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DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

MOOT COURT COMMITTEE

UNIVERSITY MOOT COURT SELECTIONS,

GRAND INTRA, 2019

MOOT PROPOSITION
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The Chaotic Case of Inner Peace Private Limited

1. Mr. Oogway, was born and brought up in a small town named Chippingford in the
Country of Narnia. Coming from a family of doctors, medical field was a natural choice
for him. His fascination for the study of human mind and behavior saw him emerge as a
topper in Clinical Psychology from Harvard. One of his key areas of practice and research
was on treatment of insomnia and sleep related disorders. Oogway started a research and
development lab to create a plant based remedy for the illness. He was inspired to create a
plant-based remedy, because he was greatly influenced by his grand-father who used to
treat various ailments of the people in Chippingford using the unique plants there. To
further his R&D, he started a company in 1992 called the “Inner-Peace Private Limited”
(“IPL”) and became its Founder and Managing Director.

2. Mr. Shifu was a student of Oogway while he was a Visiting Professor at Stanford in 1985.
He was known to be very smart, hard working and a quick learner. Shifu immediately
came to the notice of Oogway, who at that point of time was in the process of developing
a combination of plant extracts for curing the illness. Shifu had played a key role in the
research activities of Oogway. He was known for his keen financial acumen and it was
instrumental in ensuring that the funds for the research were never an issue for Oogway.
Oogway’s strong determination for finding a cure for the illness, despite facing several
failures in finding the right combination of plant extracts, eventually resulted in the
creation of a potion named “The Secret Ingredient Potion” (“SIP”), which cured the
illness. The SIP was a path-breaking development in the medical field and was an instant
success.

3. Given his strong credentials and financial acumen, Oogway appointed Shifu as the
General Manager of the Company in 1995. In a short span of time, the knowledge of
Oogway coupled with keen financial acumen of Shifu made IPL one of the 100 most
successful pharmaceutical companies in the World. IPL had obtained several intellectual
property rights, including patents for the SIP developed by Oogway, in Narnia as well as
overseas. One of the biggest market for IPL was in the country of Armorica, where SIP
was sold the most. Shifu, being a trusted confidant of Oogway, both of them traveled
together everywhere, including Armorica. The professional relationship between the two
have remained cordial over the years and there were no reports of any major
disagreements between the two. Shifu was one of the greatest beneficiaries of Oogway’s
skills for running a business venture successfully.

4. At the beginning of 2018, when all appeared to be going well, small disagreements began
to emerge between Oogway and Shifu, over the sharing of profits of IPL. Shifu expected
that he will be given a substantial increase in his salary as well as be promoted to key
managerial positions in IPL, including the granting of shareholding rights. While Shifu
believed in quick decision-making, Oogway believed in well-informed and planned
decision making, which sometimes meant that one had to wait to hear his decision. On
21.03.2018, Shifu announced that he was taking a short break from his responsibilities in
the company. He said:

“I have spent over 22 years in the company and now I’ve reached a stage where I feel that I should
slowly be giving way to the younger lot. There is a need for a bit of revamp in the management of the
company. I am taking a few months off from the Company, primarily with a view to study about the
new business practices of successful pharmaceutical companies and incorporate the same to IPL so that
we continue to expand.”
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5. The public announcement of Shifu was not appreciated by Oogway as he had not
mentioned any such plan to him in any of their recent conversations. The strong rumor in
the business world was that all is not well with the two of them and that this so called “off
from the Company” was a pressure tactic on the part of Shifu to force Oogway to give
him a key managerial post and possibly promote him as a successor to Oogway.

6. While so, on 07.05.2018, Shifu resigned from IPL without any advance intimation. Within
a week of his resignation, as many as 15 researchers and 20 employees at various levels in
the company resigned. The second Quarter of 2018 saw IPL ending up with losses for the
first time in 10 years.

7. Oogway was shocked at the sudden turn of events and immediately began an internal
enquiry about the state of affairs of the Company. The enquiry made some startling
revelations. It was found that Dr. Vachir, who happens to be a close confidant of Shifu
and was working in IPL till 2013 had set up the Le Tranquille Pvt. Ltd. (“Le Tranquille”)
in the year 2014, with the date of incorporation as 17.02.2014. On 31.1.2018, Shifu
acquired 60% of its shares and its other shareholders were Mrs. Shifu, Mr. Shaw, the son-
in-law of Shifu and five others, who are related to Dr. Vachir and Mrs. Vachir. The Board
of Director consisted of Shifu, Dr. Vachir, Ms. Po, Mr. Gatong and Ms. Roger Mantis. Le
Tranquille is engaged in similar line of business as IPL - selling of medicines related to
insomnia and sleep related disorders.

8. In July 2018, IPL had initiated arbitration proceedings against Shifu for breach of terms of
his employment and sought for compensation. In the same proceedings, Shifu also had
filed counter-claims seeking that he was yet to receive his share of dues on exiting from
the company. The award, though held that both of them were liable to make payments for
different reasons, the amount to be paid by IPL to Shifu was more than the amount Shifu
had to pay as compensation to IPL. The arbitrator had set – off the claims against each
other and finally held that IPL was liable to pay Shifu Narnian Rs. 3 Lakhs. The award
was delivered on 12th September 2018. IPL however, challenged the same under Section
34 of the Arbitration and Conciliation Act, before the High Court of Chippingford, which
is pending disposal as O.P. (Arbitration) No. 246 of 2018.

9. In August 2018, while Oogway was traveling to Armorica, he came across the Armorican
MediWorld magazine, which featured about a product Gifting – U – a Lively – Life - Potion
(“GULLP”) with the tagline “Why SIP, when you can GULLP for a happy life? – a
sure cure for insomnia!” Oogway learnt that this product was sold by Sifu through Le
Tranquille and targeted the customers of IPL and breached the intellectual property rights
of IPL in the country of Armorica.

10. In August 2018 itself, IPL brought a patent infringement suit against Le Tranquille in
Armorica. While Le Tranquille entered appearance in the said suit proceedings and filed its
written defence by engaging a legal counsel, there was no challenge raised to the
jurisdiction of the Court. The main defence put was – that the constituents of GULLP
were not identical to SIP and was developed through a separate and independent research
and development undertaken by Shifu and others. IPL submitted further documents and
rejoinder to counter Le tranquille’s defence. However, after submitting the written
statement, Le Tranquille did not attend the court proceedings. Despite providing more than
five opportunities for appearance of Le Tranquille, when the latter did not appear, the
Court of Armorica awarded a default judgment on 1 st November 2018 in favour of IPL by
holding that Le Tranquille was liable to pay IPL Narnian Rupees 30 Crores. The Court held
that Le Tranquille was guilty of patent infringement and was liable to pay direct and
indirect/consequential damages to IPL, within 31st December 2018. Shifu had learnt about
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this judgment through informal sources in the form of his friends in Armorica. He was
not able to receive the judgment in his official email provided by him to the Court,
because the same was inaccessible due to a technical glitch, beyond his control. However,
he took no steps to either check this glitch or take steps to challenge the default judgment
within the time period of 20 days under the Armorican law.

11. Le Tranquille was the owner of a real estate property situated in Armorica where some
business activities of the company were being carried out. IPL filed for the execution of
the default judgment in Armorica on 22nd November 2018 and prayed for attachment of
the said real estate property. When notice was issued to Le Tranquille, Le Tranquille made a
representation that the corporate insolvency resolution process of the Le Tranquille had
commenced on 17th November 2018 pursuant to a petition filed by Le Tranquille, through
Shifu under laws of Narnia as per Section 10 of the Insolvency and Bankruptcy Code,
2016 (“IBC”). Consequently, the moratorium period was in effect and the Courts of
Armorica could not entertain any suit or proceedings against Le Tranquille. Shifu presented
a copy of the newspaper publication as under:

“FORM A
PUBLIC ANNOUNCEMENT
(Under Regulation 6 of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations, 2016)
FOR THE ATTENTION OF THE CREDITORS OF Le Tranquille
RELEVANT PARTICULARS

▪ Name of corporate debtor : Le Tranquille Pvt. Limited

▪ Corporate Identity No. / Limited Liability Identification No. of corporate debtor :
KUNGFU73232717
▪ Address of the registered office and principal office (if any) of corporate debtor: 19th Floor, Aslan
Complex, Aslan Street, Narnia.
▪ Insolvency commencement date in respect of corporate debtor : 17th November 2018
▪ Name of the insolvency professional acting as interim resolution professional : Mr. Geriatrix
▪ Address and e-mail to be used for correspondence with the interim resolution professional :
geriatrix@irp.com
▪ Last date for submission of claims : 2nd December 2018

Notice is hereby given that the National Company Law Tribunal, Chippingford, Narnia
(“NCLT”) has ordered the commencement of a corporate insolvency resolution process of the Le
Tranquille on 17th November 2018 in a petition filed by Le Tranquille, through Shifu under Section
10 of the Insolvency and Bankruptcy Code, 2016. The creditors of Le Tranquille, are hereby called
upon to submit their claims with proof on or before 2nd December 2018 to Mr. Geriatrix.”

12. Several representations were made by IPL and Le Tranquille before the Armorican Court
on the binding nature of the IBC on foreign courts and finally it was held that the IBC
was not binding on courts of Armorica. The Courts in Armorica passed an order of
attachment (“Armorica EP”) but this attachment would only satisfy 10% of the amount
due under the default judgment.

13. Concurrently, Oogway checked for update of orders on the website of the NCLT. As per
an order dated 17th November 2018, Shifu, as Managing Director of Le Tranquille, duly
authorized by the three board of directors- Mr. Mantis, Ms. Po and Dr. Vachir, filed the
Petition under Section 10 of the IBC for voluntary initiation of CIRP. It was stated by
Shifu that there were debts of more than Narnian Rs. 60 crores, with the Company being
in default of more than 4 years. For the record, Le Tranquille was never making continuous
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and sustained profits. The NCLT also noted that as per the application under Section 10,
Le Tranquille has three Financial Creditors – Banks, who were given notice prior to
admission. While two banks did not appear, one of the bank- Union Bank of Narnia, the
largest creditor of Le Tranquille appeared and said that it did not have any objection for
allowing the Petition filed by Shifu. Considering that the debts were due for more than 4
years as per the statement of Le Tranquille, the NCLT admitted the petition filed under
Section 10; ordered moratorium in terms of Section 14 of the IBC and appointed Mr.
Geriatrix as the Interim Insolvency Resolution Professional.

14. Oogway immediately on 30th November 2018 wrote an email to Mr. Geriatrix as follows:

“Dear Mr. Geriatrix

I am writing on behalf of M/s Inner Peace Private Limited, as its Managing Director. I learnt from
the public announcement made by you on 18 th November 2018, that Le Tranquille has filed a
petition for voluntary initiation of corporate insolvency resolution process, which has been admitted by
the NCLT on 17th November 2018.

It is brought to your notice that IPL is one of the creditors of Le Tranquille by virtue of a judgment
dated 1st November 2018, given by the Court of Armorica against Le Tranquille. A copy of the
judgement is attached for your perusal. As per the said judgment, the total dues owed by Le
Tranquille to IPL is Narian Rs. 30 Crores, as a result of the latter’s deliberate patent infrigement of
IPL’s patents in SIP. It is our belief that Le Tranquille has approached the Hon'ble NCLT with
unclean hands so as to obtain the moratorium, with malafide intention, to stop all proceedings that
IPL can initiate at law, to recover the said dues in its entirety.

Shifu and I were closely associated with each other for several years, until he started the rival business
through Le Tranquille. I have credible information to substantiate that Le Tranquille is not at all in
a state of “insolvency” and in fact it has diverted its funds to other sources. As such I can establish
that these proceedings initiated by Shifu should be set aside by the NCLT at the threshold. As IPL
is neither a party to the proceedings before NCLT nor was there any intimation given by the NCLT
to IPL regarding the petition filed by Le Tranquille, IPL could not offer its objections before
admission of the petition. It also appears that though NCLT has given notice to a certain creditors,
IPL has not been given notice, probably because Le Tranquille has suppressed the fact that IPL has a
decree in its favour. Further, as there appears to be no objection by any contesting
defendant/respondent, probably because of lack of issuance of appropriate notice, the NCLT also
might not be assisted with the true state of facts and expose the hidden unlawful intentions of a
corporate debtor/applicant.

Please note that the IBC provisions cannot be allowed to be misused by corporate applicants, even
assuming all the requirements of Section 10 of the IBC are satisfied. Therefore, if the entire
proceedings are initiated with malafide intention to evade the lawful dues, which the Hon'ble NCLT
on several occasion has taken seriously against the Corporate Applicant, the law does not oblige the
Creditor or the NCLT to be a party to such fraudulent activities.

Therefore, as you are the custodian of all the documents, you are requested to furnish a copy of the
same so that IPL can take suitable action for setting aside the order of admission. As a matter of
caution, it is brought to your notice that as I intend to challenge the entire proceedings and therefore I
am, for the moment not submitting my claim in the requisite form as you might construe a submission
of my claim as acquiescing in the order of admission. Hence, without prejudice to my right to submit
my claim, I am seeking this information. Please oblige.”
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15. Mr. Geriatrix, an aged person, was well known in the commercial world as someone who
could amicably settle any dispute and was nicknamed as Dr. Fixit in the Narnian corporate
world. His track record showed that he “won” an amicable settlement in 3 out of every 5
cases he handled. It was probably because of this reason that Shifu had chosen Mr.
Geriatrix as the interim resolution professional in his petition under Section 10 of the IBC.

16. On 1st December 2018, Mr. Geriatrix replied to Oogway as follows:

“Please submit your claims and the same will be considered in accordance with the law.”

However, there was neither any clarification provided nor any response given to the
concerns raised by Oogway in his email dated 30th November 2018. When Oogway replied
to Mr. Geriatrix requesting his response on whether he could or he could not give the
information as sought for, Oogway also stated that in the event of not receiving any
response, IPL would initiate suitable proceedings in accordance with the law and in any
event, requested Mr. Geriatrix to keep Oogway informed about the CIRP proceedings.
Mr. Geriatrix did not respond to the said email despite being in its receipt.

17. Meanwhile, Le Tranquille made an application to the NCLT for interim orders praying that
the Armorica EP must not be enforced on the grounds that the courts in Armorica did
not have jurisdiction to pass such an order against the company. The NCLT ruled that the
courts of Armorica did not have the jurisdiction to pass such an order and passed an
interim order staying the said Armorica EP. Subsequently, IPL filed an appeal bearing
Comp. Appl (AT) (Ins) 123/2019 before the NCLAT against the order of the NCLT.

18. Parallelly, since IPL, was not able to get any information from Mr. Geriatrix, IPL filed a
Writ Petition bearing W.P. No. 123 UMSC/2019 challenging the order of admission dated
17th November 2018 as well as constitutional validity of Sections 10, 30 (2) (b), 31 and 65
of the IBC as violative of Article 14 of the Constitution. A Transfer Petition was also filed
to transfer the appeal before the NCLAT to the Supreme Court and be tagged along with
the W.P. No. 123 UMSC/2019. The Supreme Court heard the transfer petition and has
agreed for the tagging of the two proceedings and pass a common order.

19. When the said Petition was listed before the Hon’ble Supreme Court of Narnia, notice
was issued to opposite parties. The Hon’ble Court directed the opposite parties for filing
their objections to the Petition. It was further directed that the Petition would be decided
once and for all, after hearing both the sides. The counsel for Mr. Geriatrix filed a
statement of objections, on behalf of Le Tranquille, where the following information was
revealed :

i. Mr. Zeng, was a resolution applicant. The resolution plan submitted by Mr. Zeng
was approved by Mr. Geriatrix as per Section 30 of the IBC.
ii. The resolution plan was approved by the Committee of Creditors and the same
was placed before the NCLT, for its approval. However, the final orders on the
same are yet to be passed.
iii. The salient features of the resolution plan were as follows:
▪ The financial creditors were given 95% of their dues. This meant that Union
Bank got the best deal from the entire CIRP process.
▪ There were 20 operational creditors who were given various amounts ranging
from 70% to 80%
▪ IPL was given Narnian Rupees 3 Lakhs as full and final settlement in respect
of the alleged claims under the default judgment dated 1 st November 2018.
The Resolution Applicant had noted that this was the minimum value for a
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contingent liability in accordance with the calculation as per Section 30(2)(b).

Hence, the same was given as a full and final settlement.
▪ Once the plan was approved, there could be no further claims against Le
Tranquille or its Directors in respect of these debts and all rights, if any, were
waived by all the debtors.
▪ The Resolution applicant proposed to bring Narnian Rupees 7 crores in the
period of 2 years to restructure the company.
▪ The Insolvency Resolution Process cost was Narnian Rupees 2 crores.

20. IPL, on obtaining the statement of objections, filed a rejoinder submitting the following –
the entire process is mala fide and not done with an intention to resolve an “insolvency
situation”, but rather evade the lawful debts due to IPL. IPL, on an affidavit, submitted
that there were several facts which established that the entire proceedings were initiated
and continued, with the aid and support of the Resolution Applicant, with a mala fide
intention and therefore, IPL ought to have the right to challenge the order of admission of
the Petition itself and accordingly granted with an opportunity of being heard. In addition,
IPL challenged the power of the NCLT to grant interim orders and to stay the Armorica
EP. The sum and substance of IPL’s grounds of Writ Petition read with the Transfer
Petition were as follows:–

▪ The NCLT should have ordered for notice to IPL before admitting the Petition.
▪ The NCLT, should have applied its subjective mind to determine if there was a
genuine situation of insolvency before admitting the petition.
▪ IPL, having such a substantial debt due from Le Tranquille and having personal
experiences of violation of law by Shifu, to the detriment of IPL, had various
information, to provide on the malafide intention of Le Tranquille in initiating the
voluntary CIRP with the ulterior motive of obtaining a moratorium to stop all
proceedings against the Company and at the same time do a full and final
settlement of the debt, without the participation of IPL in any manner.
▪ The way the entire proceedings are conducted establishes that the Company has
sufficient money to pay off IPL’s debts, but is using IBC proceedings to re-set the
obligations against the law. The entire proceedings were not done to satisfy the
letter and spirit of the IBC.
▪ IPL had without prejudice to the other submissions on merits, challenged the
constitutional validity of Section 10 with respect to granting of opportunity of
being heard and NCLT’s obligation to determine “default”; Section 30(2)(b) with
respect to prescription of a minimum threshold for payment of dues during the
stage of insolvency resolution process by comparing “CIRP” to “Liquidation
process”; Section 31(1) where the basis for approving/rejecting a plan is not
subjective and Section 65 of the IBC, with respect to the provision limiting to levy
of penalty as opposed to rejection of the petition for reasons contained therein.

▪ NCLT does not have the power to pass interim orders.

▪ NCLT does not have the powers to stay the orders of a foreign court.

21. The main objections to IPL’s petition were as follows:

▪ The Hon’ble Court had no jurisdiction to entertain the petition and nor is the
Petition maintainable.
▪ IPL is neither an Operational Creditor nor a Financial Creditor and thus no locus
standi to challenge the proceedings.
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▪ In any event, as the foreign judgement is a default judgement, the same cannot be
recognized and enforced in India.
▪ NCLT has the power to pass interim orders.
▪ NCLT has the powers to stay the orders of a foreign court.
▪ The present facts do not provide any cause of action for challenging the
constitutional validity of the IBC, much less is there any basis at law necessitating
this Hon’ble Court’s interference.

22. Both the parties have serious objections and counter-objections to each other’s
submissions. The four issues for consideration by the Hon’ble Supreme Court are as
follows:

I. Whether this Hon’ble Court has jurisdiction to entertain the Petition and
whether the Petition filed by Inner Peace Private Limited is maintainable?
II. Whether the NCLT’s Order dated 17th November 2018 admitting the Petition
under Section 10 filed by Le Tranquille Private Limited and consequential
proceedings thereto should be set aside?
III. Whether the NCLT was right in ordering the stay of the Armorica EP by way
of an interim order?
IV. Whether Ss. 10, 30 (2) (b), 31 (1) and 65 of the IBC are constitutional?

The above proceedings have triggered several debates and discussions on the position of law.
The Times of Narnia has also begun a news column “the Chaotic Case of the Inner Peace
Private Limited!” to publish the views of the public. The legal fraternity is eagerly awaiting to
hear the arguments of the learned counsels and know the verdict of the Hon’ble Court on
08.09.2019.

Note:

The laws of Narnia are in pari materia to the laws of Republic of India as on 10th August 2019.

The Counsels are free to challenge the constitutional validity of the Insolvency and
Bankruptcy Code provisions involved in the moot problem on any other additional grounds
also, as they deem fit.

This Moot Proposition has been drafted by Ms. Veena Kamath (BCL, University of Oxford
and Associate, Kamath & Kamath), Mr. Hari krishnan (Advocate, Kerala High Court) and
Mrs. Goda Raghavan (LL.M., London School of Economics and Partner, AK Law
Chambers). Any attempt to contact the drafters may result in immediate disqualification.

Disclaimer:

All characters, institutions/organizations and events in this moot problem are entirely fictional
and any resemblance thereof to any person, institution or event is purely coincidental.