6TH NLIU-JURIS CORP NATIONAL CORPORATE LAW

MOOT COURT COMPETITION, 2015

IN THE HONBLE SUPREME COURT OF PENTOS

UNDER ARTICLE 136 OF THE CONSTITUTION OF PENTOS

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

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

S.L.P. NO/2015

MEMORANDUM ON THE BEHALF OF RESPONDENTS

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TABLE OF CONTENTS
LIST OF ABBREVIATIONS................................................................................................III
INDEX OF AUTHORITIES.................................................................................................IV
STATEMENT OF JURISDICTION...................................................................................VII
STATEMENT OF FACTS..................................................................................................VIII
ISSUES RAISED.....................................................................................................................X
SUMMARY OF ARGUMENTS...........................................................................................XI
ARGUMENTS ADVANCED...................................................................................................1
I. That Dreamzz Ltd. is liable for the act amounting to fraud.............................................1
[A] Dreamzz is liable for violation of SEBP (Collective Investment Schemes)
Regulations, 1999...............................................................................................................1
[B] Dreamzz is liable for violation of SEBP (Prevention of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003..............................................4
[C] Dreamzz is liable for violation of SEBP Act, 1992......................................................5
II. That Mojo Ltd. is liable for the act of Dreamzz Ltd........................................................6
[A] Mojo and Dreamzz form a single economic unit.........................................................6
[B] Corporate veil should be lifted.....................................................................................8
III. That Mojo Ltd. and Dreamzz Ltd. are liable to be amalgamated in public interest.10
[A] The amalgamation is in public interest.......................................................................11
[B] The Government can exercise powers under section 396 to mitigate the fraudulent
activities carried out by the Companies............................................................................12
PRAYER...............................................................................................................................XII

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LIST OF ABBREVIATIONS
ABBREVIATIONS
&

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

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

INDEX OF AUTHORITIES
-INDIAN CASES1. Bharat Heavy Electricals Ltd. v. Income Tax Office, [1983] 5 ITD 361 (Delhi)...........................13
2. Bharti Airtel Ltd. and Ors. v. Union of India, AIR 2015 SC 2583.................................................11
3. Central Inland Water Transport Cor. Ltd. & Anr. v. Brojo Nath Ganguly, AIR 1986 SC 1571......12
4. Centre For Pil & Anr. v. Union of India, AIR 2011 SC 1267.........................................................11
5. D.K. Trivedi v. State of Gujarat, AIR 1986 SC 1323......................................................................4
6. Fertilizer Corporation Kamgar v. Union of India, AIR 1981 SC 344............................................13
7. Greenpeace India Society v. Union of India and Anr., 2015 Indlaw DEL 98.................................13
8. GVK Industries Limited and Anr. v. Income Tax Officer and Anr., (2011) 4 SCC 36.....................6
9. H.R. Kapoor v. Securities and Exchange Board of India, 2008 Cri LJ 4632...................................6

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10. Hackbridge Hewittic and Easun Ltd. v. GEC Distribution Transformers Ltd., (1992) 74 Com
Cases 543 (Mad).............................................................................................................................7

11. Ionic Metalliks vs. Union of India, 2015 GLH (2)156....................................................................8

12. Kalindi Investment P. Ltd. v. Commissioner of Income-Tax, (1994) 122 CTR (Guj) 249...............9
13. Kaniska Trading and Anr. v. Union of India, AIR 1995 SC 874....................................................13
14. Krishi Foundry Employees Union v. Krishi Engines Ltd. And Ors.,[2003] 117 Comp Cas 340......7
15. Life Insurance Corporation of India v. Escorts Ltd. and Ors., AIR 1986 SC 1370..........................8
16. M.J. Shivani and Ors. v. State of Karnataka, AIR 1995 SC 1770....................................................4
17. Maharashtra State Electricity Distribution Co. Ltd. v. CER, 2011 Indlaw APTEL 138...................7
18. Maharashtra State Electricity Power Trading Corporation Pvt. Ltd. v. Central Electricity
Regulatory Commission and Shri Chandrakante G. Barbole, 2009 ELR (APTEL) 770..................9

19. Meekin Transmission Ltd and Anr. v. State of Uttar Pradesh, 2009 (238) ELT 554 (All.)...............9
20. N. Narayanan v. Adjudicating Officer, SEBI, AIR2013SC 3191.....................................................5
21. N. Rangachari v. Bharat Sanchar Nigam Ltd., 2007 Cri LJ 2448....................................................6
22. Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629.................................12
23. P. G. F. Ltd. and Ors. v. Union Of India and Anr., AIR 2013 SC 3702............................................1
24. P.G.F. Ltd. v. Union of India, 2004 Indlaw PNH 159......................................................................3
25. Paramount Bio-Tech Industries Ltd. v. Union of India, [2004] 49 SCL 77 (All).............................2
26. R.K. Garg v. Union of India, AIR 1981 SC 2138............................................................................2
27. Ram Kanai Singh v. Mathewson AIR 1915 PC 27..........................................................................7
28. Ratnabali Capital Markets Ltd v. SEBI, AIR 2008 SC 290...........................................................13
29. Rattan Chand Hira Chand v. Askar Nawaz Jung and Ors., (1991) 3 SCC 67................................13
30. RBI v. Peerless General Finance and Investment Co. Ltd. and Ors., (1987) 1 SCC 424.................4
31. S.D. Bhattacharya v. SEBI, CWP No. 3352 of 1998.......................................................................4
32. Saghir Ahmad v. The State of U. P. and Ors., AIR 1954 SC 728...................................................11

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33. Sahara India Real Estate Corporation Limited and Ors. v. SEBI and Anr., (2013) 1 SCC 1............3
34. Samayanallur Power Pvt. Ltd. v. Covanta Energy India Ltd. & Anr., 130 Comp Cases 21.............7
35. Securities and Exchange Board of India v. Pan Asia Advisors Ltd. and Ors., AIR 2015 SC 2782. .6
36. See also Delhi Cloth and General Mills Co. Ltd. v. Union of India and Ors., (1983) 4 SCC 166....4
37. Shree Pacetronix Ltd. and Anr.v. State of Assam and Ors., (201) 159 Comp Cas 386 (Gau)..........7
38. Sri Sankari Prasad Singh Deo v. Union of India and State of Bihar, AIR 1951 SC 458................12
39. State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908....................................................................6
40. State of U.P. and Ors. v. Renusagar Power Co. and Ors, AIR 1988 SC 1737..................................8
41. State of Uttar Pradesh v. Babu Ram Upadhya, AIR 1961 SC 751.................................................13
42. Vishnu Prakash Bajpai v. SEBI, 2010 Indlaw DEL 246..................................................................6
-FOREIGN CASES1. DHN Food Dist. Ltd. v. Tower Hamlets London Borough Council, (1976) 1 WLR 852 (CA)..........7
2. Exclusive Motors Pvt. Ltd. v. Automobili Lamborghini SPA, [2014] 121 CLA 230 (CAT)...............8
3. Littlewoods Mail Order Stores Ltd. v. IRC [1969] 3 All ER 855 CA................................................8
4. Re Hydrodam (Corby) Ltd., [1994] 2 B.C.L.C. 180 (Eng.)...............................................................8
5. Re Muncie Pulp Co., 139 Fed. 546, 7 C.C.A. 530...........................................................................10
6. Re, Unisoft Group Ltd. (No. 3) (1994) 1 BCLC 620 (Eng.)..............................................................8
7. Salomon v. Salomon & Co. [1895-99] All ER Rep 33.......................................................................7
8. Scottish Cooperative Wholesale Society Ltd. v. Meyer, (1958) 3 All ER 66..10
9. Secretary of State for Trade and Industry v. Becker [2003] 1 B.C.L.C 555 (Eng.)....8, 9
10. Ultraframe (UK) Ltd. v. Fielding [2005] EWHC 1638....................................................................8
11. Vivendi SA v. Richards [2013] EWHC 3006 (Ch), [2013] B.C.C. 771............................................8
12. Woolfson v. Strathclyde Regional Council (1978) SLT 159............................................................9

-STATUTES AND REGULATIONS1. Companies Act, 1956 [Act 1 of 1956].................................................................................19

2. Constitution of Pentos, 1950................................................................................................21
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3. Pentosian Contract Act, 1872 [Act 9 of 1872].....................................................................13
4. Securities and Exchange Board of Pentos Act, 1992 [Act 15 of 1992].................................9
5. SEBP (Collective Investment Schemes) Regulations, 1999..................................................9
6. SEBP (Prevention of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulation, 2003...................................................................................................................13
-TREATISE-

1. Constituent Assembly Debates on the 8th of September, 1949............................................19

-LEXICONS1. Blacks Law Dictionary 6, (10th ed. 2014)...........................................................................12

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STATEMENT OF JURISDICTION
WITH
THE

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

RESPONDENTS

THE PETITIONERS
OF THE

HUMBLY SUBMIT TO THE JURISDICTION INVOKED BY THE

HAVE APPROACHED THE

HONBLE SUPREME COURT

UNDER

PETITIONERS.
ARTICLE 136

CONSTITUTION OF PENTOS WHICH EXERCISES ITS JURISDICTION TO HEAR THE SPECIAL

LEAVE PETITION.
ARTICLE 136 JURISDICTION

SPECIAL LEAVE TO APPEAL BY THE SUPREME COURT

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

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STATEMENT OF FACTS
BACKGROUND: Mojo Ltd. is a public listed multinational oil and gas company incorporated
in the year 2000, having 10 lakh shareholders. Dreamzz Ltd. is a public unlisted company
dealing in real estate. Mr. Karl Singh acts as the common promoter and is on the Board of
Directors for Mojo and Dreamzz. Dreamzz raised money through issuance of non-convertible
debentures.
SECURITIES SUBSCRIPTION AGREEMENT: Mojo entered into Securities Subscription
Agreement on 11.08.2009 with Dreamzz and subscribed 100 Compulsory Convertible
Debentures convertible within 48 months from the date of allotment. Upon such conversion,
Mojo is to hold 65% shareholding in Dreamzz. The CCDs got converted into equity on
12.08.2013.
THE DURGA SCHEME: In 2010 Dreamzz floated an investment Scheme called Durga
Scheme, whose tenure was 5 years, whereby it issued units equivalent to Rs.500 crores,
having minimum subscription amount of Rs.10 Lakhs. In promotion of the scheme, it
promised returns that were significantly higher than the prevailing market rates. The Scheme
was widely marketed. The main objective of the Scheme was to invest monies in volatile
sectors like real estate.
THE OFFER DOCUMENT AND THE TRUST DEED: Dreamzz entered into Trust Deed with
M/S GRU Trusteeship Services Pvt. Ltd. The Offer Document and Trust Deed required
Dreamzz to make continuous disclosures of any material illegality/irregularity or any noncompliance with applicable laws. Failure of the same would result in an event of default of
Trust Deed.
Irregularities in payment and subsequent default: From 17.5% in first two years the interest
decreased to 9% in 2013, the payment got delayed in 2014 and subsequent default in payment
of interest took place in 2015. Dreamzz wished to redeem debentures at face value.
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FRAUD: According to SEBP Chairman, Dreamzz through Durga Scheme might be
committing fraudulent transactions by promising huge returns to the investors. The fraud was
of about Rs.2000 crore.
ISSUING OF DEFAULT NOTICE: The Trustee issued a default notice to Dreamzz and
accelerated payment obligations and demanded repayment of the entire amount as being due
and payable within 15 days from receipt of the default notice, as provided under the Trust
Deed. The irregularities by Dreamzz were to the knowledge of the Directors of Mojo, who
played influential role in day-to-day affairs of Dreamzz.
ACTIONS BY TRUSTEE: Trustee initiated arbitration proceedings along with Section 9
proceedings in High Court of Santos praying for certain interim protection. Guarantee order
was passed by the High Court ordering that dreams shall not undertake any sort of divestment
during pendency of proceedings and was to submit unconditional bank/parent guarantee.
Dreamzz has passed a shareholders resolution for voluntary winding up.
AMALGAMATION UNDER PUBLIC INTEREST: The Central Government taking into
consideration the interest of lakhs of investors by Durga Scheme was of the opinion that
amalgamation of Durga and Mojo was in public interest. It issued a preliminary Draft
Notification under Section 396 regarding whether Mojo and Dreamzz should be amalgamated
to pay off the debts of the unit-holders.
PRESENT DAY: The writ petition of Mojo was dismissed by the High Court of Santos after
which Mojo and it shareholders moved the Supreme Court through Special Leave Petiton.
The Trustee filed an application to implead itself against Mojo as it opined that amalgamation
was in public interest.

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ISSUES RAISED

I.

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

II.

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

III.

WHETHER MOJO LTD.

AND

DREAMZZ LTD.

ARE LIABLE TO BE

PUBLIC INTEREST?

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AMALGAMATED

IN

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SUMMARY OF ARGUMENTS
I. THAT DREAMZZ LTD. IS LIABLE FOR THE ACT AMOUNTING TO FRAUD.

It is submitted that Dreamzz is liable for the act amounting to fraud. Firstly, Dreamzz
violated the SEBP (Collective Investment Schemes) Regulations. Secondly, Dreamzz violated
the SEBP (Prevention of Fraudulent and Unfair Trade Practices regarding Securities Market)
Regulations. Thirdly, by violating the provisions of SEBP Act, Dreamzz incurred the liability.
II.

THAT MOJO LTD. IS LIABLE FOR THE ACT OF DREAMZZ LTD.

It is submitted that Mojo and Dreamzz should be treated as single economic unit. Firstly,
Dreamzz essentially carries out the instructions given by its parent company, Mojo. Secondly,
the element of control is a central issue to lift the corporate veil. The fraudulent activities of
the companies in the present case make Mojo pertinently liable for the acts of Dreamzz.
III.

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

It is submitted that Mojo Ltd. and Dreamzz Ltd. are liable to be amalgamated in public
interest. Firstly, the amalgamation being a reasonable exercise of the governments powers
shall be exercised by the government. Secondly, the amalgamation sought to be made is in
the interest of public since it shall facilitate the efficient repayment to the investors of Durga
Scheme, who have been fraudulently usurped of their hard earned savings.

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ARGUMENTS ADVANCED
I. THAT DREAMZZ LTD. IS LIABLE FOR THE ACT AMOUNTING TO FRAUD.
It is humbly submitted before the Honble Court that Dreamzz Ltd. [hereinafter referred to as
Dreamzz] is liable for act amounting to fraud. It is herein submitted that Dreamzz is liable
for violation of the laws and regulations of Securities and Exchange Board of Pentos
[hereinafter referred to as the SEBP or the Board]. It is herein submitted that Durga Scheme
[hereinafter referred to as the Scheme] is a Collective Investment Scheme [hereinafter
referred to as the CIS] according to Section 11AA 1 of Securities and Exchange Board of
Pentos Act, 19922 [hereinafter referred to as the SEBP Act] and Dreamzz is the Collective
Investment Management Company [hereinafter referred to as the Company]. It is submitted
that Dreamzz is liable for the violation of firstly, the SEBP (Collective Investment Schemes)
Regulations, 19993 [A], secondly, SEBP (Prevention of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003 [B] and henceforth, it is liable for
offence under the SEBP Act [C].
[A] Dreamzz is liable for violation of SEBP (Collective Investment
Schemes) Regulations, 1999.
It is humbly submitted before the Honble Court that Dreamzz is liable for violation of the
SEBP (Collective Investment Schemes) Regulations, 1999 [hereinafter referred to as the CIS
Regulations], by violation of (i) Advertisement Code, (ii) Offer Document, (iii) Trust Deed
and (iv) Code of Conduct.
1 P. G. F. Ltd. and Ors. v. Union Of India and Anr., AIR 2013 SC 3702.
2 Securities and Exchange Board of Pentos Act, 1992 [Act 15 of 1992].
3 SEBP (Collective Investment Schemes) Regulations, 1999.
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(i)

Violation of Advertisement Code.

It is submitted that Dreamzz has violated Regulation 25(1) which provides that advertisement
in respect of every scheme shall be in conformity with the Advertisement Code as specified
in the Seventh Schedule.
Honble Supreme Court in the case of R.K. Garg v. UOI4 has observed that Attractive
schemes, craftily thought of, were put in place followed by tantalizing advertisements to lure
the aam aadmi to invest his hard earned money with the promise of hefty returns, if he were
to invest.
It is herein submitted that in the factual matrix5 surrounding the case there is a clear violation
of the Seventh Schedule. Firstly, in the present case the promotional statements like
significantly higher returns are unclear and vague, whereas in Clause (1) (a) of the Schedule
it is provided that the scheme advertisement clear. Secondly, Dreamzz in promotion of the
Scheme has promised returns that were significantly higher than the prevailing market rates,
however, in Clause (1) (c) it is provided that the advertisement shall not contain such
statements which promise an appreciation of rapid profits. Thirdly, famous personalities have
been used for endorsement of the scheme in order to make it more lucrative, which is in
violation of Clause (4) of the Schedule. There was a promise of high returns although such
returns were not commercially viable and were apprehended as unrealistic. 6

4 R.K. Garg v. Union of India, AIR 1981 SC 2138.

5 Fact Sheet 5.
6 Paramount Bio-Tech Industries Ltd. v. Union of India, [2004] 49 SCL 77 (All).
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Henceforth, it is submitted that Dreamzz has violated the Advertisement Code by misleading
advertisements and aggressive publicity7.

(ii)

Violation of Offer Document.

It is humbly submitted that the main objective of the Scheme was to invest the monies in
volatile sectors such as a real estate with a promise of significantly high returns 8. Further,
Article 5 of the Trust Deed states that the proceeds of this issue shall be utilized for meeting
the general day to day requirements of the Dreamzz for carrying out its various construction
and development activities.9 However, according to SEBP, returns were being paid out by
accepting further deposits from different set of investors. Placing reliance on the case of
Sahara India v. SEBI10, it is submitted that such fraudulent accounting and non-disclosure of
the material illegality and irregularity has been the root cause of the default which led to
investors being duped of their hard earned savings.
(iii)

Violation of Trust Deed.

It is submitted that according to Regulation 17(1) and Fourth Schedule, which incorporate
Contents of Trust Deed, Dreamzz was under the obligation to not to invest the corpus of the
scheme in other scheme; carry on and conduct its business in a proper and efficient manner;
furnish the trustee such information as the trustee requires with respect to all matters relating
to the scheme or otherwise relating to the affairs of the scheme. Return is sine qua non for
7 P.G.F. Ltd. v. Union of India, 2004 Indlaw PNH 159.
8 Fact Sheet 5.
9 Article 5, Trust Deed, Annexure I.
10 Sahara India Real Estate Corporation Limited and Ors. v. Securities and Exchange Board

of India and Anr., (2013) 1 SCC 1.

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any collective investment scheme.11 There is an apparent contradiction in the assertion made
by Dreamzz regarding significantly higher returns than the prevailing market rates. Event of
Default of the Trust Deed occurred because the wrongful utilization of proceeds of Dreamzz
without disclosure of the same had detrimental effect on its business profit thus interfering
with the repayment of the principal and payment of interest.
(iv)

Violation of Code of Conduct.

It is submitted that Dreamzz violated the Code of Conduct of the Scheme provided in Third
Schedule of the CIS Regulations. It is herein submitted that in the factual matrix surrounding
the case there is a clear violation of the Third Schedule as the fundamental obligation of the
CIMC is protection of interest of the investors 12. Placing reliance on the case of M.J. Shivani
v. Karnataka13, it is submitted that the default by Dreamzz led to investors being deceived of
their hard earned savings. Furthermore, Clause (4) of the Schedule provides that conflict of
interest shall be avoided by the CIMC, which has been violated by Dreamzz in paying off the
returns other set of investors which leads to violation of the Code of Conduct which requires
the

CIMC

to

disclose

explicit

information

about

the

investment,

material

illegality/irregularity. Henceforth, from the perusal of factum in the instant matter Dreamzz
has violated the CIS Regulations.

11 P.G.F. Limited and Ors. v. Union of India (UOI) and Anr., AIR 2013 SC 3702.
12 S.D. Bhattacharya v. SEBI, CWP No. 3352 of 1998; See also Delhi Cloth and General

Mills Co. Ltd. v. Union of India and Ors., (1983) 4 SCC 166; Reserve Bank of India v.
Peerless General Finance and Investment Co. Ltd. and Ors., (1987) 1 SCC 424; Narendra
Kumar Maheshwari v. Union of India, 1990 (Supp.) SCC 440.
13 M.J. Shivani and Ors. v. State of Karnataka, AIR 1995 SC 1770; D.K. Trivedi v. State of

Gujarat, AIR 1986 SC 1323; Satpal & Co. v. Lt. Governor of Delhi, AIR 1979 SC 1550;
Quarry Owners Association v. State of Bihar, AIR 2000 SC 2870.
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[B] Dreamzz is liable for violation of SEBP (Prevention of
Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003.
It is humbly submitted before the Honble Court that Dreamzz is liable for Violation of SEBP
(Prevention of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 [hereinafter referred to as the PFUTP Regulations]. Applying Regulation
4(2)(k), dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if
it involves fraud and may include an advertisement that is misleading which may influence
the decision of the investors. Placing reliance on the case of N. Narayanan v. SEBI14, it is
submitted that Dreamzz, by promising significantly higher returns along with hefty
promotion of the Scheme encourage investors to jump into conclusions, on wrong premises,
thus leading to market abuse. Conduct and actions of Dreamzz indicate its intention whereby
the subsequent illegality shows the contemplated illegality of Dreamzz. It had no intention of
fulfilling the promises. Dreamzz fraudulently utilized the proceeds; not fulfilling the
promises

deceived

the

investors

of their

investments

and

committing

fraud 15.

Henceforth, Dreamzz has violated PFUTP Regulations.

[C] Dreamzz is liable for violation of SEBP Act, 1992.
It is submitted that Dreamzz is liable for the offence under Section 27(1) of the SEBP act
1992, which provides that every person who at the time the offence was committed was in
charge of, and was responsible to, the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the offence and shall be

14 N. Narayanan v. Adjudicating Officer, SEBI, AIR2013SC3191.

15 17, Pentosian Contract Act, 1872 [Act 9 of 1872]; Regulation 2(c), SEBP (Prevention of

Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003.
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liable to be proceeded against16. Moreover, Dreamzz by not providing an Unconditional Bank
Guarantee or Parent Guarantee as per the Guarantee Order of the High Court of Santos
provided scope for defrauding its customers who invested their hard earned money in the
scheme, thus continuing the offence17. Placing reliance on case of SEBI v. Pan Asia18, it is
submitted that the nature of transaction indulged in by the Respondent resulted in a
fraudulent transaction of about Rs. 2,000 crores. The action of the Respondents was in total
violation of SEBP Regulation.
Henceforth, Dreamzz has violated provision of SEBP Act.
II. THAT MOJO LTD. IS LIABLE FOR THE ACT OF DREAMZZ LTD.
It is humbly submitted before the Honble Court that Mojo Ltd. [hereinafter referred to as
Mojo] is liable for the acts of its subsidiary company Dreamzz. It is herein submitted that
there was sufficient control and interest, therefore, both the Companies form a single
economic unit [A] and the corporate veil should be lifted [B] in the present case.
[A] Mojo and Dreamzz form a single economic unit.
It is humbly submitted that Mojo and Dreamzz should be treated as Single Economic Unit.

16 H.R. Kapoor v. Securities and Exchange Board of India, 2008 Cri LJ 4632; see also N.

Rangachari v. Bharat Sanchar Nigam Ltd., 2007 Cri LJ 2448; Sushila Devi v. Securities and
Exchange Board of India, (2008) 1 Comp LJ 155 (Del); Col. B.S. Sarao v. Securities and
Exchange Board of India, (2008) 3 Comp LJ 242 (Del).
17 State of Bihar v. Deokaran Nenshi, AIR 1973 SC 908; Vishnu Prakash Bajpai v. SEBI,

2010 Indlaw DEL 246.

18 Securities and Exchange Board of India v. Pan Asia Advisors Ltd. and Ors., AIR 2015 SC

2782; See also, GVK Industries Limited and Anr. v. Income Tax Officer and Anr., (2011) 4
SCC 36; Chairman, SEBI v. Shriram Mutual Fund and Anr., (2006) 5 SCC 361 ; Union of
India and Ors. v. Dharamendra Textile Processors and Ors., (2008) 13 SCC 369.
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Placing reliance on the case of Hackbridge-Hewittic & Easun v. G.E.C. Distribution19,it is
submitted that when the subsidiary, although being a distinct legal personality 20 does not
determine its behavior on the market in an autonomous manner but essentially carries out the
instructions given to it by the parent company, then the subsidiary does not enjoy any real
autonomy in the termination of its course of action on the market, it is possible to say that it
has no personality of its own and that it has one and the same as the parent company. From
the perusal of the factum in the present case it can be said that Dreamzz does not enjoy real
autonomy in its course of action, because some directors of Mojo were playing influential
role in the day to day working and its decision making21.
It is further submitted that there was so complete an identity of both companies that they
ought to be regarded for this purpose as a single entity. The completeness of that identity
manifested itself in various ways. 22 There is a presumption that a subsidiary will act in
accordance with the wishes of its parents because according to common experience they
generally do so act it is proper for the parent and the subsidiary to be treated as a single

19 Hackbridge Hewittic and Easun Ltd. v. GEC Distribution Transformers Ltd., (199 2) 74

Com Cases 543 (Mad).; Krishi Foundry Employees Union v. Krishi Engines Limited And
Ors.,[2003] 117 Comp Cas 340; Maharashtra State Electricity Distribution Co. Ltd. v. Central
Electricity Regulatory, 2011 Indlaw APTEL 138.
20 Salomon v. Salomon & Co. [1895-99] All ER Rep 33; See also Ram Kanai Singh v.

Mathewson AIR 1915 PC 27.

21 Fact Sheet 10.
22 DHN Food Distributors Ltd. v. Tower hamlets London Borough Council, (1976) 1 WLR

852 (CA), State of U.P. and Ors.v. Renusagar Power Co. and Ors., AIR 1988 SC 1737.
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undertaking.23 Placing reliance on the case of Uttar Pradesh v. Renusagar24, it is submitted
that when subsidiaries are bound hand and foot to the parent company and must do what the
parent company says, and then there is general tendency to look at group entity. In the instant
case Dreamzzs transaction is solely directed by Mojo at relevant point of time. Furthermore,
directors of Mojo are working as shadow directors and on whose direction directors of
Dreamzz are accustomed to act25. Directors of Mojo should be held collectively responsible
for Dreamzzs conduct in relation to the company as its de-facto or shadow directors.26Hence,
it is submitted that holding company are two separate legal entities by themselves, yet they
constitute a single economic unit.
[B] Corporate veil should be lifted.
It is humbly submitted that corporate veil should be lifted in the present case. It is herein
submitted that where the principal company which has a pervasive control over its subsidiary
company the corporate veil must be lifted. Placing reliance on the case of LIC v. Escorts
Ltd27 it is submitted that wherever public interest demands, the Court must lift the corporate
veil in the interest of justice. Moreover, the business realities of fraudulent scheme should be
23 Shree Pacetronix Ltd. and Anr.v. State of Assam and Ors., (201) 159 Comp Cas 386

(Gau); Samayanallur Power Investment Pvt. Ltd. v. Covanta Energy India (Balaji) Ltd. and
Anr., 130 Comp Cases 21.
24 State of U.P. and Ors. v. Renusagar Power Co. and Ors, 1988 AIR 1737; See also,

Exclusive Motors Pvt. Ltd. v. Automobili Lamborghini SPA, [2014] 121 CLA 230 (CAT).
25 Vivendi SA v Richards [2013] EWHC 3006 (Ch), [2013] B.C.C. 771, Secretary of State

for Trade and Industry v. Becker [2003] 1 B.C.L.C 555 (Eng.); Ultraframe (UK) Ltd. v.
Fielding [2005] EWHC 1638; Re, Unisoft Group Ltd. (No. 3) (1994) 1 BCLC 620 (Eng.);
Ionic Metalliks vs. Union of India, 2015 GLH (2)156.
26 Re Hydrodam (Corby) Ltd., [1994] 2 B.C.L.C. 180 (Eng.).
27 Life Insurance Corporation of India v. Escorts Ltd. and Ors., AIR 1986 SC 1370.
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looked behind, when the notion of legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons.28 The principle of lifting or piercing a veil is applicable when the facts and
circumstances show that both the companies are in reality parts of one concern owned by a
parent company.
The company was incorporated and then used for the purpose of evading a legal obligation or
perpetrating a fraud. It is permissible lift the corporate veil, if subsidiary is merely a
reflection of the actions or omissions of its parent company.29 Since it is well settled that
fraud vitiates everything and, therefore, the benefit of legal personality obtained by someone
for purposes other than those which are lawful or even if lawful but not otherwise
permissible, the corporate personality being the result of such fraudulent activity would have
to be discarded but not otherwise 30. Placing reliance on the case of Woolfson v. Strathclyde
Regional Council31, it is submitted that the element of control is a central issue as to whether
the corporate veil should or should not be lifted.
(i)

Controlling interest is present.

It is submitted that the doctrine of lifting of corporate veil can be applied in cases where the
controlling interest is an issue. It is contented that Mojo had a controlling interest in the
business Dreamzz.32Shares represent congeries of rights and controlling interest 33 is an
incident of holding majority shares. Shareholders holding a controlling interest can determine
28 Littlewoods Mail Order Stores Ltd. v. IRC [1969] 3 All ER 855 CA, Also see Premlata

Bhatia v. Union of India, 2006 134 Comp Cas 92 Del.

29 Shree Pacetronix Ltd. and Anr. v. State of Assam and Ors, [2010] 159 Comp Cas 386

(Gau).
30 Meekin Transmission Ltd and Anr. v.State of Uttar Pradesh, 2009 (238) ELT 554 (All.)
31 Woolfson v. Strathclyde Regional Council (1978) SLT 159.
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the nature of the business, its management, enter into contract; borrow money, buy, sell or
merge the company. Each share represents a vote in the management of the company and
such a vote can be utilized to control the company. Further it is contented that there is
impropriety done by the petitioner after gaining the control over its subsidiary. Placing
reliance upon the case of Merchandise Transport Ltd. v. British Transport Commission it is
submitted that where the character of a company, or the nature of the persons who control it,
is a relevant feature the court will go behind the mere status of the company as a legal entity,
and will consider who are the persons as shareholders or even as agents who direct and
control the activities of a company. Form the factual matrix it is clear that the decision and
policy to defraud the unit holders was in the sufficient knowledge of both companies
directors and at the relevant point of time, Petitioner companys directors directed the
subsidiary company to evade the liabilities and to redeem the principal at face value.
In the instant case it is submitted that court should look behind the business realities of this
situation and does not confine them to narrow legalistic view 34 and to sustain the corporate
independence of the two would work an injustice upon the creditors.35
III. THAT MOJO LTD. AND DREAMZZ LTD. ARE LIABLE TO BE AMALGAMATED
IN PUBLIC INTEREST.
It is humbly submitted before the Honble Court that Mojo and Dreamzz should be
amalgamated in public interest. It is submitted that there exists a clear nexus between the
32 Maharashtra State Electricity Power Trading Corporation Pvt. Ltd. v. Central Electricity

Regulatory Commission and Shri Chandrakante G. Barbole, 2009 ELR (APTEL)770.

33 Kalindi Investment P. Ltd. v. Commissioner of Income-Tax, (1994) 122 CTR (Guj) 249.
34 Scottish Cooperative Wholesale Society Ltd. v. Meyer, (1958) 3 All ER 66.
35 Re Muncie Pulp Co., 139 Fed. 546, 7 C.C.A. 530.
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companies Mojo and Dreamzz to defraud customers under the Durga Scheme 36. It is thereby
pleaded that the interests of these citizens, who have lost significant sums of money 37 due to
the fraud perpetrated on account of these companies, shall be amalgamated under the powers
of the State, considering the Draft Notification 38. It is contented that firstly, the amalgamation
is in public interest [A], and secondly, the Government can exercise powers under 396 of
Companies Act, 195639 to mitigate the fraudulent activities carried out by Dreamzz [B].

[A] The amalgamation is in public interest.

It is humbly submitted that the amalgamation is in public interest. Furthermore, it is herein
submitted that the notion of public interest is of great significance to the circumstances of the
instant case40. The cause of public interest has been of vociferous debate and merited
discussion even in the Constituent Assembly Debates 41, in which the notion stated that
Public interest in regard to a State would only include the interests of the inhabitants of that
State at the most though the word public includes portions of the public. Therefore, the
interests of a part of the inhabitants of a State would also mean public interest.

36 Fact Sheet 5.
37 Fact Sheet 9.
38 Draft Notification, Annexure II.
39 Companies Act, 1956 [Act 1 of 1956].
40 State Of U.P. and Ors. v. Renusagar Power Co. and Ors., AIR 1988 SC 1737.
41 Constituent Assembly Debates [8th Sept. 1949]; See also Saghir Ahmad v. The State of U.

P. and Ors., AIR 1954 SC 728.

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It is submitted that upholding the essence of public interest as a primary directive of the
Courts, this Honble Court, in case of Centre For PIL & Anr v. Union Of India42 has held
that:
If public duties are to be enforced and rights and interests are to be protected, then the
court may, in furtherance of public interest, consider it necessary to inquire into the state of
affairs of the subject matter of litigation in the interest of justice.
Placing reliance on the case of Bharti Airtel Ltd. v. Union of India43, it is submitted that the
Central Government may frame a policy or revise and existing policy in larger public
interest. Furthermore, it is humble submission of the Respondent that the validity of such an
order depends upon the satisfaction of the scheme of public interest. The Courts may
respectfully consider that such a measure taken in public interest is indeed in wider
consonance, adherent to public policy.
In the case of Central Inland Water Transport Corp. v. Brojo Nath44, the Courts held that:
Public policy, however, is not the policy of a particular government. It connotes some
matter which concerns the public good and the public interest.
[B] The Government can exercise powers under 396 to mitigate
the fraudulent activities carried out by the Companies.

42 Centre For Pil & Anr. v. Union of India, AIR 2011 SC 1267.
43 Bharti Airtel Ltd. and Ors. v. Union of India, AIR 2015 SC 2583.
44 Central Inland Water Transport Corporation Limited and another v. Brojo Nath Ganguly,

AIR 1986 SC 1571; See also, Sri Sankari Prasad Singh Deo v. Union of India and State of
Bihar, AIR 1951 SC 458; Rai Sahib Ram Jawaya Kapur and Ors. v. State of Punjab, AIR
1955 SC 549.
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It is humbly submitted that the Government of Pentos can exercise powers under 396 to
mitigate the fraudulent activities carried out by the Companies.
High Reliance has been placed upon the case of Oil & Natural Gas Corporation Ltd. v. Saw
Pipes Ltd., in which this Court has held that:
The government is free to execute its policies as it has the mandate of the people behind it,
notwithstanding a different point of view There are two schools of thought- the narrow
view school and the broad view school. The adherents of the narrow view school
would not invalidate a contract on the ground of public policy unless that particular ground
had been well- established by authorities.45
It is humble submission of the Respondent that such public interest must be intended at
mitigating losses or averting the same for the public at large. It must, thus, be the prerogative
of the State to promote the interest of the public, and any interference to the same, must not
be entertained by law. Furthermore, placing reliance on the case of Greenpeace v. UOI, it is
submitted that the government is free to execute its policies as it has the mandate of the
people behind it, notwithstanding a different point of view.46
Placing reliance on the case of Fertilizer Corporation Kamgar v. Union of India47, it is
submitted that there exists sufficient jurisprudence to invoke 396 in the present case. It
cannot be disputed that a contract which has a tendency to injure public interests or public

45 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629; See also, The

Basti Sugar Mills Company v. State of Uttar Pradesh, AIR 1979 SC 262; Maharashtra Apex
Corporation v. Sandesh Kumar A. and Ors., AIR 2006 Kant 138.
46 Greenpeace India Society v. Union of India and Anr., 2015 Indlaw DEL 98; See also,

Article 161, The Constitution of Pentos, 1950; State of Uttar Pradesh v. Babu Ram Upadhya,
AIR 1961 SC 751.
47 Fertilizer Corporation Kamgar v. Union of India, AIR 1981 SC 344.
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welfare is one against public policy48. The amalgamation of the Companies is, thus essential
in public interest, whereby the mitigation of fraudulent acts of Dreamzz 49. Amalgamation
must serve the cause of national interest 50. There is sufficient reason to presume national
interest to be dominant over the interests of an individual51. The commission of fraud on part
of the Dreamzz is enough for the government to take notice.
Henceforth, it is humbly submitted that the Companies should be amalgamated in public
interest.

48 Rattan Chand Hira Chand v. Askar Nawaz Jung and Ors., (1991) 3 SCC 67.
49 Fact Sheet 9.
50 Bharat Heavy Electricals Ltd. v. Income Tax Office, [1983] 5 ITD 361 (Delhi); Ratnabali

Capital Markets Ltd v. SEBI, AIR 2008 SC 290.

51 Kaniska Trading and Anr. v. Union of India, AIR 1995 SC 874; See also, Mehar Singh

and Ors. v. State of Punjab and Ors. , 2013 Indlaw PNH 781; M. Bhaskaran Reddiar v. The
District Collector, 2007 Indlaw MAD 542.
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PRAYER
Wherefore in the light of facts mentioned, arguments advanced and authorities cited, it is
most humbly prayed that the Honble Court may be pleased to adjudge and declare that:
I.
II.
III.

Dreamzz Ltd. is liable for the act amounting to fraud.

Mojo Ltd. is liable for the acts of Dreamzz Ltd.
Mojo Ltd. and Dreamzz Ltd. are liable to be amalgamated in public interest.

Or any other relief that the Honble Court may be pleased to grant in the interests of
Justice, and Good Conscience
All of which is respectfully submitted & humbly prayed.

Sd/COUNSELS FOR THE RESPONDENTS

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