IN THE SUPREME COURT OF INDIA,

AT NEW DELHI.

Civil Appeal No. __ of 2016

(Art. 133 of the Constitution of India, 1950 read with Order XIX, Rule 1, Supreme Court
Rules, 2013)

Abhijit & Piyush

Appellants

v.
Flume Capital, Nurture Capital,
Arcot, Smith & Brown Ltd. & Flyabhi.com Pvt. Ltd.

Respondents

Civil Appeal No. __ of 2016

(Art. 136 of the Constitution of India, 1950 read with Order XXI, Rule 1, Supreme Court
Rules, 2013)
Arcot, Smith & Brown Ltd.

Appellant

v.
Abhijit & Piyush

Respondents

WRITTEN SUBMISSION FOR RESPONDENTS/APPELLANT,

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TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INDEX OF AUTHORITIES............................................................................................................4
STATEMENT OF JURISDICTION..................................................................................................8
QUESTIONS PRESENTED............................................................................................................9
STATEMENT OF FACTS............................................................................................................10
SUMMARY OF PLEADINGS.......................................................................................................12
PLEADINGS...............................................................................................................................15
I.

THE

DISPUTE REGARDING OPPRESSION AND MISMANAGEMENT CAN BE REFERRED

TO ARBITRATION..................................................................................................................15

[A]. The NCLT has a statutory duty to refer the dispute to arbitration.........................15
[B].

The arbitrator is competent to decide and award relief in the present case...........16

II. THE

RESPONDENTS

HAVE

NOT

COMMITTED

ACTS

OF

OPPRESSION

OR

MISMANAGEMENT................................................................................................................17

[A]. The respondents have not violated the AoA. Deviations, if any, are trivial..........17
1.

The appointment of Arjun Iyer as the CEO was in the interests of the company.
18

2.

The Directors decision to enter into a financing agreement with ASB does not

amount to mismanagement..........................................................................................19
3.

The transfer of shares to the investors affiliates does not attract the pre-emption

clause............................................................................................................................20
[B].

The allotment of shares to the investors and the resolution to amend the AoA does

not amount to oppression.................................................................................................21

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1.

The Directors acted with a proper purpose in allotting the shares...................21

2.

The resolution to amend the AoA does not amount to oppression.....................22

[C].

The removal of the appellants from the Board of Directors does not prejudice their

interests as members........................................................................................................23
1.

Though the removal of the Directors may be bad in law, it does not by itself

constitute oppression....................................................................................................24
2.

The principle of legitimate expectations will not apply in this case................25

[D]. It would not be just and equitable to wind up the company..................................26

1.

There is no deadlock in the management of the company.................................27

2.

The issue of shares by the Board was in accordance with the law.....................27

3.

The removal of the appellants from Directorship does not make it just and

equitable to wind up the company................................................................................27

III. THE

SCHEME OF MERGER IS VALID AND MUST BE SANCTIONED. CONSEQUENTLY,

ASB CAN ACQUIRE THE SHARES OF THE DISSENTING FOUNDER......................................28

[A]. The scheme of merger is valid as per Sec. 232......................................................28
1.

The meeting of members was dispensable.........................................................29

2.

There was no need to convene a separate meeting for the founders..................30

[B].

ASB could issue a notice for acquisition of the founders shares..........................30

[C].

The scheme of merger and the acquisition are fair................................................31

PRAYER....................................................................................................................................34

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INDEX OF AUTHORITIES
INDIAN CASES:
1. AIG (Mauritius) LLC v. Tata Televentures (Holdings) Ltd, 103 (2003) DLT 250.31
2. Ambalal Sarabhai Enterprises Ltd v. Swastik Household and Industrial Products Pvt
Ltd, (1987) 1 CompLJ 141...........................................................................................32
3. BNS Steel Trading Pvt Ltd v. Orissa Sponge Iron and Steel Ltd, (2010) 2 CompLJ
425................................................................................................................................22
4. Booz Allen and Hamilton Inc v. SBI Home Finance Ltd, 2011 (5) SCC 532.16
5. Cf Leela Mahajan v. T Stanes & Co Ltd, [1956] 26 CompCas 366....31
6. CP Gnanasambandam v. Tamilnad Transports (Coimbatore) Pvt Ltd, [1971] 41
CompCas 26...24, 27
7. Dale and Carrington Investment Pvt Ltd v. PK Prathapan, 2005 (1) SCC 212...21
8. Devraj Dhanram v. Firebricks and Potteries Pvt Ltd, [2003] 117 CompCas 38020
9. Dhir and Dhir Asset Reconstruction and Securitisation Co Ltd v. Jaipur Metals and
Electricals Ltd, (2010) 2 CompLJ 485.21
10. Girdhar Gopal Dalmia v. Belgachi Tea Co, 2007 (4) CHN 155..13
11. Hanuman Prasad Bagri v. Bagress Cereals Pvt Ltd, 2001 (4) SCC 42024, 27
12. Haryana Telecom v. Sterlite Industries India Ltd, 1999 (5) SCC 688.16
13. Hind Overseas v. Raghunath Prasad Jhunjunwala, AIR 1976 SC 56527
14. Hindustan Petroleum Corpn Ltd v. Pinkcity Midway Petroleums, 2003 (6) SCC
50315
15. In Re Cash and Carry Wholesale Traders Pvt Ltd, (2011) 1010 CLA 341..29
16. In Re Gharda Chemicals Ltd, [2013] 114 CLA 35422
17. In Re Hindustan General Electric Corpn Ltd, AIR 1959 Cal 67932
18. In Re Jaypee Cement Ltd, [2004] 122 CompCas 854..32
19. In Re Kirloskar Electric Co Pvt Ltd, [2003] 116 CompCas 413..29
20. In Re Mafatlal Industries Ltd, (1995) 3 SCL 69..32
21. In Re Maknam Investments Ltd, [1996] 87 CompCas 689..33
22. In Re Maneckchowk and Ahmedabad Manufacturing Co Ltd, [1970] 40 CompCas
81932
23. In Re Sindhpur Mills Co Ltd, AIR 1962 Guj 30532
24. In Re Tata Iron & Steel Co Ltd, AIR 1928 Bom 8029
25. Maharani Lalita Rajya Lakshmi MP v. Indian Motor Co (Hazaribagh) Ltd, [1962] 32
CompCas 20...24, 25
26. Maharashtra Power Development Corp v. Dabhol Power Co, (2004) 3 CompLJ
58..26
27. Marshall Sons & Co Ltd v. Income Tax Officer, (1997) 223 ITR 80928
28. Mazda Theatres Pvt Ltd v. New Bank of India Ltd, ILR (1975) Delhi 129
29. Miheer H. Mafatlal v. Mafatlal Industries Ltd, AIR 1997 SC
50630, 31, 32
30. Nagvarapu Krishna Prasad v. Andhra Bank Ltd, [1983] 53 CompCas 73...23
31. Nanalal Zaver v. Bombay Life Assurance Co Ltd, AIR 1950 SC 17223
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32. Needle Industries (India) Ltd v. Needle Industries Newey (India) Holding Ltd, (1981)
3 SCC 33322, 25, 27
33. P. Anand Gajapathi Raju v. P. V. G. Raju, 2000 (4) SCC 53915
34. S.M. Holding Finance Pvt Ltd v. Mysore Machinery Manufacturers Ltd, [1993] 78
CompCas 432...29
35. Sangramsinh P Gaekwad v. Shantadevi P Gaekwad, 2005 (11) SCC 314..18
36. Shiv Nath Rai Bajaj v. Nafabs India Pvt Ltd, [2002] 108 CompCas 64220
37. SP Jain v. Kalinga Tubes Ltd, AIR 1965 SC 1535..17
38. State of Orissa v. Official Liquidator, (1966) 2 Comp LJ 31...32
39. Suresh Chandra Marwaha v. Lauls Pvt Ltd, (1973) 75 PLR 558.23
40. Sushma Harish Sharma v. Hotel Horizon Pvt Ltd, [2007] 139 CompCas 26119
41. VS Krishnan v. Westfort Hi-tech Hospital Ltd, 2008 (3) SCC 36323, 24, 25
42. World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Pvt Ltd, Civil
Appeal No. 895 of 2014.......15
ENGLISH CASES:
1. Ebrahimi v. Westbourne Galleries Ltd, [1973] A.C. 360...25, 26
2. Elder v. Elder and Watson, [1952] S.C. 49..18
3. Fulham Football Club Ltd v. Sir David Richards, [2011] EWCA Civ 855.16
4. In Re a Company (No. 004377 of 1986), [1987] 1 W.L.R 102...26
5. In Re HR Harmer Ltd, [1959] 1 W.L.R 6217, 27
6. In Re Jeremyn Street Turkish Baths Ltd, [1971] 1 W.L.R 1042..22
7. Parker and Cooper Ltd v. Reading, [1926] Ch. 975.29
8. Re Astec BSR plc, [1999] B.C.C. 59...23
9. Re Chez Nico (Restaurants) Ltd, [1991] B.C.C. 736...31
10. Re Grierson, Oldham & Adams Ltd, [1967] 1 W.L.R. 385.32
11. Re Hawk Insurance Co Ltd, [2002] B.C.C. 300..30
12. Re Hoare & Co Ltd, 1934 (150) LT 374.31
13. Re Ringtower Holdings plc, (1989) 5 B.C.C. 82.23
14. Re Saul D Harrison and Sons plc, [1994] B.C.C. 475...20, 26
15. Re Sussex Brick Co Ltd, [1961] Ch. 28932
16. Scottish Co-op Wholesale Society v. Meyer, [1959] A.C. 32417
17. Scotto v. Petch, [2001] B.C.C. 889..20
STATUTES:
1. Arbitration and Conciliation Act, 199615
2. Companies Act, 2013...passim
RULES:

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1. Companies Management and Administration Rules, 2014..24

BOOKS:
1.
2.
3.
4.

A. Ramaiyya, GUIDE TO THE COMPANIES ACT, Vol.2 (18th edn., 2015)...30

Blacks Law Dictionary, 477(Bryan A. Garner, 9th edn., 2009)..16
Gore-Browne on Companies, Vol. I (Alistair Alcock et al eds., 45th edn., 2014)..29
Gower and Davies, PRINCIPLES OF MODERN COMPANY LAW, (9th edn., 2012)

....30
5. Halsbury's Laws of England, Vol.7 (4th edn., 1996)17
6. R. R. Pennington, COMPANY LAW, (6th edn., 1990).30

ARTICLES:
1. U. Varottil, Corporate Governance in M&A Transactions, 24(2) NATIONAL LAW
SCHOOL OF INDIA REVIEW 51, 55 (2012).30

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STATEMENT OF JURISDICTION

I.

CIVIL APPEAL NO. ____/2016

The Appellants have approached this Honble Court under Art. 133 of the Constitution of
India, 1950. The Respondents humbly submit to the jurisdiction of this Honble Court.

II.

CIVIL APPEAL NO. ____/2016

FROM

SPECIAL LEAVE PETITION (CIVIL) NO. ___OF 2016

The Appellant has approached this Honble Court under Art. 136 of the Constitution of India,
1950. Subsequently, leave to appeal has been granted by this Court.

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QUESTIONS PRESENTED

I.
WHETHER THE DISPUTE RELATING TO OPPRESSION AND MISMANAGEMENT CAN BE REFERRED
TO ARBITRATION?

II.
WHETHER THE MAJORITY SHAREHOLDERS HAVE COMMITTED ACTS OF OPPRESSION AND
MISMANAGEMENT?

III.
WHETHER THE SCHEME OF ARRANGEMENT IS VALID AND THE SHARES OF THE FOUNDERS CAN
BE ACQUIRED?

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STATEMENT OF FACTS
THE PARTIES:
1. Abhijit and Piyush [the founders] established Flyabhi.com Pvt Ltd [Flyabhi], which
aimed to make private air travel more easily accessible. Each of them owned 50% of the Rs.
2,000,000 invested as initial share capital. Flume Capital and Nurture Capital [the
investors], both angel investors incorporated in Singapore, invested in optionally convertible
debt of Flyabhi for a cash consideration of Rs. 100 Crores. The debt was convertible into
Class B equity shares, at the investors' option over a three-year period and subject to the
company meeting business targets and milestones.
2. The founders, investors and BESTCO (the transaction counsel) signed an investment
agreement and the terms of the same were incorporated into the Articles of Association
[AoA]. The agreement provided for the termination of all rights guaranteed therein upon
shareholding falling below 10% and that all disputes would be subject to SIAC arbitration in
Singapore. The Board of Directors [Board] consisted of the founders, Ms. K.S. Kumar, an
employee of Flume, Ms. Sush Iyer, a partner at BESTCO nominated by Nurture, and Ms.
Scarlet Lester, a tech entrepreneur.
DIPPING PROSPECTS AND ATTEMPTS AT REVIVAL:
3. Despite an active national publicity campaign, the company was far behind all its targets and
investor confidence was low. In light of the same, the Board decided to hire Arjun Iyer
[Mr.Iyer], who was qualified and competent, as the CEO. He took several bold decisions to
boost the business. In light of the tough and equally unexpected competition posed by
Airavata, the management team led by him set about to raise Rs. 500 crores through a road
show. The Board also approved a bridge loan of 20 crores from Arcot, Smith & Brown
Limited [ASB]. However, within 2 months, there were concerns that the company was in
financial difficulty again.
4. On July 21, 2012, the investors novated the investment agreement to over 20 of their
affiliates as they were required to do so under the terms of their constitution. On August 7,
2012, all affiliates notified the company that they wished to convert 50% of their debt into
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equity. Their nominee directors also gave notice of a board meeting to allot and issue Class B
equity shares to the investors and called an EGM to amend the AoA and reconstitute the
board of directors. All three resolutions were approved by a majority of the board of
directors. Consequent to the issue of shares to the investors, each of the founders
shareholdings was reduced to 6% of the equity share capital. As per the new AoA adopted in
the EGM held the same afternoon, all decisions were to be taken by a majority vote of
shareholders. The founders were removed from the Board.
THE LITIGATION:
5. 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. Each of the investors filed applications seeking referral of this dispute to
arbitration, which was accepted by the CLB. The High Court allowed the founders oral
application to the Supreme Court.
6. On July 5, 2014, the Directors resolved to demerge the aircraft business from Flyabhi and
merge it into ASB. After receiving letters of consent, the proposed scheme of arrangement
was filed before the Allahabad High Court. ASB sought approval from the Calcutta High
Court and the same was granted. ASB sent a notice to the founders exercising their right
under Sec. 235 of the Companies Act. The founders applied to the Allahabad High Court to
hear them before allowing the notice to take effect. Consequently, an injunction was granted
against ASB. ASB appealed against the same to the Supreme Court. The Allahabad High
Court approved the scheme of arrangement on April 11, 2015. The founders appealed against
this to the Supreme Court. The Supreme Court has now listed all matters connected with
Flyabhi for final hearing.

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SUMMARY OF PLEADINGS
I.

THE

DISPUTE REGARDING OPPRESSION AND MISMANAGEMENT CAN BE REFERRED

TO ARBITRATION.

1. It is well settled that the Court is bound to refer the contracting parties to an arbitrator if there
is a valid arbitration agreement covering the subject matter of the dispute. It is submitted that
this principle will apply in the present case. The AoA provided for the referral of disputes to
SIAC arbitration. Admittedly, a dispute cannot be referred to arbitration where the arbitral
tribunal is incompetent to award the reliefs claimed. However, the Appellants have only
prayed for reliefs that involve rights in personam. Since an arbitral tribunal is competent to
award the same, the dispute regarding oppression and mismanagement can be referred to
arbitration. Thus, the CLBs order should not be set aside.
II.

THE

RESPONDENTS

HAVE

NOT

COMMITTED

ACTS

OF

OPPRESSION

OR

MISMANAGEMENT.

2. It is submitted that the respondents have not committed any acts of oppression or
mismanagement. This is because first, the respondents conduct has been in compliance with
the AoA. The appointment of Mr. Iyer as CEO was beneficial to the company. Furthermore,
the Directors have the discretion to choose the manner of raising funds. Hence merely
because the respondents outvoted the appellants in decisions relating to the company, it does
not amount to mismanagement. The appellants had consented to the transfer of shares to the
investors affiliates. Moreover, a transfer of shares to permitted transferees as envisaged by
the AoA does not violate the pre-emption clause given therein. Hence the transfer of shares
was not an oppressive act.
3. Second, the allotment of shares to the investors affiliates was to comply with the terms of the
Investment Agreement and the AoA. It was for a proper purpose. Hence, though it led to the
reduction in the shareholding of the appellants, it does not amount to oppression. The
decision of the majority shareholders is binding upon the minority and the company. Thus,
amending the AoA to provide that all decisions can be taken by a majority vote of
shareholders is not discriminatory and oppressive conduct.
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4. Third, removal from the Board does not per se constitute oppression and mismanagement.
Admittedly, the Directors did not give special notice. However, an isolated illegal act will not
amount to oppression. Moreover the appellants rights to participate in the management of the
company under the AoA terminated upon the reduction of their shareholding. It is submitted
that the principle of legitimate expectations outside of the AoA cannot be applied in this case
as Flyabhi is not a quasi-partnership.
5. Fourth, it is submitted that there is no deadlock in the management of the company. The
allotment of shares was in accordance with the law. In the event that the appellants want to
contest their removal from the Board, the alternative remedy is to file a company suit. Hence
it is not just and equitable to wind up the company. The requirements for seeking relief under
the Companies Act have not been satisfied.
III.

THE

SCHEME OF MERGER IS VALID.

CONSEQUENTLY, ASB

HAS A RIGHT TO

ACQUIRE THE SHARES OF THE DISSENTING SHAREHOLDERS.

6. The scheme of merger is valid because it complies with the statutory requirements under Sec.
232 of the Companies Act. Further, it is fair and reasonable. It is submitted that Sec. 232 has
been complied with as first; a meeting of shareholders is dispensable if an overwhelming
majority has consented to the scheme. In any event, a resolution passed by the letters of
consent of the requisite majority is deemed as one passed at a general meeting. Second, if the
same scheme is being offered to all members without affecting their rights with respect to the
shares of the company, there is no need to convene a separate meeting for the founders as a
separate class of shareholders.
7. Further, the Court can exercise its discretion while granting applications under Sec. 235. A
small infringement in the provisions of the statute is permissible as long as there is substantial
compliance. Therefore it is submitted that the notice for acquisition of the shares of the
founders cannot be invalidated merely because 90 percent of the shareholders did not
consent. 88 percent of the shareholders consented. There was substantial compliance with the
statutory requirements.

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8. Moreover, the scheme of arrangement and the notice to acquire the shares is fair. Hence it
must be sanctioned. The fairness of a scheme has to be evaluated with respect to its impact
upon the entire body of shareholders, and not a particular shareholder in his particular
circumstance. In the present case, the scheme and the notice were issued for the benefit of the
company. Hence, they cannot be invalidated on vague grounds of oppression and
mismanagement.

PLEADINGS
I.

The dispute regarding oppression and mismanagement can be referred to

arbitration.

1. In the present case, the founders have challenged the CLBs order referring the dispute
regarding oppression and mismanagement to arbitration. 1 It is submitted that the order is
valid. The dispute can be referred to arbitration for the following reasons: first, the NCLT has
a statutory duty to refer the dispute to arbitration [A]; and second, the arbitrator is competent
to decide and award relief in the present case [B].
[A].

The NCLT has a statutory duty to refer the dispute to arbitration.

2. Sec. 45 of the Arbitration Act states that the Court shall refer matters to arbitration if there is
a mutual agreement between the parties for the same. 2 The Supreme Court of India has held
that the Court has a mandatory duty to refer the contracting parties to an arbitrator where
there is a valid arbitration agreement covering the subject matter of the dispute, and an
application is made under such an agreement.3 An exception can be made only if the
arbitration agreement is null and void, inoperative or incapable of being performed.4
3. It is submitted that none of the aforementioned exceptions are satisfied in the instant case.
The Investment Agreement between the parties expressly states that all disputes would be

1 25, Factsheet.

2 Sec. 45, Arbitration and Conciliation Act, 1996.

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subject to SIAC arbitration in Singapore.5 This has also been incorporated into the companys
AoA.6 Hence, it is submitted that the NCLT has a statutory duty to refer this dispute to
arbitration.

[B].

The arbitrator is competent to decide and award relief in the present case.

4. The Court may deny referral of the dispute to arbitration only if the applicant seeks reliefs
that the arbitrator is not competent to grant. 7 If the arbitral tribunal is competent to grant the
reliefs claimed, it is irrelevant that there may be other reliefs that lie outside its powers. 8
While an arbitrator is not competent to order winding up of the company 9 and grant reliefs
3 Hindustan Petroleum Corpn Ltd v. Pinkcity Midway Petroleums, 2003 (6) SCC 503
(Supreme Court of India); P. Anand Gajapathi Raju. v. P. V. G. Raju, 2000 (4) SCC 539
(Supreme Court of India).

4 World Sport Group (Mauritius) Ltd v. MSM Satellite (Singapore) Pvt Ltd, Civil Appeal No.
895 of 2014 January 24, 2014 (A.K. Patnaik J.) (Supreme Court of India).

5 6, Factsheet.

6 7, Factsheet.

7 Booz Allen and Hamilton Inc v. SBI Home Finance Ltd, 2011 (5) SCC 532 (Supreme Court
of India). [Booz Allen]; Haryana Telecom v. Sterlite Industries India Ltd, 1999 (5) SCC
688 (Supreme Court of India). [Haryana Telecom]

8 Fulham Football Club Ltd v. Sir David Richards [2011] EWCA Civ 855, at 77; 83 (Court
of Appeal). [Fulham Football Club]

9 Haryana Telecom, 1999 (5) SCC 688 (Supreme Court of India).

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that involve rights in rem,10 he can adjudicate upon rights in personam, even if they arise
from rights in rem.11
5. In the present case, even in the event that it is held that there was oppression and
mismanagement, the Appellants have neither asked for winding up of the company nor have
they sought any other reliefs that involve rights in rem. In the present case, the dispute relates
to alleged violations of the AoA and is between the members of the company. Such a dispute
is contractual in nature. It does not engage the rights of creditors or adversely impact
statutory safeguards provided for third parties.12 Since the reliefs claimed merely require
determination of rights of the parties to the arbitration agreement, such disputes only involve
rights in personam.13 Thus it is submitted that the arbitral tribunal is competent to decide and
grant relief. Hence the CLBs order referring the parties to arbitration should not be set aside.
II.

The respondents have not committed acts of oppression or mismanagement.

6. The requirements for proving oppression were laid down in Scottish Co-Op14 and have been
approved by the Supreme Court of India in the case of S.P. Jain.15 In order to prove

10 Booz Allen, (2011) 5 SCC 532 at 23.

11 Booz Allen, (2011) 5 SCC 532at 23.

12 Fulham Football Club, [2011] EWCA Civ 855, at 77 (Court of Appeal).

13 Booz Allen, 2011(5) SCC 532; Blacks Law Dictionary, 477(Bryan A. Garner, 9th edn.,
2009).

14 Scottish Co-op Wholesale Society v. Meyer, [1959] A.C. 324 (House of Lords). [Scottish
Co-op]

15 SP Jain v. Kalinga Tubes Ltd, AIR 1965 SC 1535 (Supreme Court of India). [SP Jain]
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oppression, the following elements have to be satisfied; first, it has to be continuous conduct16
which is burdensome, harsh and wrongful to the minority shareholder. 17 There has to be an
active intention to oppress the minority. Isolated acts of illegality or acts which are merely
inefficient will not be oppressive.18 Second, such oppressive conduct must oppress the
members qua shareholders and not any other capacity. Third, such conduct must relate to the
manner in which the affairs of the company are being conducted. 19 Last, the Tribunal should
be of the opinion that on the facts of the case, it would be just and equitable to wind up the
company.
7. It is submitted that the respondents have not committed acts of oppression or mismanagement
for the following reasons. First, the respondents have not violated the AoA. Deviations, if
any, are trivial [A]. Second, the allotment of shares to the investors and the resolution to
amend the AoA does not amount to oppression [B]. Third, the removal of the appellants from
the Board does not prejudice their interests as shareholders [C]. Last, it would not be just and
equitable to wind up the company [D].
A

The respondents have not violated the AoA. Deviations, if any, are trivial.

8. It is submitted that the respondents have not violated the AoA and deviations, if any, are
trivial. This is because first, the appointment of Mr. Iyer as CEO was in the interests of the
company (1). Second, the Directors decision to enter into a financing agreement with ASB
does not amount to mismanagement (2). Third, the transfer of shares does not attract the preemption clause (3).
1. The appointment of Arjun Iyer as the CEO was in the interests of the company.

16 S.P. Jain, AIR 1965 SC 1535, at 20.

17 In Re HR Harmer Ltd, [1959] 1 W.L.R 62 (Court of Appeal). [Harmer]

18 Halsbury's Laws of England, Vol.7, 1011 (4th edn., 1996).

19 Scottish Co-op, 1959 AC 324.

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9. Under the AoA, the founders had to approve the appointment of management personnel in the
company.20 However, the standard for an act to qualify as oppressive is to see whether it
results in an impairment of confidence in the conduct of the affairs of the company. It does
not cover mere resentment by the minority on being outvoted on some issue of domestic
policy.21 Therefore it is submitted that merely because the Board outvoted the founders in
appointing Mr. Iyer as the CEO,22 it does not amount to oppression.
10. The duty of the Directors is primarily to look after the interests of the company. 23 In the
present case, the data and analysis provided by the consulting firm showed that there was
significant skepticism about the young and inexperienced management team.24 The company
had failed to reach the business and financial targets set in the AoA. 25 Therefore the Directors
decided to appoint an experienced CEO to remedy this situation. 26 Mr. Iyer had gained
significant goodwill and experience during his five years with McKinsey and Co. 27 Further,
under Mr. Iyers management the company gained positive publicity. It was able to build up
20 6.1.4; 7.1, Factsheet.

21 Elder v. Elder and Watson, [1952] S.C. 49, 55 (Court of Session, Scotland).

22 12, Factsheet.

23 Sangramsinh P Gaekwad v. Shantadevi P Gaekwad, 2005 (11) SCC 314, at 69 (Supreme

Court of India).

24 10.1-10.3, Factsheet.

25 10.1; 10.4-10.5, Factsheet.

26 11.2-11.3, Factsheet.

27 11.8-11.9, Factsheet.
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an impressive list of Indian and international clients. 28 Therefore it is submitted that the
Directors decision did not cause any unfair prejudice to the company or its shareholders.

2. The Directors decision to enter into a financing agreement with ASB does not amount
to mismanagement.
11. Under the AoA, the investors had the preferential right by themselves or by their affiliates to
provide further equity and debt to the company if it failed to achieve its business targets. 29 In
any event, it is a settled position that the Board has the discretion to choose the mode and
manner of mobilizing funds.30 Incurring losses and liabilities may amount to inefficient
management, but it does not indicate mismanagement. 31 Hence, it is submitted that the
decision to enter into a financing agreement with ASB 32 instead of allowing Mr. Piyush to
provide finance33 does not amount to mismanagement, though the company continued to be
in financial difficulty.34
28 13, Factsheet.

29 6.1.3 (ii), Factsheet.

30 Sushma Harish Sharma v. Hotel Horizon Pvt Ltd, [2007] 139 CompCas 261(Company
Law Board).

31 Girdhar Gopal Dalmia v. Belgachi Tea Co, 2007 (4) CHN 155, at 35 (Calcutta High
Court).

32 18, Factsheet.

33 17.1, Factsheet.

34 19, Factsheet.
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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12. Additionally, trading in such circumstances would amount to mismanagement only if the
Directors decision to trade was influenced by self-interest. 35 This exception is not satisfied in
the present case. The Directors believed bona fide it would be better for the image of the
company if the investors injected cash, not Mr. Piyushs family. 36 Further, if there is still a
prospect of earning profits in the future and the Directors can revise their plans, the members
cannot complain of mismanagement.37 Therefore merely because the road show and the
finance agreement did not immediately yield any positive results, 38 it cannot be concluded
that the Directors should have ceased trade.

3. The transfer of shares to the investors affiliates does not attract the pre-emption
clause.
13. The investors novated the investment agreement to their affiliates as they were required under
the terms of their constitution to distribute all their assets to their investors. 39 Under the AoA,
the parties had to offer securities to other shareholders before selling it to any person who
was not a shareholder in the company.40 However, a transfer of shares without making an
offer to other shareholders does not constitute oppression if it does not reduce their

35 Re Saul D Harrison and Sons plc, [1994] B.C.C. 475, 478 (Court of Appeal). [Saul D
Harrison]

36 17.3-17.4, Factsheet.

37 Saul D Harrison, [1994] B.C.C. 475.

38 19.3-19.4, Factsheet.

39 20.1-20.3, Factsheet.

40 6.1.8, Factsheet.
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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shareholding, and if they do not raise an objection. 41 Once the shareholders have approved the
transfer of shares to a non-member, it is no longer obligatory to offer such shares to them.42 In
the present case, the transfer of shares did not reduce the appellants shareholding. They did
not raise any objection when BESTCO gave the opinion that the transfer of shares should be
registered.43
14. In any event, the respondents transferred the shares to their affiliates 44 and not to outsiders. A
transfer of shares to permitted transferees as envisaged by the AoA does not trigger preemption rights.45 The AoA provide that the investors affiliates would have the preferential
right to provide further equity to the company if it failed to meet its financial targets. 46
Moreover, under the AoA affiliates of parties were envisaged as having a shareholding in the
company.47 Hence it is submitted that the transfer of the shares does not attract the preemption clause.

41 Shiv Nath Rai Bajaj v. Nafabs India Pvt Ltd, [2002] 108 CompCas 642 (Company Law
Board).

42 Devraj Dhanram v. Firebricks and Potteries Pvt Ltd, [2003] 117 CompCas 380 (Company
Law Board). [Devraj]

43 20, Factsheet.

44 20.2, Factsheet.

45 Scotto v. Petch, [2001] B.C.C. 889 (Court of Appeal).

46 6.13(ii), Factsheet.

47 6.1.8, Factsheet.
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

[C].

TEAM E

The allotment of shares to the investors and the resolution to amend the AoA does not
amount to oppression.

15. It is submitted that first, the allotment of shares to the investors does not constitute oppressive
conduct as the Directors acted with a proper purpose in allotting the shares (1). Second, the
resolution to amend the AoA does not amount to oppression (2).
1

The Directors acted with a proper purpose in allotting the shares.

16. The investors affiliates notified the company that they wished to convert 50% of their debt
into equity. In pursuance of this, the Directors issued shares to the investors after the Board
meeting on August 14, 2012.48 Under the Companies Act, existing shareholders are not
entitled to be offered shares if the increase in share capital is due to the exercise of an
optionally convertible debt.49 Therefore it cannot be contended that the Directors ought to
have offered shares to the appellants. Indeed, the allotment reduced each of the appellants
shareholdings to 6 percent of the equity share capital of the company. 50 However, Directors
have the right to issue shares, notwithstanding reduction in the shareholding of existing
members, if it is for a proper purpose.51
17. It is the obligation of the company to allot shares against the conversion of a loan under the
terms of the loan agreement.52 Under the Companies Act, a change in the ownership of the
48 21, Factsheet.

49 Sec. 62(3), Companies Act, 2013.

50 21.10, Factsheet.

51 Dale and Carrington Investment Pvt Ltd v. PK Prathapan, 2005 (1) SCC 212, at 26
(Supreme Court of India).

52 Dhir and Dhir Asset Reconstruction and Securitisation Co Ltd v. Jaipur Metals and
Electricals Ltd, (2010) 2 CompLJ 485 (Company Law Board).
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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companys shares brought about in the interests of the creditors of the company cannot be
grounds for a complaint of unfairly prejudicial conduct. 53 In any event, where the reduction of
shareholding of a group of shareholders is a consequence of what the Directors were
lawfully obliged to do, such actions of Directors cannot be vitiated, as they are in the larger
interests of the company.54 In the instant case, the Directors primary motive in issuing the
shares was to comply with the terms of the loan agreement. The investors had the option to
convert their debt into equity.55 Therefore it is submitted that the proper purpose
requirement was fulfilled.
18. Additionally, it cannot be contended that the Board was bound to take the appellants
approval before issuing the shares. When a company issues convertible securities, the person
to whom they are issued gets a vested right in respect of the shares. 56 It cannot seek approval
from the shareholders to nullify a decision implemented earlier.57 In the present case, the
respondents had invested 100 crores in the company on the basis of the convertible debt
financing arrangement with the founders.58 When an allotment of shares forms a part and
parcel of the arrangement under which this injection of cash was made,59 such an allotment
is a legitimate act done in the interests of the company.60 Hence it is submitted that the
allotment of shares to the investors does not amount to an act of oppression.

53 Sec. 241(1)(b), Companies Act, 2013.

54 Needle Industries (India) Ltd v. Needle Industries Newey (India) Holding Ltd, 1981 (3)
SCC 333, at 109 (Supreme Court of India). [Needle Industries]

55 3.10-3.12, Factsheet.

56 BNS Steel Trading Pvt Ltd v. Orissa Sponge Iron and Steel Ltd, (2010) 2 CompLJ 425, at
35 (Company Law Board). [BNS Steel]

57 BNS Steel, (2010) 2 CompLJ 425, at 38.

58 3.9-3.11, Factsheet.
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4. The resolution to amend the AoA does not amount to oppression.

19. In the present case, the majority shareholders amended the AoA to allow all decisions to be
taken by the majority vote of shareholders.61 The passing of a resolution to amend the AoA is
an act done in the exercise of the democratic rights of the shareholders. It cannot be grounds
for a complaint of oppression and mismanagement. This would amount to interference with
the internal democracy of the company.62
20. Admittedly, the respondents gave notice only seven days prior to the meeting to amend the
AoA,63 violating the twenty one day requirement 64 in the Companies Act. However, mere
illegality is not sufficient to prove oppression.65 A resolution to amend the AoA can be
challenged only if it is mala fide or discriminatory.66 It is submitted that in the instant case,
the amendment to the AoA was not discriminatory to the minority shareholders. A resolution
59 In Re Jeremyn Street Turkish Baths Ltd, [1971] 1 W.L.R 1042, 1058 (Court of Appeal).
[Jeremyn Street]

60 Jeremyn Street, [1971] 1 W.L.R 1042, 1058.

61 21.11-21.12, Factsheet.

62 In Re Gharda Chemicals Ltd, [2013] 114 CLA 354 (Company Law Board).

63 21.1; 21.5, Factsheet.

64 Sec. 101(1), Companies Act, 2013.

65 VS Krishnan v. Westfort Hi-tech Hospital Ltd, 2008 (3) SCC 363, at 10 (Supreme Court
of India). [VS Krishnan]

66 Re Ringtower Holdings plc, (1989) 5 B.C.C. 82 (Chancery Division).

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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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of the majority of shareholders upon a question which the company is legally competent to
decide is binding upon the minority and the company.67 Therefore, in any event, if minority
shareholders are outvoted it does not amount to discrimination.68 Therefore it is submitted
that the amendment of the AoA does not amount to an oppressive act.
[D].

The removal of the appellants from the Board of Directors does not prejudice their
interests as members.

21. The appellants have also contested their removal from the Board of Directors. 69 The right of a
majority shareholder to vote for the removal of Directors is a private right and not an act done
in the conduct of affairs of a company.70 Where there is no subsequent instance of
mismanagement and the only complaint is that the appellant has been deprived of
Directorship, that grievance is as a Director and not as a shareholder. Hence it cannot be
adjudicated under a complaint of oppression and mismanagement.71 The Supreme Court of
India has held that the termination of Directorship will per se not give rise to a remedy for
oppression.72
22. It is submitted that the removal of the appellants from the Board does not amount to
oppression for the following reasons: first, even though the removal of the Directors may be

67 Nanalal Zaver v. Bombay Life Assurance Co Ltd, AIR 1950 SC 172 (Supreme Court of
India).

68 Nagvarapu Krishna Prasad v. Andhra Bank Ltd, [1983] 53 CompCas 73 (Andhra Pradesh
High Court).

69 21.12, Factsheet.

70 Re Astec BSR plc, [1999] B.C.C. 59 (Chancery Division).

71 Suresh Chandra Marwaha v. Lauls Pvt Ltd, (1973) 75 PLR 558 (Punjab and Haryana High
Court).
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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bad in law; it does not by itself constitute oppression (1). Second, the principle of legitimate
expectations will not apply in this case (2).
1

Though the removal of the Directors may be bad in law, it does not by itself constitute
oppression.

23. In the present case, the respondents gave notice of the meeting to remove the appellants from
the Board only seven days before the resolution, 73 whereas the Companies Act stipulates a
fourteen day period.74 However, a shareholder who by his conduct shows that he knows the
work to be transacted in the meeting cannot complain of insufficiency of notice. 75 The
removal of a member from the Board will not constitute oppression if they willingly
abstained from attending the meeting and did not answer charges made against them. 76 In the
present case, the respondents had specifically mentioned that the resolution was to
reconstitute the Board.77 The appellants deliberately absented themselves from the meeting.78
Hence, they forfeited the opportunity to be heard on the resolution.

72 Hanuman Prasad Bagri v. Bagress Cereals Pvt Ltd, 2001 (4) SCC 420, at 18 (Supreme
Court of India). [Hanuman Prasad]

73 21.1; 21.3-21.4, Factsheet.

74 Sec. 169(2), Companies Act, 2013; Rule 23, Companies Management and Administration
Rules, 2014.

75 Maharani Lalita Rajya Lakshmi MP v. Indian Motor Co (Hazaribagh) Ltd, [1962] 32

CompCas 20, at 17 (Calcutta High Court). [Maharani Lalita]

76 CP Gnanasambandam v. Tamilnad Transports (Coimbatore) Pvt Ltd, [1971] 41 CompCas

26, at 15 (Madras High Court). [CP Gnanasambandam]

77 21.7, Factsheet.
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24. In any event, the test as to whether an act is oppressive is not whether it is legally
permissible.79 The test is whether the act is for a mala fide purpose.80 A single act in
contravention of the law does not support the inference that the law was violated for a mala
fide purpose.81 Hence it is submitted that mere failure to give the stipulated notice does not
amount to oppression. Moreover, if a meeting is invalid, the remedy lies in calling a valid
meeting or regularizing the irregular procedure under the Companies Act. It does not warrant
a complaint of oppression.82
2

The principle of legitimate expectations will not apply in this case.

25. As Lord Hoffman has held in Saul D Harrison, a shareholder can legitimately expect that
the affairs of the company will be conducted in accordance with the AoA and the law
governing companies, and no more.83 In the present case, all rights granted by the AoA to
the parties were to terminate if they held less than 10 percent of the shareholding in the
company.84 The appellants presently hold 6 percent each of the companys share capital. 85
Hence any rights they had to participate in the management of the company under the AoA
have been terminated. Further, the Director of a company is always subject to the possibility
78 21.12-21.13, Factsheet.

79 VS Krishnan, 2008 (3) SCC 363, at 10.

80 VS Krishnan, 2008 (3) SCC 363, at 10.

81 Needle Industries, 1981 (3) SCC 333, at 51.

82 Maharani Lalita, [1962] 32 CompCas 20, at 18.

83 Saul D Harrison, [1994] B.C.C. 475, 490.

84 6.1.8, Factsheet.
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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of removal by an ordinary resolution, under the Companies Act. 86 Therefore it is submitted

that the removal of the appellants as Directors was not in violation of their legitimate
expectations as shareholders.
26. While legitimate expectations outside of the AoA may be applied if the company is a quasipartnership,87 it is submitted that Flyabhi does not fulfill the elements of a quasi-partnership.
This is because first, in a quasi-partnership there is an underlying obligation that as long as
the business continues, the members are entitled to management participation. 88 In the instant
case, the Investment Agreement provided for the termination of the rights of parties. Hence,
the respondents did not have any such permanent obligation towards the appellants.
27. Second, the Court has to take into account the overall facts and circumstances to see if the
company fulfills the requirements of a quasi-partnership.89 In the present case, the AoA
provided for pre-emption rights, thus fulfilling the requirement of a restriction on the
transferability of shares.90 However, it is also necessary to consider the existence of factors
such as the pre-existence of a partnership or a family business prior to the formation of the

85 21.9, Factsheet.

86 Sec. 169, Companies Act, 2013.

87 Ebrahimi v. Westbourne Galleries Ltd, [1973] A.C. 360, 379 (House of Lords).
[Ebrahimi]

88 Ebrahimi, [1973] A.C. 360, 380.

89 Maharashtra Power Development Corp v. Dabhol Power Co, (2004) 3 CompLJ 58

(Bombay High Court). [Maharashtra Power Corp]

90 Ebrahimi, [1973] A.C. 360, 379.

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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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company.91 In the instant case there was no such pre-existing partnership or family business.
Accordingly, no benefit outside of the AoA may be conferred upon the members.
28. In any event, if there is a breakdown in relations between members of a quasi-partnership, the
exclusion of one from management and employment is not ipso facto unfairly prejudicial
conduct. The majority shareholders are entitled to remove the minority shareholders from the
Board in such a situation.92 In the present case, the respondents are the majority shareholders.
Therefore it is submitted that, given the inability of the appellants and respondents to manage
the company together, the respondents had the right to remove the appellants from the Board.
[E].

It would not be just and equitable to wind up the company.

29. Under an application complaining of oppression and mismanagement, the Tribunal should be
of the opinion that on the facts of the case, it would be just and equitable to wind up the
company.93 It is submitted that this is not the case for two reasons: first, there is no deadlock
in management of the company (1). Second, the issue of shares by the respondents was in
accordance with the law (2); and third, the removal of the appellants from directorship does
not make it just and equitable to wind up the company as alternative remedies are available
(3).

There is no deadlock in the management of the company.

30. It would be just and equitable to wind up the company only if first, two groups of
shareholders have equal shareholding and there is complete deadlock in the management of
the company. Second, there is no possibility of the continuance of the company as a
commercial concern.94 If the minority shareholders are outvoted by a decision of the majority
at a general meeting of the company, it does not amount to a deadlock in managing the affairs

91 Maharashtra Power Corp, (2004) 3 CompLJ 58.

92 In re a Company (No. 004377 of 1986), [1987] 1 W.L.R. 102, 109 (Chancery Division).

93 Sec. 242(1)(b), Companies Act, 2013.

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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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of the company.95 Therefore, it is submitted that merely because the investors nominee
directors outvoted the appellants in decisions relating to the company, it does not amount to a
deadlock. The business is still capable of continuing commercially.
2

The issue of shares by the Board was in accordance with the law.

31. In considering whether it is just and equitable to wind up the company, the Court should not
allow itself to be used as an instrument for relieving the petitioner from the natural and lawful
consequences of his own acts.96 In the instant case, the Directors issued the shares as they
were legally obliged to convert the debt into equity. Therefore it cannot be contended that it
would be just and equitable to wind up the company on the grounds that the allotment of
shares by the Board was oppressive to the appellants.
3

The removal of the appellants from Directorship does not make it just and equitable to
wind up the company.

32. Conduct involving illegality does not suffice the remedy of winding up, if an alternative
remedy is available.97 Therefore the termination of Directorship, even if it is illegal, would
not require the winding up of a company as there is an appropriate remedy by way of
company suit which can provide relief.98 Therefore it is submitted that while there were

94 Hind Overseas v. Raghunath Prasad Jhunjunwala, AIR 1976 SC 565, at 62 (Supreme

Court of India).

95 CP Gnanasambandam, [1971] 41 CompCas 26, at 19.

96 Harmer, [1959] 1 W.L.R 62.

97 Needle Industries, 1981 (3) SCC 333, at 51.

98 Hanuman Prasad, 2001 (4) SCC 420, at 18.

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procedural lapses in the meeting to remove the appellants from Directorship, it does not
justify winding up the company.
III.

The scheme of merger is valid and must be sanctioned. consequently, ASB can
acquire the shares of the dissenting founder.

33. The Supreme Court of India, in Marshall99 held that a Court will sanction a scheme of
arrangement if it is satisfied that statutory formalities have been duly complied with. 100
Further, the scheme should be fair and reasonable. 101 It is submitted that the scheme of
arrangement must be sanctioned as first; the scheme of merger complies with the
requirements of Sec. 232 of the Companies Act [A]. Second, ASB could issue a notice under
Sec. 235 to acquire the shares of the minority [B]. Third, the scheme of arrangement and the
notice to acquire shares are fair and must be sanctioned [C].
A

The scheme of merger is valid as per Sec. 232.

34. In the present case, the Directors proposed a scheme of arrangement to demerge the aircraft
business from Flyabhi and merge it into ASB. 102 Under Sec. 230(6), the Tribunal may
sanction a scheme of merger if three-fourths of the members or classes of members have
approved it.103 It may convene a meeting of the members for this purpose.104

99 Marshall Sons & Company Ltd v. Income Tax Officer, (1997) 223 ITR 809 (Supreme
Court of India). [Marshall]

100 Marshall, (1997) 223 ITR 809, at 21.

101 Marshall, (1997) 223 ITR 809, at 21.

102 25.15, Factsheet.

103 Sec. 230(6), Companies Act, 2013.

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35. It may be contended that a meeting of shareholders was necessary before sanctioning the
scheme. Hence it is submitted that in the present case, the scheme of merger is valid because:
first, the meeting of members was dispensable (1). Second, there was no need to convene a
separate meeting for the founders (2).
1

The meeting of members was dispensable.

36. Sec. 232 (1) confers discretionary powers on the Tribunal to convene a meeting of the
members of the company for obtaining consent to a scheme of merger. 105 This power includes
the right to waive such a meeting.106 The Courts cannot adopt a mechanical approach under
Section 232(1) for convening meetings.107 Therefore, convening a meeting is not a sine qua
non for sanctioning a scheme of merger.108
37. The Delhi High Court has held that meetings can be dispensed with if it is shown that the
statutory majority has been arrived at, and additionally an overwhelming majority has
consented.109 This is because convening the meeting will be an empty formality in such an

104 Sec. 232(1), Companies Act, 2013.

105 Gore-Browne on Companies, Vol. I, 12-11 (Alistair Alcock et al eds., 45th edn., 2014).

106 S.M. Holding Finance Pvt Ltd v. Mysore Machinery Manufacturers Ltd, [1993] 78
CompCas 432 (Karnataka High Court), at 31.

107 In Re: Cash and Carry Wholesale Traders Pvt Ltd, (2011) 1010 CLA 341 (Madras High
Court), at 7. [Cash]

108 In Re Tata Iron & Steel Co Ltd, AIR 1928 Bom 80 (Bombay High Court).

109 Mazda Theatres Pvt Ltd v. New Bank of India Ltd, ILR (1975) Delhi 1 (Delhi High
Court), at 14.
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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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event. Hence no purpose will be served.110 It is submitted that this exception is satisfied in
the present case. All classes of secured and unsecured creditors, all Class B shareholders and
more than 50% of the Class A shareholders, with the exception of the founders, had expressed
their assent to the scheme.111 Moreover, a resolution passed by the letters of consent of the
requisite majority is deemed to be one passed at a general meeting.112
38. In any event, the absence of a meeting would not invalidate the scheme of merger, provided
the scheme was a bona fide and intra vires transaction entered into for the benefit of the
company.113 In the present case, the Directors bona fide believed that the business needs to be
restructured.114 Therefore, it is submitted that the scheme was valid even though a meeting
was not convened.
5. There was no need to convene a separate meeting for the founders.
39. The requisite majority for approving a scheme of merger has to be obtained from the
members or each class of members separately.115 It may be contended that the founders form
a separate class because they had different rights and interests in the company compared to
other shareholders. However, if a scheme of arrangement affects all members equally and

110 In Re Kirloskar Electric Co Pvt Ltd, [2003] 116 CompCas 413 (Karnataka High Court),
at 49.

111 25, Factsheet.

112 Sec. 110(2), Companies Act, 2013.

113 Parker and Cooper Ltd v. Reading, [1926] Ch. 975, 984 (Chancery Division).

114 25.12, Factsheet.

115 Secs. 232(3); 230(6), Companies Act, 2013.

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does not vary their rights with respect to the shares, there is no need to convene a separate
meeting for any class of shareholders.116
40. In that event, even if the members have different claims and rights against the company, they
can be put together in the same class for the purpose of assenting to the scheme. 117 Inordinate
ordering of separate meetings would give an unfair veto to the minority group. 118 In the
present case, the founders were Class A shareholders. However, the same terms were offered
to all the shareholders, irrespective of their class. 119 Therefore, it is submitted that the scheme
of merger does not vary the founders rights with respect to their shares. There was no need to
convene a separate meeting for the founders. Hence, the scheme is valid under Sec. 232.
[F].

ASB could issue a notice for acquisition of the founders shares.

41. In the present case, ASB obtained the consent of all the stakeholders in the company to the
scheme of merger, except the founders. 120 The founders collectively hold 12% of the shares
capital of the company.121 Therefore 88% of the shareholders have consented to the scheme.
Admittedly, under Sec. 235 of the Companies Act, a transferee company can issue a notice
for acquiring the shares of the dissenting shareholders under a scheme of merger only if 90%

116 Miheer H. Mafatlal v. Mafatlal Industries Ltd., AIR 1997 SC 506, at 38 (Supreme Court
of India). [Mafatlal] ; R R. Pennington, COMPANY LAW, 615 (6th edn., 1990).

117 Gower and Davies, PRINCIPLES OF MODERN COMPANY LAW, 1111 (9th edn., 2012); A. Ramaiyya, GUIDE
TO THE

COMPANIES ACT, Vol.2 (18th edn., 2015).

118 Re Hawk Insurance Co Ltd, [2002] B.C.C. 300, 308 (Court of Appeal).

119 25.18, Factsheet.

120 25.20, Factsheet.

121 21.10, Factsheet.

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WRITTEN SUBMISSION FOR RESPONDENT/APPELLANT

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of the shareholders consent.122 However Courts have discretion with respect to applications
under Sec. 235.123
42. Indeed, the rationale behind the prescribed percentage is that it is generally expected that the
miniscule minority falls in line with the decision of the overwhelming majority. 124 However, a
small infringement of the statute does not necessarily lead the Court to exercise its discretion
in the favour of the dissenting shareholder.125 Compulsory acquisition can be resisted only if
the transferee company has substantially failed to follow statutory provisions.126
43. In the present case, the holders of more than 50% of the Class A equity shares, holders of all
the Class B equity shares and all secured and unsecured creditors have accepted the scheme
of merger.127 Hence, it is submitted that they constitute an overwhelming majority. There has
been substantial compliance with the requirements of Sec. 235. Therefore notwithstanding the
fact that the founders did not consent to the scheme, ASB had the right to issue a notice for
acquisition of shares under Sec. 235.
[G].

The scheme of merger and the acquisition are fair.

122 Sec. 235, Companies Act, 2013.

123 Cf Leela Mahajan v. T Stanes & Co Ltd, [1956] 26 CompCas 366, at 5 (Madras High
Court).

124 AIG (Mauritius) LLC v. Tata Televentures (Holdings) Ltd, 103(2003) DLT 250, at 6
(Delhi High Court); U. Varottil, Corporate Governance in M&A Transactions, 24(2)
NATIONAL LAW SCHOOL OF INDIA REVIEW 51,55(2012).

125 Re Chez Nico (Restaurants) Ltd, [1991] B.C.C. 736, 751 (Chancery Division). [Chez]

126 Chez, [1991] B.C.C. 736, 751.

127 25, Factsheet.

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44. It is the duty of the Court to sanction a scheme which complies with statutory requirements
and is fair.128 In the absence of oppressive conduct by the majority shareholders, the other
shareholders cannot raise an objection.129 Nor can the scheme be rejected on vague
complaints of mismanagement made by the minority.130 In the present case, the requisite
majority has approved the scheme of merger. The majority shareholders have not committed
any acts of oppression and mismanagement towards the minority shareholders. Therefore the
latter does not have the right to raise an objection.
45. It is well settled under common law that a scheme can be rejected only if it is obviously
unfair, patently unfair and unfair to the meanest intelligence.131 This position has been
adopted by Indian Courts as well.132 The onus of proving unfairness cannot be discharged by
vague and general assertions in the absence of any particulars. 133 It is presumed that the
majority shareholders know where the best interests of the company lie. 134 The Court should
not interfere with the collective wisdom of the shareholders in the absence of strong
grounds.135

128 Re Hoare & Co Ltd, 1934 (150) LT 374 (Chancery Division).

129 In Re Jaypee Cement Ltd, [2004] 122 CompCas 854, at 107 (Allahabad High Court).

130 In Re Maneckchowk and Ahmedabad Manufacturing Co Ltd, (1970) 40 CompCas 819

(Gujarat High Court).

131 Re Sussex Brick Co Ltd, [1961] Ch. 289, 292 (Chancery Division).

132 State of Orissa v. Official Liquidator, (1966) 2 Comp LJ 31 (Orissa High Court).

133 In Re Hindustan General Electric Corpn Ltd, AIR 1959 Cal 679 (Calcutta High Court).

134 Ambalal Sarabhai Enterprises Ltd v. Swastik Household and Industrial Products Pvt Ltd.
(1987) 1 CompLJ 141 (Gujarat High Court).
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46. The Court of Appeal has laid down the test for evaluating the fairness of a scheme in
Grierson.136 Fairness cannot be evaluated with respect to a particular shareholder in the
particular circumstances of his own case.137 A fair and reasonable shareholder keeps the
benefit of the company in view while considering a scheme of arrangement. 138 The Court can
consider the effect of a scheme on a particular shareholder only if it is manifestly unfair and
designed to defraud the shareholders.139 The Court cannot minutely analyse a scheme and
arrive at an independent conclusion.140
47. In the present case, the scheme was floated amidst major financial problems at Flyabhi. The
merger was suggested to preserve the interests of the shareholders. Hence it is submitted that
the scheme for was the benefit of the company, and not designed to defraud any particular
shareholder. The Court should not refuse sanction merely because the founders claim it
affects their particular interests.
48. Additionally, it cannot be contended that the investors and their affiliates, and ASB acted as a
class to suppress the views of the minority. The bona fides of the majority as a class needs to
be tested vis--vis the scheme and not a minority who had separate interests. 141 Furthermore,
the bona fides of a person can be contested only if it is established with reasonable certainty
135 Mafatlal, AIR 1997 SC 506, at 39.

136 Re Grierson, Oldham & Adams Ltd, [1967] 1 W.L.R. 385 (Chancery Division).
[Grierson]

137 Grierson, [1967] 1 W.L.R. 385, 395.

138 In Re Mafatlal Industries Ltd, (1995) 3 SCL 69 (Gujarat High Court).

139 In Re Sindhpur Mills Co Ltd, AIR 1962 Guj 305, at 14 (Gujarat High Court).

140 In Re Maknam Investments Ltd, [1996] 87 CompCas 689 (Calcutta High Court).

141 Mafatlal, AIR 1997 SC 506, at 34.

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TEAM E

that they control the majority.142 If the majority acted fairly, and in the interest of the
company, it cannot be said that they had an oblique motive to suffocate the minority.143
49. In the present case, it is submitted that the affiliates who affirmed the scheme were acting in
the interests of the company. Further, the majority shareholders were the affiliates of the
investors, as opposed to a subsidiary or a wholly-owned subsidiary. It cannot be contended
that they acted mala fide as a class towards the minority. Hence, it is submitted that the
scheme of arrangement is valid and the founders must comply with the notice for acquisition
of shares under Sec. 235.

142 Mafatlal, AIR 1997 SC 506, at 34.

143 Mafatlal, AIR 1997 SC 506, at 34.

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TEAM E

PRAYER
Wherefore, in light of the issues raised, arguments advanced and authorities cited, it is humbly
prayed that this Honorable Court may be pleased to adjudge and declare that:

I The petition claiming relief for oppression and mismanagement can be referred to arbitration;
II The allotment of shares to the investors is valid;
IIIThe resolutions passed in the EGM on 14th August, 2012 are valid;
IVThe removal of Appellants from the Board of Directors is valid;
V The scheme of arrangement is valid;
VIThe application against the acquisition of shares should be set aside;
And pass any other order that this Honorable Court may deem fit in the interests of justice,
equity and good conscience.

All of which is humbly prayed,

Team E,
Counsel for the Respondents/Appellant.

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