TEAM NUMBER

IN THE SUPREME COURT OF INDIA

SPECIAL LEAVE PETITION

UNDER ARTICLE

136 OF THE CONSTITUTION OF INDIA

PIYUSH AND ABHIJIT...PETITIONER

V.

FLUME CAPITAL, NURTURE CAPITAL,

ARCOT, SMITH & BROWN LIMITED &
FLYABHI.COM PVT LTDRESPONDENT

MOST REPSECTULLY SUBMITTED

COUNSEL FOR RESPONDENTS

TABLE OF CONTENTS

INDEX OF AUTHORITIES
STATUTES
1. Arbitration and Conciliation Act, 1996.
2. Companies (Court) Rules, 1959.
3. Indian Contract Act, 1872.
4. The Companies Act, 1956.
5. The Companies Act, 2013.
JUDICIAL DECISIONS
INDIAN CASES:
1.
2.
3.
4.

20th Century Finance Corporation Ltd v. RFB Latex Ltd., [1999] 97 Comp Cas 636.
Andritz Oy v. Enmas Engineering (P) Ltd., 2007 SCC Mad 461.
B.L. Sridhar v. K.M. Munireddy, (2003) 2 SCC 355.
Bhadresh Kantilal Shah v. Magotteaux International, (2000) 2 Comp LJ 323

(CLB).
5. Boiron v. SBL Pvt. Ltd., 1998 SCC Del 945.
6. Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhavilata, (2009)
10 SCC 103.
7. Brilliant Industries Ltd., [2013] 180 Comp Cas 168.
8. Castello v. London General Omnibus, (1912) 102 LT 575 (CA).
9. CDS Financial Services (Mauritius) Ltd. v. BPL Communication Ltd., [2004] 121
Comp Cas 374 (Bom).
10. Companies Act v. Unknown, (2014) 184 Comp Cas 441.
11. Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212.
12. Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141.
13. Fuerest Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356.
14. G.S. Mayawala v. Motion Pictures, (2006) 132 Comp Cas 388.
15. Govt Telephone Board v. Hormusji Seervai, (1943) 45 BOMLR 633.
16. Gurnir Singh Gill v. Saz International (P) Ltd., 1987 SCC Del 277.
17. Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., (1999) 5 SCC 688.
18. HDFC Bank v. Satpal Singh Bakshi, (2013) 134 DRJ 566 (FB).
19. Heyman v Darwins Ltd., [1942] AC 356.
20. Hindustan Lever Employees Union v Hindustan Lever Limited And Ors, 1994
SUPPL (4) SCR 723.
21. In Re: Hoganas India Limited, (2008) 6 Bom CR 782.
22. In Re: Navjivan Mills Co. Ltd., Kalol (1972) 42 Comp Cas 265.
23. In Re: Thomas Cook Insurance Services (India) Limited, 2015 SCC OnLine Bom
6095.

24. In Re: W. A. Beardsell and Co. (P.) Ltd. and Mettur Industries Ltd., [1968] 38 Comp
Cas 197.
25. In Re:Western manufacturing (Reading) Ltd., (1957) 27 Com Cases 144 (Ch D).
26. K. Muthusamy v. S. Balasubramanian, (2011) 167 Comp Cas 167.
27. Kamal Kumar Dutta v. Ruby General Hospital Ltd., (2006) 7 SCC 613.
28. Krishna Bahadur v Purna Theatre, AIR 2004 SC 4282.
29. Lata Beni Ram v. Kundan Lall, (1899) L.R. 26 I.A. 58.
30. Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar, 1989 Supp (2) SCC 656.
31. Manekchowk and Ahmedabad Manufacturing Company, Ltd. v. Industrial Court,
[1970] 40 Comp Cas 819.
32. Mazda Theatres P. Ltd. v. New Bank of India Ltd., ILR (1975) 1.
33. Miheer H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506.
34. Motilal Padampat Sugar Mills Co. Ltd. V. State of U.P., (1979) 2 SCC 409.
35. MSDC Radharaman v. MSD Chandrasekara Raja, (2006) 1 SCC 395.
36. Mulheim Pipecoatings Gmbh v. Welspun Fintrade Ltd., (2014) 2 AIR Bom R 196.
37. N. R. Harikumar v. WW Apparels (India) (P) Ltd., (2015) 2 LW 987 (Mad).
38. Naveen Kedia v. Chennai Power Generation Ltd., [1998] 4 Comp. LJ 128.
39. Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holding Ltd.,
(1981) 3 SCC 333.
40. Raghunath Swamp Mathur v. Har Swamp Mathur, [1967] 37 Comp Cas 802.
41. Reliance Petroleum Industries v. Union of India, 2003 46 SCL 38 Guj.
42. Reva Electric Car Co. (P) Ltd. v. Green Mobil, (2012) 2 SCC 93.
43. Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad, (2005) 11 SCC 314.
44. Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535.
45. State Bank of India & Ors v. Alstom Power Boilers Ltd. & Ors, (2003) 5 Bom CR
421.
46. Svenska Handelsbanken v. Indian Charge Chrome Ltd., (1994) 2 SCC 155.
47. Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6
SCC 677.
48. The Singaran Coal Syndicate Ltd. v. Balmakund Marwari, AIR 1931 Cal 772.
49. The Union of India v. Kishorilal Gupta & Bros., 1959 AIR 1362.
50. V. M. Rao v. Rajeswari Ramakrishnan, (1987) 61 Comp Cas 20.
51. V. M. Rao v. Rajeswari Ramakrishnan, (1987) 61 Comp Cas 20.
52. Viswanathan v. East India Distilleries, AIR 1957 Mad 341.
53. Vodafone India Service Ltd., (2013) 359 ITR 133.
54. World Sport Group (Mauritius) Ltd. V. MSM Satellite (Singapore) Pte. Ltd., (2014)
11 SCC 639.
FOREIGN CASES:
55. Duke of Leeds v. Earl of Amherst, (1846) 2 Ph 117.
56. Elder v. Elder and Watson Ltd., 1952 SC 49.
57. Foss v Harbottle, (1843) 67 ER 189.
58. Hellenic & General Trust Ltd, (1975) 3 All ER.

59. Heyman v Darwins Ltd., [1942] AC 356.

60. In Re, H. R. Harmer Ltd., (1958) All ER 689 (CA).
61. In Re: Anglo-Continental Supply Co. Ltd., [1922] 2 Ch 723.
62. In Re: Apcoa Parking (UK) Ltd & others [2014] EWHC 997 (Ch).
63. In Re: Duomatic Ltd., [1969] 2 Ch 365.
64. In Re: Hills Motorway Ltd., (2002) 21 ACLC 35.
65. In Re: National Bank Ltd.,[1966] 1 WLR 819.
66. In Re: New Cedos Engineering Co Ltd. , [1994] 1 BCLC 797.
67. In Re: Sussex Brick Co. Ltd., [1960] 1 All E.R. 772.
68. In Re: Torvale Groups Ltd, [1999] ALL ER (D) 944.
69. In Re: UDL Holdings Ltd., [2002] 1 HKC 172.
70. In Re:Western manufacturing (Reading) Ltd., (1957) 27 Com Cases 144 (Ch D).
71. Johnson v. Agnew [1980] AC 367.
72. MacDougall v. Gardiner, (1875) 1 Ch. D. 13.
73. Rosen v. Bruyns, NO. [1973] (1) SALR 820.
74. Sandvik Asia Ltd., 1 2004 (4) Bom. C.R 287.
75. Sovereign Life Assurance Company v. Dodd (1892) 2 Q.B. 573.
76. Tetra Laval v. Commission, [2002] ECR II 4381.
77. The Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1958] 3 All ER 66.
78. United States v. ITT Corp., 306 F. Supp. 766 - 96, 404 U.S.801 (1971).
BOOKS
1. Bork, Robert, THE ANTITRUST PARADOX, (1993, 2nd EDN.), Simon and Schuster.
2. Buckley, Arden, Hon Dame Mary, Prentice, Dan, BUCKLEY ON THE COMPANIES
ACT (Indian Reprint 2010, Issue 15), Nagpur LexisNexis.
3. England, G. and McKenna, I., ARBITRABILITY RESTRICTIONS

IN

ACTION, (1992,

Vol.42), Consortium rudit, p 1182-208.

4. Garner, Bryan A; Black, Henry Campbell, BLACKS LAW DICTIONARY, (2009, 9th
EDN),

United States of America West 2009.

5. Ghosh, K.M, Chandratre, K.R, COMPANY LAW

WITH

SECRETARIAL PRACTICE,

(2007, 13th EDN), Bharat Law House.

6. Hannignan, Brenda, COMPANY LAW, (2012, 3rd EDN), Oxford University Press.
7. Jennifer Payne, SCHEMES OF ARRANGEMENT: THEORY, STRUCTURE AND
OPERATION, (2014), Cambridge University Press.

8. Lord Hailsham, HALSBURYS LAWS

Butterworths.
9. Mustill, Boyd, PRACTICE
EDN), LexisNexis.
10. Ramaiya, A., GUIDE

OF

ENGLAND, (1996, 4th

OF COMMERCIAL ARBITRATION IN

TO THE

EDN,

Vol. 7),

ENGLAND, (1989, 2nd

COMPANIES ACT, (2014, 18th

EDN)

Nagpur

LexisNexis
11. Schmitthoff, Clive M, Palmers, PALMER'S COMPANY LAW, (1987, 24th

EDN),

Stevens & Sons Ltd.

12. Sutton, D, Russell, Gill, J., RUSSELL ON ARBITRATION, (2003, 22nd

Sweet

EDN),

and Maxwell Publication.

JOURNALS:
1. Baker, Blumenthal, THE 1982 GUIDELINES AND PREEXISTING LAW, (1983) 71 Cal.
L. Rev.
2. Meyerowitz, S.A., DISPUTE RESOLUTION: THE ARBITRATION ALTERNATIVE,
(1985, Vol. 71), ABA Journal, p 1219-307.
3. Nitzan, Johnathan, Mergers, Stagflation And The Logic of Globalization, (2001),
Valparaiso University Law Review.
MISCELLANEOUS
1. ABA Section of Antitrust Law, (2002), Antitrust Law Developments.
2. Dugar M. Rishi Kumar, Minority Shareholders Buying Out Majority ShareholdersAn

Analysis,

(2010)

<http://www.manupatra.co.in/newsline/articles/Upload/3AFDCE22-7A59-4514BDCF-9CA926784AC9.pdf>, accessed 13 February, 2016.

3. ICN Merger Guidelines Workbook, Fifth Annual ICN Conference in Cape Town
(2006).

STATEMENT OF JURISDICTION
The Appellant has approached this Honble Court under Article 136 of the Constitution of
India. The Respondent humbly submits to the jurisdiction of this Court.

STATEMENT OF FACTS
1. THE FOUNDERS AND THE ANGEL INVESTORS
1.1. The founders of flyabhi.com, Abhijit and Piyush came up with an idea of making air
travel more efficient in India by maximizing the use of private aircrafts owned by air
charter companies and the rich. Flyabhi.com Pvt Ltd was established in Lucknow with
the founders each owning 50% initial share capital.
1.2. On December 31, 2010 two investors, Flume Capital and Nurture Capital, invested for a
cash consideration of Rs. 100 crores. BESTCO was sought to act as transaction
counsel.
2. THE COMPANY AND THE INVESTMENT AGREEMENT
2.1. The board of directors (BOD) of the company inducted Ms. K.S. Kumar, an
employee of Flume, and Ms. Sush Iyer, a partner at BESTCO who was nominated
by Nurture. Ms. Scarlet Lester, a well-known tech entrepreneur was also inducted.
2.2. The investment agreement was signed, and the main terms included:
2.2.1.1.
In the case that business targets were not met, the founders were to put
all securities at the option of the investors, provide all further equity and
debt to the company.
2.2.1.2.
Founders and investors directors to approve appointment of all key
management personnel and give consent of the same for key decisions
involving the company.
2.2.1.3.
All rights granted by the investment would terminate if the party held
less than 10% shareholding. Each party was bound to offer the companys
securities to the others before selling it to any person who was not a
shareholder in the company.
2.2.1.4.
All disputes would be subject to SIAC arbitration in Singapore.
3. APPOINTMENT OF NEW CEO
3.1. The company was unable to achieve the business and financial targets set out in the
investment agreement and in the articles of association despite extensive marketing
and publicity.
3.2. On July 21, 2011 during the monthly board meeting, due to the inability of the
company to meet business targets, the investors proposed to hire Arjun Iyer as CEO.
The majority of the directors on the board agreed and Arjun Iyer was hired with
immediate effect.
3.3. He was given 5% Class A equity stake in the company, $1 million per annum of
stock options which would vest at a nominal price of Rs.100 over a period of 3
years.
4. FLYABHI.COM AND ARCOT, SMITH & BROWN LTD

4.1. The company faced unexpected stiff competition, requiring immediate influx of
cash, as was decided in a board meeting on February 07, 2012.
4.2. The investors exercised the right under the investment agreement and the articles to
make further investment in equity and debt.
4.3. A financing agreement was agreed to with Arcot, Smith & Brown Ltd., a 100-yearold listed Indian NBFC and an affiliate of Flume and Nurture. The NBFC was to
provide a bridge loan of Rs. 20 crores for operational expenses for tenure of 1 year,
at an interest of 18% p.a. On April 10, 2012 it was realized that this bridge loan had
not yielded any positive results.
5. THE NOVATION
5.1. On July 21, 2012, Flume and Nurture novated the investment agreement to over 20
of their affiliates, having reached the end of the investment term, and on the terms of
their constitution.
5.2. This novation greatly concerned the founders, were assured by the angel investors
that they change in shareholding was merely a legal requirement, and that everything
remained the same on an operational level.
6. CONVERSION OF 50% DEBT INTO EQUITY
6.1. On August 07, 2012, all the affiliates notified the company that they wished to
convert 50% of their debt into equity with immediate effect. On the same day, their
nominee directors gave notice of a board meeting to be held at 0900 hrs on August
14, 2012 with an EGM to be held on the same day at 1600hrs.
6.2. Despite the founders protest, three resolutions of: (i) Allotment and issue of Class B
equity shares to the affiliates, (ii) Amendment and adoption of new articles of
association, and (iii) reconstitution of the BOD, were passed on August 14, 2012 by
majority of the BOD.
6.3. Issuance of shares resulted in the shareholding of each of the founders to reduce to
6% of the equity share capital.
6.4. At the EGM, the remaining two resolutions were passed and the founders were
removed from the BOD. The EGM was not attended by the founders as an act of
protest.
7. LEGAL NOTICE BY FOUNDERS
7.1. On August 16, 2012, the founders, through JSK Law, wrote to BESTCO claiming
that the termination of the investment agreement, amendments to the articles of
association and the removal of the founders from the BOD were illegal.

The

founders also offered to purchase all the securities of the company owned by the
investors at a fair market value, with legal proceedings being threatened if these
actions were not immediately reversed.

7.2. On August 24, 2012, the founders filed an application before the Company Law
Board (CLB) complaining of continuing acts of oppression and mismanagement
by the majority shareholder.
7.3. On September 2012, each of the investors filed identical applications of dispute
under S.45 of the Arbitration and Conciliation Act, 1996 seeking the referral of the
dispute to arbitration.
7.4. On October 04, 2012, all parties were heard and on November 05, 2012, the dispute
was referred to arbitration.
7.5. On February 2013, this decision was appealed by the founders to the High Court.
The counsel for the appellant filed a writ petition for the court to consider this
appeal. On April 11, 2014, the High Court dismissed the appeal and the writ. The
founders immediately appealed this order.
8. PROPOSAL OF SCHEME OF ARRANGEMENT
8.1. Meanwhile, with the news of the dispute, the company started doing worse. By
December 2012, Arjun Iyer resigned, after selling his class A Equity shares to the
investors, who now held more than 50% of Class A equity shares. Directors resigned
from the board, leaving behind Mr. Rane and Ms. Iyer.
8.2. On July 04, 2014, the two directors met at 0900 hrs . It was proposed that the aircraft
business be demerged from flyabhi.com and merged into Arcot, Smith & Brown Ltd.
8.3. On the same day, at 1400hrs, the receipt of letters of consent from (i) all the Class B
equity shareholders, (ii) more than 50% of Class A shareholders and (iii) all secured
and unsecured creditors, for the scheme of arrangement were recorded.
9. LEGAL PROCEEDINGS
9.1. On July 14, 2014, Arcot, Smith & Brown Limited began the process of seeking
approval for the scheme of arrangement. On December 06, 2014, the Calcutta High
Court approved the scheme.
9.2. The founders challenged the scheme of arrangement before the Allahabad High
Court, Lucknow Bench.
9.3. On July 15, 2014, Arcot, Smith & Brown sent a notice to the founders exercising
their right under s. 235(1) of the Companies Act. The founders immediately applied
to the Allahabad High Court, Lucknow Bench to hear them before allowing the
notice to take effect. Pending the disposal of the scheme of arrangement, the court
allowed the founders' application and injuncted Arcot, Smith & Brown from taking
any action pursuant to the notice or the scheme.
9.4. Arcot, Smith & Brown approached the Supreme Court under Article 136 of the
constitution of India against this order and although leave to appeal was granted, the
injunction remained.

9.5. After hearing all the parties, the Allahabad High Court approved the scheme of
arrangement on April 11, 2015 but stayed the implementation of the scheme for a
period of 90 days to enable the founders to appeal the decision to the Supreme
Court.
9.6. The appeal by the founders to the Supreme Court was heard and the injunction
granted by the High Court continued until further orders.
The Supreme Court has now listed all matters connected with flyabhi for final hearing on all
procedural and substantive issues.

QUESTIONS PRESENTED
APPEAL 1:
I.

WHETHER THERE EXISTS A VALID AND BINDING ARBITRATION AGREEMENT

BETWEEN THE TWO PARTIES?

A. The dispute stems from a unilateral breach of the investment agreement.

B. The future performance of the contract has been brought to an end.
C. The doctrine of separability will apply to the dispute
II.

WHETHER

A CASE OF OPPRESSION AND MISMANAGEMENT HAS BEEN MADE

OUT?

A. A single act of oppression is insufficient to file a petition under section

241.
B. There exists no oppression and mismanagement in the day-to-day affairs
of the company.
i. There has been no oppression on the part of the majority against
the minority.
a. The novation of the investment agreement did not violate
the Appellants pre-emptive rights
b. The conversion of debt to equity shares was carried out in
a legal manner
c. The removal of the Appellants from the board was done
through a majority vote
d. The removal of the Appellants from the board was done
through a majority vote
ii. There exists no mismanagement in the affairs of the company
III.

WHETHER PETITIONS CLAIMING OPPORESSION AND MISMANAGEMENT CAN BE

REFERRED TO ARBITRATION?

A. The subject matter of the case is the subject of a bona fide dispute.
B. The right to foreign arbitration is indefeasible and statutory provisions do
not negate an agreement to arbitrate.
C. The right to foreign arbitration is indefeasible and statutory provisions do
not negate an agreement to arbitrate.

APPEAL 2:
I.
II.

WHETHER THE SCHEME OF ARRANGEMENT IS VALID?

A. That the essence of the statutory process was complied with.
WHETHER ALL MEMBERS OF CLASS A EQUITY SHARES HAVE BEEN
REPRESENTED?

FAIRLY

A. Commonality of interest exists among all members of class a equity

shares.
B. There exists homogeneity of legal rights among all class a equity
III.

shareholders.
WHETHER THE PROPOSED

IV.

THE TRANSFEROR COMPANY?

WHETHER THE RESPONDENTS MAY BE PERMITTED TO EXERCISE THEIR

SCHEME OF ARRANGEMENT IS BENEFICIAL TO

235 OF THE COMPANIES ACT, 2013?

A. The right to acquire shares is statutorily provided.
B. The onus is upon the Appellants to provide adequate grounds for a

RIGHT UNDER SECTION

blockage of share transfer under Section 235.

C. Minority oppression must be prevented in order to safeguard the
companys best interests.

SUMMARY OF PLEADINGS
I.

THERE EXISTS A VALID ARBITRATION AGREEMENT BETWEEN

THE TWO PARTIES

The referral of the two parties to arbitration is enabled by the existence of an arbitration
clause that governs them. It is submitted in the present case that the arbitration clause
between the two parties has not been eclipsed as the rescission of the investment agreement
before novation constitutes the cause of action for the Appellants. Thus the breach of the
contract and any suit that arises out of it shall be governed by the arbitration agreement that
subsisted within it. Further, the intention of the Respondents in not being party to the second
agreement was to allow the original contract to continue governing the parties.

II.

THERE IS NO CASE OF OPPRESSION AND MISMANAGEMENT

There must be a continuous chain of oppressive conduct against the minority in order for
there to be a valid claim of oppression and mismanagement. Considering the sequence of
events there exists no way for the Appellants to claim that there were fraudulent or mala fide
actions directed against them. Firstly, a single act of oppression cannot lead to a claim under
Section 241. The novation was further carried out with full knowledge and consent of the
Appellants. Secondly, the affiliates actions do not constitute mala fide intent against the
Appellants and was carried out in the best interest of the company. Steps taken by the
Respondents and their affiliates have been transparent and for the betterment of the company
rather than individual shareholders in accordance with their fiduciary duties.

III.

ANY DISPUTE COVERED BY AN ARBITRATION AGREEMENT MUST

BE REFERRED TO ARBITRATION

A claim under oppression and mismanagement may be arbitrated as long as the cause of
action itself is contained within the arbitration agreement. Firstly, regardless of whether
the action itself is on in rem, so long as a bona fide dispute exists with regard to the
subject matter, the court is not competent to pass an order in rem. Thus the claim may be
placed before an arbitral tribunal. Secondly, the right to foreign arbitration is indefeasible

and the statute itself provides for minimal interference by courts in matters related to
arbitration. Further, the source of the dispute is relevant rather than the remedy available
in determining whether or not a case may be referred to arbitration. Thus even if an
arbitrator is not competent to pass orders of a certain nature, if the dispute itself stems
from an action covered in the arbitration agreement, there must be a referral to
arbitration.
IV.

THE SCHEME OF ARRANGEMENT IS VALID

It is submitted that when the Statute lays a certain procedure, it does so with the intent of
ensuring that certain conditions are met with. The Duomatic Principle emphasises on the
fulfilment of this essence of the Statute, rather than the formality of the procedure. In the
present case, it is submitted that the essence of the Statute is informed consent. Letters of
consent were taken from the relevant stakeholders, who by giving their consent to the
scheme of arrangement, also consented to dispensation of the meeting. Moreover, the
Court has supervisory jurisdiction and it is not for the Court to enquire into a decision
taken by stakeholders if they have done in pursuance of their commercial wisdom.
V.

ALL MEMBERS OF CLASS A EQUITY SHARES HAVE BEEN FAIRLY

REPRESENTED

In order for members to be classified into one class, three elements of (i) homogeneity of
legal rights, (ii) common interest, and (iii) identical schemes offered to all members
within the same class, must be present. It is submitted that there exists homogeneity of
legal rights, commonality of interest and that identical schemes have been offered to all
members within the same class. The main test for commonality of interest is that the
rights of the members should not be so dissimilar to make it impossible for them to
consult together with a view to their common interest. This interest is derived from legal
rights as against the company and not private interest derived from personal relations. In
the present case, affiliation is not a ground for establishing conflict of interest. It is
submitted that no conflict of interest exists Further, mere affiliation is not conclusively
indicative of existence of conflict of interest such that members are unable to consult
together on the pros and cons the scheme, and determine a result beneficial to the class.
Moreover, homogeneity of legal right exits among the members of Class A equity
shareholders. The distinct right is not such as to have any effect on the voting or on the
interest of the members of taking a decision to the benefit of the class. This is based on

the premise that while it is essential to protect the minority, this must be balanced against
the risk of enabling the small minority to thwart the wishes of the majority.

VI.

THAT THE PROPOSED SCHEME OF ARRANGEMENT IS NOT

BENEFICIAL TO THE TRANSFEROR COMPANY

It is submitted that it is for the shareholders of the company to decide what is in the best
interests of the company. The respondents contend that the presumption is that the Court
will sanction the scheme, if the procedure established by law has been followed, and if
the majority have acted in a bona fide manner. The Court only exercises supervisory
jurisdiction over any scheme of arrangement. The respondents submit that no scheme can
be rejected on apprehension of what might happen in the future. This is a case og pure
conglomerate merger, which is almost never challenged owing to the lack of anticompetitive threats. Further, the respondents submit that there are a number of benefits
that arise from conglomerate mergers, which includes increased allocative efficiency and
managerial efficiency. Thus, for these reasons, the respondents submit that the scheme of
arrangement is beneficial and must be sanctioned.

VII.

THAT THE APPLICATION

UNDER SECTION 235(1) OF THE

COMPANIES ACT, 2013 IS VALID.

It is submitted that the application under Section 235 must be sanctioned by the court and
the Respondents must be allowed to buy out the minority. Firstly the wording of the
Section confers upon the Respondents a right of acquisition of the minoritys shares and
it is upon the minority to provide grounds for an intervention by the court. Secondly the
acts of the minority constitute oppression against the majority due to their constant and
repeated dissents to all major decisions undertaken by the company. The act of filing a
suit to injunct the scheme and the application under 235 further evidence their disruptive
conduct which may be construed as being for their own personal benefit. Therefore the
court must sanction the notice under 235 in order to put an end to the oppressive and
disruptive conduct of the Appellants.

PLEADINGS
APPEAL 1
THE HIGH COURTS DECISION TO REFER THE CASE TO ARBITRATION
MUST BE UPHELD
I.

THERE EXISTS A VALID AND BINDING ARBITRATION AGREEMENT

BETWEEN THE TWO PARTIES
1. While the existence of the contract itself is essential for the continuation of the
arbitration agreement, it is submitted in the present case that the arbitration clause in
the investment agreement has not been extinguished for the following reasons:
2. Firstly, the nature of the dispute constituted a contractual breach followed by a
rescission of the agreement (A). Secondly, the future performance of the contract was
brought to an end rather than the contract itself (B), therefore the doctrine of
separability will apply (C).
A. THE DISPUTE STEMS FROM A UNILATERAL BREACH OF THE INVESTMENT
AGREEMENT
3. A repudiation or breach of a contract is prospective in nature. Essentially this entails
that future performance of the contract is brought to an end but leaves the rights
accrued from it intact.1 In the present case there has been a legally required unilateral
breach of the investment agreement. Subsequently the appellants agreed to mutually
rescind the contract.2 In such a situation the performance of the agreement is eroded
however it remains alive for the purpose of claiming damages from the termination
or breaches that occurred before it.3
4. The substitution of the investment agreement was precluded by its termination.
Considering that the initial breach was not mutual, it does not constitute a consensual
ending of the agreement. As a result, the arbitration clause contained within the
agreement will remain in effect in order to deal with claims that arise from the
aforementioned breach.4
5. Furthermore, the conduct of the parties may extend the life of a contract. 5 It is
submitted in the present case that the appellants claim alleging the illegality of the

1 Johnson v. Agnew [1980] AC 367.

2 Factsheet 20
3 Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141.
4 N. Srinivasa v. Kuttukaran Machine Tools Ltd., (2009) 5 SCC 182.
5 Reva Electric Car Co. (P) Ltd. V. Green Mobil, (2012) 2 SCC 93.

termination of the investment agreement is a dispute arising from the contract itself
and therefore will be covered by the arbitration agreement.
B. THE FUTURE PERFORMANCE OF THE CONTRACT HAS BEEN BROUGHT TO AN END
6. While an arbitration clause cannot always survive the repudiation of a contract there
exist several categories of disputes6 in which merely the future performance of the
contract is ended while the agreement itself subsists with the arbitration clause
continuing to operate in order to enable such purposes.
7. Mere termination of the principal agreement is insufficient to render the arbitration
agreement inoperable. The actual nature of the dispute is essential in determining the
ultimate fate of the arbitration clause.7 In order for it to perish, it is necessary to show
that the contract itself has ceased to exist and it is not merely the future performance
of it that has been estopped.8
8. In a situation where the nature of the dispute constituted a termination of the initial
agreement by one party and its acceptance by the other, such a controversy would
result in matters or claims arising from or in connection with the contract itself. 9
Even if there is a mutual abrogation it cannot ipso jure result in the annihilation of the
arbitration agreement as well.10
9. It is submitted in the present case that the nature of the dispute, as has been proved,
constituted a repudiation of the contract followed by its rescission. This falls under
the category of disputes in which merely the future performance of the contract has
been ended. In such a case, the arbitration clause will survive and remain binding.
C. THE DOCTRINE OF SEPARABILITY WILL APPLY TO THE DISPUTE
10. The doctrine of separability as a concept has been affirmed as being a fundamental
part of the modern law on arbitration.11 It is a well-established principle that an
arbitration agreement is a separate agreement and must be seen essentially as a
contract within a contract. This enables it to survive breach or termination of the

6 The Union of India v. Kishorilal Gupta & Bros., 1959 AIR 1362.
7 Supra 3.
8 Mulheim Pipecoatings Gmbh v. Welspun Fintrade Ltd., (2014) 2 AIR Bom R 196.
9 Supra 3.
10 Heyman v Darwins Ltd., [1942] AC 356; National Agricultural Co-operative Marketing
Federation of India v Gains Trading Ltd. (2007) 5 SCC 692.
11 Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhavilata, (2009) 10
SCC 103.

matrix contract of which it is a part. 12 An arbitrator may thus continue to have

jurisdiction over disputes that arose in connection to the main agreement regardless
of its frustration or repudiation.13
11. Furthermore, the doctrine of implied terms indicates that an arbitration agreement
between two parties will continue to govern them beyond the formal expiry of the
main contract.14 A contention of the severability of an arbitration clause is thus well
founded. In respect to Chapter I of Part II of the Arbitration Act, it flows from the
provisions of Article 11(2)15 of the First Schedule of the Act.
12. As it has already been proved in the present case, the dispute between the parties in
the present case is one where the contract itself continues to subsist. Therefore the
doctrine of severability as has been affirmed in numerous cases16 is clearly
applicable.
II.

NO CASE OF OPPRESSION AND MISMANAGEMENT HAS BEEN MADE

OUT
13. It is a well settled principle that the rule of the majority shall prevail in company law
as was first elucidated in Foss v Harbottle.17 It is the duty of the court to recognize
the working of corporate democracy within a company. Interference in day-to-day
affairs of the company and the power of the board of directors must not be
unnecessarily impinged.18
14. Furthermore it is a well-accepted norm that the will of the majority must prevail.19
Suits initiated by the minority are futile in cases where the majority may ratify or
have already christened their approval to the action being alleged as oppressive.20
Thus the rights of the majority to decide is paramount. It is submitted in the present
case that the Appellants petition must be dismissed on the following grounds:

12 Sutton, D, Russell, Gill, J., RUSSELL ON ARBITRATION, (2003, 22nd EDN), Sweet and Maxwell
Publication, p 28.
13 Mustill, Boyd, PRACTICE OF COMMERCIAL ARBITRATION IN ENGLAND, (1989, 2nd EDN) LexisNexis, p.73.

14Supra 12.
15 Arbitration and Conciliation Act, 1996, Article 11(2).
16 Andritz Oy v. Enmas Engineering (P) Ltd., 2007 SCC Mad 461.
17 Foss v Harbottle, (1843) 67 ER 189.
18 Ghosh,K.M, Chandratre,K.R, COMPANY LAW WITH SECRETARIAL PRACTICE, (2007,
13th EDN),Bharat Law House.
19 Supra 17.
20 Supra 17; MacDougall v. Gardiner, (1875) 1 Ch. D. 13.

15. Firstly, there can be no case of oppression made out by a single act alleged to be
prejudicial to the minority (A). Secondly, the actions of the Respondents do not
constitute oppression and mismanagement (B).
A. A SINGLE ACT OF OPPRESSION IS INSUFFICIENT TO FILE A PETITION UNDER
SECTION 241
16. Oppression being carried out in the affairs of the company prima facie means a
continuing process which may encompass all those taking part in the conduct of the
affairs of the company.21 Essentially, there must be continuous acts on the part of the
majority, continuing up to the date of the petition, which indicate oppressive conduct
prejudicial to the interests of certain shareholders.22
17. The alleged acts must not be in isolation but forming part of a chain or a continuous
story.23 An isolated act, even though it may be contradictory to the law, is insufficient
to support an inference that such an act was committed with mala fide intention.24
18. It is submitted in the present case that the novation of the investment agreement did
not constitute oppression. Even if it may not be construed as such, the single isolated
act, occurring long before the filing of the present petition, cannot be said to
constitute oppression and mismanagement as has been proved above.
B. THERE EXISTS NO OPPRESSION AND MISMANAGEMENT IN THE DAY-TO-DAY
AFFAIRS OF THE COMPANY
19. While a case of oppression and mismanagement will remain one where both law and
fact must be taken into account25, it is submitted in the present case that an evaluation
of such a nature will reveal that the Respondents have not shown a prima facie case
of either.
i)

There has been no oppression on the part of the majority against the minority

20. According to Halsburys Laws of England,26 oppressive conduct translates into

actions which are burdensome, harsh and wrongful and must be part of a chain of
21 In Re, H. R. Harmer Ltd., (1958) All ER 689 (CA).
22 Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535; Elder v. Elder and Watson
Ltd., 1952 SC 49.
23 V. M. Rao v. Rajeswari Ramakrishnan, (1987) 61 Comp Cas 20.
24 Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holding Ltd., (1981) 3
SCC 333.
25 K. Muthusamy v. S. Balasubramanian, (2011) 167 Comp Cas 167.
26 Lord Hailsham, HALSBURYS LAWS OF ENGLAND, (1996, 4th EDN, Vol. 7), Butterworths, 1011.

events or a continuous story which leads up to the date of the petition and is
specifically targeted towards or is prejudicial to the interests of members within the
company.
21. In a case of oppression and mismanagement, there must be evidence to show the
majority taking steps with mala fide and duplicitous intent.27 It may in order to gain
control of the company or secure pecuniary benefit. Furthermore, the actions
themselves must be targeted upon the minority shareholders.28
22. It is submitted that in the present case that the requirements for oppression and
mismanagement have not been met. The actions of the Respondents and their
affiliates were undertaken sans mala fide intent and in the best interests of the
company. The following acts do not amount to oppression and mismanagement: i.a)
Novation of investment agreement, i.b) Dilution of shares, i.c) Removal of the
Appellants from the Board and i.d) Amendment of Articles of Association.
a. The Novation of the investment agreement did not violate the Appellants preemptive rights
23. A question of waiver of pre-emptive or preferential rights will always be a question
of fact.29 A right, whether statutory or contractual, may be waived by the party
holding it unless it contravenes public interest.30
24. There may be a waiver of a contractual right so long as the party which possesses it is
aware of the same right. Furthermore, it must be proved they were aware of the fact
that the action being carried out was in direct contravention of the right and despite
that knowledge they chose to not act upon it.31
25. Acceptance to a breach of contract or violation of a right was elaborated upon in
Sridhar v Munireddy32, where it was ascertained that the act of acquiescence was one
where a party, in full knowledge of the power to intervene in the actions of another
party, allowed the action to continue unimpeded. Such a party may not, at a later
date, move the court for the recognition of a right which was willingly conceded.33 In
27 Supra 22.
28 Supra 22.
29 Motilal Padampat Sugar Mills Co. Ltd. V. State of U.P., (1979) 2 SCC 409.
30 N. R. Harikumar v. WW Apparels (India) (P) Ltd., (2015) 2 LW 987 (Mad).
31 Krishna Bahadur v. Purna Theatre, AIR 2004 SC 4282.
32 B.L. Sridhar v. K.M. Munireddy, (2003) 2 SCC 355.
33 Duke of Leeds v. Earl of Amherst, (1846) 2 Ph 117; Sangramsinh P. Gaekwad v.
Shantadevi P. Gaekwad, (2005) 11 SCC 314.

essence, acquiescence to a certain conduct may be nothing more than an instance of

the law of estoppel through words or conduct which is a legal inference drawn from
surrounding circumstances.34 Furthermore, a single act of transferring of shares
cannot amount to a case of oppression and mismanagement.35
26. It is submitted in the present case that the appellants were fully aware of the novation
and refrained from acting upon it at that point. There was thus no unfair or fraudulent
conduct on the part of the Respondents and the Appellants knowledge and
acquiescence of the legally mandated novation to the affiliates36 acted as a waiver of
their pre-emptive right. Furthermore, an independent third party in BESTCO had
affirmed the legal validity of the transfer of debentures which further undermines
allegations of oppression.
b. The conversion of debt to equity shares was carried out in
a legal manner
27. The dilution of shares was carried out according to law and was not oppressive.
Knowledge that the action was taking place, absolves the party alleged to commit the
oppressive act of liability.37 Furthermore, it must be shown that there existed mala
fide intent and a desire to undermine the position of the aggrieved party in the
transaction. There must be a lack of probity and fair dealing vis--vis the minority38
28. The duty of directors in a situation where there is an increase in shares is to offer full
and proper disclosure to all shareholders within the company. This fulfils their bona
fide and proper purposes requirement with regards to the rest of the company.39
29. In the present case it is submitted that affiliates made clear their desire to convert
their debt to equity. The directors calling of an EGM was issued to all shareholders
including the founders.40 Thus there was no fraud appropriated against the appellants
who were aware of the meeting and its agenda and in turn refused to attend
themselves.41
34 Lata Beni Ram v. Kundan Lall, (1899) L.R. 26 I.A. 58.
35 Sangramsinh P. Gaekwad v Shantadevi P. Gaekwad, (2005) 11 SCC 314.
36 Factsheet 20.
37 Boiron v. SBL Pvt. Ltd., 1998 SCC Del 945.
38 Supra 22.
39 Supra 35.
40 Factsheet 21.
41 Factsheet 21.

c. The removal of the Appellants from the board was done

through a majority vote
30. The fiduciary duty of the directors entails working for the betterment of the company
beyond concern for individual shareholders. It is necessary to look at the business
realities beyond just the legal view.42 The interest of the company is paramount and
must be put first and foremost.43 Directors have a fiduciary relationship with the
company and are in a position of trust where their conduct must be fair and conform
to probity.44
31. Furthermore the court must ensure that petitions for oppression and mismanagement
are not brought merely for gaining some personal advantage. Section 241 claims
must be for genuine acts of oppression and not with the purpose of serving some
ulterior motive.45
32. It is submitted in the present case that the removal of the directors from the board
was taken through a majority vote. The meeting, as has already been mentioned, was
not attended by the Appellants. Their expulsion was legally valid and undertaken in
order to further the interests of the company. Despite being founders of the company,
the Appellants had steadily become a hindrance in the proper and smooth functioning
of the company. The petitions represents a claim to personal benefit to the prejudice
of the company.
d. The Amendment to the Articles of Association are not an
act of oppression
33. An amendment to Articles of Association of a company, even if working against the
fortunes of the minority, does not amount to a case of oppression if ratified by the
majority. Thus an act which flows from the principle of majority rule cannot be
deemed an act of oppression.46
34. In the present case, the articles of association were amended in accordance with
majority principle. The amendment itself did not arise from a covert or mala fide act
42 Supra 35.
43 Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212.
44 Kamal Kumar Dutta v. Ruby General Hospital Ltd., (2006) 7 SCC 613; Schmitthoff, Clive M; Palmers,
PALMER'S COMPANY LAW, (1987, 24th EDN), Stevens & Sons Ltd., p 848.

45 Raghunath Swamp Mathur v. Har Swamp Mathur, [1967] 37 Comp Cas 802.
46 G.S. Mayawala v. Motion Pictures, (2006) 132 Comp Cas 388.

on the part of the affiliates. The agenda of the EGM clearly mentioned the
amendment as being partially the reason behind the convening of the meeting.
ii)

There exists no mismanagement in the affairs of the company

35. When there exists a deficiency in the level of confidence between shareholders that
in itself cannot amount to oppression and mismanagement.47 Disagreements between
directors and shareholders will therefore not amount to an act which is per se
detrimental to the fortunes of the company.
36. It is submitted in the present case that the appointments of Arjun Iyer and the bridge
loan from Arcot, Smith & Brown constitute necessary actions which were required
for the health of the company. The temporary upturn in fortunes evidenced after the
appointment of Iyer as CEO shows the bona fide good intentions of the Respondents
and cannot amount to an act of reckless or inefficient management.
III.

PETITIONS CLAIMING OPPRESSION AND MISMANAGEMENT CAN BE

REFERRED TO ARBITRATION
37. Admittedly it has been held that not all disputes may be arbitrated as they may not be
within the powers of an arbitrator to decide.48 It is however submitted in this case that
the petition by the appellants is liable to be dismissed and the dispute referred to
arbitration for the following reasons:
38. Firstly, in case of bona fide dispute regarding the subject matter of the claim, even a
petition under Section 241 may be referred to an arbitrator (A). Secondly, the right to
foreign arbitration is indefeasible. Section 6 of the Companies Act does not cover
arbitral proceedings and cannot be used to estop referral to arbitration (B). Thirdly,
the existence of a valid arbitration agreement covering the subject matter of the claim
will mandate the referral of the dispute to arbitration (C).
A. THE SUBJECT MATTER OF THE CASE IS THE SUBJECT OF A BONA FIDE DISPUTE
39. When referring a dispute for arbitration a court is admittedly required to determine
the nature of the action. Arbitration is beneficial on many grounds especially for the

47 MSDC Radharaman v. MSD Chandrasekara Raja, (2006) 1 SCC 395.

48 England, G. and McKenna, I., ARBITRABILITY RESTRICTIONS
rudit, p 1182-208.

IN

ACTION, (1992, Vol.42), Consortium

speedy resolution of disputes.49 An action in personam may be referred to an

arbitrator due to its nature affecting merely the two parties to the contract.50
40. A winding up petition has been deemed to be an action in rem.51 The CLB cannot
however entertain a winding up petition in the event that a bona fide dispute exists
regarding the subject matter of the claim.52 In the Haryana Telecomm case53, there
existed no contention regarding the subject matter of the claim and the court refused
to place the matter before an arbitrator after deciding that winding up the company
was a just and equitable solution to the dispute.
41. In this case, it is submitted that there exists a bona fide dispute on the subject matter
of the claim and therefore it falls within the jurisdiction of an arbitrator. A claim
under oppression and mismanagement does not automatically nullify the jurisdiction
of the arbitration tribunal.54
42. Furthermore, even in a situation where both actions in rem and in personam are
present, the court may separate the two and refer the latter to arbitration.55 When
actions in personam arise in connection or related to actions in rem, the court must
refer the dispute to arbitration.56
B. THE RIGHT TO FOREIGN ARBITRATION IS INDEFEASIBLE AND STATUTORY
PROVISIONS DO NOT NEGATE AN AGREEMENT TO ARBITRATE
43. An arbitrator is not debarred from adjudicating on claims relating to oppression and
mismanagement.57 The right to foreign arbitration is an indefeasible right guaranteed
by Parliament and must be allowed to run its course.58 A contractual agreement to
arbitrate cannot be negated provided the dispute arises from a contract covered by an
arbitration clause. It is submitted in the present case that the petition filed by the
appellants arises from the contractual agreement between the two parties and the case
must be placed before an arbitrator.
49 Meyerowitz, S.A., DISPUTE RESOLUTION: THE ARBITRATION ALTERNATIVE, (1985, Vol. 71), ABA
Journal, p 1219-307.

50 Garner, Bryan A; Black, Henry Campbell, BLACKS LAW DICTIONARY, (2009, 9th EDN),
United States of America West 2009.
51 Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., (1999) 5 SCC 688.
52 Bhadresh Kantilal Shah v .Magotteaux International, (2000) 2 Comp LJ 323 (CLB);
53 Supra 51.
54 Gurnir Singh Gill v. Saz International (P) Ltd., 1987 SCC Del 277.
55 The Singaran Coal Syndicate Ltd. v. Balmakund Marwari, AIR 1931 Cal 772.
56 HDFC Bank v. Satpal Singh Bakshi, (2013) 134 DRJ 566 (FB).
57 Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar, 1989 Supp (2) SCC 656.
58 Svenska Handelsbanken v. Indian Charge Chrome Ltd., (1994) 2 SCC 155.

44. Furthermore, Section 6 of the Companies Act applies to memorandums and articles
of association and does not deal with the provisions of other statutes.59 A plain
reading of Section 5 of the Arbitration Act shows that a judicial authority cannot
intervene with respect to an arbitration agreement outside of what is provided within
the Act itself.60
45. It is submitted in the present case that Section 45 has an overriding effect on Section
6 of the Companies Act and the court cannot intervene in an arbitral proceeding
beyond the recourse provided in the Arbitration Act itself.
C. THE EXISTENCE OF A VALID ARBITRATION AGREEMENT WILL MANDATE REFERRAL
OF THE DISPUTE TO ARBITRATION
46. While admittedly, an arbitration tribunal does not possess the wide range of powers
available to the Company court under Section 242, it is irrelevant when determining
the arbitrability of the dispute. The legislative policy behind the Arbitration Act is to
reduce judicial interference in arbitration proceedings. To act in contravention of this
principle would be to disrupt the very purpose of instituting an arbitral dispute
resolution process.61 Recourse to the contractual agreement for purposes of settling
the dispute, mandates the referral of the matter to arbitration.62
47. The foremost element to be considered when deciding the arbitrability of a claim is
not the power to grant remedies but the dispute itself. The Arbitration Act is a
complete and exhaustive self-contained code. Appeals against actions undertaken in
accordance with the provisions of the Act must come from the statute itself.63 Full
effect must be given to binding arbitration agreements. Civil Courts are mandated to
follow the legislative intent barring instances where the agreement is fraudulent or
unworkable.64
48. When there exists a valid arbitration clause which is binding on the two parties it is
mandatory upon application for arbitral proceedings for a referral to be made and the
petition to be dismissed.65 The jurisdiction of the Civil Court is not barred from
59 20th Century Finance Corporation Ltd v. RFB Latex Ltd., [1999] 97 Comp Cas 636.
60 Arbitration and Conciliation Act 1996, S.5.
61 Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC
677.
62 Naveen Kedia v. Chennai Power Generation Ltd., [1998] 4 Comp. LJ 128.
63 Fuerest Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356.
64 World Sport Group (Mauritius) Ltd. V. MSM Satellite (Singapore) Pte. Ltd., (2014) 11
SCC 639.
65 Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums, (2003) 6 SCC 503.

petitions filed under Section 241.66 The Companies Act does not take the form of a
complete code and arbitral proceedings cannot be debarred merely due to claims of
oppression and mismanagement.67
49. It is submitted in this case that the dispute arises from the provisions of the contract
and thus falls under the aegis of the arbitration agreement. As long as the dispute
itself is one covered by the arbitration clause, the question of potential remedies is
irrelevant. It is therefore mandatory for the case to be referred to an arbitration
tribunal.

APPEAL 2
THE PROPOSED SCHEME OF ARRANGEMENT SHOULD BE SANCTIONED BY
THE COURT
In the present case, the appellants, the founders of flyabhi.com, filed a Special Leave
Petition under Article 136 in the Supreme Court, pursuant to the judgment given by the
Allahabad High Court. The Supreme Court has accepted the appeal, which is now at the
stage of final hearing. Thus, the respondents accept the locus standi of the appellants.
I. THE SCHEME OF ARRANGEMENT IS VALID
1. Section 230 of the Companies Act, 2013 (hereinafter CA) provides for a
compromise or arrangement between a company and its creditors, or between a
company and its members or any class therein. The Court must be satisfied about three
matters before sanctioning any scheme of arrangement, that (a) the statutory provisions
have been complied with; (b) the class or classes of members and shareholders have
been fairly represented; and (c) the arrangement is such as a man of business would
reasonably approve.68

66 CDS Financial Services (Mauritius) Ltd. v. BPL Communication Ltd., [2004] 121 Comp
Cas 374 (Bom).
67 Supra 57.
68 Buckley, Arden, Hon Dame Mary, Prentice, Dan, BUCKLEY ON THE COMPANIES ACT ( Indian Reprint
2010, Issue 15), Nagpur LexisNexis, p 409 ; Manekchowk and Ahmedabad Manufacturing Company, Ltd. v.
Industrial Court, [1970] 40 Comp Cas 819 [headnote 3]; In Re: Anglo-Continental Supply Co. Ltd., [1922] 2
Ch 723; Miheer H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506; In Re: Navjivan Mills Co. Ltd.,
Kalol (1972) 42 Comp Cas 265.

2. It is submitted that the proposed scheme of arrangement is valid on the grounds that
[A] firstly, the essence of the statutory process was been complied with, [B] secondly,
the members of Class A equity shareholders were fairly represented and do not require
a separate class, and [C] thirdly, the proposed scheme is beneficial to the company.
A.

THE ESSENCE OF THE STATUTORY PROCESS HAS BEEN COMPLIED WITH

1.
It is submitted that Section 230(1) of the CA empowers the Court or

Tribunal, upon application of the company or of any creditor or member of the

company, to order a meeting of the creditors, members or of the respective class, as the
case may be, to be held in accordance with the directions of the Court. Section 230(6) of
the CA, states that if a scheme of arrangement has been approved by a majority (threefourth in value) of the creditors, members or a class thereof, the same is binding on all
of the company, or the creditors, members or the class, as the case may be. Section
230(9) of the CA allows the Court to dispense with meetings of creditors where consent
to do so has been taken from ninety percent in value of the creditors.
2.
The above clause is silent on the dispensation of meetings with
shareholders.69 However, the Court may dispense with such a meeting, if it is shown that
all shareholders, or the requisite majority, have consented in writing.70
3.
Further, the Duomatic Principle71 states that where a statute or a
companys articles provide for a certain procedure, such procedure may be varied if all
members of the relevant group approve of the variation. 72 The thrust of this principle is
that formality of procedures may be watered down once the essence is achieved, either
directly or indirectly.73 Where consent has been given by all, or virtually all of the
shareholders, even outside of a meeting, it is sufficient to comply with the requirements
of a meetingthe doctrine of acquiescence requires members to cast their votes
formally in a meeting. If all shareholders acquiesce in a ceratin arrangement, the
question of a meeting having been called does not arise itself.74

69 Ramaiya, A., GUIDE TO THE COMPANIES ACT, (2014, 18th EDN) Nagpur LexisNexis, p 3683, 3708.
70 Companies Act v. Unknown, (2014) 184 Comp Cas 441.
71 In Re: Duomatic Ltd., [1969] 2 Ch 365.
72 In Re: Torvale Groups Ltd., [1999] ALL ER (D) 944.
73 Brilliant Industries Ltd., [2013] 180 Comp Cas 168, 2013 (5) CompLJ 90; In Re: New Cedos Engineering
Co Ltd., [1994] 1 BCLC 797.

74 Mazda Theatres P. Ltd. v. New Bank of India Ltd., ILR (1975) 1.

4.

Thus, all parties liable to be affected by the scheme of arrangement

must consent75 and once a decision has been taken by applying the approach of a prudent
businessmen, it is not for the Court to sit in judgment.76
5.
In the present case, letters of consent were obtained from (a) all Class
B equity shareholders, (b) more than 50% of all Class A equity shareholders, and (c) all
secured and unsecured creditors. All required stakeholders used these letter to consent to
the scheme of arrangement, and hence the Company applied to the Court. Thus, the
Respondents have fulfilled the essence of the statutory requirement in Section 230 of the
CA.
II.

ALL MEMBERS OF CLASS A EQUITY SHARES HAVE BEEN

FAIRLY REPRESENTED
1.

It is submitted that Section 230(6) of the CA requires the scheme to be

approved by a three-fourth majority in value of creditors or members that constitute a

particular class. While there is no absolute definition of class, 77 the elements of
homogeneity of legal rights, common interest and homogeneity of schemes being
offered to all members of that class must exist.78 A proposed scheme should be fair, just,
reasonable and not contrary to any statutory provision.79
2.
It is submitted that all members of Class A Equity Shares have been fairly
represented, and there is no requirement for creation of a separate class. This is because
[A] firstly, commonality of interest exists, and [B] secondly, there is homogeneity of
legal right, with the same scheme being offered to all members within the same class.
A. COMMONALITY OF INTEREST EXISTS AMONG ALL MEMBERS OF CLASS A EQUITY SHARES
3. It is submitted that the Court must ensure that the majority does not oppress
the minority, while preventing the minority from thwarting the wishes of the
majority.80 To do this, the Court may discount certain votes or order the creation of a
75 The Companies Act, 2013, Section 230(6).
76 Reliance Petroleum Industries v. Union of India, 2003 46 SCL 38 Guj, 17.
77 Supra 1.
78 Supra 1, p 406; Sovereign Life Assurance Company v. Dodd (1892) 2 Q.B. 573; Supra 1, p 813; State Bank
of India & Ors v. Alstom Power Boilers Ltd. & Ors, (2003) 5 Bom CR 421 : (2003) 116 Comp Cas.

79 Supra 1.
80Supra 11; Supra 1, p 813.

separate class in certain circumstances. While determining the constituents of a

particular class, the Court must confine it to those persons whose rights are not so
dissimilar as to make it impossible for them to consult together with a view to their
common interest.81 A divergent view based on the private interest not derived from
the legal right against the company is not a ground for creating separates classes.82 In
Kumarina Resources, it was held inter alia, that the Court need not create a separate
class for members who have a vested interest. 83
4. In the present case, it may be contended that the majority shareholders (the
investors) have a vested interest in the transferee company by virtue of being
affiliates. This might be true for a subsidiary, where one company is controlled by
another which owns more than 50% of the voting stock in the former.84 An affiliate is
a company that merely has shared resources, interests or business dealings with
another.85 The purpose for commonality of interest is that all members of the same
class should be able to consult together on the pros and cons of the scheme and
determine a result beneficial for the entire class. 86 The affiliation of the majority
shareholders and the transferee company is of no consequence and does not bar either
party from being able to consult together.
5. Further, the principle in Hellenic & General Trust Ltd87 cannot be relied on.
That was a case of a buy-out where the majority shareholders were wholly-owned
subsidiaries of the acquirer, not affiliates as in the present case.
B. THERE EXISTS HOMOGENEITY OF LEGAL RIGHTS AMONG ALL CLASS A EQUITY
SHAREHOLDERS
6. It is submitted that grouping of a class must be confined to those persons
whose rights are not so dissimilar as to make it impossible for them to consult

81 Supra 11; Supra 1.

82 In Re: UDL Holdings Ltd., [2002] 1 HKC 172; Hannignan, Brenda, COMPANY LAW,
(2012, 3rd EDN), p 761, Oxford University Press; Jennifer Payne, Schemes of Arrangement:
Theory, Structure and Operation, Cambridge University Press, (2014), p 54; In Re: Apcoa
Parking (UK) Ltd & others [2014] EWHC 997 (Ch), [2014] All ER (D) 49 (Apr).
83 In Re: Kumarina Resources Ltd., [2013] FCA 549.
84 Garner, Bryan A; Black, Henry Campbell, BLACKS LAW COLLEGE, (2009, 9th EDN),
United States of America West 2009.
85 Id.
86 Sandvik Asia Ltd., 1 2004 (4) Bom. C.R 287; In Re:Hoganas India Limited, (2008) 6
Bom CR 782
87 Hellenic & General Trust Ltd, (1975) 3 All ER.

together with a view to their common interest. 88 The legal right of members of a class
must exist as against the company. 89
7. In the present case, the Right of First Refusal (hereinafter ROFR") states that
the Appellants must first offer the companys securities to the investors before
offering them to non-shareholders. This legal right has no consequence on the voting
pattern. The extent and nature of the differentiation must be measured in terms of the
effect on the ability of members to consult together on their common interest. 90 Thus,
the separate legal right of a ROFR that exists with the majority is not a sufficient
ground to form a separate class.
8. Thus, it is submitted that the scheme is fair and no ground for creation of
separate class within Class A equity shareholders exists.
III.

THE PROPOSED SCHEME OF ARRANGEMENT IS BENEFICIAL

TO BOTH THE TRANSFEROR AND TRANSFEREE COMPANY

1. It is submitted that any amalgamation, even though done between two companies, is an affair
that is essentially relating to the transferor company.91 The matter of the scheme of
arrangement is left entirely to the shareholders92 and they decide what is in the best interest
of the company.93 The Court exercises only supervisory jurisdiction over sanctioning the
scheme of arrangement94 it is to sanction the scheme if due procedure has been followed,
and the majority is acting in a bona fide and honest manner, unless there are some strong and
cogent grounds to show that the scheme was conceived, designed or calculated to cause
injury to others.95
2. Conglomerate mergers are mergers between firms that have no existing or potential
relationship either as competitors, suppliers or customers a merger of companies from
unrelated sectors.96 Such mergers are not viewed as a significant competitive threat, and are
almost never challenged.97 Additionally, there are a number of benefits arising out of such
mergers. They increase management efficiency, provide infusion of capital, transfer technical

88 Supra 11; Supra 1.

89 Rosen v. Bruyns, NO. [1973] (1) SALR 820.
90 In Re: Hills Motorway Ltd., (2002) 21 ACLC 35.
91 In Re: W. A. Beardsell and Co. (P.) Ltd. and Mettur Industries Ltd., [1968] 38 Comp Cas 197.
92 Id.
93 Reliance Petroleum Industries v. Union of India, 2003 46 SCL 38 Guj,17.
94 Supra 1.
95 Supra 1.
96 Tetra Laval v. Commission, [2002] ECR II 4381.
97 Baker, Blumenthal, THE 1982 GUIDELINES AND PREEXISTING LAW, (1983) 71 Cal. L. Rev. p 311, 339.

know-how, promote diversification, encourage risk taking,98 and improve allocative

efficiency through inter-sectoral capital mobility.99 Predictions about the efficiency in the
future are typically much more difficult with respect to conglomerate mergers than with
respect to horizontal or vertical mergers.100
3. In the present case, the appellants were not capable of running the company, as is evident
from the fact that the company had perpetually been in a tough situation financially. The
directors thought it was in the best interest of the company to enter into the said scheme of
arrangement. Since the scheme has also been approved by a majority of the shareholders, it
is clearly beneficial for the transferor company.
4. Further, a scheme of arrangement cannot be faulted on apprehension as to what might
happen possibly in the future.101 In the present case, the transferor company deals in the
aviation sector, while the transferee company is a Non-Banking Financial Company.
Questions as to the future functioning of the transferee company cannot be used by the Court
to fault the scheme.
5. Lastly, there are many plausible reasons as to why the transferee might enter into a
conglomerate merger to foray into a new sector 102, or if the transferor company is running
in losses and seeks a mode of revival.103 To question the same, the Appellants must quantify
the ill-effects that may arise from the merger 104. This is even more necessary for
conglomerate mergers, which are known to not have anti-competitive effects.105
IV.

THE RESPONDENTS MUST BE PERMITTED TO EXERCISE THEIR

RIGHT UNDER SECTION 235 UNDER THE COMPANIES ACT, 2013

1. The majoritys right to obtain the shares of the minority has been statutorily
enshrined within the Companies Act.106 When the majority files for acquisition of

98 Bork, Robert, THE ANTITRUST PARADOX, (2nd EDN, 1993) Simon and Schuster, p 248, 249.
99 Nitzan, Johnathan, MERGERS, STAGFLATION AND THE LOGIC OF GLOBALIZATION, (2001), p 124.
100 ICN MERGER GUIDELINES WORKBOOK, Fifth Annual ICN Conference in Cape Town (2006).
101 Hindustan Lever Employees Union v Hindustan Lever Limited And Ors, 1994 SUPPL. (4) SCR 723.
102 Vodafone India Service Ltd., 2013 SCC OnLine Bom 1202 : (2013) 359 ITR 133; In
Re: Thomas Cook Insurance Services (India) Limited, 2015 SCC OnLine Bom 6095.
103 Ashima Dyecot Limited v. Unknown, Misc. Civil Application No.239 of 2006 in
Company Petition No.105 of 2006 in Company Application No.243 of 2006 decided on
10.11.2006.
104 ABA Section of Antitrust Law, (2002), Antitrust Law Developments, p 368.
105 United States v. ITT Corp., 306 F. Supp. 766 - 96, 404 U.S.801 (1971).
106 The Companies Act, 2013, S.235.

shares from a dissenting majority, it becomes binding upon the latter.107 This principle
is thus enforceable upon the minority regardless of other considerations.
2. Despite the appeal of the minority appellants in this case, it is submitted that the court
must uphold the lower courts decision allowing the Respondents to acquire the
shares of the dissenting faction for the following reasons:
3. Firstly, [A] the right to acquire the shares of the minority in case of opposition vis-vis the scheme of arrangement is guaranteed and the appellants must show why such
a transfer should not occur. Secondly, [B] the act of the minority in disrupting the
approval of the scheme of arrangement constitutes oppression of the majority which
the court is competent to put an end to.
A. THE RIGHT TO ACQUIRE SHARES IS STATUTORILY PROVIDED.
4. The court has previously laid down grounds upon which a case may be made out by
the minority for an intervention with regards to the compulsory transfer of their
shares.108 The grounds constitute direct oppression of the minority which has not been
proved by the appellants.
5. The transferee company has a right to acquire the shares of the dissenting minority in
the transferor company.109 Mere advantage that may be gained by the majority in
relation to the minority is not a valid ground for intervening in the matter. 110
Furthermore the transferee company need not observe the four month before serving
notice under Section 235.111
6. In the present case, there has been no act of fraud on the part of the Respondents and
the de-merger is taking place in full knowledge of the appellants. Keeping in mind
the recommendation of the board in the transferor company it is essential that the
shares be acquired to ensure smooth progression of the company.
B. THE

ONUS IS UPON THE

APPELLANTS

BLOCKAGE OF SHARE TRANSFER UNDER

TO PROVIDE ADEQUATE GROUNDS FOR A

SECTION 235

107 Schmitthoff, Clive M; Palmers, PALMER'S COMPANY LAW, (1987, 24th EDN), Stevens
& Sons Ltd.
108 Govt Telephone Board v. Hormusji Seervai, (1943) 45 BOMLR 633.
109 Viswanathan v. East India Distilleries, AIR 1957 Mad 341.
110 Castello v. London General Omnibus, (1912) 102 LT 575 (CA).
111 In Re:Western manufacturing (Reading) Ltd., (1957) 27 Com Cases 144 (Ch D).

7. The burden of providing a rationale for why shares should not be acquired is upon
the appellants.112 The onus is on the minority to demonstrate the alleged unfairness of
the scheme offered under Section 235.113
8. It is submitted in the present case that the appellants have failed to show a good and
adequate reason for there to be a reversal of the lower courts decision. No oppressive
or fraudulent conduct has been demonstrated on the part of the Respondents which
would allow for there to be a valid reconsideration of the share transfer.
C. MINORITY

OPPRESSION MUST BE PREVENTED IN ORDER TO SAFEGUARD THE

COMPANYS BEST INTERESTS

9. An action under Section 241 must not be a vehicle through which the minority
become a constant hindrance to the working of the company. In essence, the tail must
not be allowed to wag the dog.114 It has been recognized that there are instances
where the minority may oppress the majority.115
10. In Needle Industries, it was claimed by the foreign majority that the minority were
indulging in acts that were oppressive to their position within the company. The court
ascertained that such acts by the minority shareholders may be classified as
oppressive to the majority.116 Thus the minority quite clearly has it within their power
to oppress the majority.
11. Furthermore, the granting of relief is dependent upon making out a case for winding
up the company. At times even though grounds for winding up the company may not
exist, the court may still pass orders with the intent of putting an end to the acts of
oppression which are being carried out.117

112 In Re: Hoare and Company Limited, (1934) 150 L.T. 374
113 In Re: National Bank Ltd.,[1966] 1 WLR 819; In Re: Sussex Brick Co. Ltd., [1960] 1
All E.R. 772.

114The Scottish Co-operative Wholesale Society Ltd. v. Meyer, [1958] 3 All ER 66.
115 Dugar, M. Rishi Kumar, Minority Shareholders Buying Out Majority ShareholdersAn Analysis, (2010) < http://www.manupatra.co.in/newsline/articles/Upload/3AFDCE227A59-4514-BDCF-9CA926784AC9.pdf>, accessed 13 February, 2016.
116 Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333.
117 Supra 50; Ruby General Hospital Limited v. Dr. Kamal Kumar Dutta And Anr., 2006
129 CompCas 1 Cal.

PRAYER
Wherefore in light of the issues raised, arguments presented and authorities cited, it is
humbly prayed that this Court may be pleased to hold, adjudge and declare that:
1. There was no oppression and mismanagement.
2. Uphold the order of the Allahabad High Court and the Calcutta High Court, and
sanction the scheme of arrangement.
3. Allow the application seeking the acquisition of shares.
And pass any other order it may deem fit in the interest of justice, equity and good
conscience.
All of which is humbly prayed,
Team Code _____
Counsel for the Respondent.