Memorial for the Petitioner

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015

IN THE HON’BLE SUPREME COURT OF PENTOS UNDER ARTICLE 136 OF THE CONSTITUTION OF PENTOS

IN THE MATTER OF MOJO LTD. AND ANR.……………….…...........................P ETITIONERS V.

REPUBLIC OF PENTOS AND ANR.…………………….....…R ESPONDENTS

S.L.P. NO……/2015

MEMORANDUM ON THE BEHALF OF PETITIONERS

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 TABLE

OF

CONTENTS

LIST OF ABBREVIATIONS.....................................................................................................III INDEX OF AUTHORITIES.......................................................................................................IV STATEMENT OF JURISDICTION.......................................................................................VIII STATEMENT OF FACTS..........................................................................................................IX ISSUES RAISED...........................................................................................................................X SUMMARY OF ARGUMENTS.................................................................................................XI ARGUMENTS ADVANCED........................................................................................................1 I. That Dreamzz Ltd. is not liable for the act amounting to fraud............................................1 [A] Dreamzz is not liable for violation of SEBP (Collective Investment Schemes) Regulations, 1999.....................................................................................................................1 [B] Dreamzz is not liable for violation of SEBP (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003....................................................4 II. That Mojo Ltd. is not liable for the act of Dreamzz Ltd.......................................................5 [A] Mojo and Dreamzz are separate entities............................................................................5 [B] Corporate veil should not be lifted.....................................................................................7 III.That Mojo Ltd. And Dreamzz Ltd. are not liable to be amalgamated in public interest.. 9 [A] The interest of the shareholders of Mojo has been neglected by Pentos...........................9 [B] The phrase “public interest” has been misapplied by the Government of Pentos............11 PRAYER.....................................................................................................................................XII

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 LIST

OF

ABBREVIATIONS

ABBREVIATIONS & § ¶ AIR Anr. Comp Cas Comp LJ Cri.LJ CTR EWHC ELR GLH KB Ors. SAT SCC SLP v.

EXPANSIONS And Section Paragraph All India Reporter Another Company Cases Company Law Journal Criminal Law Journal Current Tax Reporter England and Wales High Court Energy Law Reports Gujarat Law Herald King's Bench Others Securities Appellate Tribunal Supreme Court Cases Special Leave Petition Versus

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 INDEX

OF

AUTHORITIES

-INDIAN CASES1. A.K. Gopalan v. State of Madras, AIR 1950 SC 27..................................................................9 2. Arun Kumar Agrawal v. Union of India (UOI) and Ors., (2014) 2 SCC 609............................5 3. Balwant Rai Saluja v. Air India Ltd., AIR 2015 SC 375...........................................................8 4. Bank of Baroda v. Official Liquidator of Alpic Finance Ltd., 2008 Indlaw MUM 1494........12 5. Calcutta Chromotype Ltd. v. Collector of Central Excise, Calcutta, AIR 1998 SC 1631.........7 6. Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited, (2006)11 SCC 245.........4 7. D.K. Trivedi v. State of Gujarat, AIR 1986 SC 1323................................................................2 8. Delhi Cloth and General Mills Co. Ltd. v. Union of India and Ors., (1983) 4 SCC 166..........3 9. Excel Wear Etc. v. Union Of India, AIR 1979 SC 25..............................................................12 10. Gaurav Processors Private Ltd. v. Haryana Financial Corporation, 2011 Indlaw PNH 818.....3 11. Hardeep Singh v. State of Punjab and Ors., AIR 2014 SC 1400...............................................4 12. Hindustan Lever & Anr. v. State of Maharashtra, AIR 2004 SC 326........................................9 13. Hindustan Lever Employees’ Union v. Hindustan Lever Ltd. and Ors., AIR 1995 SC 470....11 14. Janata Dal v. H.S. Chowdhary And Ors, AIR 1993 SC 892....................................................13 15. K.C. Vasanth Kumar & Anr. v. State of Karnataka AIR 1985 SC 1495..................................12 16. Kapila Hingorani v.State of Bihar, (2003) 6 SCC 1..................................................................8 17. Karanpura Development Co. v. Union of India, AIR 1988 SC 1478........................................5 18. Kusheshwar Prasad Singh v. State of Bihar and Ors., (2007) 11 SCC 447...............................4 19. Laxmi Raj Shetty and Anr. v. State of Tamil Nadu, AIR 1988 SC 1274...................................5 20. Life Insurance Corporation of India v. Escorts Limited and Ors, AIR 1986 SC 1370..............6 -4~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 21. Life Insurance Corporation of India v. Hari Das Mundhra, 1962 Indlaw ALL 98....................5 22. M.J. Shivani and Ors. v. State of Karnataka, AIR 1995 SC 1770.............................................2 23. M/S Niko Resources Ltd. v. Union of India, 93 (2001) DLT 12...............................................8 24. Mahesh Ratilal Shah v. Union of India (UOI) and Ors., AIR 2010 SC 676..............................4 25. Maneka Gandhi v. Union of India, AIR 1978 SC 597.............................................................12 26. Mihir H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506............................................11 27. Motilal Padampat Sugar Mills v. State Of Uttar Pradesh And Ors, AIR 1979 SC 621...........12 28. Ms. Aruna Roy and Ors. v. Union of India and Ors., AIR 2002 SC 3176...............................13 29. Mukund Swarup Mishra v. Union of India, (2007) 2 SCC 536...............................................12 30. National Insurance Co. Ltd. Co. Ltd. v. Swaran Singh & Ors. (2004) 3 SCC 297.................12 31. New Horizons Ltd. v. Union of India. (1997) 89 Com Cases 785 (Del)...................................6 32. P. G. F. Ltd. and Ors. v. Union Of India and Anr., AIR 2013 SC 3702.....................................1 33. People's Union for Democratic Rights v. Union of India, (1982) 2 SCC 494...........................9 34. Purushottam Kumar Jha v. State of Jharkhand and Ors., (2006) 9 SCC 458............................4 35. R.K. Garg v. Union of India, AIR 1981 SC 2138......................................................................2 36. Rameshwar Prasad and Ors. v. Union of India (UOI) and Anr., AIR 2006 SC 980..................4 37. S.D. Bhattacharya v. SEBI, CWP No. 3352 of 1998.................................................................3 38. Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad, AIR 2005 SC 809...................3 39. Satpal & Co. v. Lt. Governor of Delhi, AIR 1979 SC 1550......................................................2 40. Sesa Industries Limited v. Krishna H. Bajaj and Ors., AIR 2011 SC 1070.............................10 41. Siliguri Municipality & Ors. v. Amalendu Das & Ors., AIR 1984 SC 653.............................13 42. Spencer & Company Lt.d v. Hindustan Petroleum Corporation Limited, AIR 1965 Mad. 3596 43. Sri Rama Vilas Service Pvt. Ltd v. C. Chandrasekaran & Ors, AIR 1965 SC 107.................10 -5~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 44. St. Stephen’s College v. The University of Delhi, AIR 1992 SC 1630....................................11 45. State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908..............................................................3 46. Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd., AIR 1969 Cal 238............7 47. Universal Pollution Ctrl (I) Pvt. Ltd. v. Regional Provident Fund Commissioner and Anr., (2006) 6 AIR Bom R 572...........................................................................................................6 48. Vishnu Prakash Bajpai v. SEBI, (2010) 2 Comp LJ 23 (Del);...................................................3 49............Vodafone International Holdings B.V. v. Union of India and Anr., (2012) 6 SCC 613. ...................................................................................................................................................5 -FOREIGN CASES1. Berkey v. Third Avenue Railway Co., 244 NY 84......................................................................8 2. Buckinghamshire County Council v. Secretary of State for the Environment, Transport and Regions and Anr., 2001(1) BLR 38.............................................................................................8 3. Alpha Bytes Computer Corp v. Slaton, 762 N.Y.S.2d 328 (July 3, 2003)..................................8 4. Gramophone and Typewriter Ltd. v. Stanley (1908) 10 All ER Rep 837...................................7 5. Interstate Telegraph Co. v. Baltimore and 0. Teleg. Co., 51 Fed. 49, (D.C. Md., 1892).............6 6. Salomon v. Salomon & Co. [1895-99] All ER Rep 33...............................................................6 7. Saluka Investments BV v. The Czech Republic, UNICITRAL, Partial Award (PCA, 17 March 2006)..........................................................................................................................................12 8. Union Sulphur Co. v. Freeport Tex. Co., 251 F. 634 (D. Del. 1918)..........................................6 9. United States v. Bestfoods, 141 L. Ed. 2d 43 (1998)..................................................................8 10. United States v. Lehigh Valley-R. R. Co., 55 L.ed. 458 (1920)................................................6

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 -STATUTES AND REGUATIONS1. Constitution of Pentos, 1950…………………………………………………………….……10 2. Pentosian Contract Act, 1872 [Act 9 of 1872]..........................................................................11 3. Regulation 15, SEBP (Debenture Trustee) Regulations, 1993..................................................10 4. SEBP (Collective Investment Schemes) Regulations, 1999.......................................................8 5. SEBP (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003.......................................................................................................................11 6. Securities and Exchange Board of Pentos Act, 1992 [Act 15 of 1992]......................................8 7. The Companies Act, 1956 [Act 1 of 1956]...............................................................................12 -LEXICONSBlack’s Law Dictionary 6, (10th ed. 2014).......................................................................................4

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 STATEMENT OF JURISDICTION WITH REGARD PETITIONERS

TO THE CIRCUMSTANCES THAT HAVE BEEN PRESENTED IN THE INSTANT CASE THE

HAVE APPROACHED THE

CONSTITUTION

OF

PENTOS

HON’BLE SUPREME COURT

UNDER

ARTICLE 136

WHICH EXERCISES ITS JURISDICTION TO HEAR THE

OF THE

SPECIAL LEAVE

PETITION. ARTICLE 136 – JURISDICTION

SPECIAL LEAVE TO APPEAL BY THE SUPREME COURT (1) Notwithstanding anything in this chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. (2) Nothing in clause (1) shall apply to any judgment, determination, sentence or order passed or made by any court or tribunal constituted by or under any law relating to the armed forces.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 STATEMENT OF FACTS BACKGROUND: Mojo Ltd. is a public listed multinational oil and gas company in Pentos having 10 lakh shareholders. Dreamzz Ltd. is a public unlisted company dealing in real estate. Mr. Karl Singh acts as the common promoter and is on the Board of Directors for Mojo and Dreamzz. THE SECURITIES SUBSCRIPTION AGREEMENT: Mojo entered into Securities Subscription Agreement with Dreamzz on 11.08.2009 and subscribed 100 Compulsory Convertible Debentures convertible within 48 months from the date of allotment (CCDs got converted on 12.08.2013). Upon such conversion, Mojo is to hold 65% shareholding in Dreamzz. THE DURGA SCHEME: Dreamzz floated the Durga Scheme in 2010, whose tenure was 5 years, whereby it issued units equivalent to Rs. 500 crores, having minimum subscription amount of Rs. 10 Lakhs, with object of investing in volatile sectors like real estate. The Scheme offered only principal protection to investors with no commitment on interest. Dreamzz entered into Trust Deed with M/S GRU Trusteeship Services Pvt. Ltd. ALLEGATIONS

OF

FRAUD: News reports broke out alleging Dreamzz to be indulged in

fraudulent transactions. The Trustee deemed fraud to be Event of Default of Trust Deed. Trustee initiated arbitration proceedings along with Section 9 proceedings in High Court of Santos. DRAFT NOTIFICATION

AND

AMALGAMATION: Central Government of Pentos issued a

preliminary Draft Notification under Section 396 regarding whether Mojo and Dreamzz should be amalgamated to pay off the debts of the unit-holders. PRESENT DAY: Mojo and shareholders moved the Supreme Court of Pentos under Special Leave Petition against the summary dismissal of writ petition by the High Court of Santos.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 ISSUES RAISED I.

WHETHER DREAMZZ LTD. IS LIABLE FOR THE ACT AMOUNTING TO FRAUD?

II.

WHETHER MOJO LTD. IS LIABLE FOR THE ACT OF DREAMZZ LTD.?

III.

WHETHER MOJO LTD. AND DREAMZZ LTD. ARE LIABLE TO BE AMALGAMATED IN PUBLIC INTEREST?

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 SUMMARY OF ARGUMENTS I. THAT DREAMZZ LTD. IS NOT LIABLE FOR THE ACT AMOUNTING TO FRAUD. It is submitted that Dreamzz is not liable for the act amounting to fraud. Firstly, it does not violate the offer document for it provides for principal protection and redemption of debentures at face value for investors. Secondly, it does not provide for any misleading directive in its advertisements. Thirdly, it did not violate Trustee obligations for the Trustee was liable to review the activities. With regard to the violation of SEBP norms, the Counsel seeks to submit fourthly, there is no cogent evidence to prove beyond reasonable doubt, the existence of fraud. II. THAT MOJO LTD. IS NOT LIABLE FOR THE ACT OF DREAMZZ LTD. It is submitted that there is no reason to presume the existence of a sham circuit which accords for the application of the Doctrine of the Corporate Veil. It is therefore, contended that in the instant regard, paying significant due to the principal of separate legal entity, as enshrined under the principles of Company Law, there exists no liability of Mojo. Ltd. III. THAT MOJO LTD. AND DREAMZZ LTD. ARE NOT LIABLE

TO BE AMALGAMATED

IN PUBLIC INTEREST.

It is submitted that Mojo Ltd. and Dreamzz Ltd. are not liable to be amalgamated in public interest. Firstly, the interests of the shareholders have pertinently ignored wherein the amalgamation of the parties has been suggested as a blatant exercise of State machinery. Secondly, the amalgamation is pursuant to be essential in ‘public interest’ which is misapplied by the Government in the instant regard.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 ARGUMENTS ADVANCED

I. THAT DREAMZZ LTD. IS NOT LIABLE FOR THE ACT AMOUNTING TO FRAUD. It is humbly submitted before the Honb’le Court that Dreamzz Ltd. [hereinafter referred to as Dreamzz] is not liable for violation of the laws and regulations of Securities and Exchange Board of Pentos [hereinafter referred to as the SEBP or the Board]. It is herein submitted that Durga Scheme [hereinafter referred to as the Scheme] is a Collective Investment Scheme [hereinafter referred to as the CIS] according to Section 11AA1 of Securities and Exchange Board of Pentos Act, 19922 [hereinafter referred to as the SEBP Act] and Dreamzz is the Collective Investment Management Company [hereinafter referred to as the Company]. It is submitted that Dreamzz has not violated firstly, the SEBP (Collective Investment Schemes) Regulations, 19993 [A], secondly, SEBP (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 [B]. [A] Dreamzz is not liable for violation of SEBP (Collective Investment Schemes) Regulations, 1999. It is humbly submitted before the Hon’ble Court that Dreamzz is not liable for violation of the SEBP (Collective Investment Schemes) Regulations, 1999 [hereinafter referred to as the CIS Regulations]. Dreamzz has not violated (i) Offer Document and Trust Deed and (ii) Code of Conduct of the Scheme and Advertisement Code. It is submitted that Trustee has violated his obligations (iii). 1 P. G. F. Ltd. and Ors. v. Union Of India and Anr., AIR 2013 SC 3702. 2 Securities and Exchange Board of Pentos Act, 1992 [Act 15 of 1992]. 3 SEBP (Collective Investment Schemes) Regulations, 1999.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015

(i) No violation of Offer Document or Trust Deed. It is submitted that Dreamzz has not violated the Offer Document of the Scheme. The Scheme offered only principal protection to the investors with no commitment on interest. It is herein submitted that redemption of the debentures at face value is therefore, not in violation of the Offer Document. Moreover, applying Regulation 26(2) and Sixth Schedule of the CIS Regulations which incorporate the contents of Offer Document, all contents of the Offer Document are in consonance with the applicable provisions. Furthermore, Dreamzz in the Offer Document has also included the Risk Clause in accordance with the Regulations. Placing reliance on the case of M.J. Shivani v. Karnataka4, it is submitted that there has been no material illegality/irregularity in the functioning of the Scheme, hence there is no default in the Disclosure Clause5 by the company. It is humbly submitted that Dreamzz has not violated any provision of the Trust Deed. Regulation 17(1) and Fourth Schedule provide that the Trust Deed shall contain such clauses which are necessary for safeguarding interest of the unit holders. Such interests have been duly taken care of by Dreamzz. (ii)

No violation of Advertisement Code and Code of Conduct.

It is submitted that there has been no violation of the Advertisement Code in the promotion of the Scheme. Placing reliance on the case of R.K. Garg v. UOI6, it is submitted that there has been no 4 M.J. Shivani and Ors. v. State of Karnataka, AIR 1995 SC 1770; D.K. Trivedi v. State of

Gujarat, AIR 1986 SC 1323; Satpal & Co. v. Lt. Governor of Delhi, AIR 1979 SC 1550; Quarry Owners Association v. State of Bihar, AIR 2000 SC 2870. 5 Article 6, Trust Deed, Annexure I. 6 R.K. Garg v. Union of India, AIR 1981 SC 2138.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 misleading promotion of the Scheme by Dreamzz. Furthermore, Dreamzz has duly abided by the Code of Conduct incorporated in the Third Schedule of the Regulations. (iii)

Violation of Obligations by the Trustee.

It is submitted that the Trustee was under obligation of reviewing the activities of the Scheme on quarterly basis according to Regulation 21(7). Further, applying Regulation 21(3) the Trustee did not inform the Board about the alleged irregularity or fraud, therefore, violating its obligation according to the CIS Regulations. Moreover, it contravened the provision of the Third Schedule, incorporating the Code of Conduct, which makes it mandatory for the Trustee to ensure dissemination of adequate accurate and explicit information to the unit holders, about the financial position and general affairs of the scheme. It would be pertinent to note that the Trustee did not oppose the decrease in the interest rate and subsequent delay before the default, thereby acting against the interest of the unit holders7. Also, according to Regulation 15 of the SEBP (Debenture Trustee) Regulations, 19938, the Trustee was under the obligation of exercising his due diligence9 being responsible to the investors. However, the Trustee continued the offence 10, by not performing his duties. Henceforth, placing reliance on the case of Kusheshwar v. Bihar11, it is submitted that commodum ex injuria sua nemo habere debet. Henceforth, the Trustee cannot 7 S.D. Bhattacharya v. SEBI, CWP No. 3352 of 1998; See also Delhi Cloth and General Mills

Co. Ltd. v. Union of India and Ors., (1983) 4 SCC 166; Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. and Ors., (1987) 1 SCC 424; Narendra Kumar Maheshwari v. Union of India, 1990 (Supp.) SCC 440. 8 Regulation 15, SEBP (Debenture Trustee) Regulations, 1993. 9 Gaurav Processors Private Limited v. Haryana Financial Corporation, 2011 Indlaw PNH 818;

see also, Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad, AIR 2005 SC 809; Mashyak Grihnirman Sahakari Sanstha Maryadit v. Usman Habib Dhuka and Ors., AIR 2013 SC 3188. -3~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 take advantage from his own wrong. Furthermore, it would be pertinent to note that the arbitration proceedings initiated by the Trustee is against the Dispute Resolution Article of the Trust Deed which makes it mandatory for the parties to resolve the dispute amicably through Conciliation prior to the Arbitration12. Henceforth, from the perusal of the factum in the instant matter it is submitted that there has been no violation of the CIS Regulations by Dreamzz. [B] Dreamzz is not liable for violation of SEBP (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. It is submitted that Dreamzz is not liable for commitment of fraud 13 in its transactions. Placing reliance on the case of Mahesh v. UOI14 it is submitted that fraudulent and unfair trade practice is to be proved by cogent evidence15. In the present case the allegations of fraudulent transactions have been made by the news reports. The Trustee deemed the alleged fraudulent activities of 10 Vishnu Prakash Bajpai v. Securities and Exchange Board of India, (2010) 2 Comp LJ 23

(Del); State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908; see also, Bhagirath Kanoria v. State of Madhya Pradesh, AIR 1984 SC 1688. 11 Kusheshwar Prasad Singh v. State of Bihar and Ors., (2007) 11 SCC 447; see also

Sidhakamal Nayan v. Bira Naik, AIR 1954 SC 336; Mritunjoy Pani and Anr. v. Narmanda Bala Sasmal and Anr., AIR 1961 SC 1353. 12 Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited, (2006)11 SCC 245. 13 §17, Pentosian Contract Act, 1872 [Act 9 of 1872]; Regulation 2(c), SEBP (Prevention of

Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003. 14 Mahesh Ratilal Shah v. Union of India (UOI) and Ors., AIR 2010 SC 676; Purushottam

Kumar Jha v. State of Jharkhand and Ors., (2006) 9 SCC 458; Indian Railway Construction Co. Ltd. v. Ajay Kumar, (2003) 4 SCC 579. 15 Hardeep Singh v. State of Punjab and Ors., AIR 2014 SC 1400; Rameshwar Prasad and Ors.

v. Union of India (UOI) and Anr., AIR 2006 SC 980; Black’s Law Dictionary 6, (10th ed. 2014). -4~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 Dreamzz as an Event of Default of the Trust Deed, thereby issued the default notice. 16 It is submitted that the allegations are often more easily made than proved, and the very seriousness of such allegations demands proof of a high order of credibility.17 The Trustee has committed a serious error in basing the subsequent proceedings against Dreamzz on the fraud alleged by news reports18. Henceforth, in the light of absence of any cogent evidence, it is submitted that Dreamzz is not liable for commitment of fraud. II. THAT MOJO LTD.

IS NOT LIABLE FOR THE ACT OF

DREAMZZ LTD.

It is humbly submitted before the Hon’ble Court that Mojo Ltd. [hereinafter referred to as Mojo] cannot be held liable for the alleged acts of the Dreamzz. It is herein submitted that Mojo and Dreamzz are separate entities [A]. Furthermore, the doctrine of piercing the corporate veil is not applicable in the present case [B].

16 Fact Sheet ¶9. 17 Arun Kumar Agrawal v. Union of India (UOI) and Ors., (2014) 2 SCC 609; S. Partap Singh

v. State of Punjab, AIR 1964 SC 72; E.P. Royappa v. State of T.N., AIR 1974 SC 555. 18 Laxmi Raj Shetty and Anr. v. State of Tamil Nadu, AIR 1988 SC 1274.

-5~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 [A] Mojo and Dreamzz are separate entities.

-6~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 It is humbly submitted that the Mojo and Dreamzz are separate entities 19.Further, their affairs are separate.20 It is humble submission of the Petitioner that the concept of single economic unit does not apply here. A company must be treated like any other independent person with its rights and liabilities legally appropriate to itself. 21 There is no general principle that all companies in a group of companies are to be regarded as one. On the contrary, the fundamental principle is that, each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate legal rights and liabilities.22 Moreover, it is a general proposition that common officers, directors and stockholders, and close affiliation do not establish identity of the corporation’s as principal and agent, representative, or alter ego between the two.23 Holding major shares in the subsidiary company would not put an end to the corporate character of the company. Also there is no financial control by parent company.24 In the present case, dragging holding company into the dispute between subsidiary company and its trustee is uncalled for and legally untenable. A statute which has been enacted to remedy an existing unfair practice will not 19 Karanpura Development Co. v. Union of India, AIR 1988 SC 1478; Vodafone International

Holdings B.V. v. Union of India and Anr., (2012) 6 SCC 613. 20 Life Insurance Corporation of India v. Hari Das Mundhra, 1962 Indlaw ALL 98. 21 Salomon v. Salomon & Co. [1895-99] All ER Rep 33. 22 Universal Pollution Control India Pvt. Ltd. v. Regional Provident Fund Commissioner and

Anr., (2006) 6 AIR Bom R 572. 23 New Horizons Ltd. v. Union of India. (1997) 89 Com Cases 785 (Del); Union Sulphur Co. v.

Freeport Tex. Co., 251 F. 634 (D. Del. 1918). 24 Spencer & Company Limited v. Hindustan Petroleum Corporation Limited, AIR 1965 Mad.

359; CIT v. United Breweries, (1975) 89 ITR 17 (Mys); See also, Commissioner of Income Tax v. West Coast Electric Supplies Corporation Ltd., 1999 Indlaw MAD 182. -7~MEMORANDUM ON THE BEHALF OF PETITIONERS~

6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 be defeated by the very practice which it is to prevent.25 In the instant case, it can be concluded that petitioner has not received any hidden benefit from the alleged activities of Dreamzz limited; rather scheme was come into play before Mojo became holding company.26 It is submitted that there is no unity of interest between Mojo and Dreamzz. As a general proposition; ownership alone of capital stock in one corporation by another does not create an identity of corporate interest between the two companies.27 The primary object of Dreamzz includes investing in volatile sectors such as real estate. Thus, the business of a subsidiary is not the business of the holding company28. Placing reliance on the case of Turner Morrison v. Hungerford Ltd., it is submitted that even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company.29 Despite the close relationship between the two entities, the subsidiary was not mere facade of the group and there was no basis for treating the group as a single economic unit.30

25 United States v. Lehigh Valley-R. R. Co., 55 L.ed. 458 (1920); See also, Life Insurance

Corporation of India v. Escorts Limited and Ors, AIR 1986 SC 1370. 26 Interstate Telegraph Co. v. Baltimore and Teleg. Co., 51 Fed. 49, (D.C. Md., 1892); Am.

National Bank v. Nat. Wallpaper Co., 77 Fed.85 (C.C.A. 8th, 1896). 27 Peterson v. Chicago, R. I. and Pacific Ry., 51 L. Ed. 841 (1907); Calcutta Chromotype Ltd. v.

Collector of Central Excise, Calcutta, AIR 1998 SC 1631. 28 Gramophone and Typewriter Ltd. v. Stanley (1908) 10 All ER Rep 837. 29 Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613. 30 Polly Peck International Plc. (In Administration) (No.3), Re, (1996) 1 BCLC 428 (Ch D).

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 [B] Corporate veil should not be lifted. It is submitted that each of the companies is a separate legal entity by themselves and therefore the principle of lifting the corporate veil to treat both the companies as a single economic unit is not attracted in the present case. Each company has a separate corporate veil. 31 The courts have refused to lift the corporate veil and disregard the separate personality even if they are wholly owned subsidiaries and had same directors and the same management. 32 It is herein submitted that, for piercing the veil of incorporation, mere ownership and control is not a sufficient ground. Placing reliance on the case of Alpha Bytes v. Slaton33, it is submitted that the proponent of piercing the corporate veil is that the owners exercised complete domination of the corporation in respect to the transaction attacked and that such domination was used to commit a fraud or wrong against the party seeking to pierce the corporate veil which resulted in that party’s injury. Allegations of fraudulent transactions are disputed as there is no cogent evidence to establish fraud which allows the lifting of corporate veil of the petitioner. Moreover, the allegations being in the knowledge of directors is not sufficient ground to hold them liable. Henceforth, the parent company is not directly a participant in the alleged offence.34 Placing reliance on the case of Balwant Rai v. Air India35, it is submitted that in the present case 31 Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd., AIR 1969 Cal 238. 32 Dimbleby & Sons Ltd. v. National Union of Journalists (1984) 1 All ER 751 (HL). 33 Alpha Bytes Computer Corp v. Slaton, 762 N.Y.S.2d 328 (July 3, 2003); See also, Morris v.

New York State Dept. of Taxation & Fin., 82 N.Y. 2d 135, 141, M/S Niko Resources Ltd. v. Union of India, 93 (2001) DLT 12; Subhra Mukerjee and Anr. v. Bharat Coking Coal Ltd. and Ors., 2000 (39) ALR 211. 34 United States v. Bestfoods, 141 L. Ed. 2d 43 (1998).

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 control is not sufficient to establish such liability.36 The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company.37 Henceforth, the corporate veil shall not be lifted in the instant matter. III.THAT MOJO LTD. AND DREAMZZ LTD. ARE NOT LIABLE TO BE AMALGAMATED IN PUBLIC INTEREST. It is humbly submitted before the Hon’ble Court that Mojo and Dreamzz are not liable to be amalgamated. It is herein submitted that the amalgamation is not required in the public interest. Furthermore, the interest of the shareholders of Mojo has been neglected by the Government of Pentos [A]. It is further submitted that the phrase “public interest” has been misapplied by the Government of Pentos [B]. [A] The interest of the shareholders of Mojo has been neglected by Pentos. It is submitted that the interest of the shareholders of Mojo has been neglected by Pentos. In the instant regard it is set forth that the power of the Centre is applicable to exercise only when the act is “essential in public interest”38. The view of the Courts has been significant in establishing

35 Balwant Rai Saluja v. Air India Ltd., AIR 2015 SC 375; Union of India and Ors.v. Ponni

Sugars (Erode) Ltd., (2015) 5 MLJ 434. 36 Berkey v. Third Avenue Railway Co., 244 NY 84; See also, Fatima Tile Works and Anr.

v.Sudarsan Trading Co. Ltd, AIR 1992 MAD 12. 37 Kapila Hingorani v.State of Bihar, (2003) 6 SCC 1; See also, Castleberry v. Branscum, 721

S.W. 2d 270, 272 (Tex. 1986); Buckinghamshire County Council v. Secretary of State for the Environment, Transport and Regions and Anr., 2001(1) BLR 38. 38 People's Union for Democratic Rights v. Union of India, (1982) 2 SCC 494.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 public interest39. Reliance has been placed on the case of Hindustan Lever v. Maharashtra40, in which it was held that: “The foundation or the basis for passing an order of amalgamation is agreement between two or more companies. Under the Scheme of amalgamation, the whole or any part of the undertaking, properties or liability of any company concerned in the scheme is to be transferred to the other company. The scheme of amalgamation has its genesis in an agreement between the prescribed majority of shareholders and creditors of the transferor company with the prescribed majority of shareholders and creditors of the transferee company.” The view was further strengthened by this court in the case of Sesa v. Krishna Bajaj41. It is herein submitted that the view of the parties amalgamated has been grievously neglected 42 and the warrant of amalgamation is pursuant to grave misapplication of the statutory provision enshrined under Section 396. (i) Addendum, draft notification ignores valuable rights of shareholders of the Companies. It is humbly submitted that the Draft Notification 43 ignores valuable rights granted under law to the shareholders of the Companies. In the present case, there is complete non-application of mind 39 A.K. Gopalan v. State of Madras, AIR 1950 SC 27. 40 Hindustan Lever & Anr. v. State of Maharashtra, AIR 2004 SC 326. 41 Sesa Industries Limited v. Krishna H. Bajaj and Ors., AIR 2011 SC 1070. 42 Sri Rama Vilas Service Pvt. Ltd v. C. Chandrasekaran & Ors, AIR 1965 SC 107. 43 Draft Notification, Annexure II.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 by the Government as it primarily relied in media reports and opinions expressed by SEBP without conducting an independent inquiry of its own. The Draft Notification ignores the Circular of Ministry of Corporate Affairs dated April 20, 2011, which sets out guidelines for amalgamation (albeit of two Government companies) under Section 396 wherein consent of 100% Shareholders and 90% Creditors is obtained. 44 No such opportunity has been given to the shareholders or creditors of Mojo and Dreamzz to give consent to the proposed amalgamation violating Article 14 of the Constitution45. This violates Mojo and its shareholders’ fundamental right to carry on business under Article 19(1)(g) of the Constitution which can only be curtailed by legislation, and not by an executive action.46 Forced amalgamation constitutes expropriation of the property rights of Mojo and its shareholders by a mere executive fiat which is in breach of Article 300A of the Constitution. Forced amalgamation will not create any value for shareholders. It is herein submitted that this is not an extraordinary situation; this is a pure contractual, commercial dispute which is pending adjudication in the High Court. The Draft Notification is short circuiting the judicial process and making a complete mockery of the limited liability principle. Henceforth, in consonant rejection of the view of the protection of the interest of the minority 47, the order of amalgamation is against the ethos of representation 48 as set out by earlier guidelines 44 Gen. Circular No. 16/2011, F.No. 51/16/2011/CL-III, Government of India Ministry of

Corporate Affairs. 45 Constitution of Pentos, 1950. 46 Kharak Singh v State of Punjab, AIR 1963 SC 1295. 47 St. Stephen’s College v. The University of Delhi, AIR 1992 SC 1630. 48 Mihir H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 in the aforementioned cases. [B] The phrase “public interest” has been misapplied by the Government of Pentos. It is submitted that the phrase “public interest” has been misapplied by the Government of Pentos. The idea of public interest involves at large, a holistic treatment of maximum good of maximum people, which in the rejection of the shareholders who shall bear significant losses upon the amalgamation of Mojo and Dreamzz, must indeed be an implored alternative, forbearing upon the minds of the Hon’ble Apex Court. High reliance has been placed upon the case of Hindustan Lever Employees’ Union v. Hindustan Lever Ltd.49, in which the Supreme Court observed that: “A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as good as it would have been if another method had been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair for the shareholders of the company.” The Counsel seeks to plead that such a determination is indeed unfair for the holders of the company, Mojo50. The shareholders would part with a cumulative figure in excess of Rs. 2000 crores, in no pertinent vitiation of norms on their part51, a clear miscarriage of social justice52.

49 Hindustan Lever Employees’ Union v. Hindustan Lever Ltd. and Ors., AIR 1995 SC 470. 50 Bank of Baroda v. Official Liquidator of Alpic Finance Ltd., 2008 Indlaw MUM 1494. 51 National Insurance Co. Ltd. Co. Ltd. v. Swaran Singh & Ors. (2004) 3 SCC 297. 52 K.C. Vasanth Kumar & Anr. v. State of Karnataka AIR 1985 SC 1495.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 The argument is indeed founded on good reason that the existence of any such clause whereby the interests of the public are ignored53 shall not be an exercise of reasonable law54, but of unreasonable principle. It is thereby submitted that the commitment of a gross violation, of the norms prescribed under the Companies Act55, is initiated by the intervention of the State of Pentos. The principle of public interest must indeed be looking upon with grave scrutiny 56. The annals of International Law, public interest stands defined with relativity. Furthermore, in international law perspective, an expropriation, regardless of how it is characterized, must be made in the public interest, in a non-discriminatory fashion and in compliance with the law.57 It is submitted that in the case of Maneka Gandhi v. UOI58 it was held that: “The tests of reason and justice cannot be abstract. They cannot be divorced from the needs of the nation. The tests have to be pragmatic. Otherwise, they would cease to be reasonable. I think it has to be necessarily left to executive discretion to decide whether, on the facts and circumstances of a particular case, public interest will or will not be served by a particular order to be passed under a valid law subject, as it always is, to judicial supervision.” 53 Mukund Swarup Mishra v. Union of India, (2007) 2 SCC 536. 54 Excel Wear Etc. v. Union Of India, AIR 1979 SC 25. 55 The Companies Act, 1956 [Act 1 of 1956]. 56 Motilal Padampat Sugar Mills v. State Of Uttar Pradesh And Ors, AIR 1979 SC 621. 57 Saluka Investments BV v. The Czech Republic, UNICITRAL, Partial Award (PCA, 17 March

2006). 58 Maneka Gandhi v. Union of India, AIR 1978 SC 597.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 Placing reliance on the case of Janata Dal v. H.S. Chowdhary59, it is submitted that the Court has therefore, to strike a delicate balance after considering the pros and cons of the matter lest larger public interest is not jeopardized and institutional embarrassment is eschewed. 60 It is herein submitted that the interest of the public is vitiated and not justiciated by such an arbitrary measure61. Henceforth, it is submitted that the reinstatement of values is primary62 in the instant regard, with the necessity being further guaranteed by the existence of the public interest of the shareholders of Mojo, and thusly, they are not liable to be amalgamated in public interest.

59 Janata Dal v. H.S. Chowdhary And Ors, AIR 1993 SC 892. 60 Siliguri Municipality & Ors. v. Amalendu Das & Ors., AIR 1984 SC 653. 61 Delhi Cloth and General Mills v. Union of India, AIR 1983 SC 937. 62 Ms. Aruna Roy and Ors. v. Union of India and Ors., AIR 2002 SC 3176.

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6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW MOOT COURT COMPETITION, 2015 PRAYER Wherefore in the light of facts mentioned, arguments advanced and authorities cited, it is most humbly prayed that this Hon’ble Court may be pleased to adjudge and declare that: I. Dreamzz Ltd. is not liable for the act amounting to fraud. II. Mojo Ltd. is not liable for the acts of Dreamzz Ltd. III. Mojo Ltd. and Dreamzz Ltd. are not liable to be amalgamated in public interest. Or any other relief that the Hon’ble Court may be pleased to grant in the interests of Justice, and Good Conscience. All of which is respectfully submitted & humbly prayed.

Sd/COUNSELS FOR THE PETITIONERS

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