documentation to give legal effect to the understanding set forth in this letter of
intent. The articles of association of 5G Star shall also be amended to reflect the specific
terms of the definitive documents. The parties shall work in good faith towards
completing and executing the definitive documentation within a period of three months
from the date of this letter of intent.
Yours faithfully
Sd/-
(IndMobile Telecoms Limited)
Received and confirmed.
Sd/-
(Grovera Inc.)
127

16. First GNLU Moot on Securities and Investment Law (2015)
BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
TradExchange Limited
Mr. Robin Kanwar
FinLine Financial Services Limited
High Networth Fund, LP …
Appellants
v.
Securities and Exchange Board of India …

Respondents
1. After a successful career in Silicon Valley for over a decade, Mr. Robin Kanwar
was looking for business prospects in his home country India. Upon his return in
2002, he found an upsurge in Internet penetration in India, and decided to cash in
on the online boom. At the time, he witnessed a perceptible change in shopping
habits of wealthy individuals as well as the steadily rising middle class. Brick-
and-mortar shopping was gradually giving way to online shopping, as more
people were not only getting comfortable with the idea of buying on the click of
the mouse, but they were also enjoying the efficiency of online shopping.
2. Buoyed by this phenomenon, Mr. Kanwar decided to establish an online

marketplace for luxury goods such as shoes, bags, watches and similar
accessories. He established contact with leading international and domestic brands
who agreed to list their products on his marketplace. Through his newly
incorporated company, TradExchange Limited, he set up an online marketplace
by the name “TradEx”. Under this business model, TradExchange would provide
an online platform in the form of a website on which its clients can display and
sell their products. TradExchange (together with some of its affiliates) also
provides additional services such as handling the payment mechanisms, ensuring
delivery and also accepting returns of goods. However, TradExchange did not
itself obtain title over the goods, which were transferred directly from the sellers
to the buyers. Despite the bifurcation of the legal aspects of the transaction as set
128

out above, the customers trading on the TradExchange portal are unaffected by
them as they enjoyed a seamless experience of buying the luxury goods on the
TradEx web portal.
3. TradExchange’s business expanded significantly, and in the first few years of its
establishment it also received equity investments from three different venture
capital and private equity funds. In 2006, Mr. Kanwar decided that it was time for
massive expansion, which required additional capital investments. Since the
existing investors were looking for valuable exit opportunities as well,
TradExchange decided to approach the capital markets, and following an initial
public offering (IPO) the company’s shares were listed on the National Stock
Exchange (NSE).Subsequently, in 2007, TradExchange carried out a sponsored
offering of American Depository Receipts (ADRs) that were then listed on the
NASDAQ. Following these listings, Mr. Kanwar held 32% shares in
TradExchange through an investment company. The remaining shares were held
among institutional and retail investors. Mr. Kanwar was the chairman and
managing director (CMD) of the company.
4. By 2014, TradExchange had become the largest online retailer in India, leaving
the competition far behind. Being a man of lofty ambitions, Mr. Kanwar set
himself up to achieve greater heights and sought a global presence. For this
purpose, he decided that TradExchange required further capital. Accordingly, in
consultation with TradExchange’s lead investment bank, FinLine Financial
Services Limited, Mr. Kanwar decided that it would be preferable for
TradExchange to offer fresh shares to the public by way of a follow-on public
offering (FPO). Accordingly, on April 15, 2014, TradExchange filed a draft red-
herring prospectus (DRHP) with the Securities and Exchange Board of India
(SEBI).
5. The news of TradExchange’s further capital raising plan triggered a flurry of

developments. An employee of TradExchange immediately wrote an anonymous
letter to SEBI indicating the prevalence of counterfeit products being sold on
TradEx, which would be severely damaging to the genuine traders who are
marketing their products through the portal. The letter also indicated that
TradExchange’s senior management was aware of counterfeiting being
perpetuated on TradEx, but that they did not take any steps to prevent the same as
such activities only boosted sales on the website and enhanced TradExchange’s
revenues. When SEBI communicated its comments on the DRHP to
TradExchange through the investment banks, it specifically asked the company to
make appropriate disclosures regarding any counterfeit products being sold on its
portal. In response to SEBI’s comments on this point, TradExchange included an
additional risk factor in the DRHP as follows:
We may be subject to allegations claiming that items listed on our

marketplaces are pirated, counterfeit or illegal.
129

It is possible that items offered or sold through our online marketplace by
third parties infringe third-party copyrights, trademarks and patents or
other intellectual property rights. Although we have adopted measures to
verify the authenticity of products sold on our marketplace and minimize
potential infringement of third-party intellectual property rights through
our intellectual property infringement complaint and take-down
procedures, these measures may not always be successful.
Thereafter, TradExchange proceeded with the FPO, which concluded

successfully.
6. On July 17, 2014, a few weeks after the conclusion of the FPO, TradExchange
was notified of a suit filed by Cranberry Fashion Inc., a leading American luxury
retailer, in the Delhi High Court for infringement of its intellectual property rights
on account of alleged counterfeit products being sold through TradEx. Cranberry
itself had been a key client of TradExchange as it sold its products through
TradEx for a number of years. However, that relationship came to an end in 2013
when Cranberry began doubting the authenticity of the products being marketed
on TradEx. As of the date of filing of the suit in the Delhi High Court, Cranberry
was no longer a client of TradeEx.
7. Mr. Kanwar was taken aback by this development. It had been the case that he
and Mr. Sprine, the flamboyant CEO of Cranberry had a strained relationship.
Furthermore, there was speculation that the termination of the contractual
arrangements between TradExchange and Cranberry was the result of payment
disputes and not merely due to the alleged suspicion on the part of Cranberry
regarding the counterfeiting of products on TradEx. In any event, Mr. Kanwar
was shocked to find that the suit was filed for an injunction restraining
TradExchange from selling any products that are deceptively similar to that of
Cranberry’s products and also for damages amounting to Rs. 100 crores for sales
of counterfeit products that had already occurred over the previous years
(including during the period when Cranberry had been TradExchange’s
customer).
8. Although TradExchange was notified of the suit on July 17, 2014, it immediately
began consultation with the lawyers and decided to make any public
announcement of the same only after initial advice from the lawyers. Hence, it
notified the stock exchange of such suit only on July 24, 2014. This
announcement sent ripples through the stock market. Overnight, the price of
TradExchange’s ADRs fell 20% on the NASDAQ. There was a precipitous slide
on the NSE as well where the stock took a beating in the following days to come.
This also sent shockwaves through the market in general where the stocks of other
listed companies in the business of operating online marketplaces took a beating
since investors demonstrated their apprehension that counterfeiting had become
an industry-wide phenomenon.
130

9. In addition to notifying TradExchange of the suit, Cranberry lodged a complaint
with SEBI alleging misstatements in the prospectus for the FPO. It also requested
SEBI to launch an investigation. Specifically, Cranberry alleged that it had served
a legal notice on TradExchange regarding the counterfeiting claims. This legal
notice was served on April 25, 2014, and it is Cranberry’s case that this legal
notice was suppressed and that it was neither brought to SEBI’s attention nor was
there any disclosure thereof in the FPO prospectus.
10. Based on the complaint of Cranberry (which incidentally held 1000 shares in
TradExchange), SEBI initiated investigations. In an interim order passed on
August 16, 2014, SEBI barred TradExchange and Mr. Kanwar from accessing the
capital markets or from otherwise trading in securities on a stock exchange,
pending further investigation. By way of this order, it also debarred FinLine from
providing any investment banking services to its clients, again pending further
investigation.
11. In the meanwhile, the Enforcement Directorate, Government of India, initiated

investigations against TradExchange on account of potential violation of the
Foreign Exchange Management Act, 1999 read with the Government’s policy on
foreign investment. The Government was particularly concerned that
TradExchange was carrying on its business without complying with the legal
requirements on foreign direct investment (FDI). Specially, the investigation was
premised on the basis that TradExchange “was in breach of the spirit of the law, if
not the letter of the law” relating to foreign investments in the relevant sector. A
total of 37% shares in TradExchange were held by foreign investors, including
shares in respect of ADRs. The prospectus did not contain any specific reference
to compliance with foreign investment policies, which was based on legal advice
received by TradExchange.
12. Thereafter, SEBI heard the parties in detail on the merits of the case and passed its
final order on December 21, 2014. In this order, SEBI found inadequate
disclosures in TradExchange’s offer document for the FPO due to which it
confirmed its orders against TradExchange, Mr. Kanwar and FinLine
respectively, which would operate for a period of three years from the date of the
order. Furthermore, SEBI found that there was an inexcusable delay on the part of
TradExchange in disclosing the filing of Cranberry’s lawsuit to the stock
exchanges. SEBI also passed an order requiring TradExchange to disgorge its ill-
gotten gains that were computed to be Rs. 37 crores. This was arrived at on the
basis of the additional gains made by TradExchange on account of the non-
disclosure of the counterfeiting, and particularly the potential legal action by
Cranberry and its impact on the stock price of TradExchange. Separately, SEBI
also imposed a penalty of Rs. 5 crores on TradExchange for violation of the SEBI
Act and the relevant regulations thereunder. Aggrieved by SEBI’s order, the
parties preferred an appeal to the Securities Appellate Tribunal (SAT).
131

13. Separately, in March 2015, High Networth Fund, LP (HNF), a private equity
enterprise based in Singapore and managing funds belonging to wealthy
individuals and business families, wanted to acquire a significant stake in TradEx.
HNF approached Mr. Kanwar for negotiations. Although Mr. Kanwar was not
keen on the transaction, he was persuaded by his advisors that the deal may be
beneficial to the company as it would increase the profile of the business and also
provide access to HNF’s network which extended to a large body of persons
whom TradExchange could tap as potential suppliers and customers. After some
discussions, it was agreed that HNF would subscribe to 2.5% shares in
TradExchange through a preferential allotment, and that it would purchase
another 2.4% shares from Mr. Kanwar. In April 2015, necessary approvals were
obtained from the shareholders of TradExchange.
14. In the meanwhile, HNF also conducted extensive due diligence on the business
affairs of TradExchange. During the due diligence, it was given access to
management accounts, and it was also privy to the unaudited accounts of the
company for the financial year 2014-2015. In the process, HNF discovered that on
March 15, 2015 Waltenberg, a significant supplier of TradExchange, whose sales
provided nearly 22% revenues for TradExchange, had issued a notice of
termination of its relationship with TradExchange. Upon discovery of this
information, the team advising HNF went into a huddle, but they finally decided
to proceed with the deal without any change in the terms (including price) as they
were confident that this would not affect the overall long-term prospects of
TradExchange. It is a different matter, however, that when the accounts of the
TradExchange for the last quarter of the financial year 2014-2015 were approved
by the board on April 30, 2015 and announced to the stock markets, the price of
the company’s shares fell 2%. The board’s report contained a disclosure regarding
Waltenberg’s potential withdrawal. It is only possible to surmise whether the fall
in the share price was on account of any specific fact (such as the withdrawal of
Waltenberg) disclosed in the company’s reports and financial statements or due to
other reasons attributable to the performance of the company, the online retail
sector as a whole or even other economic factors.
15. HNF’s carefree attitude towards the Waltenberg withdrawal may have had
something to do with its optimism on a potential new client of TradExchange.
During the time that HNF was conducting due diligence, TradExchange was
negotiating a new contract with HiSketch, a world renowned maker of luxury
bags. At the relevant time of due diligence, TradExchange and HiSketch had
entered into a non-binding memorandum of understanding (MOU), which was
valid until May 31, 2015. TradExchange revealed this information to HNF during
due diligence, upon which HNF asked to review a copy of the MOU. Due to the
sensitivity in the negotiations, TradExchange refused to share a copy of the MOU.
However, after protracted discussions, TradExchange revealed a redacted copy of
the MOU (with the key commercial terms of the deal concealed) only to the top
three officers of HNF. Despite all the brouhaha surrounding the HiSketch
132

transaction, the parties failed to arrive at a negotiated position, and hence the
MOU expired on May 31, 2015 without a definitive deal having been struck.
16. As far as the HNF transaction is concerned, it took place in parts. On May 5,
2015, TradExchange issued new shares to HNF representing 2.5% of the equity
share capital of the company. During various periods of time between May 10,
2015 and May 20, 2015, there were several block trades executed on the NSE
between Mr. Kanwar and HNF by which Mr. Kanwar sold 2.4% shares to HNF.
HNF decided that its shareholding in the company should be no less than 5% in
the company. Hence, during the same period between May 10, 2015 and May 20,
2015, it acquired another 0.2% shares of TradExchange on the stock market.
17. Following all the transactions described above, the share price of TradExchange
rose by about 5% by the end of May 2015 as compared to the end of April 2015.
Taking advantage of this rise in share price, Mr. Kanwar decided to liquidate
some of his shareholdings in TradExchange. Hence, he sold an additional 2%
shares in the market on June 5, 2015. Although he had an inkling at the beginning
of May 2015 that the share price of TradExchange might likely rise given the
nature of the transactions, but he could not be sure. In an email to his chartered
accountant on April 29, 2015, he indicated that he “will sell an additional 2%
shares in June 2015 to raise liquidity to meet some debts belonging to SharePrise
Limited” (an online broking company in which Mr. Kanwar had a substantial
financial stake).
18. Given some abnormalities in the share price of TradExchange during April and
May 2015, SEBI launched an investigation into the various transactions carried
out in respect of TradExchange. It accordingly issued notice and conducted
hearing, following which it passed an order finding TradExchange, Mr. Kanwar
and HNF in violation of the SEBI Act and the various regulations thereunder.
Consequently, SEBI debarred all the three persons from accessing the capital
markets or buying and selling shares of a listed company for a period of five years
from the date of the order. Additionally, SEBI imposed an aggregate monetary
penalty of Rs. 3 crores on the parties. Against this order, the parties have
preferred an appeal to the SAT.
19. The SAT has agreed to hear the relevant appeals together.
*****
133

Bangalore (2015)
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
Brill Bank AG
Promenade Fabricators Limited
Mrs. Parvathi Puttappa
Mrs. Kamla Soni
Ms. Mia Soni … Appellants
v.
Soniser Technologies Limited

Soniser Futuristics Private Limited
Iki Bank Limited … Respondents
1. One of the most significant forms of disruptive innovation in the transportation

industry is the emergence of a range of autonomous cars such as the self-driving
car. Using sophisticated inbuilt maps and sensors, the self-driving car is able to
process information regarding the street as well as the lane on which it is driving.
The sensors enable the car to detect various objects surrounding it, and the
information is then utilized by high-end software to classify those objects and
then automatically adjust the speed, direction and other functionalities of the car.
The predictive nature of the car even allows the car to use a safe speed and
trajectory based on what other users of the road might do next. This is tipped to
change the face of transportation, both for movement of people as well as goods.
2. Doobler, Inc., based in Palo Alto, California, is a pioneer in self-driving cars. Its
prototype, the “Debla”, has been tested extensively around streets in California,
and has shown tremendous results. The self-driving car has been the pet project of
Helona Muskinova, the founder of Doobler, who is well-known for her vigorous
pursuits to stretch the boundaries of science and technology. One of her goals has
been to put Debla on the streets in every single country of the world.
134

3. Sensing the immense potential for the success of Debla in India, which is
unsurprising given the huge market, Doobler devised a strategy for entry into the
country. It decided to establish a manufacturing facility in India, initially on a
pilot basis to explore the performance of Debla on Indian roads, and then to
gradually expand the operations to manufacture and sell the cars on a commercial
basis. In order to manufacture the prototype suitable to Indian roads, in 2012 it set
up a wholly-owned subsidiary in India in the form of Doobler Automotives
(India) Private Limited. It took a small facility Hesarghatta near Bengaluru on
lease. Doobler was keen that its business activities integrate well with the markets
in which it operates. Accordingly, it decided to source some of its manufacturing
and technological requirements locally in countries where it operated rather than
to export them from the United States (US).
4. In order to take advantage of the local expertise, it decided to partner with a local
entrepreneur in order to source some parts and technology. Mr. Kailash Soni is an
automotive engineer with 20 years’ experience in leading automotive companies
in the US and Europe. Upon his return to India, he established Soniser
Technologies Limited, which specializes in automation in the transport industry.
It is a supplier of high-end technological parts for use in automobiles. Under Mr.
Soni’s leadership, the company had grown to an annual revenue of Rs. 250 crores
by the end of the financial year 2012-13. While Mr. Soni owns 70% shares in
Soniser, his wife Mrs. Kamla Soni and daughter Ms. Mia Soni collectively own
5% shares, and a venture capital firm South Bridge Investment Partners Private
Limited owns the remaining 25% shares. The board of directors comprises Mr.
Soni, Mrs. Kamla Soni and Mr. Chad Berry, a nominee of South Bridge. Of these,
Mr. Soni is the managing director of Soniser, while the other two are non-
executive directors.
5. In early 2013, discussions began between Mr. Subra Venky, the chief executive
officer (CEO) of Doobler India and Mr. Kailash Soni regarding possible
arrangements for development of sensor technology for the Debla cars that
Doobler would be manufacturing in its facility in India. Mr. Venky expressly
articulated Doobler’s global policy of handing over the entire task of supplying
sensors to one party in each country. In other words, Doobler would rely upon one
single entity to supply the entire sensor equipment for the Debla cars by taking
full responsibility for the same. Although Doobler was aware that a supplier could
in turn outsource some parts of the manufacturing or technology to other entities,
it wished to have a relationship with only the ultimate supplier. Translating these
terms to the Indian scenario, Mr. Venky clarified that its relationship would be
solely with Soniser, irrespective of the fact that Soniser may parcel out portions of
the design or manufacturing of the sensors (to be supplied to Doobler India) to
other entities.
6. Accordingly, on May 8, 2013 a Sensor Supply Agreement (“Supply Agreement”)

was entered into between Doobler India and Soniser. Under the terms of the
Supply Agreement, Soniser would supply to Doobler India the sensors to be used
in the manufacture of the Debla cars in India. The Supply Agreement contained
135

details of the pricing of the sensors, the supply schedule, quantity of supply and
related matters. The Supply Agreement was entered into for a period of five (5)
years, with the possibility of renewal on mutually negotiated terms. The Supply
Agreement contained a clause, which mentioned that Soniser intends to obtain
some parts and technology from other entities in order to fulfil its commitments
under the Supply Agreement. However, it did not contain any details regarding
from whom and how those would be obtained by Soniser. Doobler India did not
bother to seek those details from Soniser as, accordingly to its business
philosophy, it would only look to Soniser for a “packaged” product, without
having regarding how that product is being put together. Doobler India’s focus
was on a one-stop solution from Soniser.
7. The total value of the sensors to be suppled under the Supply Agreement was
estimated to be in the range of Rs. 450 crores. Under the terms of the SSA, upon
execution of thereof, Doobler India was to pay Soniser a sum of Rs. 45 crores as
advance, which was in fact paid on May 10, 2013. This then enabled Soniser to
utilize a part of the advance to obtain materials and services from other suppliers.
After using a sum of Rs. 10 crores towards those purposes, Soniser retained Rs.
30 crores in its bank account with Iki Bank at its M.G. Road, Bengaluru branch,
and paid over a sum of Rs. 5 crores into the bank account of Soniser Futuristics
Private Limited, also maintained with the M.G. Road, Bengaluru branch of Iki
Bank. Soniser Futuristics is a wholly-owned subsidiary of Soniser, and its
directors are Mr. Kailash Soni and Mrs. Kamla Soni. Both these banks accounts
with Iki Bank were segregated accounts, and were not utilized for any purposes
other than for holding the respective funds mentioned above.
8. Although Soniser has the requisite expertise in the automotive sensor industry, it
does not have all the resources of manufacturing as well as development of
technology. Hence, it was compelled to outsource some of the activities (required
to fulfil its commitments to Doobler India) to other entities. Towards this end, Mr.
Soni approached his good friend Mr. Sundaram Tukai, who ran two successful
companies in the automotive sector. One was Retrofit Automotive Parts Limited,
which was a manufacturing entity that supplied various spare parts to companies
in the automotive industry. More recently, it has been conducting research into
manufacturing sensor equipment for self-driving cars, and even hired a couple of
engineers from world leading car manufacturers to assist in this process. Another
company was Reprogramming Technologies Limited, which writes customized
software for the automotive industry. Reprogramming has witnessed tremendous
success in recent years due to the greater technological reliance of the car
industry. Reprogramming has been developing the software required for use in
sensors for driverless cars. The combination of the hardware manufactured by
Retrofit and software developed by Reprogramming would turn out to be a
winning combination for self-driving cars.
9. After discussions and negotiations, on May 25, 2013, Soniser entered into a
Sensor Hardware Supply Agreement (“SHSA”) with Retrofit under which
Retrofit would supply the sensor equipment to Soniser. On the same day, Soniser
136

entered into Sensor Software Services Agreement (“SSSA”) with Reprogramming
under which Reprogramming would provide the software required to be used in
the sensors that Retrofit would supply. Both the SHSA as well as the SSSA
explicitly provided that the hardware or software, as the case may be, were being
provided by the Retrofit and Reprogramming respectively, to Soniser so that
Soniser may in turn provide the entire package in the performance of its
obligations to Doobler India under the Supply Agreement. In terms of payments
under the SHSA and SSSA, they were structured such that Soniser would pay
over to Retrofit and Reprogramming in the aggregate the price it receives from
Doobler India under the Supply Agreement, but after retaining what it termed in
the SHSA and SSA as a “commission” of 10%. To illustrate the arrangement, if
one sensor sold by Soniser to Doobler India under the Supply Contract is priced at
Rs. 5,000, then Soniser will pay Rs. 4,500 to Retrofit and Reprogramming in the
aggregate under the SHSA and SSSA, and Soniser will retain the balance Rs. 500
as commission for itself.
10. For the initial year after the contractual arrangements were put in place, parties
were engaged in developing the sensor and ensuring that it met with the
specifications imposed by Doobler India. Although Soniser here appears to be
some sort of “middle man”, that is not to say that it did not contribute
meaningfully to the project. Despite all the hardware and software being
manufactured and developed by Retrofit and Reprogramming respectively,
Soniser deployed a team of two engineers to the Doobler India project in order to
perform testing and quality control to ensure that Doobler India’s technical
specifications were met at all times. After all, Retrofit and Reprogramming would
provide their hardware and software based on the instructions provided by
Soniser, due to which Soniser’s quality control efforts were quite critical to the
success of the project. While both Retrofit and Reprogramming provided
customary warranties and after-sales service on the hardware and software
respectively, those warranties were structured in such a way that they would be
provided to Soniser or to any other customer of Soniser to whom Soniser would
sell its sensors after packaging such hardware and software.
11. While the testing process was underway, in late 2013, Soniser suffered a minor
setback. In 2011, Soniser had issued corporate bonds worth Rs. 20 crores on a
private placement basis to Brill Bank AG, a German bank, which lent the money
to Soniser through its branch in Singapore. The proceeds from the issue of bonds
was intended towards funding Soniser’s project regarding commercial space
travel, into which Soniser was conducting extensive research. However, that
project had to be shelved due to lack of future prospects. Consequently, by mid-
2013, Soniser began defaulting on its interest payments under the bonds to Brill
Bank. The bank, obviously being concerned, issued a legal notice addressed to
Soniser on August 20, 2013. The legal notice stated that due to the defaulted
interest payments under the bond terms, the accelerated repayment clause has
been triggered, and hence Soniser is required to pay a sum of Rs. 23.50 crores
(principal together with interest). When this notice was brought to the attention of
Soniser’s board, one of the directors, Mr. Chad Berry, became livid. He did not
137

recall such a bond issue ever being approved by the board. This was intriguing
since the articles of association of Soniser specifically stated that the company
was not allowed to borrow monies exceeding Rs. 10 crores without a unanimous
resolution passed at a board of directors’ meeting of Soniser. He confronted Mr.
Soni about this, only to then realize that it was Mrs. Kamla Soni who conducted
all the negotiations with Brill Bank. Upon further investigation, Mr. Berry found
that the Sonis deliberately kept the bond issue under wraps from Mr. Berry, lest
he object to the transaction as it would substantially increase the financial risk for
the company. On behalf of South Bridge, Mr. Berry threatened legal action
against the Sonis, but in the meanwhile, he asked that Soniser reply to Brill Bank
on the basis that the bonds invalid as they were issued without the unanimous
board approval of Soniser, and that therefore any repayment obligations on the
part of Soniser does not exist. Soniser accordingly replied on August 31, 2013, to
the solicitors of Brill Bank.
12. In response to Soniser’s reply, the solicitors of Brill Bank wrote a letter dated
September 7, 2013, among other things, attaching a copy of a resolution passed by
the board of directors of Soniser, and that too unanimously. It contained the
signatures of all three directors, including Mr. Berry. To his dismay, Mr. Berry
discovered that the Sonis had forged his signature and handed over the copy of the
resolution to Brill Bank. Although Brill Bank had conducted a fair amount of due
diligence on Soniser and had the documentation reviewed by its solicitors, it did
not discover any irregularities. However, in its negotiations with Mrs. Soni, it had
found it somewhat odd that she was unaware of some of the details regarding the
functioning of the company, and did not also provide some of the financial
information pertaining to the company. Nevertheless, it decided to proceed with
the transaction as its account managers had derived the requisite comfort from a
compliance perspective. On hindsight, however, it became clear that Brill Bank
was the victim of an orchestrated act of fraud that was perpetrated by the Sonis to
obtain monies from Brill Bank over any possible objection by Mr. Berry.
13. Upon this shocking discovery, Brill Bank was left with no option but to file a civil
suit for recovery before the City Civil Court, Bengaluru. It filed for recovery of
amounts due to it under the bonds along with overdue interest of a total sum of
Rs. 23.50 crores. It also sought a Mareva injunction in respect of the sums
(representing the advance from Doobler India) that Soniser held in its bank
account with Iki Bank at its M.G. Road, Bengaluru branch. Soniser, under the
insistence of Mr. Berry, sought a dismissal of the civil suit on the ground that
Soniser had not validly entered into the bond issuance, and hence the terms were
not binding on it. Consequently, it had no payment obligations under the same. In
any event, Soniser also contested the request for a Mareva injunction on the
ground that the monies lying in the account with Iki Bank did not belong to
Soniser as it was being held on behalf of Retrofit and Reprogramming, and that
the beneficial interest in those monies belong to those entities. At the first
instance, after hearing on all counts, the City Civil Court, Bengaluru dismissed
the suit against Soniser. Against, this Brill Bank preferred an appeal before the
Karnataka High Court.
138

14. Separately, on January 18, 2015, Promenade Fabricators Limited, the suppliers of
certain metal parts to be used in products manufactured by Soniser, obtained a
decree from a civil court in Odisha against Soniser for a sum of Rs. 8 crores. This
is because Soniser had defaulted on payments due to it under supply
arrangements. Promenade has been unable to obtain a recovery on its judgment,
and hence initiated proceedings against Soniser as well as Soniser Futuristics
seeking a garnishee order in respect of the monies held in Soniser Futuristics’
bank account with Iki Bank at its M.G. Road, Bengaluru branch. Both Soniser and
Soniser Futuristics resisted any move to garnish those funds on the ground similar
to that adopted in the suit brought by Brill Bank against Soniser, i.e. that the
monies lying in the account with Iki Bank did not belong to Soniser as it was
being held on behalf of Retrofit and Reprogramming, and that the beneficial
interest in those monies belong to those entities. The outcome of this suit was
similar to that of the suit brought by Brill Bank. The City Civil Court, Bengaluru
dismissed the garnishee proceedings against Soniser Futuristics. Against, this
Promenade preferred an appeal before the Karnataka High Court.
15. While the financial problems pertaining to Soniser were gradually escalating, they
were not insurmountable. Mr. Soni was looking at the Debla car project as well as
Soniser’s long-term Supply Agreement with Doobler India to bring the company
out of the woods. As Mr. Soni was attempting to sort out the financial affairs of
Soniser, tragedy struck. On the evening of June 15, 2015, Mr. Soni was test
driving a prototype of the Debla, in order to check the quality, reaction time and
other functionalities of the sensor that it was developing for Doobler India. It was
shortly after dark, and Mr. Soni was testing the functionalities as they operated
during night driving. He had a hectic day, and was considerably tired, but he had
no choice as the testing had to be done at night. He had initially considered taking
one of his engineers along, but decided that he might as well test the car on his
way home instead. He was alone in the car, which was performing impeccably on
the roads of Bengaluru. After a while, though, he was overcome by his weariness,
and left the car on autopilot while his mind wandered off to the numerous
problems the company was facing, and occasionally nodding off as well. During
one such extended lapses of concentration on the part of Mr. Soni, the Debla test
car entered a one-way from the wrong side, and was going against the traffic.
That, by itself, would not have been disastrous as the sensors would take over to
avoid any collisions or accidents. However, that was not to be. It was travelling at
high speed and encountered the lights of an oncoming car from the opposite
direction (being the proper one for that one-way street) and towards the Debla.
There was a head-on collision at a fairly high speed, and Mr. Soni as well as the
driver of the other car suffered fatal injuries.
16. After investigation, it was found that the sensor had malfunctioned. The sensor
did not interact effectively with the map, which resulted in its entry into the one-
way street in the wrong direction. Moreover, the sensor mistook the headlights of
the car travelling towards it to be the lights of two motorcycles and instead
attempted to travel in between the two. Instead of avoiding the car altogether, the
139

sensor guided the Debla to dissect what it believed were two motorcycles, which
then resulted in the collision.
17. Quite naturally, Mrs. Kamla Soni and Ms. Mia Soni were distraught. Mr. Berry
became frantic with this development. Not only did South Bridge’s investee
company lose its key managerial personnel, but this would effectively lead to
questions regarding the continuity of the relationship between Soniser and
Doobler India, going forward. The “Debla Incident”, as it became known,
captured media attention the world over, raising significant doubts about the
reliability of self-driving cars. Doobler, Inc.’s share price plummeted on the back
of this news.
18. Mr. Berry decided to investigate the problems with the sensors. He interviewed
the team of two engineers of Soniser who were deployed on the Debla project.
One of them, Mr. Prabhakar Karla, opened up during his conversation with Mr.
Berry. He mentioned that the sensor suffers from an inherent defect. This was
detected during the testing and quality control operations carried out by Soniser.
The problem was that the sensor’s accuracy gets affected when there is a high
level of air pollution. The sensor works perfectly when the Air Quality Index
(“AQI”) reading is 200 or below. But, once the AQI exceeds 200, certain
operational aspects of the sensor become inaccurate. Mr. Karla had raised this
issue with Mr. Soni a couple of days before the fateful accident, but Mr. Soni
mentioned that he would try to resolve the issue through further testing which
would take about a week or so, but unfortunately he did not survive that period.
He specifically requested Mr. Karla not to mention this issue to anyone, not even
Mrs. Soni, or any of the personnel of Doobler India, or the suppliers in the form
of Retrofit and Reprogramming. Accordingly, Mr. Karla kept it hush, until after
the accident occurred. It subsequently transpires that had the information been
shared with Reprogramming, the issue could have been addressed with some
simple tweaks to the software. Alas, on that fateful night, the AQI reading in
Bangalore displayed 225.
19. Soniser became the subject matter of yet another set of legal actions. A joint civil
suit was immediately filed against it before the City Civil Court, Bengaluru. One
of the plaintiffs to the suit was Mrs. Parvathi Puttappa, the widow of Mr.
Puttappa, who was in the car involved in the collision with the Debla. Mr.
Puttappa was a driver of a taxi offering services to customer through the taxi
hailing app of “Kober”. At the time the accident occurred, he was rushing to pick
up a passenger whose booking he had just accepted. Although he was keen on
reaching his passenger on time, or even as early as possible, it was found that he
was driving with the speed limit for that road. The second set of parties to the suit
was the family of Mr. Kailash Soni, being Mrs. Kamla Soni and Ms. Mia Soni. In
this joint suit, the plaintiffs sought damages from Soniser for wrongful death
caused to the two deceased persons. In addition, the plaintiffs also sought a
Mareva injunction in respect of the sums (representing the advance from Doobler
India) that Soniser held in its bank account with Iki Bank at its M.G. Road,
Bengaluru branch. This they did to ensure that if their claims are successful, they
140

will indeed be able to make recoveries from Soniser. However, Soniser
vehemently contested the existence on any liability whatsoever to the plaintiffs. In
any event, it also contested the request for a Mareva injunction on the ground that
the monies lying in the account with Iki Bank did not belong to Soniser as it was
being held on behalf of Retrofit and Reprogramming, and that the beneficial
interest in those monies belong to those entities. At the first instance, after hearing
on all counts, the City Civil Court, Bengaluru dismissed the suit against Soniser.
Against this, the original plaintiffs preferred an appeal before the Karnataka High
Court.
20. In the meanwhile, it transpires that the monies lying the segregated bank accounts
of Soniser and Soniser Futuristics respectively with Iki Bank at its M.G. Road,
Bengaluru branch have been lying untouched. Earlier, Mr. Soni had been advised
by his lawyers, oddly enough, that he should not transfer the funds out of that
account given the existence of several legal actions. In any event, Mr. Soni was
the only authorised signatory for the operation of those bank accounts, and in his
absence the monies cannot be dealt with unless the procedure for alteration of
authorised signatories is carried out by both Soniser and Soniser Futuristics.
21. Now, all of the appeals referred to above are being taken up for hearing on a
combined basis.
*****
141

18. Ninth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2017)
Appeal No. 1
Stunt Organization, Inc. … Appellant
v.
Stunt IndiaReal Properties Limited

IndiaReal Investments Limited
Roxy Investment Private Limited
Tulip Holdings Limited
The Reserve Bank of India … Respondents
&
Appeal No. 2
Stunt Organization, Inc. … Appellant
v.
Stunt IndiaReal Properties Limited

Mr. Arun Kelkar
Ms. Laila Kelkar
IndiaReal Investments Limited
Kelkar Developments Private Limited
Roxy Investment Private Limited
Cya Consulting Services Limited … Respondents
1. At the turn of the century, the real estate market in India witnessed exponential
growth. It has been reported that property prices in premium locations went up by
6 to 10 times between 2002 and 2013. This boom also created immense wealth for
142

several real estate barons in India. One such is Mr. Arun Kelkar, a home-grown
Mumbai business tycoon with a keen eye and successful hand in the real estate
business. His projects under the banner “IndiaReal” are a top-draw among the
well-heeled from Bollywood to Dalal Street. Some of his marquee multi-storeyed
projects, which are by “invitation only”, were lapped up in a matter of days
despite the steep (and arguably unrealistic) frenzy-driven pricing. As one can
clearly imagine, Mr. Kelkar was a man of no small ambition, and sought to scale
greater heights. He set his mind on building India’s tallest and finest multi-
storeyed housing complex with state-of-the-art facilities that were unparalleled in
the country, replete with maximum automation and reliant substantially on the
“Internet of things”. For this purpose, Mr. Kelkar entered into negotiations with
Mr. Farzan Ahmed, the owner of a fairly large piece of land on Carter Road,
Mumbai, for an outright purchase with a view to constructing his dream project.
2. Despite his lofty aspirations, Mr. Kelkar was blessed with a virtue: he was firmly
grounded to reality. He realized that in order to pull off his dream project, he
needs to approach potential partners, given that a project of this nature was never
attempted before in India. His thoughts went back circa 2010 when he visited
New York with a delegation of the Indian Chamber of Commerce. During this
visit, he had a rather curious meeting with one of the most flamboyant real estate
tycoons in the United States (US), Mr. Ronnie Stunt. Although Mr. Kelkar was
seated next to Mr. Stunt during dinner, he was unsuccessful in having a
meaningful business discussion, as Mr. Stunt dominated the conversation largely
with tales about how he was most astute businessman in the world. Even when
Mr. Kelkar managed to get a word in, it was about how his wife Ms. Laila Kelkar
was an ardent fan of the clothing line managed by Mr. Stunt’s daughter, Urska.
More than being embarrassed about this, Mr. Kelkar berated himself about the
lost opportunity of having initiated possible business collaborations with Mr.
Stunt’s organization, which clearly carried huge brand value not just in the US,
but also around the world. Mr. Kelkar was determined to rectify the situation now.
3. In early 2012, Mr. Kelkar contacted Mr. Ronnie Stunt enquiring whether his Stunt
Organization, Inc. would be interested in collaborating with him for a potential
real estate development project in India. During a telephonic conversation, Mr.
Stunt seemed rather distracted and mumbled something about his “presidential
ambitions” and that, much as he admired India and its people, he did not have the
time for Mr. Kelkar. Fortunately for Mr. Kelkar though, Mr. Stunt referred him to
Ms. Joanne Kellaway, the international business development manager for the
Stunt Organization. Unlike Mr. Stunt, who seemed to lack patience, Ms. Kellaway
immediately delved into the nitty gritty of the proposed Carter Road project and
demonstrated keen interest in Stunt Organization’s participation in the project. In
a few days, she flew down to India with a team of managers and also external
lawyers and accountants to conduct due diligence and to explore possible ways to
structure a collaboration.
4. After several days of negotiations, a deal was struck between Stunt Organization,
Inc. (SOI) and IndiaReal Investments Limited (IIL), Mr. Kelkar’s investment
143

holding company (which he held jointly with his wife, Laila, with seven other
family members holding a negligible stake). Pursuant to discussions, Mr. Kelkar
incorporated a company in Mumbai by the name of Stunt IndiaReal Properties
Limited (SIPL). The main object of SIPL was to “develop residential and
commercial real estate and construction projects in the Greater Mumbai
Metropolitan Region”. SIPL was capitalized such that the SOI held 49% shares,
while IIL held 51% shares. Of the 51% shares held by IIL, five shares were held
by certain Kelkar family members as nominees for IIL. In order to obtain the 49%
shares, SOI invested Rs. 490 crores with an issue price of Rs. 1,000 per share.
IIL’s shares in SIPL were issued at a much lower price of Rs. 100 per share in
recognition of the local expertise that Mr. Kelkar would bring into the project.
SOI’s investment into SIPL was made in compliance with policies relating to
foreign direct investment (FDI) in India, and the Carter Road project met with all
the conditions required for FDI, about which there is no doubt.
5. Prior to so capitalizing SIPL, a joint venture agreement (JVA) was entered into on
18 August 2012 between SOI, IIL and SIPL in order to formalize the
arrangements between the parties. Note, however, that due to some discrepancies
that were subsequently discovered in the signature of Mr. Kelkar (signing on
behalf of IIL) on certain pages of the JVA, the entire JVA was re-executed on 4
October 2013, merely by way of abundant caution. On 25 August 2012, SOI and
IIL made their respective investments such that SIPL was fully capitalized. Under
the JVA, the board of directors of SIPL was to consist of three nominees of IIL
and two nominees of SOI. IIL nominated Mr. Arun Kelkar, Ms. Laila Kelkar and
their personal tax advisor Mr. Shekhar Gandhi. SOI nominated Ms. Kellaway and
its Asia business head, Mr. Stan Cannon. Some of the key terms and conditions of
the JVA are contained in Annex A. The specific terms and conditions of the JVA
were not incorporated into the articles of association of SIPL, which adopted
Table A of the Companies Act, 1956, and thereafter Table F of the Companies
Act, 2013. On 18 August 2012, along with the execution of the JVA, SOI also
entered into a royalty agreement with SIPL by which SIPL was granted a non-
exclusive licence to use the word “Stunt” in connection with the Carter Road
property. In consideration for such a licence, SIPL was to pay a royalty of 5% of
its net profits (after tax) to SOI once the property was fully developed. This was
particularly important for SIPL since the Carter Road project was proposed to be
marketed as “Stunt Kala”.
6. On 31 August 2012, SIPL entered into an Agreement for Sale with Farzan Ahmad
for purchase of the Carter Road property upon which “Stunt Kala” was to be built.
Under the terms of the Agreement for Sale, Farzan Ahmad agreed to transfer the
Carter Road property to SIPL at a price of Rs. 400 crores. The execution of the
sale deed and registration of the sale was subject to the satisfaction of certain
conditions precedent, including obtaining the permission of the Brihanmumbai
Municipal Corporation (BMC) for use of the land for construction of a housing
complex. Under the terms of the Agreement for Sale, Farzan Ahmad carried the
primary responsibility for obtaining the permission of the BMC. Accordingly, he
144

made an application to BMC in the requisite format and provided all the
necessary information.
7. In the meanwhile, planning was underway between SOI and Mr. Kelkar for
development of the Carter Road property. They engaged ERP Consultants, a
reputed architectural firm based in Singapore, for drawing up a plan for the
building. Similarly, other consultants too were engaged for this purpose. SOI, as a
significant investor in SIPL and a substantial contributor to the project, sent in a
team of surveyors and engineers to study the property and the building plans. On
4 December 2012, SIPL entered into a services contract with Cya Consulting
Services Limited, a leading information technology (IT) company promoted by
the well-known Cya Group. Under this contract, Cya was to provide a suite of IT
services, both hardware and software, to bring alive the automation aspects of the
“Stunt Kala” project that distinguishes it from other projects around the country.
Under this contract, SIPL paid Cya an advance of Rs. 25 crores.
8. Despite all these preparations and the excitement surrounding the Carter Road
project, some amount of frustration began creeping in at a pretty early stage. For
months together, Mr. Ahmed undertook constant efforts to obtain the requisite
permission of the BMC to proceed with the project and the sale of the Carter
Road property to SIPL. However, no progress was forthcoming. The officials of
BMC appeared to be in no mood to grant their permission to the project. Mr.
Kelkar too accompanied Mr. Ahmed for several meetings with BMC officials, but
to no avail. At the same time, the officials of SOI at its Manhattan headquarters
began to get hot under the collar. They were running out of patience. Much to
their dismay, the project got considerably delayed. Mr. Kelkar too began seeing
his dreams go up in smoke. Added to this was the considerable negative press the
project began receiving, which had a major impact in terms of a downturn in the
enquiries from prospective customers.
9. In order to keep SOI at bay, at least temporarily, Mr. Kelkar decided that it might
be better for SIPL to waive the condition precedent (of obtaining BMC
permission) under the agreement for sale with Mr. Farzan Ahmed. At least if
SIPL has ownership of the property, it could have some value, and could take
over pursuit of the BMC permission process directly instead of approaching it
through Mr. Farzan. After consultation with SOI officials, the board of SIPL
decided unanimously to waive the condition under the agreement of sale. On 10
July 2014, a sale deed was executed and the property was acquired by SIPL from
Mr. Farzan Ahmed, and it was registered in the name of SIPL. In turn, SIPL made
payment of 90% of the consideration, with the balance being held back in escrow
until BMC permission was obtained. However, this transaction only brought some
temporary optical reprieve. BMC remained unmoved, and hence project
implementation could not be commenced.
10. At this stage, Mr. Kelkar decided that he needed to take immediate steps to
salvage the situation. Any further delays could only erode his investment in SIPL.
Moreover, it would also cause further damage to his already straining relationship
145

with SOI. He decided that it might be preferable for IIL and SOI to liquidate their
investments in the Carter Road property. Unbeknown to SOI, Mr. Kelkar began
scouting for potential buyers of the Carter Road property. After making enquiries
among his social circles in Mumbai, he was able to spark some interest in Mr.
Ralph Mendonza, a hotelier from Goa with a bank of hotel properties in leading
tourist hotspots in the tiny state. Mr. Mendonza had earlier eyed the Carter Road
property, but was unable to snatch it before Mr. Kelkar, who demonstrated an
early mover advantage. Mr. Mendonza, with his persuasive abilities and
proximity to the corridors of power, was confident of swinging the BMC
permission in his favour, and was therefore keen to take over the property.
Despite an increase in property prices in the Carter Road area over the previous 2
to 3 years, Mr. Mendonza made his final offer at Rs. 400 crores due to the
difficulties with obtaining BMC permission. Moreover, Mr. Mendonza imposed
only one significant condition in that, rather than acquire the Carter Road property
from SIPL, he would like to acquire the entire share capital of SIPL from its
current shareholders. These shares, he proposed, would be acquired by Roxy
Investment Private Limited (Roxy), his personal investment holding company.
11. On 26 August 2015, IIL issued a “Sale Notice” to SOI under section 8.5(b) of the
JVA indicating its intention to sell its entire 51% shares in SIPL to Roxy at a price
of Rs. 400 per share. The Sale Notice also contained the requisite particulars
required by the said provision of the JVA. SOI was not at all surprised to receive
the Sale Notice. In fact, SOI were themselves considering ways of exiting from
the SIPL investment, and the Sale Notice came as a welcome measure. On 4
September 2015, SOI responded to the Sale Notice by indicating to IIL of its
intention to exercise the Tag Along Rights under the JVA. Of course, SOI would
be taking a straight 60% loss on its investment, but that was preferable to holding
on to an investment that was rapidly deteriorating in value. Early action was better
than no action. In any event, notwithstanding Mr. Stunt’s boastful talk about his
business acumen, SOI is not a stranger to failed business ventures and
bankruptcies.
12. While things appeared to be moving along smoothly towards a sale of shares of
SIPL held by IIL and SOI to Roxy, it was Mr. Mendonza’s trusted accountant
who put a spoke in the wheel. He advised Mr. Mendonza to conduct a valuation
of SIPL before proceeding with the acquisition, for which purpose KC Jargon, a
leading global investment bank, with a specialization in real estate business, was
appointed. KC Jargon’s valuation, based on a combination of discounted cash
flow, book value and other commonly recognized methods, ascribed a value of no
more than Rs. 200 per share of SIPL. Based on the advice received from his
accountant, Mr. Mendonza was willing to buy shares held by IIL at Rs. 400 per
share and those held by SOI at Rs. 200 per share. This was completely
unacceptable to SOI as it was inconsistent with the terms of the JVA. However,
Mr. Mendonza explained that his hands were tied and that he was unable to pay
SOI more than Rs. 200 per share without obtaining the prior approval of the
Reserve Bank of India (RBI). He insisted that SOI obtain RBI approval for the
sale at Rs. 400 per share. On 8 October 2015, SOI made an application to the RBI
146

seeking permission for a sale of its shares at Rs. 400 per share. On 15 November
2015, SOI received a letter from the RBI rejecting its application, and refusing to
accord its approval for the sale of the shares at any price beyond that arrived at by
an appropriate chartered accountant or investment banker.
13. In the meanwhile, the shrewd businessman that he is, Mr. Mendonza decided to
go ahead and acquire IIL’s shares first, so as to obtain control of the company. On
30 November 2015, IIL transferred its shares in SIPL to Roxy at a price of Rs.
400 per share. At a full board meeting held the same day, the shares were duly
registered in the name of Roxy despite the vociferous protestations of SOI’s
nominee directors who were present at the meeting. At the same meeting, three
nominees of Mr. Mendonza were appointed to the board of SIPL, immediately
after which the IIL nominees resigned. Mr. Kelkar himself felt victimized because
while he was willing to fulfill his contractual obligations under the JVA, his hands
were tied due to regulatory issues as opposed to his own failures. Mr. Mendonza
continued to extend an olive branch to SOI by still offering to buy their shares at
Rs. 200 per share, and warning them that they are unlikely to get a better deal due
to regulatory problems, if not for anything else. But, SOI was incensed by this
turn of events, and decided to consult their lawyers to prevent further damage.
14. It was indeed well-known that Mr. Mendonza had a strong presence in Macau as
he owned the Tulip Casino through his company Tulip Holdings Limited (THL)
incorporated there. SOI’s lawyers advised that the transaction may be structured
offshore such that SOI’s 49% shares in SIPL be purchased by THL at the
equivalent of Rs. 400 per share. However, Mr. Mendonza flatly refused to discuss
this proposal any further, as it had adverse tax and regulatory implications to him,
although he refused to elaborate on those implications despite repeated quizzing
by SOI’s lawyers. SOI’s lawyers suspect, although they do not have sufficient
proof, that THL may be a front for laundering the money belonging to certain
crime syndicates operating from Goa, and hence Mr. Mendonza’s hesitation to
involve THL in the purchase of SIPL shares. Out of the goodness of his heart, Mr.
Kelkar too tried to intervene to persuade Mr. Mendonza to acquire the shares
through THL, but was unsuccessful. Mr. Mendonza insisted that he would only
buy the shares through Roxy, or not at all. After all, he could afford to dictate
terms as he had SOI wrapped around his little finger by enjoying majority control
over SIPL.
15. In January 2016, SOI initiated a civil suit in the original side of the Bombay High
Court against IIL and Roxy. SOI sought for a direction from the Court against
Roxy, or alternatively THL, compelling it to purchase SOI’s shares in SIPL at a
price of Rs. 400 per share. In the alternative, it sought damages to the tune of Rs.
196 crores against IIL for breaching the JVA. These claims were vehemently
denied by IIL and Roxy. While the case was being heard, the RBI impleaded itself
as a party and argued against grant of relief to SOI as it would be contrary to the
laws of India. A single judge of the Bombay High court denied relief to SOI. On
appeal, a division bench of the same court affirmed the decision of the single
147

judge. Against this, SOI preferred an appeal to the Supreme Court, which has
been admitted as Appeal No. 1.
16. While the aforesaid litigation was underway, on the advice of their lawyers and
with their assistance, SOI began investigating deeper into the affairs of SIPL. To
their sheer surprise, they were also approached by Mr. Shekhar Gandhi who could
not bear to witness SOI’s dismal state of affairs with their SIPL investment.
Considering himself to be a whistle-blower and in order to keep his own
conscience intact, although at the risk of being labelled a turncoat and a traitor by
Mr. Kelkar, he spilled the beans to SOI and their lawyers regarding certain
previous occurrences in SIPL. He drew the attention of Ms. Joanne Kellaway and
Mr. Stan Cannon to a board meeting way back on 16 August 2014 wherein Mr.
Kelkar laid before the board a possible acquisition by SIPL of a piece of property
adjacent to the Carter Road property that could potentially constitute an annex to
the main property and could house a bunch of small villas. Mr. Kelkar also
mentioned that unlike the main property, the annex for the villa project had all the
necessary approvals from BMC, and hence the construction could be commenced
almost immediately upon acquisition. Joanne and Stan vividly remember the
discussion at the board meeting where they questioned the need for SIPL to invest
in the annex when the main project itself was in peril, with uncertainty as to its
future as well as timing. Hence, the board had unanimously decided not to take up
the villa project. However, what was unknown to SOI and its nominee directors
was that the land for the proposed annex was immediately thereafter acquired by
Kelkar Developments Private Limited (KDPL), a company established and co-
owned entirely by Mr. Arun Kelkar and Ms. Laila Kelkar. KDPL was able to
obtain a significant loan from a bank for acquiring the land for the proposed villa
project. It began construction of the villa project in early 2015, which was an
instant success, with all the villas being bought at a huge premium by elite
customers. The villas were also able to command a significant premium due to its
proximity to the potential, but promising, new development in the form of “Stunt
Kala”. At present, KDPL is said to have earned profits of about Rs. 75 crores.
Even though the Kelkars were not bound by any non-compete clause in the JVA,
SOI felt cheated by this new revelation.
17. Mr. Gandhi came up with another stunning exposé: it was that Ms. Laila Kelkar
held 10% shares in Cya, which was providing IT services to SIPL for the Stunt
Kala project. The Kelkars had not mentioned a word about this to SOI or to its
nominee directors on SIPL. At the same time, it is true that the contract between
SIPL and Cya, under which Cya was also paid a hefty advance, was placed before
and approved by the board of SIPL, but not before stoking some level of
controversy. Joanne and Stan were rather sceptical about Cya’s abilities to
undertake and successfully complete a sophisticated IT contract of the nature
required for the “Stunt Kala” project, and they had sought more information and
assurances about Cya, which were not forthcoming. Hence, while the contract
with Cya was approved by SIPL’s board, it was not a unanimous decision, with
Joanne and Stan deciding to abstain from voting rather than to put their seal of
approval to a proposal that was accompanied with half-baked information.
148

Similarly, when the proposal to enter into a contract with Cya was placed before
the shareholders’ meeting of SIPL, SOI abstained from voting. Nevertheless, the
contract with Cya was approved by the requisite majority of the board and
shareholders of SIPL in spite of SOI’s and their nominees’ abstention.
18. SOI’s lawyers were also able to ascertain from Mr. Gandhi that IIL was starved of
funds back in 2012 and was barely able to purchase its shares in SIPL pursuant to
the terms of the JVA. It was Mr. Gandhi who arranged for a bridge funding of Rs.
30 crores from a non-banking finance company (NBFC) owned by Mr.
Harshadbhai Patel, a Dalal Street operator. The funding was provided by the
NBFC to IIL on 20 August 2012. Soon after IIL made the investment in SIPL, it
began defaulting on the rather hefty interest it owed to Mr. Patel’s NBFC. This
was turning out to be somewhat of an embarrassment to Mr. Kelkar, who was
keen to maintain a stellar reputation in the financial markets which provided most
of the clientele for his projects. Hence, with the assistance of his wife, who held a
significant shareholding in Cya, he persuaded Cya to pay the Rs. 25 crores it
received as an advance from SIPL, as a loan to IIL (repayable over a three-year
period). The loan was disbursed by Cya to IIL on 14 January 2013, which was in
turn used to pay back an equivalent amount of the amount borrowed from Mr.
Patel’s NBFC. Since then, IIL has honoured all its commitments relating to
payments due to Mr. Patel’s NBFC as well as to Cya. Finally, once IIL liquidated
its holdings in favour of Roxy in November 2015, it repaid all its financial
obligations owed to Mr. Patel’s NBFC as well as to Cya, none of which now
remains outstanding.
19. When Mr. Ronnie Stunt was briefed on the goings on with relation to SIPL and
the “Stunt Kala” project, he was apoplectic with rage. He is known not to be taken
for granted in his business dealings. Deprived of sleep upon hearing the bad news
from India, he unleashed a tweet-storm in the wee hours of the next morning from
his Manhattan penthouse brooding to his 15 million followers on Twitter. The
Kelkars and Mr. Mendonza were at the receiving end, earning monikers such as
“Krooked Kelkar”, “Lyin’ Laila”, “nasty woman” and “bad hombre Mendonza”.
Known for being trigger-happy when it comes to litigation, he immediately
instructed his managers to “sue the hell out of” the fraudsters in India.
20. Accordingly, in January 2016, SOI filed a civil suit in the original side of the
Bombay High Court against various parties and for various causes as follows:
a. SOI alleged that Mr. Arun Kelkar and Ms. Laila Kelkar had breached their
duties as directors of SIPL by establishing KDPL and earning profits
therein, and sought that all profits received by KDPL be paid over to
SIPL, or alternatively be held in trust for SIPL;
b. SOI sought to treat the contract entered into between SIPL and Cya as
void, and for Cya to hand over all monies received under the contract back
to SIPL; and
149

c. SOI sought to invalidate the issue of shares by SIPL to IIL on 25 August
2012, as being in violation of applicable laws. This SOI did so as a
measure of last resort in order to ensure that, if successful on this count, it
will be able to wrest full control over SIPL from Mendonza.
21. The defendants in the above suit vehemently resisted SOI’s claims, including on
the ground that SOI was not acting in the interests of SIPL, but rather in their own
interests. Moreover, Mr. Stunt’s conduct of publicizing the events had the effect
of defaming the Kelkars and Mr. Mendonza, and tarnishing their reputation, due
to which their business activities have been adversely affected. Although a single
judge of the Bombay High Court granted leave to SOI to bring the suit, she heard
it on merits and denied relief to SOI. On appeal, a division bench of the same
court affirmed the decision of the single judge. Against this, SOI preferred an
appeal to the Supreme Court, which has been admitted as Appeal No. 2.
22. Appeal Nos. 1 and 2 are being heard together by the Supreme Court.
*****
150

Annex A
Extracts from the Joint Venture Agreement dated 18 August 2012
8.5 SOI Tag-Along Rights
(a) In the event that IIL proposes to transfer the shares held by it or a part thereof (the
“IIL Sale Shares”) to a third party in one or more transactions, SOI shall have
pro-rata tag-along rights, exercisable at its sole discretion, to participate in such
Transfer, in the manner specified in Section 8.5(b) below (“Tag Along Rights”).
(b) Upon identifying a third party to acquire Shares held by them or any part thereof
(the “Purchaser”), IIL shall communicate the same to SOI setting out the
following details in relation to the third party’s offer (the “Sale Notice”):
(i) price per Share;
(ii) number of Shares proposed to be Transferred (the “Offered Shares”);
(iii) identity and material particulars regarding the Purchaser; and
(iv) material terms and conditions for the proposed Transfer.
SOI shall, within a period of 30 (thirty) days from the date of receipt of the Sale
Notice, be entitled to exercise its Tag Along Rights and offer Shares held by it
(the “Tag Along Shares”) pro rata to the Shares proposed to be Transferred by
IIL to the Purchaser. The Transfer of the IIL Sale Shares to the Purchaser shall be
conditional upon such Purchaser acquiring the Shares offered by SOI in exercise
of its Tag Along Rights on terms no less favourable than those offered by such
third party to IIL. SOI shall be paid the same price per Tag Along Share and the
sale shall be effected on terms no less favourable as are received by IIL.
(c) IIL shall not complete the sale of any of its Shares unless the Purchaser has
purchased the Tag Along Shares (pursuant to sub-section (b) above) in
accordance with the provisions of this Section 8.5. In the event that the sale of the
Tag Along Shares in accordance with the provisions of this Section 8.5 is not
permissible for regulatory reasons, IIL shall work with SOI in good faith to arrive
at an appropriate solution such that the provisions of this Section 8.5 shall be
given full effect.
(d) The provisions of this Section 8.5 shall apply so long as SOI owns at least 25% of
the Share Capital of the Company.
*****
151

19. Tenth NUJS – Herbert Smith Freehills National Corporate Law Moot Court
Competition (2018)
BEFORE THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

NEW DELHI
Mr. Ramanna Gowda

Mr. Krishnan Iyer
Twenty Point Partners Private Limited
100 Other Shareholders of Mysore Jasmine Silk Manufacturing Limited
… Appellants
v.
New Town Designs Limited

Mysore Jasmine Silk Manufacturing Limited
Mr. Sagar Gowda
Ms. Vinodini Gowda
Mr. Siddappa
Mr. Raj Mathur
… Respondents
1. Mr. Ramanna Gowda’s family has been a doyen of the silk industry in South
India for decades. Hailing from Ramanagara, a town outside Bangalore and
famous for its sericulture, the Gowda family have established themselves as the
leading private player in the design, manufacturing and marketing of the Mysore
silk apparel. In 1990, Ramanna took charge of the business upon the death of his
father. He then decided to institutionalize the business, which was more or less
run loosely until then. He was ably assisted by his two children, Mr. Sagar Gowda
and Ms. Vinodini Gowda. Being the older between the two, Sagar completed a
degree in textile design from the University of Minnesota. At the time, Vinodini
152

was pursuing her MBA from the University of Melbourne, from which she later
graduated.
2. Soon after the death of his father, Ramanna established a partnership firm M/s.
New Town Silks in which each of he and his children were equal partners.
Relying upon Ramanna’s vast understanding of the business and industry and the
qualifications and international experience of his children, the business began
flourishing. The designs developed by New Town Silks and the products it
manufactured witnessed significant demand domestically and from overseas. The
silk apparel designed and manufactured by New Town Silks was sold in nearly 15
countries with the annual revenue in the 1990s averaging Rs. 25 crores.
3. Around 1998, the Gowda family decided on a massive expansion plan given the
growth in the business of the firm and the rising popularity of Mysore silks
around the world. They intended to establish a state-of-the-art design studio in
Bangalore to design silk apparel, and also a hi-tech manufacturing facility in
Channapatna, a town located in the silk belt outside of Bangalore. It was clear
that, despite their success, the family needed outside funding support to embark
on their ambitious plans. They contacted Mr. Basavaraju, a senior director with
the National Bank of Mysore (NBM), who was also a close friend and confidante
of the Gowda family. Being well-versed in financial matters relating to
manufacturing enterprises, Mr. Basavaraju offered to arrange for bank loans
through NBM. But, he also strongly advised the family to approach a well-known
equity investor (such a private equity fund), which will not only make an equity
investment in the company, but would also support the venture and its business
through its expertise and business contacts at the international level. This sparked
considerable interest in the younger Gowdas who were keen to involve an
international investor. Consequently, Mr. Basavaraju introduced the Gowda
family to Mr. Krishnan Iyer, a veteran in the private equity industry in Singapore,
who was the managing director of Twenty Point Partners Private Limited, a
leading Asia-focused private equity firm with specialization in the textile
industry.
4. After several rounds of discussions, Krishnan demonstrated a keen interest in the

business of New Town Silks and was keen to take the funding proposal forward.
Twenty Point’s analysts conducted a business due diligence, which valued New
Town Silks’ business at about Rs. 100 crores. However, Twenty Point’s lawyers
advised that the organizational structure of New Town, a partnership firm, was
inappropriate for a private equity investment. Twenty Point and its lawyers drew
up a reorganization plan which involved the migration of the existing business of
New Town into a two-tier corporate structure. Accordingly, the Gowda family
established two companies, namely New Town Designs Limited and Mysore
Jasmine Silk Manufacturing Limited. Being the parent company, New Town was
owned initially by Ramanna (80%), Sagar (10%) and Vinodini (10%) either by
themselves or their respective nominees. Mysore Jasmine was established as a
wholly owned subsidiary of New Town, with six shares held by six nominees
153

each. This structure was necessitated on account of Twenty Point’s proposal.
Twenty Point was keen to ensure that the design studio and the manufacturing
facility were kept as separate businesses housed in different entities. This would
provide greater flexibility not only in attracting further investments in each
business separately, if required, but also for easy exits for the investors.
5. After some negotiations between the parties, the Gowda family, Twenty Point,
New Town and Mysore Jasmine entered into an Investment Agreement on May 9,
2000, by which Twenty Point agreed to take up a 5% stake in New Town for an
aggregate sum of Rs. 5 crores. The key terms of the Investment Agreement are set
out in Annex A. All the terms set out in Annex A were also appropriately
incorporated into the articles of association of New Town and Mysore Jasmine
respectively, except that the section pertaining to “Dispute Resolution” was
incorporated in the articles of association of New Town but not Mysore Jasmine.
Other than these provisions, the articles of the company followed Table A of
Schedule I of the Companies Act, 1956. After the necessary regulatory approvals
were obtained, Twenty Point made its investment in New Town on July 15, 2000
and it became a 5% shareholder of the company. Due to some minor
rearrangement of shareholdings in the Gowda family that was undertaken prior to
Twenty Point’s investment, the resultant shareholding was held by Ramanna
(75%), Sagar (10%), Vinodini (10%) and Twenty Point (5%). The company had
only one class of shares, namely equity shares. While Ramanna was appointed the
executive chairman of both companies, Sagar and Vinodini were both appointed
executive directors. Sagar oversaw the operations while Vinodini managed
finance and marketing.
6. The idea behind bringing Twenty Point into the Gowda ventures was not merely
financial. As is evident, the amount infused by Twenty Point was not immensely
significant. On the other hand, it is their expertise and network within the textile
industry and, more specifically, silk business that was the main attraction for the
Gowdas to bring them in. Soon, with the help of Twenty Point, the Gowdas
managed to obtain connections and make inroads into the fashion industry in
Paris, Milan, London and New York and acquire direct access to haute couture
houses in those fashion capitals. Through this expansion, New Town and Mysore
Jasmine began attracting significant business. As for further financial inputs,
Mysore Jasmine obtained a loan of Rs. 25 crores for setting up the manufacturing
facility in Channapatna. The loan was secured by a fixed charge over the land and
other property situated on the facility, and also by a floating charge on the raw
materials, inventory and book debts.
7. Over the next five years, the two companies witnessed a steady growth trajectory
and they became major players in the fashion industry in the world, both for
design and manufacturing of silk fabrics. Accompanying this astronomical growth
was the need for further capital for expansion. The Gowdas began contemplating
various options for raising capital. They obtained the advice of PeerCap Advisors
Limited, an Indian leading investment bank. PeerCap recommended that Mysore
154

Jasmine embark upon an initial public offering (IPO), especially given that most
of the capital needs were for that company. Accordingly, Mysore Jasmine
appointed various advisors who began conducting due diligence and drafting the
red herring prospectus. After obtaining the necessary clearance from the
Securities and Exchange Board of India (SEBI), Mysore Jasmine successfully
concluded its IPO in December 2005 raising Rs. 300 crores for the issue of 25%
shares to the public on a post-diluted basis. As part of the governance overhaul for
the IPO, Mysore Jasmine appointed on its board four more directors who were
independent of management and the promoters of the company. It was decided
that Ramanna will continue as the chairman of Mysore Jasmine.
8. During the years in the lead up to the IPO and thereafter, Ramanna and Krishnan
began developing a close professional bond. Ramanna sought Krishnan’s counsel
on all important matters relating to the business of both New Town and Mysore
Jasmine. After all, it was the resources that Krishnan put behind Twenty Point’s
investment that led to the opening of various doors for Gowda’s businesses that
then thrived. In fact, Krishnan too had strongly recommended that Mysore
Jasmine be taken public. He did so even at the cost of Twenty Point not being
able to exit in the IPO, given that Twenty Point’s investment was in the parent
company, i.e., New Town. Krishnan believed in the overall growth prospects of
both companies that would lead to higher returns in the future. He reposed
immense faith and trust in the abilities of the Gowdas to use their lead in the
design, manufacture and export of Mysore silks to be able to gain greater glory.
The Gowdas in turn reciprocated through their hard work and dedication, and
steered the company towards greater success in the following years. Mysore
Jasmine also became a stock market darling, and its stock price skyrocketed over
a period of time. Additional facilities were established in Kanchipuram in Tamil
Nadu and in Varanasi in Uttar Pradesh to manufacture and export the local
specialty silk apparels from those regions, thereby expanding the company’s
business beyond Mysore silks. These expansion efforts were just about enough to
meet the growing demand, especially from the Indian diasporic communities
around the world. Ramanna was a satisfied man, and was especially proud of
what his children had helped him attain. He even wrote a will bequeathing all his
property equally between Sagar and Vinodini.
9. As the business of the two companies grew, Sagar and Vinodini shot into
prominence more widely in the Indian industrial scene. Sagar became the
chairman of the Textile Manufacturers’ Association of India and Vinodini the
chairman of the Federation of Industrial Commerce. They were also quite popular
in the speaking circuit and were involved in a great deal of philanthropic and
charitable efforts. Sagar got married to Ms. Sowjanya, who is the daughter of a
longstanding politician and Member of Parliament from Mandya, Mr. Siddappa.
10. While the children were on the ascendancy, the father’s interests in business
affairs started waning. By 2010, he contemplated plans for semi-retirement,
principally because he reposed complete faith and confidence in the abilities of
155

Sagar and Vinodini to not only maintain the business, but also take it to a new
level altogether. He expressed his intention to scale down his involvement, and
wanted to alter his formal position in Mysore Jasmine to that of a non-executive
chairman. During the annual general meeting of that company in 2010, a
resolution was passed by the shareholders of the company to modify Ramanna’s
position from that of executive chairman to non-executive chairman. From that
year, Ramanna began to fulfill his dream of travelling with his wife to various
exotic destinations around the world. He would spend considerable amounts of
time away from the affairs of the company, but he always arranged his itinerary
such that he was present for the periodic board and shareholders’ meetings of both
New Town as well as Mysore Jasmine.
11. Even during his stay in Bangalore, he spent fixed hours on company matters, and
vowed never to work after office hours. He was available in the company offices
from 11am to 6pm, and was known to spend his evenings at the President’s Club.
Arising from his trip to Scotland, he had taken a liking to single malt whiskey.
Fueling this habit further was Krishnan’s initiation of Ramanna to additional and
more prominent varieties of the beverage from Japan and Taiwan. One cannot
deny that Ramanna’s newly acquired habit had some tangential impact on his
professional attitude. For example, he refused to attend important customer
meetings on a couple of occasions when they could be scheduled only in the
evenings. One time, Sagar had no option but to arrange for a meeting between
Ramanna and a customer from Milan at the President’s Club during the evening
hours over some single malt, wherein Ramanna’s inebriated demeanour can only
be said to have been somewhat beneath acceptable levels of decorum. Although
none of these had any adverse impact on the business transactions or even
prospects of the companies, these incidents considerably embarrassed Sagar and
Vinodini.
12. These were the first signs of some rumblings within the family. Although Sagar
and Vinodini hitherto constantly obtained Ramanna’s blessings on all key
decisions involving both the companies, they now began to embark upon various
efforts on their own. At most, they reported these decisions to Ramanna, either at
board meetings or privately. Oddly enough, Ramanna did not initially react to this
change of attitude given his own decreasing interest in the affairs of the
companies. While there was some friction between the father and the children at a
professional level, it had not penetrated to the personal domain as they continued
to enjoy the normal filial bonding. They lived together, as they always did, as a
joint family in their common villa in an exclusive enclave in Bangalore that they
purchased about a decade ago.
13. It was in early 2012 that Ramanna contemplated further distancing himself from
the affairs of New Town and Mysore Jasmine. This was driven partially by his
realization that he was turning out to be hindrance to the business and his
children’s fortunes than adding much value. He decided to gift his shares in New
Town to his children in equal proportion, and to step down from any formal
156

position in the companies. It was during a round of drinks at the President’s Club
with Krishnan that his plans received some refinements. Krishnan strongly
counseled Ramanna against exiting fully from the company. On October 29,
2012, Ramanna gifted 72% shares in New Town to Sagar and Vinodini, with each
of them obtaining 36%. The transfer of these shares was duly registered in the
books of New Town on the same day. Relying upon Krishnan’s counsel,
Ramanna decided to continue with his position as a director and chairman (albeit
now in a non-executive capacity) on New Town, largely so that he could continue
to oversee major decision-making at the parent company level, although he was
not to be involved in the day-to-day affairs of the company.
14. However, Ramanna decided to relinquish his directorship in Mysore Jasmine.

Accordingly, Sagar was appointed as the chairman of Mysore Jasmine. Largely
owing to sentimental reasons, Ramanna was conferred the title of Mentor-in-
Chief in Mysore Jasmine, and was also given access to an office in the company
premises. Ramanna continued to occasionally visit various facilities of Mysore
Jasmine and meet the employees, with whom he was extremely popular as he was
considered a father figure. He is also known to have helped several employees out
of his personal funds to meet dire financial needs such as emergency medical
treatment for family members. He also arranged to distribute (again from his
personal funds) a box of sweets and a new pair of silk clothing to each employee
for Ugadi, the local new year festival. Ramanna, however, decided to maintain his
position as a non-executive chairman of New Town so that he could continue to
oversee major decision-making at the parent company level, although he was not
to be involved in the day-to-day affairs of the company.
15. Trouble began brewing in May 2014 when Sagar and Vinodini placed a proposal
before the board of Mysore Jasmine to commence the business of a silk exchange.
Being in the nature of a commodities exchange, the business would involve
allowing traders to deal in silk fabric and silk products on the exchange. The plan
was to permit all types of futures, options and derivatives in silk to the extent
permitted by the law. An added attraction of the exchange was that payments
could be accepted by way of cryptocurrencies such as bitcoins, to the extent that
they were not illegal. This business of “Silxchange” was the brainwave of
Vinodini, who roped in her classmate from Melbourne, Mr. Raj Mathur, to
spearhead the effort. As soon as a board meeting was convened for May 22, 2014
with the Silxchange item on the agenda, Krishnan telephoned Vinodini and
expressed his displeasure regarding this development. He was of the strong
opinion that this business was rather risky, and that he would not vote in favour of
this proposal at the board meeting given his fiduciary commitments as a director
of Mysore Jasmine. He also immediately contacted Ramanna to vent his feelings,
only to realize Ramanna’s shock as he had not been privy at all to any of the
discussions regarding the proposal. It appears that Sagar and Vinodini deliberately
decided to keep Ramanna out of the picture.
157

16. Nevertheless, the proposal was put before the board of Mysore Jasmine, and was
passed by the affirmative vote of all the directors, except Krishnan, whose fervent
dissent was recorded in the minutes of the meeting. The discussion on the
Silxchange proposal lasted exactly 20 minutes, which included a presentation by
Raj. No members of the board except for Krishnan asked any questions or raised
objections. Later in the year, Silxchange Limited was established as a wholly
owned subsidiary of Mysore Jasmine, and Raj was appointed as its CEO, and
Sagar and Vinodini as its other directors. Mysore Jasmine invested Rs. 50 crores
in the share capital of Silxchange Limited.
17. True to Krishnan’s apprehensions, Silxchange had a rocky start. It encountered

several regulatory and operational issues in its first year of operation, including a
technical glitch that halted trading for four days, an inordinately long period of
time in the business. This severely damaged the reputation of Silxchange.
Moreover, in December 2015, one of the traders of futures in silk defaulted to the
tune of Rs. 75 crores, which triggered panic and consternation among all the
traders on Silxchange. Upon further scrutiny, it was found that several members
had falsified their books of account and inventories, thereby leading to fraudulent
trading on Silxchange. All of these led to investigation by SEBI which, on
February 18, 2016, ordered a stop on trading on Silxchange. SEBI also passed an
order against all directors of Silxchange from participating in the commodities
markets or the securities markets.
18. During SEBI’s investigation, it was also found that Vinodini had, while
discussing the proposal to set up Silxchange, received an anonymous letter
purportedly from a member of his finance team that Raj had previously been the
CEO of a derivatives company in Australia, and that proceedings (including
criminal actions) were pending against him in that country for having defrauded
certain derivatives traders on transactions undertaken by the derivatives company.
Vinodini confronted Raj with this information, but Raj brushed it aside as being
utterly false and maintaining that this may have been instigated by someone who
wants to keep Raj out of Silxchange. Taking Raj’s word for it, Vinodini did not
pursue the matter any further and did not consider it significant enough
(especially as it was uncorroborated) to bring it to the attention of the board of
Mysore Jasmine. It turns out subsequently that Raj had some regulatory actions
pending against him, although they did not involve criminal proceedings.
19. With this, the Gowdas suffered a deadly blow as their reputation took an instant
beating. Some of the traders who were affected on Silxchange were also
customers of New Town and Mysore Jasmine, and they refused to conduct any
further business with these companies. All of these had a material impact on the
topline of the two companies. Moreover, Mysore Jasmine had to infuse an
additional amount of Rs. 25 crores into Silxchange Limited to meet some
immediate financial obligations. However, this was still insufficient to address all
the financial issues that now confronted Silxchange.
158

20. Sometime during May 2016, Mysore Jasmine’s problems were compounded. It
received legal notice from a consumer association in the United States (US). It
was found that the silk fabric in a particular batch of textiles that was exported by
Mysore Jasmine to the US contained a chemical that caused severe rashes on
wearers of such apparel. Some of them required emergency treatment and
hospitalization that required them to expend considerable sums of money. In
addition, they suffered severe physical and mental trauma, for which they
demanded to be appropriately compensated. Eventually, a couple of months later,
several of the victims appointed legal counsel in India and filed civil suits against
Mysore Jasmine in courts of appropriate jurisdiction for claims totaling Rs. 500
crores. These developments affected the company’s prospects in a significant
manner. There was a considerable fall in the business and orders placed for the
silk fabrics manufactured by Mysore Jasmine. Individual customers, retail chains
and fashion houses grew wary of the company’s products and wanted to steer
clear of any potential liabilities out of selling the silk fabrics. By way of a domino
reaction, the stock price of the company catapulted to about 30% of its price from
a year ago, as investors began fleeing the counter. The telephones of Sagar and
Vinodini did not stop ringing as they were pestered for comments and
reassurances from customers, investors and the pesky business media. Moreover,
the relevant regulatory authorities commenced investigation and inspection of
various manufacturing facilities belonging to Mysore Jasmine.
21. Soon after the chemical contamination scandal broke out, Mr. Shailesh Bhat, the
chairman of the audit committee, ordered an internal investigation into the matter.
It transpired that the silk fabrics in question were in fact manufactured by
Ranganatha Silks Limited, a company that was owned by Siddappa and his
family. Around May 2013, Mysore Jasmine entered into a contract manufacturing
arrangement with Ranganatha Silks. This was because Mysore Jasmine was
unable to meet the prevailing export demands, and needed additional
manufacturing capacity. The investigation uncovered the root cause of the defects.
Ranganatha Silks utilized sub-standard chemicals in the silk dyeing process. The
chemical component (locally sourced) was available at a quarter of the cost of the
chemical (imported from Japan) that was typically utilized at the manufacturing
facilities owned by Mysore Jasmine. The internal auditors also reviewed the
pricing mechanism and other contractual terms and conditions in the arrangement
between Mysore Jasmine and Ranganatha Silks and found nothing out of the
ordinary.
22. In the meanwhile, Ramanna found all of these a bit too much to handle. As a
stickler for propriety and quality, he would never have allowed either the
Silxchange venture or the contract manufacturing arrangement with Ranganatha
Silks. Over dinner one evening in June 2016, he confronted Sagar and Vinodini
and decided to express his free and frank opinion. He poured scorn on both of
them for their irresponsible behaviour in managing the affairs of New Town and
Jasmine Silks, for belying the considerable faith that investors, creditors,
customers and employees had reposed on them, and also for ruining the family
159

reputation that had been built up through decades of hard work. Unable to
withstand the tirades of a man who was clearly past his prime and out of touch
with reality, Sagar refused to be harangued by his father’s interference in the
business. During the heated discussion that evening, Sagar uttered some words
that he would later repent: “Old man, you have lost your sanity”. Utterly
humiliated, Ramanna not only rushed out from the dinner that evening, but he
also decided the next morning to move out of the family home with his wife and
into a farmhouse he owned outside Bangalore. He also relinquished the title of
Mentor-in-Chief that he held in Mysore Jasmine, by tendering his resignation
from that position. He was also deeply hurt by Vinodini’s conduct in playing a
mute spectator during the sequence of events and thereafter. It almost appeared as
if she was unwilling to break ranks with her brother on matters relating to the
business.
23. Although at a personal level he was forced to endure disgrace at the hands of his
own children, Ramanna was determined to act with composure on the
professional side. He was keen to ensure that the company and its stakeholders do
not suffer at the hands of his “inept” progeny. In order to determine the future
course of action, he decided to embark on a trip with his wife to Singapore in
early July 2016, primarily to meet with Krishnan and discuss matters with him,
but also to spend a few days at a yoga retreat in Bali so that he could recharge
himself emotionally. During their meeting in Singapore, Krishnan advised
Ramanna to remain steadfast in his convictions, and to even try to wrest control of
the companies from his children. More so, Krishnan communicated his full-
fledged support of Ramanna in whatever steps he wished to undertake. He was
also able to make similar commitments on behalf of Twenty Point as an
institution. After all, Twenty Point was an investor operating with a lengthy
horizon in mind, and was determined to ensure the long-term success of the
company, which in turn would generate the returns the firm was looking for.
24. In the meanwhile, a Machiavellian plot was being hatched in Bangalore. Sagar
and Vinodini convened a meeting of the board of directors of New Town by
giving two days’ written notice to be held on July 12, 2016. The purpose of the
meeting (which was set forth in the agenda papers) was to (i) remove Ramanna as
the chairman of New Town, (ii) to appoint Siddappa and Raj as directors of New
Town, and (iii) to convene a shareholders’ meeting of the company to remove
Ramanna and Krishnan as directors of the company and to amend the articles of
association of the company so as to delete the articles under the head “Board
Composition” that were incorporated from the Investment Agreement, as
extracted under Annex A.
25. Sagar and Vinodini operated with great astuteness in convening the meeting. They
had become aware through the farmhouse staff that Ramanna and his wife were to
be at the yoga retreat in Bali from July 10, 2016 to July 13, 2016. This was a
fortuitous window of opportunity because participants at the Bali retreat were to
be strictly “unplugged” from the rest of the world for the duration of the
160

programme. No email or cellphones were allowed, and the retreat staff monitored
all telephone calls made to the venue, and only medical emergencies or deaths
were treated as exceptions. As was the usual practice, the notice for the board
meeting of New Town was sent to the directors by email. Krishnan was
devastated to receive the notice, and frantically tried to contact Ramanna, but to
no avail. Krishnan determined that it would be prudent for him to immediately
board a flight to Bangalore and make it to the meeting without further ado. As
notified, the board meeting of New Town was held in Bangalore on July 12, 2016.
The meeting began by noting the absence of Ramanna. Sagar assumed
chairmanship of the meeting, and commenced proceedings. Despite strong
protestations from Krishnan, all the resolutions proposed as aforesaid were passed
with the requisite majority. An extraordinary general meeting (EGM) of the
shareholders of New Town was convened for August 16, 2016.
26. In a parallel set of events, Sagar convened a board meeting of Mysore Jasmine to
be held on July 15, 2016. The purpose of the board meeting was to convene an
EGM to remove Krishnan as a director of the company and to amend the articles
of association of the company so as to delete the articles under the head “Board
Composition” that were incorporated from the Investment Agreement, as
extracted under Annex A. Again, despite the objections of Krishnan, the
resolution was passed as it received the affirmative nod of all the other directors
of Mysore Jasmine. The EGM of Mysore Jasmine was to be convened on August
16, 2016. The draft notice placed before the board meeting contained serious
allegations against Krishnan. In justifying his removal, the board of Mysore
Jasmine noted that Krishnan had failed to uphold his fiduciary responsibilities as a
director. In taking sides in a family battle, he had fettered his discretion by taking
into account factors that were hostile to the business interests of the company. He
was also accused of passing on information about matters discussed at the board
meetings of Mysore Jasmine (including copies of agenda papers) to Ramanna and
also to his employer Twenty Point. In fact, the board of directors have reason to
believe (albeit not conclusively) that some of the sensitive information (such as
pricing and customer information) that Krishnan shared with Twenty Point may
have been used by the private equity firm to build up industry knowledge that
they then used in their investments in other textile firms in India. The draft notice
also informed shareholders that the management of Mysore Jasmine had filed a
complaint with SEBI regarding the Krishnan’s questionable conduct, and that the
board was confident that SEBI would redress any grievance. Astounded by these
allegations, which he found to be false and baseless, Krishnan immediately
approached his lawyers, who issued a defamation notice against Mysore Jasmine
and all its directors (except for Krishnan himself). The notice sought that Mysore
Jasmine withdraw the allegations made in the EGM notice. Unperturbed by the
legal threat, the Company Secretary of Mysore Jasmine sent out to the notice of
the EGM to the stock exchanges and also individually to the shareholders. Neither
has SEBI concluded on its investigation, nor has Krishnan taken any further steps
to pursue his defamation claim.
161

27. Upon release from his sanctuary of solitude in Bali and learning of the events that
had transpired in his absence, Ramanna jetted rapidly back to Bangalore. Along
with Krishnan, he quickly consulted a team of lawyers to decide on a legal
strategy. He perceived two goals in the strategy: first, to save the companies from
their despair and, second, to save himself from being ousted from New Town.
Krishnan too shared these perceptions, which effectively conflated the goals of
Ramanna, Krishnan and Twenty Point, who would all act in tandem. Based on the
advice of the lawyers, Ramanna wrote on July 20, 2016 to the boards of New
Town and Mysore Jasmine requesting them to reverse any decisions taken at their
board meetings in the preceding week, and also asking them not to proceed with
the EGMs of both companies scheduled for August 16, 2016. Krishnan and
Twenty Point too wrote similar letters to the companies.
28. Ramanna’s letter, however, had an additional request. He asked that, in the
interests of transparency and corporate governance, the contract between Mysore
Jasmine and Ranganatha Silks be disclosed to the public, including so that
shareholders and other stakeholders are aware of the roles, responsibilities and
liabilities of both those companies in light of the damages claims by several US
customers. Pat came the reply from New Town and Mysore Jasmine on July 22,
2016 denying the various requests. As for the disclosure of the contract between
Mysore Jasmine and Ranganatha Silks, the Company Secretary of Mysore
Jasmine reiterated that the internal audit had confirmed that the contract was
entered into on the basis of normal commercial terms, and that there was nothing
extraordinary in it. Moreover, Mysore Jasmine had appointed a leading US law
firm to conduct a legal audit of the contract and its terms, and the law firm had
given the company a clean chit. The Company Secretary’s reply stated that
Mysore Jasmine had no obligation under law to disclose either the contract, any
details pertaining to it or reports of the internal audit or the US law firm. He
argued that disclosure would be counterproductive and inimical to the interests of
the company.
29. A day before the letters went out to New Town and Mysore Jasmine, the trio of
Ramanna, Krishnan and Twenty Point had acquired an aggregate of 1% shares in
Mysore Jasmine from the stock market. Of this, Ramanna acquired nearly all of
the shares, except 100 shares each that were acquired by Krishnan and Twenty
Point. Incidentally, Ramanna’s 70th birthday would fall on August 16, 2016, the
same day that the EGMs of both the companies were scheduled. Ramanna was
keen to reward some of the employees of the companies who were loyal to the
Gowda family for more than 25 years; and there were 100 such employees. This,
he wished to do so on his birthday as part of the celebrations and as a mark of
recognition to their loyalty and hard work over the years. However, given the
unseemly turn of events, he decided to reward the employees immediately and, on
July 25, 2016, he transferred 100 shares of Mysore Jasmine each to the 100
identified employees. Those employees were thrilled to receive this recognition.
Although for some of the employees the monetary benefit from the shares seemed
meaningless given the languishing nature of the stock, it was the sentiment that
162

appealed to them more. Whatever the reaction may have been, the shares were
credited into all of their demat accounts by July 30, 2016.
30. Surely enough, Sagar and Vinodini were quickly updated on this development,
and they smelt a rat. They responded to what they believed was a gimmick by
Ramanna to elicit employee support in a brewing family corporate battle. They in
turn identified 30 young and upcoming star employees within the firm, and
decided to offer 100 shares each in New Town to those employees. Between
them, Sagar and Vinodini equally transferred shares such that 100 shares each of
New Town were placed in the hands of those 30 employees. No offer was made to
the other shareholders of New Town when these transfers were effected. Given
that the shares of New Town were held in certificate form, the shares were
transferred by physically delivering the share certificates and transfer forms to
those employees. The transfers were approved at a quickly convened board
meeting of New Town (that Ramanna and Krishnan refused to attend as they
believed the transfers were illegal), and the names of the 30 employees were
entered in the register of members of New Town on August 1, 2016.
31. All this while, efforts were being undertaken on the periphery to resolve the issues
surrounding the key shareholders of New Town and Mysore Jasmine in an
amicable manner. Krishnan spearheaded the efforts, and he sought to rope in
Basavaraju and even the family’s spiritual master, but to no avail. The principal
goal was to seek more time through a postponement of the two EGMs scheduled
to be held on August 16, 2016, which would leave more time for an amicable
solution. However, Sagar and Vinodini were unwilling to budge, and they were
steadfast in their resolve to proceed with the meeting. Ultimately, by early
August, it was clear that no resolution was in sight.
32. On August 7, 2016, Ramanna, Krishnan and Twenty Point initiated proceedings
before the National Company Law Tribunal, Bangalore Bench (NCLT) against
New Town, Sagar, Vinodini, Siddappa and Raj. In parallel, Ramanna, Krishnan,
Twenty Point and the 100 employees who recently became shareholders of
Mysore Jasmine initiated proceedings before the NCLT against Mysore Jasmine,
New Town, Sagar and Vinodini. In both the actions, it was alleged that the
respondents’ conduct was oppressive to the petitioners. In the case of New Town,
the petitioners sought that all actions taken at the board meeting dated July 12,
2016 and any actions that may be taken at the EGM scheduled for August 16,
2016 (as specified in the notice for the meeting) must be declared null and void.
In the interim, the petitioners sought an injunction from the NCLT to prevent the
EGM from being held on that date. As far as Mysore Jasmine is concerned, the
petitioners sought that all actions taken at the board meeting dated July 15, 2016
and any actions that may be taken at the EGM scheduled for August 16, 2016 (as
specified in the notice for the meeting) must be declared null and void. In the
interim, the petitioners sought an injunction from the NCLT to prevent the EGM
from being held on that date. The petitioners also sought for a direction from the
NCLT asking Mysore Jasmine to publicly disclose the detailed terms of the
163

contract between it and Ranganatha Silks. They also sought a relief that the
articles of association of New Town and Mysore Jasmine ought not to be
amended without the prior approval of the NCLT.
33. The interim application to consider whether the EGMs should proceed came up
for hearing on August 10, 2016. The NCLT refused to intervene or to pass any
interim order. Accordingly, the EGMs of New Town and Mysore Jasmine were
held on August 16, 2016 and the resolutions proposed therein were passed by a
substantial majority. All the petitioners in the petitions above dissented, but their
voting power was evidently insufficient to veto any decision taken at the
meetings.
34. While the petitions were pending before the NCLT, the board of New Town
convened a shareholders’ meeting to be held on October 31, 2016 to consider a
proposal for reduction of capital of the company. Under the plan, New Town
would reduce its capital by repurchasing the shares held by Ramanna and Twenty
Point, thereby effectively evicting them from the company. At the shareholders’
meeting, all the shareholders of New Town were present, with all of them voting
in favour of the capital reduction, except for Ramanna and Twenty Point, who
dissented. After the passage of the resolution, New Town filed a petition before
the NCLT seeking its sanction to the scheme of reduction of capital. At a hearing
of the scheme of capital reduction, Ramanna and Twenty Point vehemently
objected to the scheme. They argued that the company had not followed the
proper procedure for seeking the approval of the shareholders for the said
reduction. Moreover, the valuation report obtained by the company that showed a
share value of Rs. 25 per share of New Town significantly undervalued the
company. The price was based on the valuation conducted by the statutory auditor
of New Town. In the meanwhile, Ramanna and Twenty Point were able to obtain
another chartered accountant’s report that indicated that the value of each New
Town share was Rs. 30. The NCLT has yet to hold a final hearing on the company
petition pertaining to the capital reduction of New Town, which remains pending.
35. The earlier petition pertaining to New Town (filed on August 7, 2016) was
amended to reflect the intervening development concerning the reduction of
capital, arguing that the actions were demonstrative of the reprehensible conduct
of the company and its majority shareholders. The hearings on the petitions took
place in March and April 2017. The respondents in both the company petitions
challenged the maintainability of the petitions, and questioned the locus standi of
the petitioners. However, by agreement of the parties, the NCLT decided to hear
the maintainability issues and the merits together. After hearing all the parties at
length on the question of maintainability, the NCLT held that both petitions were
maintainable. In the case of New Town the NCLT granted a waiver and in the
case of Mysore Jasmine it held that the petitioners were competent to bring the
action. But, on the merits of the case, the NCLT found no reason to intervene, and
hence dismissed both the petitions.
164

36. Against the order of the NCLT, the petitioners in the two petitions have preferred
appeals before the National Company Law Appellate Tribunal (NCLAT). Due to
the significant overlap, the NCLAT has decided to hear both the petitions
together.
165

Annex A
Extracts from Investment Agreement dated May 9, 2000
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement (including in the recitals hereof and Schedules hereto), the
following words and expressions shall have, where the context so permits, the
following meanings ascribed to them:
“Company” means New Town Designs Limited;
“Investor” means Twenty Point Partners;
“Subsidiary” means Mysore Jasmine Silk Manufacturing Limited;
3. GOVERNANCE
3.1 Board Composition
(i) The board of the Company and the Subsidiary shall each comprise 4 (four)
directors. Of these, one (1) director shall be nominated by the Investor.
The remaining three directors shall be Mr. Ramanna Gowda, Mr. Sagar
Gowda and Ms. Vinodini Gowda, unless otherwise agreed among the
three of them.
(ii) Mr. Ramanna Gowda shall be the chairman of the Company and the
Subsidiary for life, provided that this right shall cease to apply either the
Company or the Subsidiary, as the case may be, if it is listed on a stock
exchange.
(iii) In the event that either the Company or the Subsidiary were to be listed on
a recognized stock exchange, then the company so listed may be entitled
to appoint additional directors as required to comply with corporate
governance requirements imposed by law and the listing regulations.
However, notwithstanding the listing of either the Company or the
Subsidiary, right of the persons specified in Section 3.1(i) to continue as
directors shall remain unabated.
166

5. TRANSFER OF SHARES
5.1 Restriction on Transfer of Shares
No shareholder of the Company or the Subsidiary shall transfer any shares held
by it to a third party without complying with the provisions of this Section 5. Any
attempt to do so shall be void ab initio.
5.3 Right of First Refusal
In the event that any of the shareholders (the “Selling Party”) desires to sell,
pledge, encumber or otherwise deal with the shares it holds in the Company or the
Subsidiary, as the case may be, it shall first make an offer to the other
shareholders of the Company (the “Receiving Parties”) at a proposed price (the
“Offered Price”) and give the Receiving Parties a period of 28 days to determine
whether they wish to purchase those shares or not. In the event the Receiving
Parties decide to purchase the shares, then the Selling Party shall sell the shares to
the Receiving Parties (in proportion to the shares held by them in the Company or
the Subsidiary, as the case may be, at the relevant time) at the Offered Price. If the
Receiving Parties decline the offer or do not respond within the period of 28 days,
then the Selling Party shall be free to sell the shares to any other person at the
Offered Price.
5.7 Listing
Nothing contained in this Section shall apply to either the Company or the
Subsidiary, as the case may be, once its shares are listed on a recognized stock
exchange.
12. DISPUTE RESOLUTION
12.3 Arbitration
Any dispute arising out of or in connection with this contract, including any
question regarding its existence, validity or termination, shall be referred to and
finally resolved by arbitration administered by the Singapore International
Arbitration Centre (“SIAC”) in accordance with the Arbitration Rules of the
Singapore International Arbitration Centre ("SIAC Rules") for the time being in
force, which rules are deemed to be incorporated by reference in this clause.
167

The seat of the arbitration shall be Singapore.
The Tribunal shall consist of a sole arbitrator to be appointed by the Shareholders

and the Company.
168

20. Fourth GNLU Moot on Securities and Investment Law (2018)
Appeal No. 1
The Securities and Exchange Board of India … Appellant
v.
Zero-Cubed FinTech Limited

Directors of Zero-Cubed FinTech Limited
Skylight Capital Partners
Jack D’Souza
Moses Suares
Janesh Shah …. Respondents
Appeal No. 2
Investor Protection Association of India

105 Investors of Zero-Cubed FinTech Limited … Appellants
v.
Zero-Cubed FinTech Limited

Directors of Zero-Cubed FinTech Limited
Skylight Capital Partners
Jack D’Souza
Moses Suares
Janesh Shah
Grant Stanley Investment Bank Company …. Respondents
1. Ram and Girija Diwan have earned the moniker of the “serial startup couple”.
Being technology aficionados, over the last 20 years they have set up several
businesses in the field that they have subsequently either taken public or sold to
169

suitors such as acquirers or private equity investors. With a robust track record of
success in their ventures, they have been a popular draw with potential investors
who have all been keen to invest in their ventures.
2. Sometime in 2011, the Diwans were introduced at a social event to Jack D’Souza,
a Mumbai-based banker, who had just then stepped down from his position as the
India head of a prominent multinational bank. Jack was looking to establish a new
venture in the FinTech space, which is entirely understandable given his extensive
experience in the banking and finance sector. A casual conversation led to more
extensive discussions, and the Diwans and Jack came up with a business proposal
to establish a venture that will provide technological solutions to the banking
industry, including establishing and servicing e-payment systems, which had been
witnessing a lot of demand in India. After weeks of brainstorming, they shook
hands on a deal that then needed to be put in place as soon as possible. The idea
was to develop a solution called “Z-Cube”, which would operate as a back-end
platform for e-payment systems being used by banks.
3. Accordingly, in July 2011, the parties negotiated and executed a Shareholders’

Agreement, pursuant to which they made investments into a new company Zero-
Cubed FinTech Limited (“ZCFL”). The paid-up capital of ZCFL was INR 10
crore, with the company having issued only one type of security, i.e. equity
shares. 75% of the shares of ZCFL were held by Diwan Family Office Private
Limited, a company owned equally by Ram and Girija. At the time of
establishment, 24% of ZCFL’s shares were held by Jack D’Souza, with the
remaining 1% being held in equal proportion by five of the initial employees of
ZCFL. Girija was the chairperson and managing director of ZCFL, with Ram
being the Director (Operations) and Jack, the Director (Marketing and Customer
Relations). They were also joined on the Board of Directors by Mr. Sharan Misra,
a seasoned venture capitalist.
4. The company was off to a promising start. It steadily built up a healthy clientele
over a couple of years and clocked an annual revenue of INR 150 crore by the
Financial Year 2012-13. Given the exponential growth demonstrated, as well as
further prospects for the future, the company’s expansion plan needed to be
accompanied by a significant capital infusion. One option was for the company to
embark upon the path of obtaining private equity funding, but the management
resisted that option on the ground that private equity financiers would normally
seek extensive control rights over the company that the current shareholders were
unwilling to cede. Hence, the management decided that the company ought to
undertake an initial public offering (“IPO”) of equity shares.
5. In May 2013, ZCFL kick-started the IPO process by appointing leading

investment banks and law firms, who duly prepared a draft red herring prospectus,
which was filed with the Securities and Exchange Board of India (“SEBI”) for
comments. After obtaining SEBI’s comments and completing other formalities,
the IPO successfully closed in November that year. The company issued 25% new
170

equity shares in the IPO for a total value of INR 250 crore, which in turn resulted
in a proportionate dilution of the founders’ stake. In preparation for the IPO, the
Board of Directors and other governance structures of ZCFL were revamped to
comply with the requirements mandated for listed companies. Accordingly, four
additional directors were inducted into the company and were treated as
independent directors for purposes of compliance with corporate governance
norms.
6. Following the listing of its shares, ZCFL continued to progress on its growth
trajectory, which in turn gave rise to a further need for capital injection into the
company. During the press briefing while announcing the results for the second
quarter of the Financial Year 2014-15, Girija had stated that the company is
actively scouting for further funding opportunities and will be exploring potential
options. This time, ZCFL’s management decided against a follow-on public
offering or a rights offering, which were not only costly, but also time consuming.
It decided instead to go in for a PIPE (Private Investment in Public Equity) deal,
with negligible control rights being offered to prospective investors. ZCFL
appointed Grant Stanley Investment Bank Company (“GSIBC”) to advise on the
potential deal. GSIBC prepared an Investment Memorandum (“IM”) and, in April
2015, scouted for investors by distributing the IM to about 20 potential suitors.
The IM contained information that was already in the public domain. For this
reason, neither ZCFL nor GSIBC required the recipients of the IM to sign any
confidentiality agreement.
7. Before ZCFL began approaching potential investors, it had applied to SEBI to

seek a no-action letter in relation to the process it proposed to undertake. This it
did so because it wanted to preempt any legal risks relating to the transaction. In
an informal guidance issued on March 31, 2015, SEBI stated that the proposed
transaction involving the issue of IM by ZCFL to potential investors was in
compliance with the relevant laws and regulations pertaining to SEBI. Neither did
ZCFL mention in its request for no-action about confidentiality requirements, nor
did SEBI impose any condition in its no-action letter relating to matters of
confidentiality and non-disclosure. However, two days after the issue of the letter
to ZCFL, SEBI issued another informal guidance to Asian Bearings Limited, also
a client of GSIBC, which was undertaking a similar transaction to ZCFL, that the
issue of an IM has to be preceded by “appropriate confidentiality and standstill
arrangements.” While GSIBC immediately brought this to the attention of ZCFL,
the company’s management decided to disregard SEBI’s no-action letter to Asian
Bearings Limited as that was of no concern to ZCFL.
8. One of the recipients of the IM was Skylight Capital Partners (“Skylight”), a

Silicon Valley-based technology investment fund with a strong focus on South
Asia. Skylight’s managing partner, Mr. Kamil Merchant, was incredibly excited
about the potential investment opportunity in ZCFL and was willing to stretch
Skylight’s financial limits to bag the investment in the company, so long as the
terms were acceptable. Based on the prevailing trading price of INR 250 per share
171

on the National Stock Exchange of India Limited (“NSE”), Kamil calculated that
any deal at a premium of 40% to the trading price was a steal. He was keen to
obtain the ZCFL investment at any cost, especially because he truly believed that
the market had undervalued the company’s business. Within a couple of days of
receiving the IM and making these back-of-the-envelope calculations, Kamil was
on the phone with Girija to seek to persuade her to offer the investment to
Skylight. Girija in turn was reticent in her conversation, and simply mentioned
that she and her management would have to follow the strict process set out by
GSIBC in choosing the ultimate investor, especially because ZCFL is a listed
company and had to ensure compliance with proper norms that were above board
and were in the best interest of the shareholders. She instead prevailed upon
Kamil to wait to hear formally from GSIBC.
9. In his keenness to bag the deal, Kamil felt that it would be helpful to apply
pressure on both ZCFL as well as the other potential bidders for the company’s
stake if Skylight adopted measures to strengthen its position. Its own investment
bank advised that Skylight would be in a position of strength if it were to obtain a
“toehold” in ZCFL, which would confer it an advance over other bidders.
Accordingly, Skylight instructed its stock broker in India to place buy orders for
up to 0.1% shares in ZCFL. The broker duly complied with the instructions and,
over the period between May 1, 2015 and May 14, 2015, Skylight acquired
30,000 shares constituting 0.1% shares of ZCFL through the NSE in small trades
from several hundred investors at an average price of Rs. 290 per share. During
this period, there was a sudden spike in the share price of ZCFL which, during
one trading session, went up to Rs. 350 per share to eventually close at Rs. 300 on
May 14, 2015. Upon Skylight’s acquisition of a toehold, Kamil addressed an
email dated May 17, 2015 to Girija informing her of the acquisition of the stake
and explaining: “You may note how serious we are about the investment in your
company and that we have put our money where our mouth is. I hope this will not
only demonstrate our keenness to enter into an investment arrangement with your
company, but also persuade you to consider us as your preferred partner.” Pat
came Girija’s nonchalant and noncommittal reply: “Noted. You will hear from us
on our decision soon.”
10. By the end of May 2015, ZCFL completed its pre-screening exercise, and
narrowed its options to two investors who were informed that they could proceed
to the next stage of conducting due diligence as well as negotiation of definitive
terms. To Kamil’s relief, Skylight was shortlisted. But, to his dismay, he was
pitted against ThreeCent Ventures (“ThreeCent”), a Cayman Islands-based
private equity firm owned by Chinese investors, with a hard-nosed investment
strategy that was supplemented by an almost inexhaustible pool of cash. Kamil
realized he had a tough battle on his hands.
11. The due diligence process began in early June 2015 after both Skylight and
ThreeCent signed a confidentiality agreement with ZCFL that required the short-
listed investor to not disclose the fact of a potential investment transaction, the
172

terms thereof, or any confidential information received by them during due
diligence. In addition, the investors undertook not to use the information for any
purpose other than the proposed transaction, and also not to trade in the shares of
ZCFL when in possession of any confidential information. As part of the due
diligence, each of the investors was provided access to a virtual data room for a
period of five days from June 6, 2015 to June 10, 2015. They were also provided
with a draft Investment Agreement. The process required that by June 15, 2015,
each of the investors should make a firm bid (including price) for the transaction,
which was now confirmed to take the shape of ZCFL issuing 5% of its shares (on
a post-diluted basis) to the successful bidder.
12. While the due diligence process was relatively smooth, one particular issue
caused some wrinkles. Among the documents disclosed in due diligence was a
proposed contract of significant proportions that ZCFL was to enter into with
Raider Banking Company, Inc. (“Raider”), which would constitute 60% of the
total business of ZCFL. The negotiations with Raider were nearly complete, and
the deal was expected to be signed and announced to the stock market on June 15,
2015. Given the material nature of the transaction, ZCFL disclosed the draft
agreement with Raider as part of the due diligence to Skylight and ThreeCent, but
it redacted certain key information, including the price of the transaction and the
tenure of the proposed arrangement, as they were not only confidential, but could
be subject to minor adjustments during the final round of negotiation. While news
reports had been doing the rounds that ZCFL was in the course of snaring a new
mega-deal, the details of the transaction as well as the identities of possible
counter-parties were sparse, and were a subject of great speculation in the
markets. In any event, on June 15, 2015, a services agreement was signed
between ZCFL and Raider, after which ZCFL’s company’s secretary informed the
stock exchange within 15 minutes of the signing. The Raider relationship was
viewed very favourably by the market, and the ZCFL stock soared on a steep
upward trajectory, reaching Rs. 400 per share by the end of June 2015. Aside
from the market perception, the Raider deal has benefited ZCFL immensely as it
has considerably added to the revenue and profitability of the company and
significantly enhanced shareholder value.
13. In the meanwhile, the negotiations for the investment into ZCFL were on in full
swing. The company had set a deadline of June 30, 2015 to complete the choice
of the successful bidder. It was a tough call as there was little to choose between
Skylight and ThreeCent as their strengths and weaknesses were largely
comparable. ZCFL’s management went into a huddle for three full days and, in
the end, decided to invite Skylight as the investor into the company by proposing
to issue 5% shares in the company at a price of INR 460 per share (which was at
some premium to the prevailing market price). ThreeCent failed in its bid as it had
quoted its final price at a marginally lower price of INR 450 per share. Kamil was
thrilled with this development and began to foresee the tremendous returns
Skylight would receive in the long term from its investment in ZCFL.On July 15,
2015, the Investment Agreement was signed between Skylight and ZCFL. On
173

August 17, 2015, a shareholders’ meeting was convened to approve the issue of
shares to Skylight, at which the resolution therefor was passed with the requisite
majority. On August 25, 2015, the issue of shares to Skylight was complete, and
necessary filings were thereafter made with the relevant regulatory authorities.
14. Buoyed by Skylight’s investment, the management of ZCFL continued with its
relentless pursuit of growth and was poised for another year of record financial
results. But, in January 2016, ZCFL, its directors as well as Skylight received a
show-cause notice (“First Show-Cause Notice”) from SEBI alleging breach of
the provisions of the Securities and Exchange Board of India Act, 1992 (“SEBI
Act”) and relevant regulations issued pursuant to that legislation. In particular, the
allegations pertained to the disclosure of information by ZCFL and its
management to Skylight in violation of SEBI regulations, as also the acquisition
of shares by Skylight from the market in May 2015. It transpired that based on
certain complaints filed by the Investor Protection Association of India (“IPAI”),
a SEBI-recognised investor association, SEBI had initiated an investigation of the
transactions surrounding the issue of shares by ZCFL pursuant to the IM. Along
with this and surveillance reports from the NSE, SEBI had reason to believe that
the transaction specified in its First Show-Cause Notice contravened legal
provisions, and it threatened to take appropriate action against ZCFL, its directors
and Skylight, including debarring them from the capital markets for a period of
three years.
15. Reacting rapidly to a bolt from the blue, the noticees assembled their legal teams
and prepared their response to SEBI’s allegations. While they were in the process,
ZCFL and its management were struck by another SEBI show-cause notice
(“Second Show-Cause Notice”), this time addressed to ZCFL, Jack D’Souza and
two persons named Moses Suares and Janesh Shah. The Second Show-Cause
Notice detailed a set of transactions and events that led to possible violations of
the SEBI Act and the regulations issued thereunder. MosesSuares was an
investment analyst employed by Goreman Bushing Investment Company
(“Goreman Bushing”), an investment banking firm that was hired in 2015 by
ThreeCent to advise it on its potential investment in ZCFL. Moses was neither
staffed on the ZCFL transaction on behalf of ThreeCent, nor did he take part in
any of the financial due diligence, valuation analysis or other aspects of the deal.
SEBI has also acknowledged that Goreman Bushing had what the market
popularly refers to as “Chinese walls”, namely strict isolation of client
information among various departments within the organization.
16. However, it turned out that Moses was the brother-in-law of Jack D’Souza.
During a family gathering on June 11, 2015, Jack had received a telephone call
from Girija to discuss certain matters pertaining to the Raider contract. Jack was
seated on the inside chair of a large table and did not want to disturb other family
members by stepping out. Hence, he had a brief discussion with Girija from
amidst the company of his family members, although he was conscious not to
speak in terms that would be obvious to the others. He referred to “The Lost Ark”
174

(which was the code word for the Raider transaction), although it was clear he
was referring to an aspect relating to a customer contract. After dinner that night,
Moses confronted Jack about the conversation and intended to seek further
information. However, Jack stuck to his guns and did not disclose any details and
simply stated that his professional commitment and confidentiality obligations
prevented him from speaking further. At the same time, Jack feared that he may
have let the cat out of the bag since Moses seemed to have a strong inkling of the
goings on within ZCFL. Jack did not wish to precipitate matters given the
sensitivity in the negotiations in progress with Raider, and hence did not mention
this turn of events with any of the other members of ZCFL’s management.
17. It is SEBI’s case that Moses immediately contacted his close friend, Janesh Shah,
who is a technology investment analyst at Manohar Das Stock Broking Limited.
Being someone who has specialized in the field for over 15 years, Moses believed
that he may be onto something if he can enlist Janesh’s help to suss out more
details regarding the transaction. After some brainstorming overnight and
reviewing the details of various companies who could be possible future
customers of ZCFL, Moses and Janesh zeroed in on Raider as being the possible
counter-party with whom ZCFL was carrying out discussions for a possible deal.
The next step was to try and construct some details around the transaction to
examine whether it would be a valuable deal for ZCFL or not. Here, the deal
value (based on the pricing of the transaction) was crucial. Janesh felt, based on
his analysis and experience, that the deal size would be anywhere between INR
150 crore and INR 175 crore. That’s when Moses recalled Jack’s telephonic
conversation where he had overhead a mention of “1.6”, which the two of them
then took to mean a value of Rs. 160 crore. Similarly, they arrived at a ballpark
tenure of 5 years for the contract, based on Moses overhearing “20 qua….
periods” from Jack’s telephonic conversation.
18. Soon enough, around noon on June 12, 2015, Janesh created a WhatsApp group
which he titled “Goldmine”, which included Moses and seven other stock brokers
known to Janesh, wherein Janesh conveyed this information regarding the
potential contract between ZCFL and Raider at a value of INR 160 crore for a
term of 5 years. There was considerable excitement on the WhatsApp group as the
participants knew that this would catapult ZCFL into the major league and
substantially enhance its financial position and future prospects. There was
unanimity on the group in their conclusion that it would be a great investment
opportunity to buy some ZCFL stock. As it happens, none of them (except Moses)
had previously traded in ZCFL stock. Between June 12, 2015 and June 14, 2015,
the members of the Goldmine WhatsApp group all engaged in fervent purchases
of ZCFL stock in more than a hundred small trades. The acquired several
thousand shares of ZCFL at an average price of Rs. 300 per share. It was further
ascertained that by mid-July, they had all liquidated their shareholding at an
average price of Rs. 375 per share, thereby earning a total profit of INR 25 lakhs.
Moses, however, liquidated only half of the shares he acquired during the relevant
175

period as he was more bullish about the long term prospects of the company and
wished to stay in the investment.
19. The circumstances in which SEBI got whiff of the matter are rather peculiar. Due
to his inadvertence, Janesh forwarded some of the relevant messages (that he
intended to post on the Goldmine WhatsApp group) to Jayesh Joshi, who was on
his WhatsApp contact list. Jayesh, being an active member of the IPAI, brought
this to the notice of the association, which then provided the details to SEBI along
with its complaint. Although Moses and Janesh are known to be members of the
“Goldmine” WhatsApp group, the identity of the others is not yet available with
SEBI. Upon receipt of the notice from SEBI, all members of the group (apart
from Moses and Janesh) “left” the group and it might very well be that they may
have deleted the messages from their WhatsApp. In this background, SEBI in its
Second Show-Cause Notice threatened to take appropriate action against ZCFL,
Jack, Moses and Janesh, including by debarring them from the capital markets for
a period of three years.SEBI also required Moses and Janesh to provide
transcripts of the WhatsApp conversations on the Goldmine group, but they flatly
refused. In response, SEBI seized the smartphones belonging to Moses and
Janesh, but that was of no avail as the two noticees remained steadfast in their
refusal to help unlock their phones.
20. The noticees in both the First Show-Cause Notice and the Second Show-Cause
Notice vehemently contested the allegations, arguing that they had not committed
a violation of either the SEBI Act or any of the regulations issued thereunder. The
also made a similar representation before the whole-time member of SEBI. After
considering all the contentions, the SEBI Whole-Time Member passed orders on
July 15, 2016 by which ZCFL, its directors and Skylight (under the First Show-
Cause Notice) and ZCFL, Jack, Moses and Janesh (under the Second Show-Cause
Notice) were debarred from the capital markets for a period of three years
commencing that date. Separately, adjudication proceedings were also
commenced in respect of both the matters, and the Adjudicating Officers
respectively imposed a penalty of INR 1 Crore in relation to the transactions
covered by the First Show-Cause Notice and INR 50 Lakhs in respect of those
covered by the Second Show-Cause Notice.
21. Against all of the SEBI orders, the affected parties filed appeals before the
Securities Appellate Tribunal (“SAT”). After hearing all the parties concerned, on
June 7, 2017, SAT ruled against SEBI on all the appeals, and held that none of the
parties had indulged in a violation of either the SEBI Act or any of the regulations
relevant to the case. Against the SAT orders, SEBI has preferred appeals before
the Supreme Court of India (referred to in the aggregate as “Appeal No. 1”).
22. In the meanwhile, immediately after the issue of the Show-Cause Notices by
SEBI, IPAI initiated an action before the National Company Law Tribunal
(“NCLT”) in Mumbai (where the registered office of ZCFL is located) under
Section 245 of the Companies Act, 2013 seeking damages from ZCFL, its
176

directors, Skylight and GSIBC for wrongful conduct on their part that resulted in
a loss caused to various investors who sold their shares during the period May 1,
2015 and May 14, 2015 (related to the First Show-Cause Notice) and June 12,
2015 and June 14, 2015 (related to the Second Show-Cause Notice). IPAI’s
petition received the support of 105 investors of ZCFL who had sold their shares
during the relevant periods. They sought compensation on behalf of all investors
who may have sold to the respondents during the relevant period for the loss they
suffered due to the suppression of information on the part of the respondents, due
to which they sold shares at a value less than the true value of the shares (which
would have been discovered if the information was available to the market). In
other words, they sought to recover from the parties the difference between the
price at which they sold their shares (with the average being INR 290 and INR
300 per share respectively under the First and Second Show-Cause Notices) and
the price that prevailed in the market after the information came to light. On this
basis, they claimed a total of INR 2 Crores in compensation.
23. The NCLT admitted the IPAI’s petition and, after hearing the parties, ordered that
that the petitioners be given compensation of INR 2 Crore, with the detailed
process and individual distribution of amounts to be determined by Justice Barua,
a retired judge of the Bombay High Court. Against this, the respondents appealed
to the National Company Law Appellate Tribunal (“NCLAT”), which set aside
the NCLT order and ruled that circumstances did not exist for payment of
compensation to the affected investors under Section 245 of the Companies Act,
2013. In turn, IPAI (and the other petitioners) appealed to the Supreme Court
(“Appeal No. 2”), which is seized of the matter.
24. Since the two appeals arise out of the same set of transactions, the Supreme Court
has decided to hear them together.
*****
177

21. Twelfth NUJS – Herbert Smith Freehills National Corporate Law Moot
Court Competition (2020)
(Civil Appellate Jurisdiction)
Martin and Gunther Limited

Crown Financial Services Limited
Sabre Finance Limited
Share Onn Securities Limited
LexPlan Partners … Appellants
v.
The Securities and Exchange Board of India

IntellSap Technologies Limited
Honsys Technologies Limited … Respondents
1. Battles for corporate control in India are rare. However, when they do occur, they
stir up tremendous emotion and fervour among not only the owners of companies
but also outside shareholders, employees, customers, and even the regulators and
members of the public. Takeovers are meant to induce economic efficiency, but
the passion they arouse motivate otherwise reasonable individuals and
corporations to behave in seemingly irrational ways.
2. Martin and Gunther Limited (“M&G”) is a large conglomerate formed by two

British businesspersons in the colonial era in the then Bombay State. The
company was under the management of Bronston Services Limited, a managing
agent. Following India’s independence and the subsequent abolition of the
managing agency system, Mr. Martin and Mr. Gunther sold their stake in M&G to
two Indian business families, the Maganlals and the Gangarams. The then proud
owners listed M&G on the Bombay Stock Exchange in 1972. Since then, M&G’s
business and financial performance have surpassed expectations and the company
has displayed considerable durability, as its stock has remained one of the top
counters for investors in the Indian stock market. M&G has earned the moniker of
“sugar to software” conglomerate, given the diversity of its business interests. Its
178

business interests span engineering, construction, manufacturing, food processing,
financial services and technology. While it directly carries out businesses such as
technology, it farms out others such as construction projects into hundreds of
subsidiaries it has created over the years.
3. At the turn of the century, the ownership and management of M&G underwent a
sea change. It ceased to be a family run company, and transformed itself into a
professionally managed company. The trigger for the metamorphosis was that
through constant share issuances and dilution of the shareholding of Maganlals
and the Gangarams, they ceased to be significant owners of the company. Their
shareholding dwindled to a meagre 0.5%. M&G became India’s first truly
dispersedly owned company, with no promoter. Since 2010, the company’s reins
have been in the hands of Ms. Chandrani Baruah, an astute corporate executive
who has managed the company with great business and financial acumen and
personal élan. Armed with an MBA from the Wharton Business School, she has
also featured in Forbes’s list of “The World's 100 Most Powerful Women”.
4. An ambitious Ms. Baruah was constantly on the quest for potential business
partnerships, strategic alliances and acquisitions with a view to grow and diversify
inorganically at a faster pace. She set up an in-house acquisitions team headed by
Mr. Vinay Vardhan, who received able support from the finance team under the
helm of Mr. Paul Scaria. The clear mandate of Mr. Vardhan was to initiate and
complete at least a handful of alliance or acquisition transactions each year. This
included deals in India as well as in other parts of the world.
5. After some scouting, M&G’s acquisitions team began displaying a keen interest
in IntellSap Technologies Limited, a global technology consulting and services
company incorporated and headquartered in Bengaluru. IntellSap was founded in
the 1980s by three graduates from IIT Madras, being (i) Mr. Chandan Banerjee,
who went on to become its chief executive officer (“CEO”), (ii) Mr. M.N.
Narasimha, its chief operating officer (“COO”) and (iii) Mr. Bhaskar Iyer, its
(“CFO”). The company enjoyed stratospheric success within a short span of time,
and became the darling of investors as soon as it listed on the National Stock
Exchange (“NSE”) in 1997. IntellSap was also poised to undertake a listing on
NASDAQ in 2001, but it was compelled to shelve its plans as the “Dotcom
Bubble” burst that year. This has been the only blip in a long time during
IntellSap’s prosperous existence. Though formed in entirely dissimilar
circumstances, IntellSap and M&G share some common characteristics.
IntellSap’s shareholding too witnessed considerable dilution over the years, with
the shareholding of the founders Messrs. Banerjee, Narasimha and Iyer
collectively dropping to a mere 3%. In 2016, the three founders also ceased to be
“promoters” of IntellSap, thereby making the company professionally managed.
6. M&G’s mission to create alliances and acquisitions brought them to IntellSap’s

doorsteps. It began with a chance meeting between Mr. Vinay Vardhan and Mr.
Bhaskar Iyer at the sidelines of the World Economic Forum in Davos,
179

Switzerland in January 2017, where they were sharing a panel. Mr. Vardhan
demonstrated considerable curiosity in IntellSap’s business and directly enquired
with Mr. Iyer about setting up a meeting of the principals of M&G and IntellSap
to initiate further discussions.
7. Even before any concrete discussions began with IntellSap, M&G plotted its
moves. Soon after the initial meeting at Davos between Mr. Vardhan and Mr.
Iyer, the acquisitions team of M&G swung into action. With Ms. Baruah’s
blessings, the M&G management decided to acquire a toehold in IntellSap, which
it believed would strengthen its position in any potential future deal with the
target. Between February 9, 2017 and February 16, 2017, M&G acquired through
its stockbroker 1% shares in IntellSap on the stock exchange.
8. Soon thereafter, M&G came up with a complex plan, a brainchild of Mr. Vardhan
and Mr. Scaria, to cement its position in IntellSap even before a first direct move.
M&G’s management began discussions with two independent and unrelated
financial institutions, Crown Financial Services Limited and Sabre Finance
Limited to enter into some transactions pertaining to IntellSap’s shares. After a
few days of intense negotiations, M&G entered into a Total Return Equity Swap
Agreement (“TRESA”) with Crown Financial on March 14, 2017 and a similar
TRESA with Sabre Finance on March 15, 2017.
9. One may appreciate the nature of the total return equity swaps by taking an
example of the TRESA between M&G and Crown Financial. Identical terms
apply to the TRESA between M&G and Sabre Finance as well, except where
specific terms and facts indicate otherwise. Under the TRESA, M&G and Crown
Financial agreed to exchange sums equivalent to the income streams produced by
a specific number of shares in IntellSap. M&G’s TRESA with Crown Financial
covered 2.2% of the total issued and paid up capital of IntellSap, while its TRESA
with Saber Finance covered 2%. Each of these blocks of shares is referred to as
“Reference Shares”. Under the respective TRESAs, M&G, being the “long” party,
agreed to pay a fee of Rs. 2.2 crores to Crown Financial and Rs. 2 crores to Saber
Finance, each of whom was the “short” party. These amounts were fees that
M&A paid to Crown Financial and Saber Finance, which constituted the
consideration for them to enter into the TRESAs.
10. These total return equity swaps were “cash settled”. Under this arrangement, upon
termination Crown Financial is obligated to pay M&G the amount by which the
Reference Shares on the termination date have appreciated in market price in
comparison with the market price of the Reference Shares as on the date of the
TRESA. On the other hand, if the market price of the Reference Shares on the
termination date depreciated with reference to the price on the date of the TRESA,
then M&G is obligated to pay the difference to Crown Financial. In addition,
Crown Financial must pay other income (such as dividend) relating to the
Reference Shares to M&G. The cash settled total return equity swaps do not
transfer title to the underlying Reference Shares to M&G, nor does it even require
180

that Crown Financial actually own those shares. It is possible to contrast this with
a total return equity swap that is “settled-in-kind” where the short party has an
obligation to transfer the Reference Shares to the long party upon termination of
the arrangement. Although not required under the TRESA, Crown Financial and
Sabre Finance went ahead and acquired the 2.2% and 2% shares respectively in
IntellSap in order to hedge their own positions, and not with a view to acquire any
form of control over IntellSap. M&G went to great lengths to ensure that it keeps
its excitement over IntellSap under wraps, and that the rest of the market does not
anticipate M&G’s next moves.
11. Given some scheduling troubles, it was possible to arrange a meeting between
Ms. Baruah and Mr. Banerjee only on March 20, 2017 in Mumbai. Although the
IntellSap team was keen for their company to remain independent and had not
really contemplated any kind of alliance or acquisition transaction, they were
open to hear out M&G’s views, albeit with some level of caution. The meeting
began well, and the two principals seemed to get along famously. Quickly, it
became evident to IntellSap that forging some sort of partnership or merger with
M&G was advantageous, as it would help broaden IntellSap’s horizons from the
perspective of business opportunities as well as enhancing its ability to raise
capital at more manageable costs.
12. After a couple of quick rounds of meetings later that month, the parties agreed to
explore various transaction opportunities by sharing information with each other
regarding principal aspects of their businesses and finances. Before doing so, they
entered into a non-disclosure agreement dated March 31, 2017 (“NDA”) to
contain and regulate the information flow. In addition to other customary terms
and conditions, the NDA contains the following specific provisions:
a. “Confidential Information” means any non-public information furnished

or communicated by the disclosing party, and all analyses, compilations,
forecasts, studies, reports, interpretations, financial statements,
summaries, notes, data, records or other documents and materials
prepared by the receiving party that contain, reflect, are based upon or
are generated from any such non-public information;
b. “Transaction” means a possible merger or other form of business

combination agreed between the parties;
c. The receiving party agrees to use the Confidential Information solely in

connection with the Transaction and not for any other purpose without the
prior written consent of an authorised representative of the disclosing
party;
d. The receiving party agrees that, without the prior written consent of an
authorised representative of the disclosing party, it will not disclose to any
other person, other than as legally required, the fact that any Confidential
181

Information has been made available hereunder, that discussions or
negotiations have or are taking place concerning a Transaction or any of
the terms and conditions or other facts with respect thereto.
13. During the months of April and May 2017, each of M&G and IntellSap shared
confidential information with the other that gave a window into the business
organization, operation and finances of the disclosing company. For this purpose,
each of the companies established a closely-knit team of internal professionals
and external advisors who pored over files and documents and conducted
discussions and interviews. During the discussions with IntellSap and the process
of sharing of information between the two companies, Mr. Iyer directly asked Mr.
Scaria: “Does M&G own shares, warrants, options or other similar securities in
IntellSap? If so, how much?”. Without batting an eyelid, Mr. Scaria answered:
“Yes, we own 1% shares that we bought on the stock market, as your company
has been generating good returns. Nothing more”.
14. At the end of May 2017, equipped with deeper wisdom about each other, the two
companies got to the negotiating table to whip up a deal. The companies were in
agreement about the transaction structure, i.e., that IntellSap would merge into
M&G by way of a scheme of arrangement under the Companies Act, 2013, which
would indeed require the approval of the boards and shareholders of both
companies. However, parties hit a roadblock when it came to the valuation and
pricing of the deal. While IntellSap valued itself at Rs. 700 crores, the acquisitions
team of M&G strongly recommended that Ms. Baruah not accept any value in
excess of Rs. 500 crores, which they believed was more reasonable based on their
analysis of the financial information they received. The parties attempted to
reason out their position in further meetings, but given the polarity of the
valuation expectations, matters came to a stalemate by the end of June 2017, and
the players naturally abandoned any further talks.
15. While the two companies apparently went about their business as usual, Ms.
Baruah continued to train her focus on IntellSap. She was somehow determined
that M&G must obtain control over IntellSap at its own terms and at a valuation
closer to its own ballpark. In early December 2017, M&G offered a “bear hug” to
IntellSap with a modified proposal. Ms. Baruah and her team flew down to
Bengaluru to meet with IntellSap’s management. Instead of a merger, whose idea
dissipated earlier, M&G proposed that it would make a takeover offer for the
shares of IntellSap and make the target company its subsidiary. It offered to do so
at a price of Rs. 275 per share, which represented a total enterprise value of Rs.
525 crores and a 15% premium to the then prevailing market price.
16. Aghast at this suggestion, the IntellSap management were furious and in no mood
to discuss this further. They remained keen to maintain independence, and they
were attracted to the notion of a takeover only if it were closer to, if not at, their
suggested valuation of Rs. 700 crores. The IntellSap management were adamant
in that they believed the current market price on the stock market was not at all
182

reflective of the true value of the company, and hence no deal was acceptable
unless it was at a substantial premium to the market price. The parties parted ways
again, albeit temporarily, as they each decided to reflect upon the matter during
the holiday season and reassemble in the new year with some fresh ideas that
might bridge the gap in the expectations between the two parties.
17. When most of the IntellSap management were away during the holiday season,
the M&G management was working on overdrive and they dropped a bombshell.
On December 26, 2017, M&G made a public announcement of a voluntary
conditional takeover offer for all the shares of IntellSap, except for the shares
M&G already holds. M&G fixed the offer price at Rs. 278 per IntellSap share,
which was still at a healthy premium to market price, and it was compliant with
the relevant regulations governing the pricing of a takeover offer. The terms of the
offer indicated that M&G would discharge the consideration partly in cash and
partly by issuing its own shares. For every share of IntellSap it acquires, M&G
would pay cash of Rs. 250 and it would issue 0.1 times each of its own share
which, on the date of the offer announcement, was trading at Rs. 280 per share. In
case IntellSap shareholders receive fractional entitlements of M&G shares, all
fractional entitlements will be consolidated and such IntellSap shareholders will
be paid cash in lieu thereof.
18. M&G’s offer for IntellSap’s shares was subject to the following conditions:
a. The offer would be successful only if it receives acceptances in respect of

an appropriate number of shares such that M&G’s shares in IntellSap,
having regarding to its existing shareholding in the company, would
represent no less than 51% voting rights in the IntellSap. In other words,
M&G did not wish to acquire IntellSap unless it was able to obtain a
controlling stake in the company;
b. The issue of shares by M&G to IntellSap’s shareholders as part

consideration for the offer must receive the approval of the M&G
shareholders in general meeting through a special resolution;
c. No material adverse change or deterioration shall have occurred in the

business, assets, financial or trading position or profits or prospects of
IntellSap during the period between the date of the public announcement
of offer and completion of the offer.
19. M&G made the offer through its merchant banker Share Onn Securities Limited.
M&G also received advice from its trusted law firm LexPlan Partners. Both Share
Onn and LexPlan reviewed the public announcement and signed off on the same
before publication. M&G also created the requisite escrow account necessary for
the type of offer it had made.
183

20. M&G’s shock and awe strategy left the IntellSap management utterly unprepared.
Mr. Banerjee had barely arrived at the Sydney airport with his family on a holiday
when he had to take the next flight back to Bengaluru. Mr. Iyer, who was caught
unawares by this development as he was driving out to Madikeri, had to turn back
as well. On the morning of December 27, 2017, the entire senior management of
IntellSap, along with their advisors, went into a huddle in their boardroom at the
headquarters. They committed themselves to stop M&G on its tracks at any cost.
They worked out a number of strategies, all of which required some level of
aggression. Polite discussions with M&G were no longer an option given the
unilateral precipitous action the raider took, and that too in a furtive manner,
which is evident from its choice of timing. The response had to be equally sly.
21. As IntellSap’s management was cooking up its strategy, M&G had to go through
the motions with its takeover offer. As a next step, on December 29, 2017, Share
Onn filed M&G’s draft letter of offer with the Securities and Exchange Board of
India (“SEBI”). Accompanying the draft letter of offer were due diligence
certificates signed by Share Onn and LexPlan Partners. On the same day, Share
Onn also despatched copies of the letter of offer to IntellSap’s registered office
and to the NSE. Upon receipt of the draft, IntellSap’s management began to pore
over it with a fine toothcomb. Two specific aspects of the draft letter of offer
exercised their minds immediately.
22. First, IntellSap’s management were stunned in their discovery that the draft letter
of offer contained several pieces of information regarding IntellSap that their
management had disclosed to M&G during the information sharing exercise in
April and May 2017 that was subject to the NDA entered into between the two
companies. The draft letter of offer contained the fact that M&G and IntellSap
had previously engaged in negotiations for a possible merger transaction, which
information itself was subject to the confidentiality requirements of the NDA.
Some of the information was extremely sensitive and had the potential to put
IntellSap’s business model into jeopardy. M&G had used the confidential
information to embellish the attractiveness of its offer, and in turn portrayed
IntellSap’s management in a negative light. By this strategy, M&G intended to
convince IntellSap’s shareholders to tender enough number of shares to make the
offer successful.
23. As a second matter, IntellSap’s management were shocked to find that Crown
Financial and Sabre Finance each held 2.2% and 2% respectively of IntellSap.
More importantly, the draft letter of offer indicated that on December 26, 2017,
immediately after the public announcement of the offer, each of Crown Financial
and Sabre Finance had issued irrevocable undertakings in favour of M&G.
Through these undertakings, they agreed to sell their shares in IntellSap to M&G
as part of the takeover offer it has launched, and on the terms and conditions set
out in the offer.
184

24. On January 3, 2018, IntellSap addressed a letter to SEBI requesting it to (i) direct
M&G to remove information from the draft letter of offer that has been obtained
from IntellSap during the failed merger negotiations in April and May 2017 in
breach of the NDA; and (ii) investigate into the nature of arrangements between
M&G on the one hand and Crown Financial and Sabre Finance on the other, and
to enquire why these arrangements were not disclosed in the manner required by
law at the time that they were entered into. On January 10, 2018, SEBI wrote to
M&G seeking its response on both counts. On January 22, 2018, M&G responded
to SEBI stating that it has disclosed confidential information received from
IntellSap in its draft letter of offer because failure to do so would expose it to
liability to IntellSap shareholders for possible misstatements. It did not dispute the
fact that it received the information from IntellSap, but it advanced its position
that disclosure thereof in the letter of offer did not amount to a breach of the
NDA. In any event, SEBI was not the arbiter of any dispute under the NDA. As
for its arrangements with Crown Financial and Sabre Finance, M&G maintained
its position that it has made all disclosures to the extent necessary under law, and
is not required to reveal anything further. SEBI forwarded a copy of M&G’s reply
to IntellSap and stated that it was still considering the issues, and that it proposes
to deal with them while providing comments on the draft letter of offer as
required under law. SEBI also informed M&G that there could be potential delays
in clearing the draft letter of offer as outstanding issues needed to be satisfactorily
resolved.
25. Even as the draft letter of offer saga was playing out in SEBI’s court, the IntellSap
management was swiftly working on other fronts. They were apprehensive about
the company falling into the hands of M&G and its management, who were likely
to trample upon the unique business culture of IntellSap, thereby adversely
affecting its employee morale and provoking customer concerns. IntellSap’s was
a people-centric business. If it were to be subsumed into a behemoth such as
M&G, it might alienate IntellSap’s employees, customers as well as investors.
IntellSap’s founders regarded M&G’s business model and its management style
with a great deal of suspicion as they perceived it to be inimical to IntellSap’s
carefully cultivated business ethos. Hence, they worked towards bringing in a
“white knight” to rescue them from their predicament.
26. In IntellSap’s December 27, 2017 management meeting, its investment banker
Snapus Capital Private Limited recommended that it approach Mr. Deepak
Swamy, the senior statesman of the information technology industry in India to
seek his advice on potential ways to keep M&G at bay. Mr. Deepak Swamy is the
founder and non-executive chairman of Honsys Technologies Limited, a leading
technology company of India. After initial discussions, IntellSap persuaded
Honsys to make a competing offer for IntellSap. Honsys, however, laid down its
stipulations for any such deal. At the outset, Honsys insisted on conducting a
limited due diligence on IntellSap. Moreover, it required that IntellSap enter into
an acquisition support agreement with Honsys by which IntellSap and its
management would provide certain representations and warranties to IntellSap.
185

Usually such representations and warranties from the target company are
meaningless because, if Honsys were successful in completing the acquisition, it
would itself be the controller of IntellSap. However, in this case, there was a
rationale for obtaining such representations and warranties, as Honsys proposed to
obtain representations and warranties insurance from GIA, a leader provider of
such bespoke policies in India.
27. More importantly, Honsys also insisted on a “break fee” clause in the acquisition
agreement by which IntellSap would pay Honsys 10% of the transaction value if
Honsys’s offer fails for any reasons (other than Honsys’s own actions or
omissions), or if IntellSap breaches any of its material representations and
warranties. The break fee amount constituted a reimbursement to Honsys for the
time, effort and cost it would expend in becoming a competing bidder. After all,
Honsys was only a stalking horse in the battle. Following a simple and truncated
due diligence that Honsys carried out, an acquisition agreement was executed on
January 10, 2018 between Honsys and IntellSap on the above mentioned lines.
Immediately thereafter, Honsys made a public announcement of a competing
offer at Rs. 290 per share, with the entire consideration being payable in cash. It
also duly completed the formalities for creating an escrow account.
28. Similar to M&G’s offer, Honsys’s offer was conditional upon receiving minimum
number of acceptances such that the offer would be successful only if it received
acceptances in respect of an appropriate number of shares such that Honsys’s
shares in IntellSap, having regarding to its existing shareholding in the company,
would represent no less than 51% voting rights in the IntellSap. On January 15,
2018, Honsys filed a copy of its draft letter of offer with SEBI for its comments.
SEBI kept the draft letter of offer on its file and replied to Honsys that it would
provide comments on its offer together with that of M&G given that outstanding
issues needed to be resolved in relation to the M&G offer.
29. Soon after it came to know about Honsys’s offer, M&G’s management accepted
that they indeed had a battle on their hands. Neither IntellSap nor Honsys was
going to relent easily, and M&G’s strategy needed to be even more aggressive.
M&G launched a multipronged attack involving both business strategy and legal
assertions. First, on January 17, 2018, M&G announced an upward revision to its
offer price to Rs. 320 per share, by which it would pay a cash component of Rs.
292 per share and it would issue 0.1% times each of its own shares to tendering
shareholders of IntellSap. It decided to take this step to ensure that its offer will be
so attractive to IntellSap’s shareholders that it will trounce Honsys’s inferior
offer. Moreover, M&G’s own share price remained strong and at the same levels
as in December 2017 when it first announced the offer for IntellSap. M&G also
topped up its escrow account to reflect the revised offer price.
30. M&G also adopted two legal steps. First, by way of a letter dated January 17,
2018, it wrote to IntellSap requesting it to share with M&G all information and
documents that it has shared with Honsys during the purported due diligence. It
186

argued that this was only in the fairness of things to ensure a level playing field.
To this, pat came the response from IntellSap on January 18, 2018 that it was not
bound to consider such wide and bald requests for information, although it was
willing to consider whether to grant access to any documents that M&G may
specify in its request. Second, by way of another letter dated January 17, 2018,
M&G wrote to SEBI complaining that IntellSap’s actions of seeking refuge under
an offer from Honsys reeked of nepotism as the attitude of the target company
unduly favoured Honsys’s bid over that of M&G’s. For example, Honsys was
entitled to representations and warranties from IntellSap, while M&G was not.
More egregiously, the break fee in favour of Honsys was structured in a manner
as to defeat M&G’s takeover offer, and make IntellSap much less attractive even
if M&G were to succeed in obtaining control over it. SEBI forwarded M&G’s
complaint to IntellSap and Honsys, seeking their explanation. IntellSap and
Honsys responded to state that their actions remained within the confines of the
law, and that they have acted in their respective shareholders’ interests. SEBI
continued to ponder over the issues and hence the takeover offers of both M&G
and Honsys remained in abeyance, and no resolution was in sight for several
weeks.
31. The battle for control of IntellSap took an even dramatic turn. Like a bolt from the
blue, Honsys announced on April 2, 2018 that it is terminating the acquisition
agreement with IntellSap, and that it will be claiming the break fee due to it under
the agreement. It turns out that a whistleblower wrote to Mr. Deepak Swamy
informing him that, for several years, IntellSap has been engaged in related party
transactions that were neither disclosed nor were they approved by the audit
committee, board of directors or shareholders, as the case may be, in terms of the
applicable legal provisions. Mr. Banerjee’s wife owned a company Solstice
Services Private Limited, which provided various types of services to IntellSap at
a price considerably above market price, thereby tunnelling wealth out of
IntellSap and into Mrs. Banerjee’s company. Initial investigations indicated that
the transactions occurred for at least five years, and this revelation is bound to
have a significant impact on the value of the company, especially since the
financial statements of the company for the last five years would have to be
restated. This information came into the public domain, as the whistleblower
created an anonymous Facebook page and simultaneously posted online the letter
that was delivered to Mr. Swamy. Over the next few days, IntellSap’s stock
suffered a drastic slide. SEBI has separately begun an investigation into the
revelations on the alleged related party transactions, which is still ongoing. In the
meanwhile, market analysts have asserted in the financial media that the value of
the related party transactions each year hovers around 9% of the average turnover
of IntellSap for the last five years.
32. On April 5, 2018, M&G addressed another letter to SEBI seeking its permission
to withdraw its offer in light of the new revelations. It justified its request on the
basis that the conditions stipulated in its offer have not been satisfied due to the
additional information regarding the related party transaction and the consequent
187

impact on the financial position of IntellSap. Not keen on relying only on SEBI’s
attitude towards its request, M&G took an additional step. It convened an
extraordinary general meeting of the shareholders of M&G “to consider and
approve the issue of shares by M&G to the shareholders of IntellSap as part
consideration for acquisition of their shares”. The meeting was scheduled for May
15, 2018. In the explanatory statement that accompanied the notice, M&G urged
the shareholders not to approve the transaction as, in view of the revised facts that
have surfaced, the takeover of IntellSap was no longer a financial viable one, and
is against the interests of M&G’s shareholders. Ms. Baruah also wrote a personal
letter addressed to the shareholders that appeared on the website of the company
and in the business media suggesting that IntellSap’s management is “morally and
financially corrupt” and that “it is not clear how many more skeletons remain in
the closet”. It is no surprise therefore that the resolution received the support of
only such shareholders that held 70% of the total votes, which was less than the
number for the requisite majority. On May 17, 2018, M&G addressed a letter to
SEBI updating it about the failure of the condition relating to shareholder
approval, which it argued was an additional justification why SEBI should allow
M&G’s request to withdraw from the offer made to IntellSap’s shareholders.
33. In June 2018, M&G faced its own share of woes. Some of the construction
projects that M&G carried out through its various subsidiaries suffered due to a
downturn in the construction industry. The subsidiaries were unable to meet
various payment obligations under loan agreements, and the lenders invoked the
parent guarantees that M&G had issued to the lenders. Moreover, M&G had
pledged the shares it held in these subsidiaries in favour of the lenders, who
promptly invoked the pledges and took over the subsidiaries. These series of
events in just a matter of weeks sent M&G’s finances into a downward spiral. It
now became clear that M&G would be stretching itself too thin in being able to
pay the consideration at all if it were to be compelled to complete the offer it
made to IntellSap’s shareholders.
34. On August 16, 2018, SEBI wrote to M&G offering its comments on the draft
letter of offer. It rejected M&G’s request to withdraw the offer, and directed it to
proceed with the offer and complete it within a stipulated period. It also asked
M&G to remove references to information it received from IntellSap under the
NDA from the letter of offer to be sent to IntellSap’s shareholders. SEBI also
initiated additional proceedings against M&G and its advisors. After hearing the
parties, on September 28, 2019, SEBI passed an order against M&G, Crown
Financial and Sabre Finance for violating disclosure requirements under
regulations issued by SEBI by not coming clean about the TRESAs. Moreover,
SEBI passed an order against M&G, Share Onn and LexPlan Partners for the
wrongful statement contained in the public announcement as well as the draft
letter of offer that M&G has adequate financial resources to complete its offer
obligations. Consequently, SEBI reiterated its direction to M&G to complete the
offer on the terms it had agreed. For other violations, SEBI ordered M&G, Crown
Financial and Sabre Finance to pay penalties of Rs. 50 lakhs each. SEBI also
188

debarred Share Onn and LexPlan Partners from advising on any securities
markets transactions for a period of six months from the date of the order.
35. Separately, SEBI also considered M&G’s complaints against IntellSap. After
hearing the parties, SEBI passed an order dated October 5, 2018, finding no
violation of relevant norms by IntellSap or Honsys, and dismissed M&G’s
complaint. SEBI also cleared the competing offer by Honsys, and ordered that
both the Honsys and M&G offers must run simultaneously. Honsys did not resist
this outcome, as it was confident that in these circumstances its own offer is only
likely to fail, and it need not be concerned about being asked to take over
IntellSap. Honsys also separately issued a legal notice to IntellSap calling upon it
to make payment of the break fee. IntellSap is yet to comply with the notice, and
Honsys is contemplating the further course of legal action.
36. Against the various orders of SEBI, the affected parties preferred appeals before
the Securities Appellate Tribunal (“SAT”). M&G strenuously argued why it
should not be compelled to complete the takeover offer, and that it must be
allowed to withdraw. It also argued that by not stating information in the letter of
offer that it received from IntellSap, it would run the risk that its letter of offer
would be incomplete and that it could be subject to liability for misstatements to
the shareholders of IntellSap. Along with Crown Financial and Sabre Finance,
M&G also denied breaching any disclosure obligations and sought to overturn the
penalty imposed on them. On the other hand, M&G argued that by refusing to
accept its complaint regarding the conduct of IntellSap and Honsys in the offer,
SEBI has caused grave injustice to M&G. This is particularly so in relation to the
lack of a level playing field in terms of sharing of information and also in respect
of representations and warranties and break fee available only to Honsys. In
parallel, Share Onn and LexPlan Partners argued that they themselves were
victims of deception by M&G, who did not disclose the existence of pledges over
the shares that it held in some of the larger subsidiaries that carried out
construction projects. When both advisors asked M&G to review financing
documents pertaining to M&G, they provided the various loan agreements and
guarantees, but not the pledge documents. It is another matter that the loan
agreements and guarantee documents referred to the pledge documents, albeit
without the details. After hearing the parties, the SAT dismissed the appeals of
M&G, Share Onn and LexPlan Partners.
37. The aggrieved parties have now preferred appeals before the Supreme Court,
which has agreed to hear all the appeals together.
*****
189

SSRN Id2322609 PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SSRN Id2322609 PDF

Uploaded by

Copyright:

Available Formats

A COLLECTION OF MOOT COURT PROBLEMS

ON CORPORATE LAW IN INDIA

Drafted and Compiled by:

Electronic copy available at: https://ssrn.com/abstract=2322609

I wish to acknowledge the contribution of Mr. Ananth Padmanabhan and Mr. V.

Electronic copy available at: https://ssrn.com/abstract=2322609

I hope you enjoy reading these!

Electronic copy available at: https://ssrn.com/abstract=2322609

1. Internal Selection Rounds at the National Law School of India University,

2. Internal Selection Rounds at the National Law School of India University,

3. Internal Selection Rounds at the National Law School of India University,

4. Internal Selection Rounds at the National Law School of India University,

5. NLS-NFCG National Level Corporate Governance Moot Court Competition

6. Internal Selection Rounds at the National Law School of India University,

7. Internal Selection Rounds at the National Law School of India University,

9. Internal Selection Rounds at the National Law School of India University,

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

Drafted by: Umakanth Varottil

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

JJ Diagnostics Private Limited - Appellant

Dr. Manjari - Respondent

1. Technology has broken distance as a barrier to providing healthcare services

2. Anticipating a boom in the healthcare outsourcing activity, Dr. Jomon Jacob

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

(d) The employment contract can be terminated by either party by giving 3

8. As regards confidentiality and privacy, JJ Diagnostics’ lawyers specifically

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

(b) recovery of all amounts expended by JJ Diagnostics towards training Dr.

(c) recovery of additional amounts by way of damages for defrauding JJ

(d) ordering attachment of the property owned by Dr. Manjari’s in Lonavla

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

Drafted by: Umakanth Varottil

IN THE HIGH COURT OF JUDICATURE AT MADRAS

Finance Mart India Limited … Appellant

Scarlet Designs India Limited and Another … Respondent

1. There is no doubt whatsoever that Formula 1 racing has acquired a prominent

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

14. Two senior engineers of AutoSoft Services were immediately summoned to

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

(d) that the assignment of the receivables by AutoSoft Services to Finance

Electronic copy available at: https://ssrn.com/abstract=2322609

Drafted by: Umakanth Varottil

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

Farewell Bank Limited … Appellant

PowerCraft Publications Limited & Others … Respondents

1. Hobart Murdech is an Australian-born media mogul with an innate interest in

Electronic copy available at: https://ssrn.com/abstract=2322609

Electronic copy available at: https://ssrn.com/abstract=2322609

7. Matters were not smooth-sailing, however, in the Murdech camp. Murdech

8. The financial difficulties of the Murdech group surfaced on November 17,

Electronic copy available at: https://ssrn.com/abstract=2322609

9. After completion of the transaction, on or around December 15, 2006,

10. PowerCraft’s worsening financial situation added to the Murdech group’s

Electronic copy available at: https://ssrn.com/abstract=2322609