HNLU Appellant

TEAM -
II NUJS HERBERT SMITH NATIONAL CORPORATE LAW MOOT COURT

COMPETITION, 2010
___________________________________________________________________________
BEFORE THE HON’BLE HIGH COURT

AT
KOLKATA
___________________________________________________________________________
COMMITTEE OF DINERGY CREDITORS & OTHERS
APPELLANTS
V.
DINERGY SUGHOSKAR POWER PVT. LTD., BRETLEY BANK & OTHERS
RESPONDENT
___________________________________________________________________________
C.A. No.: ______/2010
__________________________________________________________________
MEMORANDUM FOR THE APPELANTS

Summary of Pleadings___________________________________________________________
TABLE OF CONTENTS
__________________________________________________________
List of Abbreviations…………………………………………………….………………………..v
Index of Authorities………………………………………………………………………...........vii
Statement of Facts…………………………………………………………………………..........xv
Statement of Jurisdiction………………………………………………………………………….
Questions Presented……………………………………………………………………………...xx
Summary of Pleading...…………………………………………………………………….........xxi
______________________________________________________________________________
Pleadings..…..…………………………………………………………………………………..…1
______________________________________________________________________________
[I] THE PRINCIPLE OF CORPORATE DISREGARD SHOULD BE APPLIED................1
[I.A] DINERGY IS THE HOLDING COMPANY OF JV COMPANY…………….……………………...…
[I.B] THE ACT OF 1956 PERMITS PIERCING THE VEIL IN CASE OF HOLDING-SUBSIDIARY
COMPANIES………………………………………………………………………………………...2
[I.C] THE JV COMPANY IS AN INSTRUMENTALITY OF
DINERGY……………………………………3
[I.D] THE JV COMPANY AND DINERGY IS A SINGLE ECONOMIC
UNIT………………………………4
[I.E] THE JV COMPANY HAS BEEN INSTRUMENTAL IN PERPETUATING
FRAUD……………………..5
[I.F] JV COMPANY IS LIABLE FOR THE ACTS OF
DINERGY………………………………………….6
_____________________________________________________________________________
2
____________________________Memorandum for Appellants__________________________
[II] THE JV COMPANY IS LIABLE TO WOUND UP……………………………………....6
[II.A] SECTION 433(1)(e) MENTIONS INABILITY TO PAY DEBTS AS A GROUND FOR WINDING
UP………………………………………………………………………………………………….7
[II.B] JV COMPANY SHOULD BE WOUND UP ON JUST AND EQUITABLE GROUNDS PROVIDED UNDER
SECTION 433(1)(f)
………………………………………………………………………………….8
[II.B.1] JV Company cannot carry on business except at losses………………………………….9
[II.B.2] JV Company should be wound up because the substratum is lost………………………..9
[II.B.3] JV Company is to be wound up in public interest………………………………………10
[II.C] THE SCHEME ENVISAGED BY THE SYNDICATE IS NOT FAIR, JUST AND
REASONABLE………..11
[II.C.1] That the Indian Scheme is not fair and reasonable…………………………………...…11
[II.C.2] The scheme is neither feasible nor workable……………………………………………12
[II.C.3] The Unsecured Shareholder loan of Dinergy falls into the class of Subordinated
Creditors………………………………………………………………………………………….13
[II.D] THE DISSOLUTION OF THE JV COMPANY IS IN THE PUBLIC INTEREST AS THE COMPANY IS
BEYOND RECOVERY OR
REVIVAL………………………………………………………………….14
[II.E] THE INDIAN SCHEME IS VOID BECAUSE IT AMOUNTS TO FRAUDULENT
PREFERENCE……….14
[II.E.1] Further, this transfer was not in the ordinary course of its business…………………….15
_____________________________________________________________________________
[III] THE FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA……………..15
[III.A] DELAWARE COURT IS A COURT OF COMPETENT
JURISDICTION…………………………….15
[III.B] THE FOREIGN JUDGMENT IS ON MERITS……………………………………………………
16
3
[III.C] DELAWARE COURT HAS NOT REFUSED TO RECOGNIZE THE LAW IN
INDIA………………...16
[III.D] PRINCIPLE OF NATURAL JUSTICE WAS
FOLLOWED………………………………………...16
[III.E] THE FOREIGN JUDGMENT IS NOT IN BREACH OF ANY LAW IN
INDIA……………………….17
_____________________________________________________________________________
[IV] THE CONCEPT OF ASSET CONSOLIDATION HAS BEEN SOUGHT TO BE

APPLIED BY THE DELAWARE COURT…………………………………………………..17
[IV.A] ALL THE REQUIREMENTS FOR INVOKING THE DOCTRINE ARE SATISFIED IN THE INSTANT
CASE……………………………………………………………………………………………...18
[IV.B] THE DOCTRINE TAKES CARE OF ALL THE
CREDITORS……………………………………...18
[IV.C] THE CO C HAS PRIOR CLAIM UNDER THE INSOLVENCY LAWS IN
INDIA…………………….19
[IV.C.1]Under the insolvency law of India, the workmen dues assume supreme priority………19
[IV.C.2] Even under the common law principles, the COC would have a prior claim over the
assets of the JV Company………………………………………………………………………..19
______________________________________________________________________________
PRAYER FOR
RELIEF…………………………………………………………………………….21
4
LIST OF ABBREVIATION
ABBREVIATION EXPLANATION
& And
§/§§ Section/Sections
¶/¶¶ Paragraph/Paragraphs
2d Cir Second Circuit
AD Apex Decisions
AIR All India Reports
All Allahabad
All ER Rep All England Reports Reprint
AP Andhra Pradesh
Aust Australia
BCC British Company Cases
BCLC Butterworths Company Law Cases
Bom Bombay
CA Court of Appeals
5
Cal Calcutta
Calif. L. Rev. California Law Review
Ch D Chancery Division
Ch D Chancery Division
CLJ Company Law Journal
CLR Company Law Reports
Co. Company/Corporation
Col. L. Rev Columbia Law Review
Com Company
Com cases Company Cases
Conn.L.Revv Connecticut Law Review
DB Division Bench
Del Delhi
Del Delhi
Ed Edition
Etc. Etcetera
Fed Federal
Guj. Gujarat
Harv. L. Rev. Harvard Law Review
HL House of Lords
ILR Indian Law Reports
in liq In Liquidation
Inc Incorporated/Incorporation
Ins. Law Insolvency Law
Ir. Ireland
Kar Karnataka
KB King’s Bench
Ker Kerala
La. App. Law Appeals
LJ Ch Law Journal, Chancery
LQR Law Quarterly Review
LT Law Times
Ltd Limited
Mad Madras
MINN Minnesota
MP Madhya Pradesh
no. Number
NSWLR New South Wales Law Reports
NY New York
NZ LR New Zealand Law Reports
Ori Orissa
P&H Punjab & Haryana
p. Page
PC Privy Council
PNB Punjab National Bank
QB Queen’s Bench
6
QBD Queen’s Bench Division

Raj Rajasthan
Rly Railway
SC Supreme Court
SCC Supreme Court Cases
SCL Sebi & Corporate Law
SCL SEBI & Corporate Law
SDNY Superior Division of New York
SEBI Securities Exchange Board of India
SLT Scots Law Time
SLT Supreme Law Today
Vand. L. Rev. Vanderbelt Law Review
Vol Volume
WLR Weekly Law Reports
YALE L. J. Yale Law Journal
INDEX OF AUTHORITIES
A. STATUTES
1. Companies Act, 1956.
7
2. Civil Procedure Code, 1908.
3. Insolvency Act 1986
B. CASE LAWS
B.1 Indian Cases
Name of Case Cited At

1. Algemene Bank Netherland NV Plaintiff v. Satish Dayalal Choksi, AIR 1990 Bom 16
17
2. Ali Jawad Ameer Hasan Rizvi v Indo French Biotech Enterprises Ltd. (1999) 95 5
Comp Case 373.
3. Alliance Credit & Investments Ltd. v Khaitan Hostombi Spines Ltd. [1997] 3 CLJ 7
200 (All);
4. Arvind Investment Consultant v Presto Finance Ltd. (1998) 94 Comp. Cas. 350 8
(Guj.)
5. Dalmia Cement (Bharat) Ltd. v Indian Seamless Steels and Alloys Ltd. (2002)112 7
comp. Cas. 314
6. Delhi Development Authority v Skipper Construction Co (P) Ltd. (1997) 11 SCC 5
430.
7. Dhulia-Amalner Motor Transport Ltd. v R.R. Dharamsi AIR 1952 Bom 337 1
8. Essar Gujarat Ltd. v Shree Kangra Steels Pvt. Ltd. (1999) 97 Comp. Cas. 726 (HP); 7
9. Fatima Tile Works v. Sudarshan Trading co. Ltd. (1992) 74 Com cases 423 (Mad), 2
10. Freewheels (India) Ltd. v Dr. Veda Mitra AIR 1969 Del 258: [1969] 1 Comp LJ 3
138,
11. Gadadhar Dixit v Utkal Flour Mills (P.) Ltd. [1989] 66 Comp. Cas. 188 (Ori); 8
12. Hind Overseas Pvt. Ltd. v. R.P.Jhunjhunwala [1977] ASIL XIII. 8
13. Hind Overseas Pvt. Ltd. v. R.P.Jhunjhunwala [1977] ASIL XIII. 8
14. Hindustan Lever Employees’ Union v. Hindustan Lever Ltd. (1995) 83 Comp. Cas. 11
30 (SC)
15. In re casting Ltd., (2005) 124 Comp. cas. 523 (AP) 11
16. In Re Darjeeling Bank Ltd. v Ranadhir Steel and Alloys (P) Ltd. (1949) 19 Comp. 8
Cas. 1(Cal.);
17. In re Sutlej Industries Ltd., (2007) 135 Comp. Cas. 394 (Raj.) 11
18. In re Tata Oil Mills Co. Ltd., (1994) 81 Comp Cas. 754(Bom) 11
8
19. In re Torrent Power AEC Ltd., (2007) 138 Comp. Cas. 139 (Guj) 11
20. In re Varuna Investment Ltd., (2001) 106 Comp. Cas. 410 (Bom 11
21. In Re, Kaithal and General Mills Co. Ltd. [1951] 31 Comp. Cas. 461 9
22. In re, Shyam Telecom Ltd., (2007) 135 Comp. Cas. 387 (Raj.) 11
23. In Re, Siddhartha Apparels P. Ltd. (1986) 59 Comp Cas. 435 (Cal.); 8
24. Indian and General Investment Trust Ltd. v. Sri Ramchandra Mardaraja Deo, Raja 16
of Khalikote, AIR 1952 Cal 508
25. International Caterers (P) Ltd. v. Manor Hotel (P) Ltd. [2007] 79 SCL 234 9
26. Jagdamba Polymers Ltd. v Neo Sack Ltd. (2006) 129 Comp. Cas. 160 (MP), 7
27. Joseph v. Paily AIR 1958 Ker 324. 12
28. Kanchanaganga Chemical Industries v Mysore Chipboards Ltd. (1998) 91 Comp. 8
Cas. 646 (Kar)
29. Kiritbhai Hiralal Patel v. Arvind Intex Ltd., (2001) 107 Comp. Cas. 232 (Guj.) (DB) 11
30. Kondoli Tea Co. Ltd, Re, ILR 91886) 13 Cal 43; 1
31. M.Mohan Babu v Heritage Foods India Ltd. (2002) 108 Comp Cas. 793 (AP) 7
32. M.Velayudhan v ROC (1980) 50 Comp Cas 33 Ker 1
33. Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. [1972] 42 7
Comp. Cas. 125;
34. Maegebyte Consultancy Services (P.) Ltd. v Gujarat State Financial Services Ltd. 7
[1999] 20 SCL 219 (Bom)
35. Manganese Ore (India) Ltd. v Sandur Manganese and Iron ores Ltd. (19990 98 7
Comp. Cas. 755 (Kar);
36. Mehra (UK) v UOI (1997) 88 Comp Cas 213 Del; 4
37. Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1996) 87 Comp. Cas. 792 (SC) 11
38. Motilal Agarwal v Diabari Tea Co. Ltd. (2005) 128 Comp. Cas. 672 9Cal; 7
39. Murari Ganguly v. Kanailal Garai, AIR 2003 Cal 105 (116) 17
40. N.A.P Alagiri Raja & Co. V. N Guruswamy, (1989) 65 Com Cases 758 (Mad - DB); 12
41. Nandh Products Promoters (P) Ltd. v District Forest Officer (2005) 123 Comp Cas 3
367 Mad.;
9
42. Navjivan Mills Ltd., Kalol, In Re, (1972) 42 Com Cases 265 (Guj) 11
43. New Horizons Ltd. v. Union of India. (1997) 89 Com Cases 785 (Del) 12
44. Oriental Industrial Investment Corporation Ltd. v. Union Of India (1981) 51 Comp 1
Cas 487 Del
45. P.Y.Parry v Cynotech Bio products (P.)ltd. [2000] 24 SCL 408 (Kar) 7
46. Pandam Tea Co. Ltd. v Darjeeling commercial Co. Ltd. (1977) 47 Comp. Cas. 8
15(Cal)(DB);
47. Paramjit Lal Badhwar v Prem Spinning and Weaving Mills Co. Ltd. (1986) 60 8
Comp. Cas. 420 (All.)
48. PNB Finance v Shital Pd. Jain (1983) 54 Comp Cas 66 Del; 5
49. Praga Tools Corpn v Imanual (1969) 1 SCC 585; 1
50. Premier Motors Pvt. Ltd. v. Ashok Tandon, (1971) 41 Com Cases 656 (All) 11
51. Ram Kanai Singh v Mathewson AIR 1915 PC 27; 1
52. Ranbaxy Laboratories Ltd. v M.S.Shoes East (I) Ltd. [1997] 26 CCA 202 (Delhi) 7
53. Registrar of Companies v M.K. Bros Ltd, (1977) 47 Comp. Cas 314 All. 9
54. S.Palaniappan v Tripura Cotton Spg. & Wvg. Mills Ltd. [2004] 50 SCL 293; 8
55. Sardar Gurdayal Singh v. Raja of Faridkot', 21 Ind App 171 (PC) 16
56. SEBI v Libra Planatation Ltd. (1999) 95 Comp Cas 373 Bom; 5
57. Sika Qualcrete Ltd. v Orissa Bridge Construction Corporation Ltd. (2006) 129 7
Comp. Cas. 660 (Orissa);
58. Sree Lakshmi Silks v Remanika Silks (Pvt.)Ltd. [1999] 20 SCL 115. 7
59. State of Uttar Pradesh v Renusagar Power Co. [1991] 70 Comp Cas.127 1
60. T.R.Pratt (Bombay) Ltd. v E.D. Sasoon & Co. Ltd. AIR 1936 Bom 62;
61. Tata Engg & Locomotive Co v state of Bihar (1964) 6 SCR 885; 1
62. Union of India v. Ambalal Sarabhai Enterprises, (1984) 55 Com Cases 623, 645 14
(Guj)
63. Viswanathan v Abdul Wajid (1963) 3 SCR 22 15
64. Workmen v. Associated Rubber Industry Ltd. (1985) 4 SCC 114; 5
B.2 Foreign Cases
Name of Case Cited at

10
1. Adams v Cape Industries [1990] Ch. 433 4

2. Amalagamated Investment & Property Co. v Ttexas Commercial Bank [1982] QB 84, 4
CA
3. Anglo – Continental Supply Co. Ltd., Re, (1922) 2 Ch 723 11
4. Berkey v. Third Avenue Ry., 244 NY 84 1
5. Bristol Joint Stock Bank, Re, (1890) 44 Ch D 703 9
6. Bugle Press Re [1961] Ch. 270 5
7. Creasey v. Breachwood Motors ltd. 6
8. Davis & Co v Burnswick [1936] 1 All ER 299 9
9. Day v. Postal Tel. Co., 66 Md. 354, 7 Atl. 608 (1887) 6
10. Dearle v. Hall (1828) 3 Russ 1; 38 E.R. 475 L.C. 20
11. DHN Food Distributors v Towler Hamlets London Borough Council [1976] 1 WLR 4
852
12. FDIC v. Colonial Realty Co., 966 F.2d 57, 58 (2d Cir. 1992); 17
13. First Nat. Bank of Chicago v Trebein Co., 59 Ohio St. 316, 52 N. E. 834 (1898) 6
14. Gallaghar v Germania Brewing Company [1893] 53 MINN 214 1
15. Gay v. Hudson R. Elec. Power Co., 187 Fed. 12, 15 (C. C. A. 2d, 1911) 6
16. Hamilton Ridge Lumber Sales Corp. v Wilson, 25 F.(2d) 592 (C. C. A. 4th, 1928)] 6
17. Holland v Holland City Gas Co., 257 Fed. 679 (C. C. A. 6th, 1919) 3
18. In re Augie/Restivo Baking Co., 860 F.2d 515, 518 (2d Cir. 1988) 18
19. In re Autostyle Plastics, 269 F.3d 726, 750 (6th Cir. 2001). 13
20. In re F.A. Potts & Co., 23 B.R. 569 17
21. In re Fairfield Constr. Co., 1991 Bankr. LEXIS 1395 (Bankr. E.D. Mich. 1991) 17
22. In re Giller, 962 F.2d 796 (8th Cir. 1992); 17
23. In re Holbrook Shoe and Leather Co., 165 Fed. 973 (D. Mont. 1908) 6
24. In re Mobile Steel Co. 563 F.2d 692, 700 (5th Cir. 1977) 13
25. In re Munford, Inc., 115 B.R. 390 (Bankr. N.D. Ga. 1990) 17
26. In re Vecco Constr. Indus., 4 B.R. 407 (Bankr. E.D. Va. 1980). 17
27. Jones v Lipman (1962) 5
28. Kingston Dry Dock Co. v Lake Champlain Transp. Co., 31 F.(2d) 265, 267 (C. C. A. 6
2d, 1929)
29. Knight v. Burns, 22 Ohio App. 482, 154 N. E. 345 (1926) 6
30. Lucey Mfg. Corp. v. Oil City Iron Works, 15 La. App. 12, 131 So. 57 (1930) 6
31. Majestic Co. v Orpheum Circuit, 21 F.(2d) 720 (C. C. A. 8th, 1927) 3
32. Millenium advanced Technology Ltd. Re (2004) 2 BCLC 77 Ch. D 10
33. Montgomery Web Co. v Dienelt, 133 Pa. 585, 19 Atl. 428 (1890) 6
34. National Dock Labour Board v. Pinn and Wheeler ltd. 1989 BCLC 647 QBD 5
35. Re Dorman Long & Co., 1934 Ch 635 12
36. Re Gold Hill Mines, (1883) 23 Ch.D 210 8
37. Re, A Company, ex parte Burr, (1992) BCLC 724 (Ch.) 9
38. Re, British & Commonwealth Holdings plc. (No. 3), 1992 BCLC 322 13
39. Rhodes v. Allied Dunbar Pension Service Ltd. [1987] 1 WLR 1703 20
40. Salomon v Salomon & Co. [1895-99] All ER Rep 33 1
41. Smith, Stone & Knight Ltd v Brimingham Corpn [1939] 4 All ER 116 KB 2, 3
42. Walter L Jacob & Co Ltd, Re 1989 BCLC 345 CA 10
11
C. LAW REVIEW ARTICLE

1. John P. Lowry, “Lifting the Corporate Veil”, 1993 JBL 41
2. Ruthern, “Lifting the veil of Incorporation in Scotland”, (1969) Judicial Review 1
3. Warner Fuller, “The Incorporated Individual: A study of One-man Company”, (1938) 51
Harv. L. Rev. 1373 at p 1377
4. Note on “Liability of a Corporation for Acts of a Subsidiary or Affiliate” (1958) 71 Harv LR
1122
5. Ballantine, “Separate Entity of Parent and Subsidiary Corporations” (1925) 14 Calif. L.
Rev.12
6. Canfield, “The Scope and Limits of the Corporate Entity Theory” (1917) 17 Col. L. Rev. 128
7. Creditors’ Right Upon Insolvency of a Parent Corporation or Its Instrumentality, 46 Harv.
L.Rev. 823
8. Douglas and Shanks, “Insulation From Liability Through Subsidiary Corporations ” (1929)
39 YALE L. J. 193
9. F.Powell , “Parent and Subsidiary Corporations”, Chicago Callaghan, (1931)
10. J.Day and P.Taylor, “The Role Played by Debt Covenants and other Monitoring devices”
[2001]Ins. Law 97
11. E.I. Altman, “Financial Ratios and Discriminant Analysis and the Prediction of Corporate
Failure”, (1968) 23 Journal of Finance 589
12. J.Pesse and D.Woods, “Issues in assessing MOA models of Corporate failure: A Research
Note” (1992) 24 British Accounting review 33
13. R.Taffer, “Forecasting Company failure in the U.K.: Uing Discrimination Analysis and
Financial Ratio Date”, (1982) Journal of Royal Statistical Society , Series A, 342
14. K.Wreck, “Financial Distress, Reorganization and Organizational Efficiency” (1990) 27
Journal of Financial Economics 419 at p 421.
15. J. Stephen Gilbert, Comment, Substantive Consolidation in Bankruptcy: A Primer, 43 Vand.
L. Rev. 207, 208 (1990)
D. LIST OF BOOKS AND TREATISES
1. PALMER’S COMPANY LAW, VOLUME 2, 25th Edn., Sweet & Maxwell, London, 2008
12
2. Ramaiya A, A GUIDE TO THE COMPANIES ACT, PART 1, 16 th Edn., Lexis Nexis

Butterworths Wadhwa Pvt. Ltd., Nagpur, 2008
3. Ramaiya, A., GUIDE TO THE COMPANIES ACT, Wadhwa, Nagpur, Sixteenth Edn.
(Rep.), 2006, Part 2
4. Seth Dua & Associates, JOINT VENTURES & MERGERS AND ACQUISITIONS IN
INDIA – LEGAL AND TAX ASPECTS, 1 st Edn., Lexis Nexis Butterworhts Pvt. Ltd., New
Delhi, 2006.
5. Atul M Setalvad, Conflict of Law, first edn., LexisNexis Butterworths, New Delhi, India,
2007
6. Karen Vaderkerchkove, Piercing the Corporate Veil, Kluwer Law International European
Company Law Series, Wolters Kluwer Law & Business , Volume 2 (2007)
7. C.Foster, “Financial Statement Analysis”, 2nd ed. ; Prentice Hall, Englewood cliffs, N.J.
(1986);
8. Karen Vandekerckhove, “Piercing the Corporate Veil”, European company Law Series, Vol
2, Kluwer Law International (2007)
9. Gower and Davies, Prinicples of Compnay Law, 8th ed., Paul L. Davies ed., Thomson Sweet
& Maxwell, South Asian Response (2008)
13
STATEMENT OF FACTS
DESCRIPTION OF PARTIES
APPELLANTS Committee of Dinergy Creditors & Others [Hereinafter referred as

“CoC”], are the committee of major secured creditors of Dinergy.
RESPONDENTS Dinergy Sughoskar Power Pvt. Ltd. [Hereinafter referred as the “JV
Company”], is a joint venture company incorporated in India and
registered with registrar of companies at Kolkata, Bretley Bank & Others
[hereinafter referred as “Syndicate” ] is a consortium of Banks who are
the secured creditors of the JV Company.
OTHER PLAYERS
14
DINERGY Dinergy Power and Infrastructure Inc. [Hereinafter referred as

“Dinergy”], is a company incorporated in the State of Delaware, United
States of America. It is one of the joint venture partners in the JV
Company which has contributed 88% in paid up equity share capital of
the JV Company.
SUGHOSKAR Sughoskar Holding Limited [Hereinafter referred as “Sughoskar”], is a
company incorporated in India. It is the other joint venture partner which
has contributed 12% in paid up equity share capital of the JV Company.
LIST OF EVENTS LEADING TO THE DISPUTE.
May 2006: Dinergy and Sughoskar entered into a project specific joint venture in
India and accordingly they set up a company in India called the JV
Company. In regard to debt finance of the JV Company, Dinergy assisted
in leveraging Rs. 4500 Crore from foreign banks for which JV Company
stood as guarantor in the form of Unsecured Shareholder loan. This was
in addition to Rs. 5300 Crores which was arranged by the Syndicate.
January 2007: The JV Company won a bid to develop a hydel power project in
Chandigram, in West Bengal. This bid was won largely due to good
political ties which Sughoskar had with the rule party in West Bengal.
The project is supposed to solve the Eastern India terrible power crisis.
June 2008: Dinergy defaulted in the payment of its insurance premium of USD 300
million for its workers. Because of which the Employees’ Union with
active lobbying convinced the local government to investigate into the
financial affairs of Dinergy.
24 Sept. 2008: The Delaware government published its report which revealed clear
proof of a lot of unaccounted payouts in the JV Company which was
considered to be a potential commercial fraud. Subsequently the matter
was referred to Indian authorities for greater investigation.
29 Sept. 2008: Following the Delaware government report, the Security and Exchange
Commission (hereinafter referred as SEC) initiated and investigation into
Dinergy.
October 2008: In India the CBI started investigations on the directors of JV Company
15
who were alleged to have made these payouts.

th
4 Dec. 2008: The SEC published its report and concluded the same as was in the
Delaware government report. The report also revealed the Dinergy with
all it group entities had a glut of common directors and all its
independent directors were industrialist in whose companies, Robin
Schmidt, Chairman of Dinergy was actively involved in the process.
nd
22 Dec 2008: Dinergy filed a bankruptcy petition in Delaware.
24th Dec 2008: Robin Schmidt along with his family members resigned from the boards
of several entities of the group including parent company, Dinergy.
5th Aug 2009: Here in India the CBI completed its investigations and it revealed that
large proportion of debt finance was spent by JV Company in
unaccounted payouts and it also revealed that a former minister of state
and several bureaucrats received large payouts from JV Company. These
payouts were equivalent to unaccounted payouts by Dinergy.
23 Aug 2009: The Bretley Bank notified the JV Company about its two successive
defaults in repayment.
27 Aug 2009: On response from the management, Bretley Bank and Syndicate gave a
further notice stating that the JV Company is unable to meet its demand
so there is a possibility of winding up.
30 Aug 2009: Because of the report of the investigation done by CBI and falling of
Dinergy in US, work on Chandigram Project came to a standstill and
2000 workers were laid off. There was a possibility of breakdown in
state’s power related infrastructure and hence under immense pressure to
resolve the situation the Ministry of Power in the state government stated
in the media that as a stakeholder in the matter all possible steps will be
taken to resolve the problem.
2 Sept 2009: The management and the creditors of the JV Company agreed to meet
and work out an arrangement under Section 391 of the Companies Act,
1956 (the “Indian Scheme”). This was done because of the powerful
intervention of the ruling party.
18 Sept 2009: In the meantime, several creditors of Dinergy made their claims before
the Court at Delaware. The court ensured that every subsidiary of
Dinergy, including JV Company was represented and was a party to this
matter. The court took into cognizance the Delaware government report
16
and SEC report and concluded scope of possible corporate fraud. The
court applied the corporate disregard doctrine and asset consolidation
principle and ordered payouts for the secured creditors from the
consolidated assets of Dinergy (Foreign Decree). The court constituted
CoC and gave them the power and responsibility to execute the order in
every jurisdiction across the globe.
22 Sept 2009: In India, the Indian Scheme was agreed between the parties and as per the
scheme the Indian creditors would have a higher pari pasu charge than
foreign creditors.
29 Sept 2009: The Indian Scheme was submitted before the CLB for approval after all
required compliances.
5 Oct 2009: The CoC appointed their own directors to the board of JV Company and
Dinergy Representative Director’s were changed.
14 Oct 2009: The Creditors from US approached the Civil Court in Kolkata for the
enforcement of foreign decree. The Civil Court on the request of the
government stayed the enforcement of decree. Thereupon which an
appeal was preferred by the CoC to the High Court. There on the request
of the government and Syndicate the court has decided to club matter of
restructuring scheme and hear both the matters together.
17
STATEMENT OF JURISDICTION
The Appeal has been preferred under Article 226 of the Indian Constitution.
18
QUESTIONS PRESENTED
[I] WHETHER JV COMPANY AND DINERGY CONSTITUTE SINGLE ENTITY?
[II] WHETHER JV COMPANY IS LIABLE TO BE WOUND - UP?
[III] WHETHER FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA?
[IV] WHETHER THE ASSETS OF THE JV COMPANY CAN BE CONSOLIDATED
THROUGH THE DOCTRINE OF SUBSTANTIVE ASSET CONSOLIDATION?
19
SUMMARY OF PLEADINGS
[I] THE PRINCIPLE OF CORPORATE DISREGARD SHOULD BE APPLIED
Despite the fundamental rule that a company by virtue of its incorporation enjoys a separate legal
entity, this entity law is to be disregarded and the veil is to be lifted to find the realities that lay
behind. It is most humbly submitted that JV Company is a subsidiary of Dinergy and The
Companies Act permits the lifting of corporate veil when the relationship between two
companies is that of parent-subsidiary under Section 4 of the Act. It is also submitted that by
application of the instrumentality doctrine and single economic unit theory, the JV Company can
be considered as a mere instrumental with the parent exercising excessive control which makes
them a single economic unit denying its existence as a distinct corporate entity. Further JV
Company has been used to perpetuate the fraud by unaccounted payouts done by Dinergy. On
the above grounds it is submitted that the principle of corporate disregard be used.
[II] JV COMPANY IS LIABLE TO BE WOUND UP
It is duly submitted that JV Company by virtue of being a single economic unit with Dinergy can
be held liable for the parent’s act. It is with this rationality , it is humbly submitted that JV
Company is liable to be wound up on grounds of inability to pay debt under Section 433(1)(e)
and on just and equitable grounds like losses, loss of substratum and fraud under Section 433(1)
(f) of the Companies Act 1956. It is argued that JV Company has become insolvent under
20
Section 434 and its winding up is in interest of the creditors and also in pursuance to the fraud
that has been committed by it and through it by Dinergy.
Three important requirements of a valid scheme, statutory compliance, fair representation of

classes and reasonable from a businessman’s perspective have not been fulfilled in the instant
case. It is submitted that the scheme is neither feasible nor workable. With the winding up
proceeding being initiated against the Dinergy, the JV Company has reached a stage beyond
recovery. The scheme was in effect a fraudulent transfer without any effect. Lastly, considering
the manner in which company has conducted itself it is better if it is wound up so that the
interests of the creditor are not further risked.
[III] THE FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA
It is argued that although a non- reciprocating territory cannot directly enforce the decree before
the Indian courts, the CoC has rightfully moved to the Civil Court. S. 13 also lays down certain
conditions for the enforcing a foreign judgement. All the conditions under S. 13 like competency
of the court, the judgement being on merits, recognition of the Indian law, and compliance with
principles of natural justice have adequately been fulfilled by the Delaware Court and thus do not
suffer from any infirmities.
[IV] THE CONCEPT OF ASSET CONSOLIDATION HAS BEEN SOUGHT BE APPLIED BY THE
DELAWARE COURT
Joint Ventures Dinergy and JV Company constitute a single economic unit and the leveraging of
funds structure gave a reasonable impression that the assets of the entire unit would act as a
security against any credit. Through the concept of substantive consolidation of assets, the entire
21
assets of the JV Company including the Dinergy are sought to be pooled and distributed
accordingly. All the conditions for application of asset consolidation are fulfilled. Lastly, it is
submitted that by this method all the creditors including the Indian creditors would be benefitted.
[I] THE PRINCIPLE OF CORPORATE DISREGARD SHOULD BE APPLIED
Separate legal entity is the cardinal rule created by fiction 1 but this theory cannot be pushed to
unnatural limits and the court will lift the veil in order to examine the realities which lay behind. 2
In reality it is an association of persons who are in fact the beneficiaries of the corporate
property.3 It is impossible to ascertain the factors which operate to break down the corporate
1
Salomon v Salomon & Co. [1895-99] All ER Rep 33; See also Kondoli Tea Co. Ltd, Re, ILR
91886) 13 Cal 43; Ram Kanai Singh v Mathewson AIR 1915 PC 27; Tata Engg & Locomotive
Co v state of Bihar (1964) 6 SCR 885; Praga Tools Corpn v Imanual (1969) 1 SCC 585; Dhulia-
Amalner Motor Transport Ltd. v R.R. Dharamsi AIR 1952 Bom 337
2
John P. Lowry, “Lifting the Corporate Veil”, 1993 JBL 41; See also Ruthern, “Lifting the veil
of Incorporation in Scotland”, (1969) Judicial Review 1.
3
Gallaghar v Germania Brewing Company [1893] 53 MINN 214; See also State of Uttar
Pradesh v Renusagar Power Co. [1991] 70 Comp Cas.127
22
insulation4 and the corporate entity will be ignored when the parent corporation operates a
business through a subsidiary which can be characterized as a dummy or alias.5
[I.A] DINERGY IS THE HOLDING COMPANY OF JV COMPANY
Section 46 of the Indian Companies Act 1956 explains the meaning of holding and subsidiary
companies. A company exercises control over another if- a) it has control over the composition
of the Board7 b) it holds the majority of shares8 c) where a company is the sub-subsidiary of
another.9 The expression ‘control’ ordinarily means the possession of the power by the exercise
of voting rights to carry a resolution at the general meeting of a company 10 or if the directorship
is held by an individual nominated by the company or by any of its subsidiaries. 11 The
nominating company becomes the holding where it appointed additional directors as the
nominees who constituted the majority.12 Control can arise from the provisions in subsidiary’s
memorandum or articles or from a contract empowering holding to appoint directors. 13 In May
2006, JV Company was registered with ROC, Kolkata. 14 The Board is dominated by nominee
4
Warner Fuller, “The Incorporated Individual: A study of One-man Company”, (1938) 51 Harv.
L. Rev. 1373 at p 1377.
5
Berkey v. Third Avenue Ry., 244 NY 84 at p 94 (Cardozo J.)
6
§4 of the Companies Act, 1956 (hereinafter referred as Act)
7
§4(1)(a) r/w § 4(2) of the Act. See also M.Velayudhan v registrar of companies (1980) 50
Comp Cas 33 Ker, Oriental Indutrial Investment Corporation Ltd. v. Union Of India (1981) 51
Comp Cas 487 Del
8
§. 4(1)(b) of the Act.
9
§ 4(1)(c) of Act.
10
Inland Revenue Commissioners v. Harton Coal Co. Ltd. (1960) All ER 48
11
§ 4(2)(c) of Act.
12
M.Velayudhan v. ROC (1980) 50 Comp Cas 33 Ker
Fatima Tile Works v. Sudarshan Trading co. Ltd. (1992) 74 Com cases 423 (Mad), See also
13
Oriental Industrial Investment Corporation Ltd. v. Union Of India (1981) 51 Comp Cas 487 Del
14
¶ 3, of the 2nd NUJS Herbert Smith National Law Moot Court Competition, 2010 (Hereinafter
referred as Problem)
23
directors of Dinergy.15 Dinergy and its wholly owned subsidiaries have contributed 88% of the
paid up capital. This indicates that Dinergy has the prerequisites of S. 4.
[I.B] THE ACT OF 1956 PERMITS PIERCING THE VEIL IN CASE OF HOLDING-SUBSIDIARY
COMPANIES
A subsidiary company loses its separate legal identity- a) the legislature brushes aside the forms
and requires the presentation of a joint picture; b) the court on facts refuses to grant a subsidiary
an independent status.16 SS. 212-214 requires the parent to disclose the subsidiaries accounts. 17 It
amounts to lifting the corporate veil because a subsidiary is a separate legal person but through
this their identity is known.
[I.C] THE JV COMPANY IS AN INSTRUMENTALITY OF DINERGY
The single identity of the holding-subsidiary is indicated by designating the latter as an

instrumentality/adjunct of the former.18 Such identification becomes significant for creditors
when either go into insolvency.19 There cannot be a straightjacket judicial definition as to when
the subsidiary can be really treated as a branch and circumstances such as profits of it being
treated as those of the parent, the control and conduct of the business resting completely in hands
of the nominees of the holding are indicative. 20 The direct intervention of the parent into the
15
¶ 4, Problem
See Note on “Liability of a Corporation for Acts of a Subsidiary or Affiliate” (1958) 71 Harv
16
LR 1122.
17
§§ 212-214 of Act.
18
Ballantine, “Separate Entity of Parent and Subsidiary Corporations” (1925) 14 Calif. L.
Rev.12 at p18; See also Canfield, “The Scope and Limits of the Corporate Entity Theory”
(1917) 17 Col. L. Rev. 128.
19
Creditors’ Right Upon Insolvency of a Parent Corporation or Its Instrumentality, 46 Harv.
L.Rev. 823
20
Freewheels (India) Ltd. v Dr. Veda Mitra AIR 1969 Del 258; See also Nandh Products
Promoters (P) Ltd. v District Forest Officer (2005) 123 Comp Cas 367 Mad.; Smith, Stone &
Knight Ltd v Brimingham Corpn [1939] 4 All ER 116 KB.
24
management of the subsidiary as owner of the assets,21 the lack of an adequate financial
structure, intermingling of the assets and accounts of the two are to be seen. 22 The Powell test23
applied in cases24 identifies three conditions: a) an excessive exercise of control; b) some
wrongful or inequitable conduct; c) and a causal relationship between the loss and the conduct.
The control must be an intrusion in the decision making process and should be used for fraud or
unlawful action.25 Dinergy dominates the board of the JV Company through nominee directors.26
The SEC report has revealed that Dinergy with its group entities had a glut of common
directors.27 The Delaware Government Report reveals unaccounted payouts in the JV Company
which could constitute a potential fraud28 which was backed by the SEC Report.29 The CBI report
stated that a large proportion of the debt finance had been spent by the JV Company in
unaccounted payouts.30 Due to these the Moody’s downgraded Dinergy’s credit rating whereby it
couldn’t raise capital in the debt market. The secured creditors have suffered because of this
satisfying the test.
[I.D] THE JV COMPANY AND DINERGY IS A SINGLE ECONOMIC UNIT.

Holland v Holland City Gas Co., 257 Fed. 679 (C. C. A. 6th, 1919); See also Majestic Co. v
21
Orpheum Circuit, 21 F.(2d) 720 (C. C. A. 8th, 1927)
Douglas and Shanks, “Insulation From Liability Through Subsidiary Corporations” (1929) 39
22
YALE L. J. 193
23
F.Powell, Parent and Subsidiary Corporations, Chicago Callaghan, (1931) c.f. Karen
Vandekerckhove, Piercing the Corporate Veil, European company Law Series, Vol 2, Kluwer
Law International (2007) at p81.
24
Citation
25
Karen Vandekerckhove, Piercing the Corporate Veil, European company Law Series, Vol 2,
Kluwer Law International (2007) at p81.
26
¶4, Problem
27
¶18, Problem
28
¶13, Problem
29
¶18, Problem
30
¶14, Problem
25
In group situations the parent and the subsidiary are treated as one entity if they carry on the
same business31 that are treated together for the purpose of general accounts, balance sheets,
profit and loss account.32 Economic reality necessarily drives the corporate organization where
traditional entity law is utilized to attempt to create a safe harbor.33 To the layman the distinction
may seem a slender one and the court may have regard to the economic realities in relation to the
companies concerned.34 Dinergy and its fully paid subsidiaries own 88% of the JV Company and
dominate the Board by nominee directors.35 The unaccounted pay-outs have been made to the JV
Company.36 It is humbly submitted that the parent and subsidiary are a single economic entity
and share the liability.
[I.E] THE JV COMPANY HAS BEEN INSTRUMENTAL IN PERPETUATING FRAUD
The disregard of the company is done where the corporate structure is a mere façade concealing
the true facts.37 The separate existence of the company is disregarded if it is formed to
circumvent law, to defraud creditors or to avoid legal obligations. 38 Where a company created a
subsidiary, transferring its investment holdings in a bid to reduce its liability, the separate
31
DHN Food Distributors v Towler Hamlets London Borough Council [1976] 1 WLR 852, See
also Amalagamated Investment & Property Co. vTtexas Commercial Bank [1982] QB 84, CA.
32
Supra N.31.
33
Mehra (UK) v UOI (1997) 88 Comp Cas 213 Del; See also Gower and Davies, Prinicples of
Compnay Law, 8th ed., Paul L. Davies ed., Thomson Sweet & Maxwell, South Asian Response
(2008)
34
Adams v Cape Industries [1990] Ch. 433
35
¶4, Problem.
36
¶¶ 13,14,15,18, Problem
37
Bugle Press Re [1961] Ch. 270; Jones v Lipman (1962); See also Delhi Development
Authority v Skipper Construction Co (P) Ltd. (1997) 11 SCC 430.
38
PNB Finance v Shital Pd. Jain (1983) 54 Comp Cas 66 Del; See also SEBI v Libra Planatation
Ltd. (1999) 95 Comp Cas 373 Bom; Ali Jawad Ameer Hasan Rizvi v Indo French Biotech
Enterprises Ltd. (1999) 95 Comp Case 373.
26
existence of subsidiary was brushed aside.39 S. 542 states that if the business of the company has
been carried on with the intent to defraud creditors or for any fraudulent business, then liability
can be affixed. The investigations have proved that the unaccounted payouts have been done to
JV Company40 and a large proportion of the debt finance had been given to bribe former minister
and several bureaucrats. These payouts were equal to the unaccounted amount in the foreign
investigation.41 There were rumors of Sughoskar looking for an exit. 42 The chairman and the
majority stake resigned when Dinergy filed for bankruptcy.43 It is humbly submitted that taking
into account the facts that Dinergy has committed fraud individually, through JV Company
[I.F] JV COMPANY IS LIABLE FOR THE ACTS OF DINERGY
It is most humbly submitted that if the principles of corporate disregard are applied, then Dinergy
and JV Company do not have a separate legal existence. Cases abound where creditors have
sought to reach the assets of the other corporation in a direct suit and where the elements of a
fraudulent conveyance are present; an obvious ground for recovery is available. 44 Even otherwise
the claims of creditors of an insolvent parent to obtain satisfaction of their claims from their
affiliate have been successful.45In Creasey v. Breachwood Motors ltd.46 the substitution of one
39
Workmen v. Associated Rubber Industry Ltd. (1985) 4 SCC 114; See also National Dock
Labour Board v. Pinn and Wheeler ltd. 1989 BCLC 647 QBD.
40
Supra n.36
41
¶ 15, Problem
42
¶ 16, Problem
43
¶20, Problem
44
First Nat. Bank of Chicago v Trebein Co., 59 Ohio St. 316, 52 N. E. 834 (1898); See also
Montgomery Web Co. v Dienelt, 133 Pa. 585, 19 Atl. 428 (1890); In re Holbrook Shoe and
Leather Co., 165 Fed. 973 (D. Mont. 1908); Hamilton Ridge Lumber Sales Corp. v Wilson, 25 F.
(2d) 592 (C. C. A. 4th, 1928)]
45
Day v. Postal Tel. Co., 66 Md. 354, 7 Atl. 608 (1887); See also Kingston Dry Dock Co. v Lake
Champlain Transp. Co., 31 F.(2d) 265, 267 (C. C. A. 2d, 1929);Lucey Mfg. Corp. v. Oil City
Iron Works, 15 La. App. 12, 131 So. 57 (1930); Knight v. Burns, 22 Ohio App. 482, 154 N. E.
345 (1926);Gay v. Hudson R. Elec. Power Co., 187 Fed. 12, 15 (C. C. A. 2d, 1911).
46
[1986] 2 WLR 36
27
company for another as defendant was allowed holding the second company liable for debts of
the first. In the factual situation both the companies would be jointly liable for the claims of the
secured creditors of the parent company.
[II.] THE JV COMPANY IS LIABLE TO WOUND UP
S. 433(1) lays down the grounds upon which a petition for winding up can be filed before the
courts.47 S. 433(2) at the same time vests the court with the power to refuse making an order if it
opines that petitioners are acting unreasonably in seeking to have the company wound up instead
of pursuing some other remedy.48
[II.A] SECTION 433(1)(e) MENTIONS INABILITY TO PAY DEBTS AS A GROUND FOR
WINDING UP
S. 434 lay down the condition in which a company shall be deemed unable to pay its debts. 49
Inability is seen in the commercial sense of running an enterprise as a going concern and there
has to be reliable and acceptable evidence that the company is commercially solvent to oppose
the winding up order.50 The onus squarely rests upon the party that claims it.51 The Insolvency
Act 1986 relies on the cash flow test and the balance sheet test to find solvency. 52 Solvency is
ability to pay debts53 and the creditor must have a complete title to debts and there should not be
47
§433(1) of the Act.
48
§433(2) of Act. See also Jagdamba Polymers Ltd. v Neo Sack Ltd. (2006) 129 Comp. Cas. 160
(MP), M.Mohan Babu v Heritage Foods India Ltd. (2002) 108 Comp Cas. 793 (AP).
49
§434(1)(a) of Act, see also §122(1)(f) of the Insolvency act 1938
Sree Lakshmi Silks v Remanika Silks (Pvt.)Ltd. [1999] 20 SCL 115.; See also Alliance Credit
50
& Investments Ltd. v Khaitan Hostombi Spines Ltd. [1997] 3 CLJ 200 (All); Ranbaxy
Laboratories Ltd. v M.S.Shoes East (I) Ltd. [1997] 26 CCA 202 (Delhi)
Maegebyte Consultancy Services (P.) Ltd. v Gujarat State Financial Services Ltd. [1999] 20
51
SCL 219 (Bom)

52
§§123(1)(e) & 123(2) of Insolvency Act 1986
53
P.Y.Parry v Cynotech Bio products (P.)ltd. [2000] 24 SCL 408 (Kar)
28
a bona fide dispute.54 The statutory notice is served at the registered office and a time period of
21 days is afforded55 but failure to serve notice or defect in serving it will not render the petition
invalid.56 Despite repeating demands if the company fails 57 or neglects without reasonable cause58
it is prima facie evidence. Dinergy defaulted the payment of insurance premium and the. 59 No
bona fide dispute has been leveled for it has filed for bankruptcy in the US courts admitting the
inability to pay debts.60 The CBI report reveals equivalent amount of pay-outs done by JV
Company.61 Adding to this JV Company itself has defaulted two successive repayments despite
several reminders indicating that it is unable to pay its immediate debts. 62 These set of facts
cumulated with the leverage rate and stake that Dinergy and its subsidiaries have in JV Company
clearly prove that the joint venture is bound to be wound up.
54
Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. [1972] 42 Comp. Cas.
125; See also Essar Gujarat Ltd. v Shree Kangra Steels Pvt. Ltd. (1999) 97 Comp. Cas. 726
(HP); Dalmia Cement (Bharat) Ltd. v Indian Seamless Steels and Alloys Ltd. (2002)112 comp.
Cas. 314
55
Motilal Agarwal v Diabari Tea Co. Ltd. (2005) 128 Comp. Cas. 672 9Cal; See also Sika
Qualcrete Ltd. v Orissa Bridge Construction Corporation Ltd. (2006) 129 Comp. Cas. 660
(Orissa); Manganese Ore (India) Ltd. v Sandur Manganese and Iron ores Ltd. (19990 98 Comp.
Cas. 755 (Kar);
56
In Re Darjeeling Bank Ltd. v Ranadhir Steel and Alloys (P) Ltd. (1949) 19 Comp. Cas.
1(Cal.); See also Pandam Tea Co. Ltd. v Darjeeling commercial Co. Ltd. (1977) 47 Comp. Cas.
15(Cal)(DB); In Re, Siddhartha Apparels P. Ltd. (1986) 59 Comp Cas. 435 (Cal.); Paramjit Lal
Badhwar v Prem Spinning and Weaving Mills Co. Ltd. (1986) 60 Comp. Cas. 420 (All.)
57
Re Gold Hill Mines, (1883) 23 Ch.D 210
58
Kanchanaganga Chemical Industries v Mysore Chipboards Ltd. (1998) 91 Comp. Cas. 646
(Kar) ; See also Arvind Investment Consultant v Presto Finance Ltd. (1998) 94 Comp. Cas. 350
(Guj.)
59
¶¶11,13 & 18, Problem
60
¶20, Problem.
61
¶15, Problem
62
¶¶ 22&23, Problem.
29
[II.B] JV COMPANY SHOULD BE WOUND UP ON JUST AND EQUITABLE GROUNDS PROVIDED

UNDER SECTION 433(1)(f)63.
The relief based on just and equitable ground is in the nature of a last resort. 64 It is humble
submitted that JV Company should be wound up on the following just and equitable grounds:
[II.B.1] JV Company cannot carry on business except at losses
It will be needless for a company to carry on business when there is no hope of achieving the
object of trading at profit.65 It is a suitable order where company is trading unprofitably, making
it unfairly prejudicial to the members.66 Herein, The Project has come to a stand still with severe
losses and workers have been laid off.67 Moody’s downgraded Dinergy’s credit rating to CCC
and it has become extremely impossible for Dinergy to raise capital to fight through this
situation. In such situation, the JV Company which is running through losses and subsequent
recovery would be farfetched.
[II.B.2] JV Company should be wound up because the substratum is lost
A company’s substratum is the purpose for which it was formed to achieve. In International
Caterers (P) Ltd. v. Manor Hotel (P) Ltd.,68 a joint venture agreement to construct and run a
hotel falls aground due to unilateral action by a party and the company promoted under the
agreement failed to pay bona fide debt and accumulated huge losses, winding up order was
granted on just and equitable grounds. The test to determine: a) where the subject-matter of the
company has gone; b) the object for which it was incorporated has substantially failed; c) it is
63
§434(1)(f) of Act.
64
Gadadhar Dixit v Utkal Flour Mills (P.) Ltd. [1989] 66 Comp. Cas. 188 (Cri); See also
Kirthibhai R. Patel v Lavina Construction & Finance Ltd. [1999] 20 SCL 158; S.Palaniappan v
Tripura Cotton Spg. & Wvg. Mills Ltd. [2004] 50 SCL 293; Hind Overseas Pvt. Ltd. v.
R.P.Jhunjhunwala [1977] ASIL XIII.
65
Bristol Joint Stock Bank, Re, (1890) 44 Ch D 703; See also Davis & Co v Burnswick [1936] 1
All ER 299; Registrar of Companies v M.K. Bros Ltd, (1977) 47 Comp. Cas 314 All.
66
Re, A Company, ex parte Burr, (1992) BCLC 724 (Ch.)
67
¶16, Problem.
68
[2007] 79 SCL 234
30
impossible to carry on the business of the company except at a loss; d) the existing or probable
assets are insufficient to meet the existing liabilities. 69 A distressed company is one that
encounters financial crisis that cannot be resolved without a sizeable recasting of the firm’s
operation or structure.70 Such distress may be seen in terms of default to make a significant
payment to a creditor, in terms of financial ratios 71 but the central issue is whether the company
is revealed to be in such a crisis that drastic action is required. 72 Dinergy is the major stakeholder
and has filed for bankruptcy indicating that the company has arrived at undisputed insolvency.
The credit rating has made it impossible to raise capital from the debt market. 73 The project
undertaken by the JV Company has come to a standstill and the company is unable to meet its
immediate liabilities.74 In such situations it would be appropriate to state that the JV Company
can’t be carried on as a going concern to earn profits.
[II.B.3] JV Company is to be wound up in public interest
It has already been submitted that the single economic unit of Dinergy and JV Company have
75
committed and perpetuated fraud upon its creditors. In Walter L Jacob & Co Ltd, Re the
company was wound up on public interest where it was held useless to let the company alive
when it has suspended its business, has no proper records and was wasting the capital resources.
69
In Re, Kaithal and General Mills Co. Ltd. [1951] 31 Comp. Cas. 461
70
C.Foster, “Financial Statement Analysis”, 2 nd ed. ; Prentice Hall, Englewood cliffs, N.J.
(1986); J.Day and P.Taylor, “The Role Played by Debt Covenants and other Monitoring
devices” [2001]Ins. Law 97
71
E.I. Altman, “Financial Ratios and Discriminant Analysis and the Prediction of Corporate
Failure”, (1968) 23 Journal of Finance 589; J.Pesse and D.Woods, “Issues in assessing MOA
models of Corporate failure: A Research Note” (1992) 24 British Accounting review 33;
R.Taffer, “Forecasting Company failure in the U.K.: Uing Discrimination Analysis and
Financial Ratio Date”, (1982) Journal of Royal Statistical Society , Series A, 342
72
K.Wreck, “Financial Distress, Reorganization and Organizational Efficiency” (1990) 27
Journal of Financial Economics 419 at p 421.
73
¶19, Problem
74
¶¶ 16&17, Problem
75
1989 BCLC 345 CA
31
In Millenium advanced Technology Ltd. Re76 winding up was found desirable due to fraudulent
practices. In the instant case the JV Company has been a mere instrumentality of Dinergy has
been running losses and has suspended the project for which it was created. To let the Company
remain alive for the benefit of few politicians and alleged directors would be unjust and
inequitable.
[II.C] THE SCHEME ENVISAGED BY THE SYNDICATE IS NOT FAIR, JUST AND REASONABLE
Any scheme proposed under S. 391 must be fair, just and reasonable. Despite the approval of the
scheme by a requisite statutory majority, the Court may not sanction the scheme if it is
unconscionable or illegal or unfair or unjust to any class of shareholders or creditors for whom it
is meant, keeping in view that once the scheme is sanctioned it would be binding even on the
dissenting minority shareholders or creditors.77 All courts including that of Civil Courts are
required to exercise caution so that statutory provisions and public policy are not contravened. 78
The Indian Scheme has patent procedural irregularities. 1) 21 days notice has not been given; 2)
The meeting was not conducted properly; 3) The scheme was entered into at a later date than the
foreign decree.79
[II.C.1] That the Indian Scheme is not fair and reasonable
76
(2004) 2 BCLC 77 Ch. D
77
Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1996) 87 Comp. Cas. 792 (SC); See also
Hindustan Lever Employees’ Union v. Hindustan Lever Ltd. (1995) 83 Comp. Cas. 30 (SC); In
re Tata Oil Mills Co. Ltd., (1994) 81 Comp Cas. 754(Bom); In re Varuna Investment Ltd.,
(2001) 106 Comp. Cas. 410 (Bom.); Kiritbhai Hiralal Patel v. Arvind Intex Ltd., (2001) 107
Comp. Cas. 232 (Guj.) (DB); In re casting Ltd., (2005) 124 Comp. cas. 523 (AP); In re, Shyam
Telecom Ltd., (2007) 135 Comp. Cas. 387 (Raj.); In re Sutlej Industries Ltd., (2007) 135 Comp.
Cas. 394 (Raj.); In re Torrent Power AEC Ltd., (2007) 138 Comp. Cas. 139 (Guj.)
78
Administrator of the Specified Undertaking of the Unit Trust of India v. Garware Polyster Ltd.,
(2005) 125 Comp. Cas. 389 (SC); See also Andhra Bank v. Official Liquidator, (2005) 124
Comp. Cas. 453 (SC)
79
Challa Rajendra Prasad v. Asian Coffee Ltd. (1992) 2 Comp. LJ. 46.
32
In exercise of the discretion the court has to consider certain matters. The determining factors
were summarized by Ashtury, J. in Anglo – Continental Supply Co. Ltd., Re,80Before sanctioning
the scheme of compromise or arrangement the court will have to see “firstly, that the provisions
of the statute has been complied with. Secondly, that the class was fairly represented by those
who attended the meeting and that the statutory majority are acting bonafide and are not coercing
the minority in order to promote interests adverse to those of the class whom they purport to
represent ;and thirdly, that the arrangement is such as a man of business will reasonably approve.
The Directors of the JV Company are responsible for the present state of affairs. The proposed
scheme prepared by the management was a fraud on the other class of creditors and was done to
evade the liability of the directors who were involved in the unaccounted payouts. Further
foreign creditors who also formed the part of the creditors group was not represented during the
meeting where the scheme was agreed upon. The courts in several cases have held that the
scheme should be such that it should not promote the interest of the class which proposes the
scheme and adversely affects the interest of the other class.81 Thus it is submitted that the scheme
is not fair and reasonable.
[II.C.2] The scheme is neither feasible nor workable
Before sanctioning the scheme the court has to take into consideration the fact that scheme
should be such that a man of business will reasonably approve. 82 The court has to see the
completeness and workability of the scheme.83
It is important here to highlight few facts before the court takes into consideration the Indian
Scheme. Firstly, leveraging of the JV Company shows that 88% of equity capital is being
invested by Dinergy which has already filed bankruptcy petition which has been decreed. 84
(1922) 2 Ch 723 at p. 736 (Ch D).
80
See Re Dorman Long & Co., 1934 Ch 635 at 657; See also Premier Motors Pvt. Ltd. v. Ashok
81
Tandon, (1971) 41 Com Cases 656 (All); Navjivan Mills Ltd., Kalol, In Re, (1972) 42 Com
Cases 265 (Guj)
82
Anglo – Continental Supply Co. Ltd., Re, (1922) 2 Ch 723 at p. 736 (Ch D).
83
N.A.P Alagiri Raja & Co. V. N Guruswamy, (1989) 65 Com Cases 758 (Mad - DB); Also See
Joseph v. Paily AIR 1958 Ker 324.
84
¶ 7&21, Problem
33
Secondly, the concept of Joint Venture is such that both partners provide some specialized skill.
failure of one Partner will lead to the dissolution of the entire Joint Venture Company. 85 A joint
venture company cannot run with one joint venture partner. The entire concept of joint venture in
this case fails. Thirdly, from the very outset the JV Company was marred by turf fights between
the two joint venture partners. This indicates that though the two companies came together for a
purpose there was always distrust between them and in such a situation it will be fatal for the JV
Company to continue. Fourthly, the Sughoskar as such does not have any experience in the field
of power and infrastructure; it was Dinergy which was a company specialized in power and
infrastructure projects.86 Upon this qualification the JV Company was allotted the hydel power
project. Lastly, The JV Company is beyond recovery. The courts have been of the view that
whenever choice is available to the court between the revival of the company and winding up,
the court must always lean in the favour of revival of company. But the facts clearly suggest that
the revival of the company by the present scheme is impossible.
[II.C.3] The Unsecured Shareholder loan of Dinergy falls into the class of
Subordinated Creditors
The doctrine of equitable subordination treats the shareholders loan as a subordinated claim in
case of insolvency of a company.87 Under the current law, a shareholder loan will be deemed to
“substitute for equity” and hence be subordinated in the insolvency of the company if it was
granted in the course of a “crisis” of the company.88 Even if the loan was granted before the onset
of the crisis and the shareholder failed to withdraw loan it will be placed in the category of
subordinated creditors. The Indian Scheme will affect the interest of the subordinated creditors in
85
See New Horizons Ltd. v. Union of India. (1997) 89 Com Cases 785 (Del); See also Zenichi
Shishido, ‘Conflicts Of Interest And Fiduciary Duties In The Operation Of A Joint Venture’, 39
Hastings L.J. 63
86
¶ 1, Problem
See In re Mobile Steel Co. 563 F.2d 692, 700 (5th Cir. 1977); See also In re Autostyle Plastics,
87
269 F.3d 726, 750 (6th Cir. 2001).

88
See Dirk A. Verse, ‘Shareholder Loans in Corporate Insolvency – A New Approach to an Old
Problem’ Vol.9 GmBH Special Issue.
34
a way which is different from other creditors thereby making them a separate class. 89 The pari
passu claim of the Syndicate will affect the interest of these classes of creditors. Thereby the
interest of this class is to be protected and they should be given a chance in the meeting.
[II.D] THE DISSOLUTION OF THE JV COMPANY IS IN THE PUBLIC INTEREST AS THE
COMPANY IS BEYOND RECOVERY OR REVIVAL
The term ‘public interest’ is not capable of any definition and depends upon the facts and
circumstances of the case. The context in which public interest appears in Part VI of the
Companies Act 1956, should permit the court to find out why the company was established, what
object was sought to be achieved through its incorporation and what effect it will have on the
object if it is dissolved.90 The project was supposed to solve the terrible power crisis of entire
Eastern India. Now that bankruptcy proceedings have been initiated against Dinergy
unaccounted payouts and its collateral effect on the JV Company, it is submitted that it would
protect the interest of all the people who have contributed to the funds of the JV Company if the
company is wound up as it has failed beyond recovery.
[II.E] THE INDIAN SCHEME IS VOID BECAUSE IT AMOUNTS TO FRAUDULENT PREFERENCE
The enforcement of foreign decree in effect calls for winding up of the JV Company. Under S.
531 of the Companies Act any transfer, delivery or execution in relation to property made six
months prior to the initiation of Insolvency proceedings amounts to fraudulent preference. It is
submitted that preferring the Indian creditors over the foreign lenders six months prior to the
application of winding up amounts to fraudulent preference and the same would be void without
any legal consequence. The proper test is to see whether there was an overriding intention to
prefer one particular creditor or creditors.91 It is not enough to show that the preference was
89
Re, British & Commonwealth Holdings plc. (No. 3), 1992 BCLC 322 per Vinolet J
90
Union of India v. Ambalal Sarabhai Enterprises, (1984) 55 Com Cases 623, 645 (Guj)
91
Wills v. Corfe Joinery Ltd., (1998) 2 BCLC 75 (Ch D).
35
shown to a particular creditor; it must also be shown that it was done “with a view” to give him
favored treatment. The dominant motive attending the transaction has to be ascertained, and if it
is tainted with an element of dishonesty, questions of fraud arise.92
[II.E.1] Further, this transfer was not in the ordinary course of its business
Under S. 531-A, a transfer made by the Company otherwise than in the ordinary course of
business, will be void, if it had been made within one year period before the presentation of a
winding up petition. Both the transferor and the transferee must have shared a common intention
to defraud the creditors unless the conduct of the transferee is also blameworthy the transaction
cannot be annulled.93 It is submitted that management of the JV Company was aware of the
Bankruptcy petition filed in the Delaware court and also the subsequent court order of pay outs.
This order was much before the scheme was entered into. The management was also aware of a
clear possibility of initiation of Winding up petition in India. In this background, the agreement
over a scheme to create a higher pari pasu charge not being part of the ordinary business clearly
amounts to avoidance of voluntary transfer under S. 531 – A.
[III] THE FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA
The foreign decree passed by a court of a reciprocating country will as though it has been passed
by the District Court of the Country.94 However, when it comes to a non reciprocating territory
like US, the foreign decree cannot be executed under S. 44 A of the Code directly. The decree
holder will have to institute a civil suit first in the court which will treat the foreign judgment
conclusive. S. 1395 of the Code embodies the principle of Private International law that court will
enforce a foreign judgment as if that judgment is of a competent court. Except in cases envisaged
Official Liquidator, Kerala High Court v. Victory Hire Purchasing Co. (P) Ltd., (1982) 52 Com
92
Cases 88 at 92; M. Kushler Ltd., Re, (1943) 13 Com cases 219.

93
N. Subramania Iyer v. Official Receiver, AIR 1958 SC 1.
94
§ 44A of the Civil Procedure Code, 1908 (Hereinafter referred as code)
95
§ 13 of the Code
36
under Clause (a) to (f) of S. 13, a foreign judgement is enforceable in India. Judgment here refers
to “adjudication by a court upon the matter before it.”96
[III.A] DELAWARE COURT IS A COURT OF COMPETENT JURISDICTION
As per the principles of private international law, the foreign court assumes the jurisdiction on
the ground that (a) Dinergy was incorporated in US, and JV Company was a subsidiary of it; (b)
JV Company submitted itself before the proceedings of the court. Thus it establishes the fact that
the Delaware Court has competence in an international sense i.e. its territorial competence over
the subject matter and over the defendant.97
[III.B] THE FOREIGN JUDGMENT IS ON MERITS
It is essential that the foreign judgment must be given on merits and the burden of proof lies on
the party who contends it to be not on merits. A decision is said to be not on the merits when the
Court does not go into the case as a whole but decides it upon a point, which cannot be said to
arise on the merit.98 The approach of the Delaware Court where it suo moto took the cognizance
of the SEC Report and the Government Report, shows that the court went into the case as a
whole.
[III.C] DELAWARE COURT HAS NOT REFUSED TO RECOGNIZE THE LAW IN INDIA
The fact that the Delaware Court, on the basis of the doctrine of Corporate Disregard and Asset
Consolidation has ordered pay – outs to the secured creditor and the decree to be executed
throughout the globe signifies that the judgment essentially respects foreign law including law of
India. Furthermore the doctrines used by the Delaware court have been used by the Indian Courts
in numerous cases involving similar facts.
[III.D] PRINCIPLE OF NATURAL JUSTICE WAS FOLLOWED
96
Viswanathan v Abdul Wajid (1963) 3 SCR 22
97
Sardar Gurdayal Singh v. Raja of Faridkot', 21 Ind App 171 (PC)
98
Indian and General Investment Trust Ltd. v. Sri Ramchandra Mardaraja Deo, Raja of
Khalikote, AIR 1952 Cal 508
37
The fact that the Delaware Court ensured that every subsidiary of Dinergy including the JV
Company was represented and was a party to this matter clearly establishes the fact that
principles of natural justice was followed.99 Also there is no fact which indicates that the
judgment obtained from the Delaware Court is a judgment obtained through fraud.
[III.E] THE FOREIGN JUDGMENT IS NOT IN BREACH OF ANY LAW IN INDIA
A judgment given by a foreign court contrary to Indian legislation would not be conclusive. 100
The foreign judgment passed by the Delaware Court is in accordance with the Indian Legislation
furthermore the execution of the decree will not lead to breach of any law in India. The decree
essentially relates to the principles of corporate insolvency and asset consolidation which is
fairly recognized under the Indian laws. Thus, the foreign judgment passed by the Delaware
Court will be conclusive and can be enforced in India.
[IV] THE CONCEPT OF ASSET CONSOLIDATION HAS BEEN SOUGHT TO BE

APPLIED BY THE DELAWARE COURT
It is submitted that Substantive consolidation of assets is a process whereby both the assets and
the liabilities of different entities are combined and treated as if belonging to a single entity. 101
The doctrine has been used to combine the assets of debtor corporations and their respective
debtor affiliates.102 The preponderance of theory can also be appreciated from the fact that it has
also been extended to even consolidate a debtor's assets with the assets of a non-debtor. 103 The
Delaware court before which the Dinergy had filed the Bankruptcy, ensured that the
representation of all the subsidiaries including that of JV Company. The creditors of Dinergy
made an effective claim before the Court regarding the priority of claims and pleaded
99
Algemene Bank Netherland NV Plaintiff v. Satish Dayalal Choksi, AIR 1990 Bom 170, at p.
175
100
Murari Ganguly v. Kanailal Garai, AIR 2003 Cal 105 (116)
FDIC v. Colonial Realty Co., 966 F.2d 57, 58 (2d Cir. 1992); See also See J. Stephen Gilbert,
101
Comment, Substantive Consolidation in Bankruptcy: A Primer, 43 Vand. L. Rev. 207, 208 (1990)
102
In re Giller, 962 F.2d 796 (8th Cir. 1992); In re F.A. Potts & Co., 23 B.R. 569 (Bankr. E.D. Pa.
1982); In re Vecco Constr. Indus., 4 B.R. 407 (Bankr. E.D. Va. 1980).
103
In re Fairfield Constr. Co., 1991 Bankr. LEXIS 1395 (Bankr. E.D. Mich. 1991)
38
consolidation of assets. Hence it is submitted that consolidation of assets being the integral part
of the order of the Delaware Court, the enforcement of decree would entail giving effect to the
doctrine in India as well.
[IV.A] ALL THE REQUIREMENTS FOR INVOKING THE DOCTRINE ARE SATISFIED IN THE
INSTANT CASE
First, consolidation is granted when a debtor corporation and its debtor affiliate are alter-egos
and the affiliate is a mere instrumentality of the debtor entity. Second, consolidation of debtors is
granted when the creditors relied on the credit of the consolidated group. And third,
consolidation is granted when the assets and accounting records are so intertwined that the cost
of restructuring the records would outweigh the recovery benefit to the creditors. 104 In addition,
courts examine the affected parties' substantive rights to ensure that the overall benefits of
consolidation outweigh the inequities. It is already established that Dinergy and JV Company
constitute a single economic unit. Further, the leveraging of funds that was made for the JV
Company gave a reasonable impression that the assets of the entire unit would act as a security
against any credit. As there is a clear possibility of commercial fraud with both Dinergy and JV
Company, the overall benefits of consolidation would outweigh the inequities.
[IV.B] THE DOCTRINE TAKES CARE OF ALL THE CREDITORS
The operation of the doctrine of substantive consolidation entails that the debtors (two separate
entities) "pool" in both their assets and liabilities, treating the entities as if they were one. 105 As
the separate entities are treated as one debtor, creditors of all the consolidated debtors are
combined for purposes of voting and reorganization plans, and are able to satisfy debts from the
common pool of assets.106 In addition, a substantive consolidation extinguishes any claims or
liabilities existing between the separate debtors.107 The purpose of these actions is to ensure the
Supra n.84 (citing 5 Collier on Bankruptcy § 1100.06(1), at 1100-30 to 1100-32 (L. King 15th
104
ed. 1988)).
In re Augie/Restivo Baking Co., 860 F.2d 515, 518 (2d Cir. 1988) (citing 5 Collier on
105
Bankruptcy § 1100.06, at 1100-32 n.1 (L. King 15th ed. 1988)).

106
Id.
107
Id.
39
equitable treatment of creditors.108 Hence, it is submitted that through the doctrine of asset
consolidation, it is not only that the interest of foreign creditors which would be maintained but
also the interest of the syndicate whose interest would also be taken care. There is a clear
possibility of syndicate getting benefited from the asset consolidation process.
[IV.C] THE COC HAS PRIOR CLAIM UNDER THE INSOLVENCY LAWS IN INDIA
[IV.C.1]Under the insolvency law of India, the workmen dues assume supreme
priority
S. 529 A of the Companies Act creates a pari pasu interest between secured lenders and
workmen. In the instant matter, the entire dispute started with the default by Dinergy in payment
of Insurance Premium of 300 million US Dollars to its worker leading the court order pay – outs
for the secured creditors from the consolidated assets of the subsidiaries of the Dinergy.
It is submitted that the court should treat the secured lenders as pari passu with the workmen’s
due. The liquidation proceeds must be used on a pro rata basis between the workmen’s and the
secured lenders. The JV Company and Dinergy are so integral that the asset of the JV Company
is to be used in order to satisfy the claims of the Dinergy creditors which not only included the
secured lenders but also the workmen’s due. The liquidation proceeds of the JV instead of going
to the syndicate should be first utilized in order to satisfy the claims of Dinergy.
[IV.C.2] Even under the common law principles, the COC would have a prior claim
over the assets of the JV Company
In determining the rules of priority claims under the Common law the following can be
considered as a rule of thumb. I. The general rule is that competing property rights in an asset
rank in the order in which they created; this general rule is modified by a number of special
rules, as follows; II. A later legal interest takes priority over a prior equitable interest, provided it
was created for value and in good faith without notice of the prior equitable interest; III. A fixed
interest takes priority over a floating interest (in particular, a floating charge), provided again it
was created for value and in good faith without notice of the prior floating interest (or more
108
Id.
40
particularly restrictions on subsequent encumbrances); IV. Where there are successive dealings
in a claim, priority is determined by the order in which written notice is given to the obligor. 109
However, a subsequent assignee cannot gain priority by service of written notice if she had
notice of the prior assignment.110 Since none of the requirements are fulfilled for creation of a
later interest, the CoC would have a prior claim over the assets of the JV Company.
PRAYER FOR RELIEF
109
Dearle v. Hall (1828) 3 Russ 1; 38 E.R. 475 L.C.
110
Rhodes v. Allied Dunbar Pension Service Ltd. [1987] 1 WLR 1703, per Harman J., 1707
41
Wherefore in the light of above facts stated, arguments advanced and authorities cited, the court
may be pleased to adjudge and declare:
1. That the Dinergy and JV Company constitute a single entity

2. That the JV Company is liable to be wound-up
3. That the foreign decree is capable of execution in India
4. The Scheme is not just unfair but also unworkable.
5. The CoC must be allowed to have a prior claim over the assets of the JV Company by way of
application of asset consolidation doctrine.
The court may also be pleased to pass any other order in the light of justice, equity and good
conscience.
All of which is respectfully submitted,
At.: Kolkata Counsels on behalf of Appellants

Date: 19th February, 2010 X__________________________
APPENDIX
42
I. Relevant provisions under the Companies Act, 1956

4. Meaning of "holding company" and "subsidiary"
(1.) For the purposes of this Act, a company shall, subject to the provisions of sub-section (3),
be deemed to be a subsidiary of another if, but only if, -
(a) that other controls the composition of its Board of directors; or
#01[(b) that other-
(i) where the first-mentioned company is an existing company in respect of which the
holders of preference shares issued before the commencement of this Act have the same voting
rights in all respects as the holders of equity shares, exercises or controls more than half of the
total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in
nominal value of its equity share capital; or]
(c) the first-mentioned company is a subsidiary of any company which is that other's
subsidiary.
390. Interpretation of sections 391 and 393.-
In sections 391 and 393,-
(a) the expression "company" means any company liable to be wound up under this Act;
(b) the expression "arrangement" includes a reorganisation of the share capital of the
company by the consolidation of shares of different classes, or by the division of shares into
shares of different classes or, by both those methods; and
(c) unsecured creditors who may have filed suits or obtained decrees shall be deemed to be
of the same class as other unsecured creditors.
391. Power to compromise or make arrangements with creditors and members.-
(1) Where a compromise or arrangement is proposed-
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the #01[Tribunal] may, on the application of the company or of any creditor or member of the
company, or, in the case of a company which is being wound up, of the liquidator, order a
meeting of the creditors or class of creditors, or of the members or class of members, as the case
may be, to be called, held and conducted in such manner as the #01[Tribunal] directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of
creditors, or members, or class of members, as the case may be, present and voting either in
person or, where proxies are allowed #02[under the rules made under section 643], by proxy, at
the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if
sanctioned by the #01[Tribunal], be binding on all the creditors, all the creditors of the class, all
the members, or all the members of the class as the case may be, and also on the company, or in
the case of a company which is being wound up, on the liquidator and contributories of the
company:
#03[Provided that no order sanctioning any compromise or arrangement shall be made by the
#01[Tribunal] unless the #01[Tribunal] is satisfied that the company or any other person by
whom an application has been made under sub-section (1) has disclosed to the #01[Tribunal], by
43
affidavit or otherwise, all material facts relating to the company, such as the latest financial
position of the company, the latest auditor's report on the accounts of the company, the pendency
of any investigation proceedings in relation to the company under sections 235 to 251, and the
like.]
(3) An order made by the #01[Tribunal] under sub-section (2) shall have no effect until a
certified copy of the order has been filed with the Registrar.
392. Power of Tribunal to enforce compromise and arrangement.-
(1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an
arrangement in respect of a company, it-
(a) shall have power to supervise the carrying out of the compromise or an arrangement; and
(b) may, at the time of making such order or at any time thereafter, give such directions in
regard to any matter or make such modifications in the compromise or arrangement as it may
consider necessary for the proper working of the compromise or arrangement.
(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned
under section 391 cannot be worked satisfactorily with or without modifications, it may, either
on its own motion or on the application of any person interested in the affairs of the company,
make an order winding up the company, and such an order shall be deemed to be an order made
under section 433 of this Act.
(3) The provisions of this section shall, so far as may be, also apply to a company in respect
of which an order has been made before the commencement of the Companies (Second
Amendment) Act, 2002 sanctioning a compromise or an arrangement.]
433. Circumstances in which company may be wound up by Tribunal.-
A company may be wound up by the Tribunal,-
(a) if the company has, by special resolution, resolved that the company be wound up by the
Tribunal;
(b) if default is made in delivering the statutory report to the Registrar or in holding the
statutory meeting;
(c) if the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public company, below seven, and
in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Tribunal is of the opinion that it is just and equitable that the company should be
wound up;
(g) if the company has made a default in filing with the Registrar its balance sheet and profit
and loss account or annual return for any five consecutive financial years;
(h) if the company has acted against the interests of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order, decency or morality;
(i) if the Tribunal is of the opinion that the company should be wound up under the
circumstances specified in section 424G:
44
Provided that the Tribunal shall make an order for winding up of a company under clause (h) on
application made by the Central Government or a State Government.]
434. Company when deemed unable to pay its debts.-
(1) A company shall be deemed to be unable to pay its debts-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum
exceeding #01[one lakh rupees] then due, has served on the company, by causing it to be
delivered at its registered office, by registered post or otherwise, a demand under his hand
requiring the company to pay the sum so due and the company has for three weeks thereafter
neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the
creditor;
(b) if execution or other process issued on a decree or order of any Court #02[or Tribunal] in
favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the #03[Tribunal] that the company is unable to pay its
debts, and, in determining whether a company is unable to pay its debts, the #04[Tribunal] shall
take into account the contingent and prospective liabilities of the company.
(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly
given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised
on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any
member of the firm.
529. Application of insolvency rules in winding up of insolvent companies.-
(1) In the winding up of an insolvent company, the same rules shall prevail and be observed
with regard to-
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
(c) the respective rights of secured and unsecured creditors; as are in force for the time being
under the law of insolvency with respect to the estates of persons adjudged insolvent:
#01[Provided that the security of every secured creditor shall be deemed to be subject to a pari
passu charge in favour of the workmen to the extent of the workmen's portion therein, and,
where a secured creditor, instead of relinquishing his security and proving his debts opts to
realise his security,-
(a) the liquidator shall be entitled to represent the workmen and enforce such charge;
(b) any amount realised by the liquidator by way of enforcement of such charge shall be
applied ratably for the discharge of workmen's dues; and
(c) so much of the debts due to such secured creditor as could not be realised by him by
virtue of the foregoing provisions of this proviso or the amount of the workmen's portion in his
security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of
section 529A.]
(2) All persons who in any such case would be entitled to prove for and receive dividends out
of the assets of the company, may come in under the winding up, and make such claims against
the company as they respectively are entitled to make by virtue of this section:
45
#02[Provided that if a secured creditor instead of relinquishing his security and proving for his
debts proceeds to realise his security, he shall be liable to #03[pay his portion of the expenses]
incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the
security before its realization by the secured creditor.]
#04[Explanation.-For the purposes of this proviso, the portion of expenses incurred by the
liquidator for the preservation of a security which the secured creditor shall be liable to pay shall
be the whole of the expenses less an amount which bears to such expenses the same proportion
as the workmen's portion in relation to the security bears to the value of the security.]
#05[(3) For the purposes of this section, section 529A and section 530.-
(a) "workmen", in relation to a company, means the employees of the company, being
workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);
(b) "workmen's dues", in relation to a company, means the aggregate of the following sums
due from the company to its workmen, namely:-
(i) all wages or salary including wages payable for time or piece work and salary earned
wholly or in part by way of commission of any workman, in respect of services rendered to the
company and any compensation payable to any workman under any of the provisions of the
Industrial Disputes Act, 1947 (14 of 1947);
(ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his
death to any other person in his right, on the termination of his employment before, or by the
effect of, the winding up order or resolution;
(iii) unless the company is being wound-up voluntarily merely for the purposes of
reconstruction or of amalgamation with another company, or unless the company has, at the
commencement of the winding up, under such a contract with insurers as is mentioned in section
14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to
and vested in the workman, all amounts due in respect of any compensation or liability for
compensation under the said Act in respect of the death or disablement of any workman of the
company;
(iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or
any other fund for the welfare of the workmen, maintained by the company;
(c) "workmen's portion", in relation to the security of any secured creditor of a company,
means the amount which bears to the value of the security the same proportion as the amount of
the workmen's dues bears to the aggregate of-
(i) the amount of workmen's dues; and
(ii) the amounts of the debts due to the secured creditors.
529A. Overriding preferential payments.-
(1) Notwithstanding anything contained in any other provision of this Act or any other law
for the time being in force, in the winding up of a company,-
(a) workmen's dues; and
(b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso
to sub-section (1) of section 529 pari passu with such dues, hall be paid in priority to all other
debts.
46
(2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full,
unless the assets are insufficient to meet them, in which case they shall abate in equal
proportions.]
530. Preferential payments.-
(1) In a winding up, #01[subject to the provisions of section 529A, there shall be paid] in
priority to all other debts-
(a) all revenues, taxes, cesses and rates due from the company to the Central or a State
Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8),
and having become due and payable within the twelve months next before that date;
(b) all wages or salary (including wages payable for time or piece work and salary earned
wholly or in part by way of commission) of any employee, in respect of services rendered to the
company and due for a period not exceeding four months within the twelve months next before
the relevant date #02[* * *], subject to the limit specified in sub-section (2);
(c) all accrued holiday remuneration becoming payable to any employee, or in the case of his
death to any other person in his right, on the termination of his employment before, or by the
effect of, the winding up order or resolution;
(d) unless the company is being wound-up voluntarily merely for the purposes of
reconstruction or of amalgamation with another company, all amounts due, in respect of
contributions payable during the twelve months next before the relevant date, by the company as
the employer of any persons, under the Employees' State Insurance Act, 1948 (34 of 1948), or
any other law for the time being in force;
(e) unless the company is being wound-up voluntarily merely for the purposes of
reconstruction or of amalgamation with another company, or unless the company has, at the
commencement of the winding up, under such a contract with insurers as is mentioned in section
14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to
and vested in the workman, all amounts due in respect of any compensation or liability for
compensation under the said Act in respect of the death or disablement of any employee of the
company;
(f) all sums due to any employee from a provident fund, a pension fund, a gratuity fund or
any other fund for the welfare of the employees, maintained by the company; and
(g) the expenses of any investigation held in pursuance of section 235 or 237, in so far as
they are payable by the company.
(2) The sum to which priority is to be given under clause (b) of sub-section (1), shall not, in
the case of any one claimant, #03[exceed such sum as may be notified by the Central
Government in the Official Gazette#04].
#05[* * *]
(3) Where any compensation under the Workmen's Compensation Act, 1923 (8 of 1923) is a
weekly payment, the amount due in respect thereof shall, for the purposes of clause (e) of sub-
section (1), be taken to be the amount of the lump sum for which the weekly payment could, if
redeemable, be redeemed if the employer made an application for that purpose under the said
Act.
47
(4) Where any payment has been made to any employee of a company,-
(i) on account of wages or salary; or
(ii) to him, or in the case of his death, to any other person in his right, on account of accrued
holiday remuneration,
out of money advanced by some person for that purpose, the person by whom the money was
advanced shall, in a winding up, have a right of priority in respect of the money so advanced and
paid, up to the amount by which the sum in respect of which the employee or other person in his
right, would have been entitled to priority in the winding up has been diminished by reason of
the payment having been made.
(5) The foregoing debts shall-
(a) rank equally among themselves and be paid in full, unless the assets are insufficient to
meet them, in which case they shall abate in equal proportions; and
(b) so far as the assets of the company available for payment of general creditors are
insufficient to meet them, have priority over the claims of holders of debentures under any
floating charge created by the company, and be paid accordingly out of any property comprised
in or subject to that charge.
(6) Subject to the retention of such sums as may be necessary for the costs and expenses of
the winding up, the foregoing debts shall be discharged forthwith so far as the assets are
sufficient to meet them, and in the case of the debts to which priority is given by clause (d) of
sub-section (1), formal proof thereof shall not be required except in so far as may be otherwise
prescribed.
(7) In the event of a landlord or other person distraining or having distrained on any goods or
effects of the company within three months next before the date of a winding up order, the debts
to which priority is given by this section shall be a first charge on the goods or effects so
distrained on, or the proceeds of the sale thereof:
Provided that, in respect of any money paid under any such charge, the landlord or other person
shall have the same rights of priority as the person to whom the payment is made.
(8) For the purposes of this section-
(a) any remuneration in respect of a period of holiday or of absence from work through
sickness or other good cause shall be deemed to be wages in respect of services rendered to the
company during that period;
(b) the expression "accrued holiday remuneration" includes, in relation to any person, all
sums which, by virtue either of his contract of employment or of any enactment (including any
order made or direction given under any enactment), are payable on account of the remuneration
which would, in the ordinary course, have become payable to him in respect of a period of
holiday, had his employment with the company continued until he became entitled to be allowed
the holiday; #06[* * *]
#07[(bb) the expression "employee" does not include a workman; and
(c) the expression "the relevant date" means-
(i) in the case of a company ordered to be wound-up compulsorily, the date of the
appointment (or first appointment) of a provisional liquidator, or if no such appointment was
48
made, the date of the winding up order, unless in either case the company had commenced to be
wound-up voluntarily before that date; and
(ii) in any case where sub-clause (i) does not apply, the date of the passing of the resolution
for the voluntary winding up of the company.
(9) This section shall not apply in the case of a winding up where the date referred to in sub-
section (5) of section 230 of the Indian Companies Act, 1913 (7 of 1913), occurred before the
commencement of this Act, and in such a case, the provisions relating to preferential payments
which would have applied if this Act had not been passed, shall be deemed to remain in full
force.
210. Annual accounts and balance sheet.-
(1) At every annual general meeting of a company held in pursuance of section 166, the
Board of directors of the company shall lay before the company-
(a) a balance sheet as at the end of the period specified in sub-section (3); and
(b) a profit and loss account for that period.
(2) In the case of a company not carrying on business for profit, an income and expenditure
account shall be laid before the company at its annual general meeting instead of a profit and loss
account, and all references to "profit and loss account", "profit" and "loss" in this section and
elsewhere in this Act, shall be construed, in relation to such a company, as references
respectively to the "income and expenditure account", "the excess of income over expenditure",
and "the excess of expenditure over income".
(3) The profit and loss account shall relate-
(a) in the case of the first annual general meeting of the company, to the period beginning
with the incorporation of the company and ending with a day which shall not precede the day of
the meeting by more than nine months; and
#01[(b) in the case of any subsequent annual general meeting of the company, to the
period beginning with the day immediately after the period for which the account was last
submitted and ending with a day which shall not precede the day of the meeting by more than six
months, or in cases where an extension of time has been granted for holding the meeting under
the second proviso to sub-section (1) of section 166, by more than six months and the extension
so granted.]
(4) The period to which the account aforesaid relates is referred to in this Act as a "financial
year" and it may be less or more than a calendar year, but it shall not exceed fifteen months:
Provided that it may extend to eighteen months where special permission has been granted in
that behalf by the Registrar.#1a
(5) If any person, being a director of a company, fails to take all reasonable steps to comply
with the provisions of this section, he shall, in respect of each offence, be punishable with
imprisonment for a term which may extend to six months, or with fine which may extend to
#02[ten thousand rupees], or with both:
Provided that in any proceedings against a person in respect of an offence under this section, it
shall be a defence to prove #03[* * *] that a competent and reliable person was charged with the
49
duty of seeing that the provisions of this section were complied with and was in a position to
discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it
was committed willfully.
(6) If any person, not being a director of the company, having been charged by the Board of
directors with the duty of seeing that the provisions of this section are complied with, makes
default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a
term which may extend to six months, or with fine which may extend to #04[ten thousand
rupees], or with both:
Provided that no person shall be sentenced to imprisonment for any such offence unless it was
committed willfully.
221. Duty of officer to make disclosure of payments, etc.-
(1) Where any particulars or information is required to be given in the balance sheet or profit
and loss account of a company or in any document required to be annexed or attached thereto, it
shall be the duty of the concerned officer of the company to furnish without delay to the
company, and also to the company's auditor, whenever he so requires, those particulars or that
information in as full a manner as possible.
#01[(2) * * *]
(3) The particulars or information referred to in sub-section (1) may relate to payments made
to any director, #02[* * *] or other person by any other company, body corporate, firm or person.
(4) If any person knowingly makes default in performing the duty cast on him by the
foregoing provisions of this section, he shall be punishable with imprisonment which may extend
to six months, or with fine which may extend to #03[fifty thousand rupees], or with both.
209. Books of account to be kept by company.-
(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to
secure compliance by the company with the requirements of this section, or has by his own
willful act been the cause of any default by the company thereunder, he shall, in respect of each
offence, be punishable with #13[imprisonment for a term which may extend to six months, or
with fine which may extend to #14[ten thousand rupees], or with both]:
Provided that in any proceedings against a person in respect of an offence under this section
consisting of a failure to take reasonable steps to secure compliance by the company with the
requirements of this section, it shall be a defence to prove #15[* * *] that a competent and
reliable person was charged with the duty of seeing that those requirements were complied with
and was in a position to discharge that duty:
#16[Provided further that no person shall be sentenced to imprisonment for any such offence,
unless it was committed willfully.]
211. Form and contents of balance sheet and profit and loss account.-
(8) If any person, not being a person referred to in sub-section (6) of section 209, having
been charged by the #10[* * *] #11[managing director or manager,] or Board of directors, as the
case may be, with the duty of seeing that the provisions of this section and the other requirements
aforesaid are complied with, makes default in doing so, he shall, in respect of each offence, be
50
punishable with imprisonment for a term which may extend to six months or with fine which
may extend to #12[ten thousand rupees], or with both:
Provided that no person shall be sentenced to imprisonment for any such offence, unless it was
committed willfully.
II. Relevant provision under Code of Civil Proceedure
S.13. When foreign judgment not conclusive.- A foreign judgement shall be conclusive as to
any matter thereby directly adjudicated upon between the same parties or between parties under
whom they or any of them claim litigating under the same title except-
(a) where it has not been pronounced by a Court of competent jurisdiction;
(b) where it has not been given on merits of the case;
(c) where it appears on the face of the proceedings to be founded on an incorrect view of
Internationsal law or a refusal to recognize the law of India in cases in which such law is
applicable;
(d) where the proceedings in which judgement was obtained are opposed to natural justice;
(e) where it has been obtained by fraud;
(f) where it sustains a claim founded on a breach of any law in force in India.
S. 44A. Execution of decrees passed by courts in reciprocating territory.-(1) Where a
certified copy of any decree of any superior courts of any reciprocating territory has been filed in
a District Court, the decree may be executed in India as if it had been passed by the District
Court.
(2) Together with the certified copy of the decree shall be filed a certificate from such superior
court stating the extent, if any, to which the decree has been satisfied or adjusted and such
certificate shall, for the purposes of proceedings under this section, be conclusive proof of the
extent of such satisfaction or adjustment.
(3) The provision of section 47 shall as from the filing of the certified copy of the decree apply to
the proceedings of a district court shall refuse execution of any such decree, if it is shown to the
satisfaction of the court that decree falls within any of the exceptions specified in clauses (a) to
(f) of section 13.
Explanation 1- ‘Reciprocating territory’ means any contrary or territory outside India which the
Central Government may, by notification in the Official Gazette, declare to be a reciprocating
territory for the purposes of this section; and ‘Superior Courts’, with reference to any such
territory , means such Courts as may be specified in the said notification.
Explanation 2- ‘Decree’, with reference to a superior Court, means any decree or judgement of
such court under which a sum of money is payable, not being a sum payable in respect of taxes
or other charges of al ike nature or in respect of a fine or other penalty, but shall in no case
include an arbitration award, even if such an award is enforceable as a decree or judgement.
51

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TEAM -

II NUJS HERBERT SMITH NATIONAL CORPORATE LAW MOOT COURT

BEFORE THE HON’BLE HIGH COURT

COMMITTEE OF DINERGY CREDITORS & OTHERS

DINERGY SUGHOSKAR POWER PVT. LTD., BRETLEY BANK & OTHERS

C.A. No.: ______/2010

MEMORANDUM FOR THE APPELANTS

[I] THE PRINCIPLE OF CORPORATE DISREGARD SHOULD BE APPLIED................1

[I.A] DINERGY IS THE HOLDING COMPANY OF JV COMPANY…………….……………………...…

[I.C] THE JV COMPANY IS AN INSTRUMENTALITY OF

[I.D] THE JV COMPANY AND DINERGY IS A SINGLE ECONOMIC

[I.E] THE JV COMPANY HAS BEEN INSTRUMENTAL IN PERPETUATING

[I.F] JV COMPANY IS LIABLE FOR THE ACTS OF

[II] THE JV COMPANY IS LIABLE TO WOUND UP……………………………………....6

[II.B.1] JV Company cannot carry on business except at losses………………………………….9

[II.B.2] JV Company should be wound up because the substratum is lost………………………..9

[II.B.3] JV Company is to be wound up in public interest………………………………………10

[II.C.1] That the Indian Scheme is not fair and reasonable…………………………………...…11

[II.C.2] The scheme is neither feasible nor workable……………………………………………12

[II.E] THE INDIAN SCHEME IS VOID BECAUSE IT AMOUNTS TO FRAUDULENT

[III] THE FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA……………..15

[III.A] DELAWARE COURT IS A COURT OF COMPETENT

[III.B] THE FOREIGN JUDGMENT IS ON MERITS……………………………………………………

[III.C] DELAWARE COURT HAS NOT REFUSED TO RECOGNIZE THE LAW IN

[III.D] PRINCIPLE OF NATURAL JUSTICE WAS

[III.E] THE FOREIGN JUDGMENT IS NOT IN BREACH OF ANY LAW IN

[IV] THE CONCEPT OF ASSET CONSOLIDATION HAS BEEN SOUGHT TO BE

[IV.B] THE DOCTRINE TAKES CARE OF ALL THE

[IV.C] THE CO C HAS PRIOR CLAIM UNDER THE INSOLVENCY LAWS IN

QBD Queen’s Bench Division

1. Companies Act, 1956.

2. Civil Procedure Code, 1908.

3. Insolvency Act 1986

B.1 Indian Cases

Name of Case Cited At

B.2 Foreign Cases

Name of Case Cited at

1. Adams v Cape Industries [1990] Ch. 433 4

C. LAW REVIEW ARTICLE

D. LIST OF BOOKS AND TREATISES

2. Ramaiya A, A GUIDE TO THE COMPANIES ACT, PART 1, 16 th Edn., Lexis Nexis

APPELLANTS Committee of Dinergy Creditors & Others [Hereinafter referred as

DINERGY Dinergy Power and Infrastructure Inc. [Hereinafter referred as

LIST OF EVENTS LEADING TO THE DISPUTE.

who were alleged to have made these payouts.

[I] WHETHER JV COMPANY AND DINERGY CONSTITUTE SINGLE ENTITY?

[II] WHETHER JV COMPANY IS LIABLE TO BE WOUND - UP?

[III] WHETHER FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA?

[IV] WHETHER THE ASSETS OF THE JV COMPANY CAN BE CONSOLIDATED

THROUGH THE DOCTRINE OF SUBSTANTIVE ASSET CONSOLIDATION?

[II] JV COMPANY IS LIABLE TO BE WOUND UP

Three important requirements of a valid scheme, statutory compliance, fair representation of

[III] THE FOREIGN DECREE IS CAPABLE OF EXECUTION IN INDIA

[I] THE PRINCIPLE OF CORPORATE DISREGARD SHOULD BE APPLIED

[I.A] DINERGY IS THE HOLDING COMPANY OF JV COMPANY

[I.C] THE JV COMPANY IS AN INSTRUMENTALITY OF DINERGY

The single identity of the holding-subsidiary is indicated by designating the latter as an

[I.D] THE JV COMPANY AND DINERGY IS A SINGLE ECONOMIC UNIT.

Orpheum Circuit, 21 F.(2d) 720 (C. C. A. 8th, 1927)

[I.E] THE JV COMPANY HAS BEEN INSTRUMENTAL IN PERPETUATING FRAUD

[I.F] JV COMPANY IS LIABLE FOR THE ACTS OF DINERGY

[II.] THE JV COMPANY IS LIABLE TO WOUND UP