Vous êtes sur la page 1sur 27

6TH NLIU Juris Corp National Corporate Law Moot Court

Competition, 2015

IN THE HONOURABLE SUPREME COURT OF PENTOS

IN THE MATTER OF:

MOJO LIMITED & ANR. ..

APPELLANTS

VERSUS

REPUBLIC OF PENTOS & ANR. .

RESPONDENTS

______________________________________________________________________________
ON SUBMISSION TO THE HONBLE SUPREME COURT OF PENTOS
_______________________________________________________________________

MOST RESPECTFULLY SUBMITTED

COUNSELS APPEARING ON BEHALF OF APPELLANTS

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
______________________________________________________________________________
TABLE OF CONTENTS

1. INDEX OFAUTHORITIES .........

A. Statutes
B. Books
C. Judicial Decisions
D. International Judicial Decisions
2. STATEMENT OF JURISDICTION .

3. STATEMENT OF FACTS .

4. STATEMENT OF ISSUES

5. SUMMARY OF ARGUMENTS .

10

6. ARGUMENTS ADVANCED ..

11

1.

11

The SLP is Maintainable under Article 136.

1.1 The Writ Petition filed before the High Court of Santos should not have been
summarily dismissed ....
2.

3.

11

The impugned draft notification is constitutionally invalid.. 14


2.1 Section 396 of the Companies Act, 1956 is ultra vires the Constitution

15

2.2 The impugned Draft Notification is unconstitutional .

17

The Draft Notification should be quashed as there is no public interest20


3.1 The corporate veil should not be pierced to make the parent company
liable
2

20

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
3.2 Amalgamation is not in Public Interest 23

7. PRAYER ..

25

______________________________________________________________________________
______________________________________________________________________________
INDEX OF AUTHORITIES

A. STATUTES
1
2
3

Constitution of India, 1950


The Companies Act, 1956.
The Code of Civil Procedure, 1908.

B. BOOKS
1 BASU, D.D., COMMENTARY ON THE CONSTITUTION OF INDIA, Vol. 1-8 (Ed. 8,
2

2007, Lexis Nexis Butterworths Wadhwa).


DATAR, A.P., COMMENTARY ON THE CONSTITUTION OF INDIA, Vol. 1-2 (Ed. 2

2007, Wadhwa Nagpur)


SEERVAI, H.M., CONSTITUTIONAL LAW OF INDIA, Vol. 1-2 (Ed. 4 Rep. 2008,

4
5

Universal Law Publishing Co.)


SHULKA, V.N., CONSTITUTION OF INDIA, (Ed. 12, 2013 Eastern Book Company)
JAIN, M.P., PRINCIPLES OF ADMINISTRATIVE LAW , Vol. 1-2 (Ed.7 2013, Wadhwa

and Company)
TAKWANI, C.K., LECTURES ON ADMINISTRATIVE LAW, (Ed. 5, 2014,

7
8
9

UNIVERSAL).
SARKAR, CODE OF CIVIL PROCEDURE, (Ed. 11, 2010)
SATHE, S.P., ADMINISTRATIVE LAW, (Ed. 7, Rep. 8, 2013)
SAMPATH, K.R., LAW AND PROCEDURE FOR MERGERS/JOINT VENTURES,
AMALGAMATIONS, TAKEOVERS & CORPORATE RESTRUCTURE, (Ed. 4, 2006)

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
10 RAMAIYA, A., GUIDE TO THE COMPANIES ACT, Vol. 1-3 (Ed. 17, 2010, Wadhwa
and Company)
11 RAMANUJAM, S., MERGERS ET AL, (Ed. 2, Wadhwa & Company)

C. JUDICIAL DECISIONS
1.

A.K. Kraipak v. Union of India, (1962) 2 SCC 262.

2. Allarakha K. Mansuri v. State Of Gujarat, AIR 1961 SC 715.


3. Arjun Singh v. A.D.J. and Anr, AIR 2003 SC 3044.
4. Balwant Rai Saluja v. Air India Ltd., AIR 2015 SC 375.
5. Bank of India Ltd. v. Ahmedabad Manufacturing & Calico Printing Co. Ltd., (1972) 42
Comp Cas 211 (Bom).
6. Bennett Coleman & Co. and Ors. v. Union of India, AIR 1973 SC 106.
7. British India Corporation Ltd. and Ors. v. The Industrial Tribunal, Punjab and Anr., AIR
1957 SC 354.
8. Caltex Oil Refining (India) Ltd. and Hindustan Petroleum Corporation Limited
Amalgamation Order, Company Law Board, 9th May, 1978.
9. Century Spinning and Manufacturing Company Ltd. and Anr. v. The Ulhasnagar
Municipal Council and Anr., AIR 1971 SC 1021.
10. Chintaman Rao v. State of M.P., 1958 SCR 1340.
11. Chiranjit Lal Chowdhuri v. Union of India, (1950) 1 SCR 869.
12. D.A.V. College v. State of Punjab, (1971) 2 SCC 261.
13. Delhi Cloth & General Mills Co. Ltd. and Ors. v. Union of India, AIR 1983 SC 937.
14. Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622.
15. Dharma Dutt v. Union of India, (2004) 1 SCC 712.

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
16. Dwarkadas Shrinivas v. Sholapur Spinning and Weaving Co. Ltd. and Ors. , 1954 SCR
674.
17. E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3.
18. Escort farms Ltd. v. Commr. , Kumaon divison, nainital, U.P. and Ors. (2004) 4 SCC
281.
19. H.L. Trehan and Ors. v. Union of India and Ors., AIR 1989 SC 568.
20. Hindustan petroleum corporation Ltd. v. Darius Shapur chenai, (2005) 7 SCC 627.
21. In Re: Tech-men Tools (P.) Ltd., (2009) 150 CompCas 800 (AP).
22. In Re: Wood Polymer Limited, In Re: Bengal Hostels Pvt. Ltd.; (1977) 109 ITR 177
(Guj).
23. Indian Railway Construction Co. Ltd. v. Ajay Kumar, AIR 2003 SC 1843.
24. Janata Dal v. H.S. Chowdhary and Ors., AIR 1993 SC 892.
25. Jilubhai Nanbhai Khachar v. State of Gujrat, AIR 1995 SC 142.
26. Jose Da Costa and Anr. v. Bascora Sadasiva Sinai Narcornim, AIR 1975 SC 1843.
27. K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1.
28. Kasturi Lakshmi Reddy v. State of J&K, AIR 1980 SC 1992.
29. Kavalappara Kottarathil Kochunni Moopil Nayar v. The State of Madras and Ors., AIR
1959 SC 725.
30. Kochunni v. State of Madras, AIR 1959 SC 725.
31. Kuldeep Singh v. Govt. of Delhi, AIR 2006 SC 2652.
32. Life Insurance Corporation of India v. Escorts Ltd. and Ors. (1986) 1 SCC 264.
33. Maneka Gandhi v. Union of India, AIR 1978 SC 597.
34. Manohar Singh & Anr. v. Caltex Oil Refining (India) Ltd. Bombay, AIR 1981 MP 123.
35. Mathew Michael and Ors. v. Teekoy Rubbers (India) Ltd. & Anr., (1983) 54 Comp Cas
88.
5

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
36. Mohinder Singh Gill v. Chief Election Commr. , (1978) 1 SCC 405.
37.

National Spot Exchange Limited and Financial Technologies (India) Limited


(Amalgamation in Public interest) Order, Ministry of corporate affairs, 21st October
2014.

38. Neptune Assurance Co. Ltd., and Ors. v. Union of India, AIR 1973 SC 602.
39. NOIDA Entrepreneur Assn. v. NOIDA, AIR 2011 SC 2112.
40. Oswal Fats and Oils Limited v. Additional Commissioner (Administration), Bareilly
Division, (2010) 4 SCC. 728.
41. Railway Board & Ors. v. Mrs. Chandrima Das & Ors., AIR 2000 SC 988.
42. Raja Ram Pal v. Lok Sabha, (2007) 3 SCC 184.
43. Rajesh Kumar and Ors. v. D. Commissioner of Income Tax and Ors, AIR 2007 SC 18.
44. Ramanlal Bhailal Patel and Ors. v. State of Gujarat, AIR 2008 SC 1246.
45. Ramchand Jagadish Chand v. Union of India, AIR 1963 SC 563.
46. Ramlila Maidan Incident v. Home Secretary, Union of India, (2012) 5 SCC 1.
47. Reliance Natural Resources Ltd. v. Reliance Industries Ltd., (2010) 7 SCC 1.
48. Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248.
49. S.M.D. Kiran Pasha v. Government of Andhra Pradesh (1990) 1 SCC 328.
50. Sangram Singh v. Election Tribunal, Kotah,Bhurey, AIR 1955 SC 425.
51. Shail v. Manoj Kumar And Ors, (2004) 4 SCC 785.
52. Shri Shekhar Ghosh v. Union of India and Anr., (2007) 1 SCC 33.
53. Siemens Ltd. v. State of Maharashtra and Ors., 2006 (12) SCC 33.
54. Singer India Ltd. v. Chander Mohan Chadha and Ors., (2004) 7 SCC 1.
55. Sri Santosh Kumar Agarwal v. State of Orissa and Ors., AIR 1973 Orissa. 217.
56. State of Madhya Pradesh v. Bhailal Bhai, (1964) 6 SCR. 261.

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
57. State of Madras v. V.G. Row, 1952 SCR 597; Shreya Singhal v. Union of India, (2015) 5
SCC 1.
58. State of Maharastra v. Jalgaon Municipal Council, (2003) 9 SCC 731.
59. State of U.P. and Ors. v. Renusagar Power Co. and Ors., AIR 1988 SC 1737.
60. State of West Bengal v. Bela Banerjee, AIR 1954 SC 170.
61. State of West Bengal v. Subodh Gopal Bose, AIR 1954 SC 92.
62. Surinder Singh Brar and Ors. etc. v. Union of India, (2013)1SCC 403.
63. The Commercial and Ahmedabad Mills Co. Ltd. and Anr. v. Union of India, AIR 1993
Guj 20.
64. The Government of India and Ors. v. The National Tobacco Co. of India Ltd., Calcutta,
AIR 1977 A.P. 250.
65. Union of India and Ors. v. Ambalal Sarabhai Enterprises Ltd., (1983) 55 CompCas 623
(Guj).
66. V.C., Banaras Hindu University and Ors. v. Shrikant, AIR 2006 SC 2304.
67. Vodafone International Holdings v. Union of India (UOI) and Anr. (2012) 107 CLA 63
(SC).
68. Salomon v. A. Salomon and Co. Ltd., (1897) AC 22.
69. United States v. Bestfoods, 524 US 51 (1998).

______________________________________________________________________________
STATEMENT OF JURISDICTION

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
The Appellant has approached the Honble Supreme Court of Pentos by filing Special Leave
Petition under Article 136 of the Constitution, which confers upon this Court the jurisdiction to
issue any directions, orders or writs for the enforcement of any of the rights conferred by Part III
of the Constitution. The Appellant humbly submits to the jurisdiction of this Honble Supreme
Court.

______________________________________________________________________________
STATEMENT OF FACTS

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
1. Situated in the Republic of Pentos, Mojo is the second largest public listed multinational
oil and gas company. Dreamzz is a public unlisted company dealing in real estate, among
other things. In 2013, Mojo became a majority shareholder in Dreamzz.
2.

In 2010, Dreamzz floated a collective investment scheme called Durga Scheme. The
scheme promised only principal protection to investors with no commitment on interests.

3. For the first two years since the launch of Durga Scheme, in 2011 and 2012, the unit
holders were getting extremely high interests @ 17% p.a. In 2013, the interest rate
dropped to 9%, and subsequently reached nullity in 2015. Dreamzz was thereupon willing
to redeem the debentures at face value, which was opposed by the Trustee.
4. The High Court of Santos passed an order passing an injunction on Dreamzz to sell or
dispose off any assets or property. This would be lifted if Dreamzz furnishes to the an
unconditional bank guarantee or a parent company guarantee. Press Reports suggested
that Mojo was considering furnishing such guarantee.
5. Based on allegations of fraud and the opinions of SEBP, the Central Government invoked
its powers under section 396 of the Companies Act, 1956 and issued a Draft Notification
for the amalgamation of Mojo with Dreamzz.
6. Mojo and its shareholders opposed the said Notification by way of a Writ Petition under
Article 226 of the Constitution at the High Court of Santos, which was summarily
dismissed.
7. Aggrieved by this summary dismissal, Mojo and its shareholders have moved the
Supreme Court of Pentos by way of special leave to appeal.
______________________________________________________________________________
______________________________________________________________________________
STATEMENT OF ISSUES

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
1.

WHETHER THE SLP IS MAINTAINABLE OR NOT?

1.1 Whether the Writ Petition at the High Court of Santos should have been summarily
dismissed?

2.

WHETHER THE IMPUGNED DRAFT NOTIFICATION IS CONSTITUTIONALLY

VALID OR NOT?
2.1 Whether section 396 of the Companies Act, 1956 is ultra vires the constitution?
2.2 Whether the Draft Notification is constitutional?

3.

WHETHER THE DRAFT NOTIFICATION SHOULD BE QUASHED OR NOT?

3.1 Whether the corporate veil should be pierced to make the parent company liable or not?
3.2 Whether the amalgamation of the two companies is in public interest or not?

______________________________________________________________________________
SUMMARY OF ARGUMENTS

10

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
1.

Special

Leave

Petition

is

maintainable

under

Article

136

of

the

Constitution.

A Special Leave Petition would lie when a writ petition for the enforcement of fundamental
rights is summarily dismissed. The Draft Notification issued by the Respondents which was
summarily dismissed by the High Court curtails the Appellan's rights which are traceable to
Article 14, and 19(1)(g) of the Constitution. It is thus submitted that the Special Leave Petition is
maintainable and the Petitioners have locus standi against the wrongful dismissal of the writ
petition filed before the High Court.
2. The impugned draft notification is constitutionally invalid.
Appellants contend that Section 396 of the Companies Act, 1956 is ultra vires the Constitution. IT does
not provide for an adequate right of hearing and is violative of the principles of natural justice, thereby
violating Articles 14, 19 and 21. Further, it violates Article 300A since it is violative of the right to
property. In the alternative, it is contended, the impugned order is bad in law since it violates Article 14 on
account of being unreasoned and arbitrary. Further, it violates Article 19(1)(g).

3. The draft notification should be quashed as there is no public interest


The amalgamation orders are in furtherance of the intention to pierce the corporate veil to make
the parent company liable for the subsidiarys actions. The necessary elements to pierce the
corporate veil are - (a) some impropriety or improper conduct must be proven; and (b) the
control and participation of the parent company in the wrong complained of. Both these
standards are not met by this case. Therefore, the corporate veil should not be pierced. The High
Court orders and the probable Bank Guarantee already seek to secure the investor rights.
Therefore, the amalgamation is serving no purpose or object of public interest. Moreover, for the
sake of investors, it is adversely impacting the rights of the shareholders of Mojo, which are
almost 10 lakh in number. Hence, in objective terms, no public interest is served.

_________________________________________________________________________
ARGUMENTS ADVANCED
11

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
I. THE SPECIAL LEAVE PETITION IS MAINTAINABLE UNDER ARTICLE 136
1. Article 136 of the Constitution vests in the Supreme Court, plenary jurisdiction, in the matter
of entertaining appeals by granting special leave against orders and judgments made by
courts.1 Leave is granted when an order is violative of the Constitution, thereby causing
grave injustice to the Appellant.2 Further, when a writ petition for the enforcement of
fundamental rights is dismissed in limine, a leave to appeal would lie under this provision.3
2. Appellants contend, that, the impugned Draft Notification, issued by the Respondents, which
was summarily dismissed by the High Court,is violative of Appellants rights under Articles
14 and 19(1)(g). It is thus submitted that the Special Leave Petition is maintainable and the
Appellants have locus standiagainst the wrongful summary dismissal of the writ petition
filed before the High Court.
I.1 The Writ Petition filed before the High Court is maintainable under Article 226
3. A writ petition, for the enforcement of Fundamental Rights or any other purpose, 4 is
maintainable under Article 226 when the Appellant has locus standi to approach the court.5
The test for locus standi is either a prima facie violation of fundamental rights,6 or an
imminent threat of such infraction.7 Appellants contend, that, the Draft Notification issued in
this case has [A] Breached their fundamental rights under Article 14 and 19(1)(g) of the
1 Arjun Singh v. A.D.J. and Anr, AIR 2003 SC 3044; Jose Da Costa and Anr. v. Bascora Sadasiva Sinai Narcornim,
AIR 1975 SC 1843; Sangram Singh v. Election Tribunal, Kotah,Bhurey, AIR 1955 SC 425.

2 Shail v. Manoj Kumar And Ors, (2004) 4 SCC 785; Allarakha K. Mansuri v. State Of Gujarat, AIR 1961 SC 715.
3 Kochunni v. State of Madras, AIR 1959 SC 725; AIR 1992 MP 79.
4Railway Board &Ors. v. Mrs. Chandrima Das &Ors., AIR 2000 SC 988.
5 Janata Dal v. H.S. Chowdhary and Ors., AIR 1993 SC 892.
6D.A.V. College v. State of Punjab, (1971) 2 SCC 261.
7 S.M.D. Kiran Pasha v. Government of Andhra Pradesh (1990) 1 SCC 328.
12

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
Constitution and, [B] Arguendo: Reasonably likely to impinge their rights under the
Constitution.
A. The Appellants Fundamental Rights have been Infringed
4. When a Appellant claims to have been aggrieved by the action of a public authority on the
plea that the action is unlawful, high-handed, arbitrary or unjust, he is entitled to have his
petition heard on merits, and the summary dismissal of the writ petitionwould be
unjustified.8In such a case,where a Fundamental Right violation is contended, the Court is
not empowered to act arbitrarily by dismissing the petition in limine.9
5. A writ petition would be maintainable when a notification is issued with premeditation. 10 The
Supreme Court has observed that,ordinarily, that once a decision has been taken, there is a
tendency to uphold it and a representation may not yield any fruitful purpose. 11 When the
government has made up its mind, a post decisional objection would be illusory in nature. 12
In such an event, it would be erroneous to summarily dismiss writ petitions for being
premature on the ground that only notification" has been issued. 13 The Supreme Court has
emphasised that a High Court ought not dismiss a writ petition in limine on a mere
technicality, thereby prejudicing the Appellant.14

8Century Spinning and Manufacturing Company Ltd. and Anr. v. The Ulhasnagar Municipal Council and Anr., AIR
1971 SC 1021; British India Corporation Ltd. and Ors. v. The Industrial Tribunal, Punjab and Anr., AIR 1957 SC
354.

9 P Mari v. Government of Tamil Nadu, AIR 2011 Mad. 1935.


10Siemens Ltd. v. State of Maharashtra and Ors., 2006 (12) SCC 33; H.L. Trehan and Ors. v. Union of India and
Ors., AIR 1989 SC 568. ; Rajesh Kumar and Ors. v. D. Commissioner of Income Tax and Ors, AIR 2007 SC 18.

11Kamal Kapoor v. State of Haryana, (1988) ILLJ 162 SC; Shri Shekhar Ghosh v. Union of India and Anr., (2007)
1 SCC 33; Rajesh Kumar v. DCIT, (2006) 287 ITR 91 (SC).

12 V.C., Banaras Hindu University and Ors. v. Shrikant, AIR 2006 SC 2304.
13 P Mari v. Government of Tamil Nadu, AIR 2011 Mad. 1935.
14 P Mari v. Government of Tamil Nadu, AIR 2011 Mad. 1935.
13

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
6. Section 396 empowers the Central Government to amalgamate companies in national
interest.15Upon making such determination, the Government issues a draft notification under
Section 396(4)(b), in order to take into consideration public suggestions before a final order
is passed. On consideration of suggestions and objections received, the Government makes
modifications, if any, as it may deem desirable.16
7. Modification, as defined under the Companies Act, includes additions and omissions. 17 To
restrict the ambit of changes, modification of a scheme must be to an extent, which does not
change the basic fabric of a scheme. Basic Fabric implies the end result of the scheme,
as well as the processes, procedures and steps taken to weave the fabric of the scheme. 18
Such an understanding of the word modification comes from considering the term in
contradistinction to other terms in the Act, such as, alteration or variation. 19 A word
which has an inclusive definition in a statute does not only restrict itself to its literal
meaning, but also the extended and intended statutory meaning.20
8. Therefore, Appellants contend, modifications to the scheme of amalgamation can only be to
an extent which does not tamper with the essence of the scheme, and can in no manner
extend to mean rescission or abrogation of the decision to merge the companies. Hence, the
government has exercised its discretion and in no event would the amalgamation not subsist
in this case. The summary dismissal of the writ petition is based on a hyper-technical view of
term draft, which severely prejudices the interests of the Appellants. It is contended,
therefore, that awaiting a final order when the government has already conclusively made a

15 Section 396, the Companies Act, 1956.


16Section 396, the Companies Act, 1956.
17Section 2 (29), the Companies Act, 1956.
18 Reliance Natural Resources Ltd. v. Reliance Industries Ltd., (2010) 7 SCC 1.
19 S.K. Gupta v. K.P. Jain, 49 Comp.Cas. 342 (SC).
20Oswal Fats and Oils Limited v. Additional Commissioner (Administration), Bareilly Division, (2010) 4
SCC 728;RamanlalBhailal Patel and Ors. v. State of Gujarat, AIR 2008 SC 1246.

14

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
determination would be an empty formality, only aggravating the infraction of the
Appellants fundamental rights.
B. There exists a reasonable likelihood of fundamental rights being violated.
9. High Courts can grant a writ under Article 226, not only when the damage complained of has
been done, but also when there is a reasonable likelihood of damage being done.21 A petition
can be filed when there is a threat to fundamental rights and the Appellant need not wait till
the actual threat has been carried out. 22 A threat should not always be excluded from the
category of "injury of a substantial nature. If the Court finds, on an examination of the
threat held out by virtue of a notice issued, that a matter has practically been decided upon,
the Court can treat it as a case of substantial injury.23 A notification is sufficient to base a
writ petition when the causing of injury is certain to follow.24
10. When an act of the government affects the status of the Appellants rights vis-a-vis his
property, by its very terms without any overt act being done, the Appellant can immediately
invoke Article 226 to get a declaration of the invalidity of the impugned act, before the state
actually deprives the Appellant of his right, title, or interest in his property to an explicit act.
In such a case, the infringement of the fundamental right is complete eo instanti, and the
person prejudiced must be entitled immediately to avail himself of a remedyunder Art. 226.25
11. Appellants submit that the Draft Notification issued, will necessarily transform into a final
order of amalgamation, resultantly violating their Constitutional rights. In such a case,
Appellants urge that anticipatory relief be made available, as they will suffer an irreparable
injury in waiting, as a violation is compulsorily imminent.

21 State of Madhya Pradesh v. BhailalBhai (1964) 6 SCR 261.


22 D. A. V. College Bathinda, Etc v. State Of Punjab & Ors, 1971 AIR 1731.
23
24 The Government of India and Ors. v. The National Tobacco Co. of India Ltd., Calcutta, AIR 1977 A.P. 250.
25Kavalappara Kottarathil Kochunni Moopil Nayar v. The State of Madras and Ors., AIR 1959 SC 725.
15

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
II.

THE IMPUGNED DRAFT NOTIFICATION IS CONSTITUTIONALLY INVALID

12. Section 396 of the Companies Act provides for amalgamation of companies in public
interest.26 In pursuance of this, the Government is required to issue a draft notification,
inviting objections,prior to passing a final order to amalgamate.27
13. In the present case, a draft notification has been issued towards amalgamation of Dreamzz
and Mojo. Appellants contend, that, the issuance of such notification is unlawful since, (a)
Section 396 is itself violative of the Constitution, and (b) The impugned draft notification
has been issued arbitrarily and violates Appellants rights under Article 19.

2.1 Section 396 of the Companies Act, 1956 is ultra vires the Constitution.
14. Appellants contend that Section 396 of the Companies Act is violative of the Constitution, on
the following grounds: (a) It does not provide for an effective hearing mechanism and is,
therefore, violative of principles of natural justice, thereby violating Articles 14, 19 and 21,
and (b) Forceful amalgamation of two private entities is violative of their right to property
under Article 300A.
A. Section 396 does not provide for an effective hearing mechanism.
15. Principles of natural justice function as safeguards against undue exercise of administrative
authority.28 All executive action, whether administrative or quasi-judicial, must be in
compliance with them.29 Natural justice mandates that, where Government discretion is
exercised, interested parties be afforded an opportunity of hearing. Those interested may be
26 Section 396, the Companies Act, 1956.
27 Section 396, the Companies Act, 1956.
28 Maneka Gandhi v. Union of India, AIR 1978 SC 597.
16

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
afforded a pre-decisional, or in exceptional circumstances, a remedial, post-decisional
hearing.30 Importantly, where an opportunity of hearing is afforded, it would mean an
effective hearing.31 The hearing must be more than a mere formality; there must exist a
distinct possibility of change in the decision made.32 This ensures that those aggrieved gain a
fair opportunity to be heard.33
16. Non-compliance with these principles has severe implications; it results in the violation of
Articles 14, 19 and 21 of the Constitution.34
17. Section 396, it is contended, does not provide for an effective hearing to those aggrieved by
the Governments determination to amalgamate. Only Section 396(4)(b) provides for
objections to be raised against the assessment to amalgamate the companies 35. Such
objections may, however, only result in a modification to the draft order, not a variation in
the very nature of the Governments assessment itself. 36 The mechanism to raise objections is
in essence, a mere formality, since it does not provide for a change in the decision made.
Minor modifications would not adequately address the concerns of those opposed to the
forceful amalgamation. This works to the prejudice of all those aggrieved, since, any
objections raised, however legitimate, would be inconsequential, rendering the hearing
ineffective.
18. In light of this, it is urged, Section 396 does not provide for an effective challenge to the
determination of amalgamation. This contravenes the principles of natural justice and is,
therefore, violative of Articles 14, 19 and 21.
29 Mohinder Singh Gill v. Chief Election Commr. , (1978) 1 SCC 405; A.K. Kraipak v. Union of India,
(1962) 2 SCC 262.
30 Maneka Gandhi v. Union of India, AIR 1978 SC 597.
31 Hindustan petroleum corporation Ltd. v. Darius Shapur chenai, (2005) 7 SCC 627.
32 Escort farms Ltd. v. Commr. , Kumaon divison, nainital, U.P. and Ors. (2004) 4 SCC 281
33 State of Maharastra v. Jalgaon Municipal Council, (2003) 9 SCC 731.
34 Raja Ram Pal v. Lok Sabha, (2007) 3 SCC 184.
35 Section 396, the Companies Act, 1956.
36S.K. Gupta v. K.P. Jain, 49 Comp.Cas. 342 (SC).
17

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
B. Section 396 is violative of Article 300A of the Constitution
19. Article 300A of the Constitution grants all persons the right to enjoyment of property.
Shareholders in a company are entitled to claim property rights since their contractual rights
fall under the purview of the term property.37 Companies may themselves also claim
protection under this Article, since its applicability extends to all persons, including juristic
persons.38
20. The Sovereign may, however, deprive such persons of their private property, in the interest of
achieving a public purpose. Such deprivation may only be done by the authority of
law.39Persons would be deemed to be deprived of their property if they were "substantially
dispossessed" of their rights constituting the property or their right to use and enjoy the
property was "seriously impaired" by the impugned law.40
21. Forceful amalgamation, Appellants contend, is violative of the Right to Property under
Article 300A. Rights, with respect to the shareholders, are to the extent of their shareholding
in the companies, while the companies right over property extend to their entire asset base.
The Government, exercising its discretion through a mere executive fiat, would deprive both,
the companies and their shareholders, of their property rights. The amalgamating entities
would be seriously impaired from using and enjoying their property since control would now
be vested with the amalgamated entity. Further, all of their shareholders would be entirely
deprived of their shareholding in the respective companies, despite being compensated for,
through issuance of shares in the newly amalgamated entity.
22. Appellants contend, that no public purpose is served in the forceful amalgamation of two
private entities. Such a mechanism, being non-consensual, works against the interests of
37 Dwarkadas Shrinivas v. Sholapur Spinning and Weaving Co. Ltd. and Ors. , 1954 SCR 674; Rustom
Cavasjee Cooper v. Union of India, (1970) 1 SCC 248.
38 Dharma Dutt v. Union of India, (2004) 1 SCC 712.
39 Jilubhai Nanbhai Khachar v. State of Gujrat, AIR 1995 SC 142.
40 State of West Bengal v. Bela Banerjee, AIR 1954 SC 170; State of West Bengal v. Subodh Gopal Bose,
AIR 1954 SC 92; K.T. Plantation (P) Ltd. v. State of Karnataka, (2011) 9 SCC 1, Chiranjit Lal
Chowdhuri v. Union of India, (1950) 1 SCR 869.
18

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
corporations and entirely disregards the concept of limited liability, which forms the basis of
corporate law. Entities would be forced to work with each other against each other, resulting
in further conflict and lack of synergy. In cases where the entities do not operate in the same
area of work, amalgamation would result in a loss of focus and synergy, thereby leading to
dincreased mismanagement and oppression.
23. It is contended, therefore, that amalgamation under Section 396 violates Article 300A.
2. 2 The impugned draft notification is unconstitutional.
24. Appellants contend that the impugned draft notification to amalgamate Dreamzz and Mojo is
violative the Constitution on the following grounds: (a) It suffers from non-application of
mind and is, therefore, arbitrary and violative of Article 14 and (b) Initiation of the procedure
to amalgamate is violative of Article 19(1)(g).
A. The notification violates Article 14 on grounds of non-application of mind and
arbitrariness.
25. Article 14 of the Constitution strikes at arbitrariness in administrative action. Arbitrary
action being considered unequal according to both political logic and constitutional law, it
results in a violation of Article 14.41 Non-arbitrariness necessitates due of application of mind
prior to the exercise of administrative discretion, the absence of which, renders the order
unconstitutional.42 Government action, therefore, must be in consonance with some principle
that meets the test of reason and relevance. 43 If power has been exercised on nonconsideration or non-application of mind to relevant factors, the exercise of power will be

41 E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3.


42 Kuldeep Singh v. Govt. Of Nct Of Delhi, AIR 2006 SC 2652.
43 Kasturi Lakshmi Reddy v. State of J&K, AIR 1980 SC 1992; NOIDA Entrepreneur Assn. v. NOIDA,
AIR 2011 SC 2112.
19

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
regarded as manifestly arbitrary and erroneous.44 Further, mechanical endorsement of a
recommendation cannot act as a substitute for application of mind by the Government.45
26. The draft, notification in the present case, suffers from an inadequate application of mind
since the Governments discretion was exercised merely on the basis of the allegations of
fraud and the opinions expressed by the SEBP. The Government failed to undertake any
independent assessment or inquiry prior to exercising its discretion. In furnishing the draft
notification, the Government has mechanically endorsed public opinion and the views of the
SEBP. It has failed to consider the implications of making an unprecedented move of this
magnitude, wherein, the corporate veil is lifted based on mere allegations of fraud. This
reflects a propensity towards excessive governmental intervention and a blatant disregard for
limited liability as a fundamental tenet of corporate law, thereby, creating an unfavorable
investment environment. It has therefore, failed to adequately apply its mind.
27. Further, the draft notification has been issued with the object of protecting the interests of
investors in the Durga Scheme. However, in view of the purpose it seeks to achieve, such
action is unreasonable and excessive. Interests of the unit-holders are being adequately
protected through the Guarantee Order. The initiation of amalgamation proceedings at this
stage, therefore, is unnecessary and excessive, given its permanent, irreversible nature and its
far-reaching implications on the countrys economy.
28. Such action is, thus, liable to be struck down as being arbitrary and violative of Article 14.

B. The impugned notification and subsequent order to amalgamate are violative of


Appellants right under Article 19(1)(g)

44 Indian Railway Construction Co. Ltd. v. Ajay Kumar, AIR 2003 SC 1843; State of U.P. and Ors. v.
Renusagar Power Co. and Ors. , AIR 1988 SC 1737.
45 Surinder Singh Brar and Ors. etc. v. Union of India, (2013)1SCC 403.
20

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
29. Article 19(1)(g) of the Constitution bestows on all citizens, the fundamental right to freedom
profession, occupation, trade or business.46 This right is subject to reasonable restrictions
liable to be imposed by the State in the interests of the general public.47
30. Shareholders, being citizens, they may claim rights under this Article.48 Where rights of
shareholders are so interconnected with the rights of the company that restriction on one
would lead to restriction on the other, shareholders can claim remedy against the restriction
so imposed against the company.49 Rights of the shareholder and the company being coextensive, denial of freedom to one would amount to denial of freedom to the other.50
31. Reasonability of restrictions implies that the limitation as to the right must not be arbitrary or
excessive in nature, beyond what is in the interest of the public.51 Reasonability implies
intelligent care and deliberation, leading to a course of action dictated by reason. 52 Further,
restrictions must possess a direct and proximate nexus to the object they seek to achieve. In
adjudicating reasonableness, Courts must ensure that the imposition is in proportion to the
prevailing conditions.53 Courts must also seek to impose restrictions that are least invasive,
i.e., restrictions that are unavoidable in view of the given situation.54
32. In the present case, Appellants contend, shareholders rights are severely restricted due to
impositions placed on Mojos right to trade. Issuance of the draft notification would
46 Article 19 (1) (g), the Constitution of India, 1950.
47 Article 19(6), the Constitution of India, 1950; Ramchand Jagadish Chand v. Union of India, AIR 1963
SC 563.
48 Delhi Cloth & General Mills Co. Ltd. and Ors. v. Union of India, AIR 1983 SC 937; Rustom Cavasjee
Cooper v. Union of India, (1970) 1 SCC 248.
49 Bennett Coleman & Co. and Ors. v. Union of India, AIR 1973 SC 106; Delhi Cloth & General Mills
Co. Ltd. and Ors. v. Union of India, AIR 1983 SC 937; Neptune Assurance Co. Ltd., and Ors. v. Union of
India, AIR 1973 SC 602.
50 Delhi Cloth & General Mills Co. Ltd. and Ors. v. Union of India, AIR 1983 SC 937.
51 The Commercial and Ahmedabad Mills Co. Ltd. and Anr. v. Union of India, AIR 1993 Guj 20;
Chintaman Rao v. State of M.P., 1958 SCR 1340.
52 Chintaman Rao v. State of M.P., 1958 SCR 1340.
53 State of Madras v. V.G. Row, 1952 SCR 597; Shreya Singhal v. Union of India, (2015) 5 SCC 1.
54 Ramlila Maidan Incident v. Home Secretary, Union of India, (2012) 5 SCC 1.
21

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
immediately result in a plummeting of Mojos stock prices due to loss of investor confidence
and creation of the impression of an unfavorable business environment. This would severely
curtail Mojos ability to trade with its substantial customer base. Further, imposition of
Dreamzzs liabilities would substantially affect Mojos asset base. Further, it would create a
situation where Mojo and Dreamzz would be forcefully required to trade with each other. As
a consequence, Mojo and its investors would suffer heavy loss of revenue, severely
curtailing their ability to trade and conduct business.
33. Restriction imposed on the shareholders right to freedom of trade is unreasonable. The
Central Government exercised its discretion to amalgamate the two companies, in a bid to
ensure the safety of investors. However, it is urged, this is an arbitrary exercise of discretion
imposing excessive limitations on the shareholders right to trade. The Guarantee order, in
view of the objective behind decision to amalgamate the two entities, would have sufficiently
protected the interest of the investors. Since issues relating to fraud and Mojos liability
remain indeterminate, imposing excessively invasive methods, without adequately
considering the facts of the case at hand, is urged to be unreasonable and arbitrary.
Amalgamation is an avoidable recourse, liable to pursued at a later stage, if circumstances
necessitate such action.

III.

THE DRAFT NOTIFICATION SHOULD BE QUASHED AS THERE IS NO


PUBLIC INTEREST

34. In the present case, in view of allegations of fraud and large-scale public outrage, the
Government, in the exercise of its power, initiated the procedure for amalgamation of two
private entities through issuance of a draft notification. Such issuance, made in public
interest, resulted in the lifting of the corporate veil. Appellants contend, however, that, a)
circumstances necessitating lifting of the corporate veil do not exist and b) amalgamation
is not in public interest.
3.1 The corporate veil should not be pierced to make the parent company liable

22

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
35. The doctrine of piercing the corporate veil stands as an exception to the principle of
separate legal entity. This doctrine seeks to disregard the principle of separate legal
personality of the company, and attribute its acts to those who are in direct control of its
operation.55 Lifting the corporate veil in a parent-subsidiary relationship serves the purpose
of making a parent company take over the liability of its subsidiary.
36. By amalgamating two companies, the parent company takes over all the assets and
liabilities of the subsidiary company, among other implications.56Therefore, in the garb of
amalgamation, corporate veil is lifted and each company is forced to assume the liability
of the other.
37. Ownership and control of a company is not enough to justify the piercing of the corporate
veil. The corporate veil can be pierced only if there is some impropriety, fraud, sham or
misconduct. Such impropriety in question must be linked to the use of the company
structure to avoid or conceal liability. To justify the test for piercing the corporate veil,
there must be both control of the company by the wrongdoer and impropriety, that is use
or misuse of the company by them as a device or facade to conceal their wrongdoing; and
the company may be a 'facade' being used for the purpose of deception at the time of the
relevant transactions.57 The veil should only be pierced so far as to remedy a particular
wrong.
38. In the facts of the present case, Appellants contend, the necessary elements of control and
impropriety have not been met.
A. Mere allegation of fraud does not necessitate lifting of the corporate veil.

55 Balwant Rai Saluja v. Air India Ltd., AIR 2015 SC 375; Salomon v. A. Salomon and Co. Ltd., (1897) AC 22.
56 Caltex Oil Refining (India) Ltd. and Hindustan Petroleum Corporation Limited Amalgamation Order,
Company Law Board, 9th May, 1978; National Spot Exchange Limited and Financial Technologies
(India) Limited (Amalgamation in Public interest) Order, Ministry of corporate affairs, 21st October 2014;
Manohar Singh & Anr. v. Caltex Oil Refining (India) Ltd. Bombay, AIR 1981 MP 123.
57BalwantRaiSaluja v. Air India Ltd., AIR 2015 SC 375; Ben Hashem v. Ali Shayif, (2008) EWHC 2380 (Fam);
Prest v. Petrodel Resources Limited and Ors., (2013) UKSC 34.

23

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
39. For any deliberation to be made with regard to lifting of the corporate veil, some sort of
fraud, wrongdoing or sham needs to be proven. Mere allegation of fraud is an insufficient
ground for lifting the corporate veil.58
40. In the facts of the present case, the Central Government has acted only upon the allegations
of fraud and opinions of the SEBP. There is no conclusive judicial determination upon
whether fraud has been committed or not. Arbitral proceedings have been initiated to
adjudicate upon fraud. However, the arbitral award is yet to be made and no parallel
proceedings are being held in a competent court of law. In the absence of such judicial
determination on the issue of fraud, Appellants contend, sufficient grounds do not exist for
lifting the corporate veil.
B. Parent company did not exercise adequate control necessitating lifting of the corporate veil.
41. Merely because a company purchases majority shares in another company, there is no
extinction of corporate character for each company still remains a separate juristic entity. 59
Holding company and subsidiaries are incorporated companies and in this context each has a
separate legal entity, which means that the holding and the subsidiary do not constitute one
and the same company.60Mere ownership, parental control, management etc. of a subsidiary
is not sufficient to pierce the status of their relationship and, to hold parent company liable
for subsidiarys actions.61 The parent company cannot vicariously be held liable for all
actions of its subsidiary, unless the corporal form is misused to accomplish certain wrongful
purposes, when the parent company is directly a participant in the wrong complained of. 62
This doctrine is applicable only in cases where the associated companies are inextricably

58Autocop (India) Pvt. Ltd. v. SavinayImpex Pvt. Ltd., (2006) ILR 2 Delhi 665; Vodafone International
Holdings v. Union of India (UOI) and Anr.(2012) 107 CLA 63 (SC).
59Spencer and Co. Ltd., Madras v. The Commissioner of Wealth Tax (1969) 72 ITR 33 (Mad).
60Turner Morrison and Co. Ltd. v. Hungerford Investment Trust Ltd., AIR 1969 Cal 238.
61 Vodafone International Holdings v.Union of India (UOI) and Anr.,[2012]107CLA63(SC); Doe v.
Unocal Corp., 248 F.3d 915, 927 (9th Cir. 2001); Esmark, Inc. v. NLRB, 887 F.2d 739, 759 (7th Cir.
1989).
62United States v. Bestfoods 524 US 51 (1998); Adams v. Cape Industries Plc. (1991) 1 All ER 929.
24

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
connected to be a part of one concern, or are functioning as one unit to perpetuate some
wrong doing. 63
42. In the present case, The Durga Scheme was launched in 2010. At this point in time, Mojo did
not have majority voting rights in Dreamzz. Mojo had no control and participation in
structuring the purposes and details of this scheme. It was the autonomous and independent
Board of Directors that decided upon the launch of the Durga Scheme. Such circumstances
establish the lack of control and involvement in fraudulent activity by Mojo in any form.
43. Money invested in the Durga Scheme was utilized to repay investors in older schemes, as an
essential part of Dreamzzs day-to-day activities. These monies had no link or connection
with Mojo and its operations. The money being utilized for paying off older debts is solely
benefitting Dreamzz and its operations. Mojo is not entitled to any gain, advantage or
enrichment from the utilization of proceeds of Durga Scheme.

In view of the lack of

requisite control, it is contended, fit circumstances do not exist for lifting of the corporate
veil.

3.2 Amalgamation is not in Public Interest


44. The expression "public interest" standing by itself is likely to appear to be vague without any
specific connotation. It is capable of more than one meaning. Therefore, in order to ascertain
the true meaning of "public interest" used in a given statute, it is to be construed in the
context of the legislation in which it is used, provision in which it is used, and the purpose
sought to be achieved and the mischief it seeks to suppress by the use of the expression.
Where alternative constructions are equally open, that alternative is to be chosen which will
be consistent with the smooth working of the system. 64The concept of public interest is a
dynamic concept which must take its colour and content from the content in which it is
used.65
63Life Insurance Corporation of India v. Escorts Ltd. and Ors. (1986) 1 SCC 264; Delhi Development Authority v.
Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622; Singer India Ltd. v. Chander Mohan Chadha and Ors., (2004)
7 SCC 1.

64 In Re: Wood Polymer Limited, In Re: Bengal Hostels Pvt. Ltd. (1977) 109 ITR 177 (Guj).
25

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
45. Section 396 is distinguished from sections 391-395 as it deals with a particular type of
compulsory amalgamation, the powers for which are only with the Central Government, to
be exercised in public interest.66 Therefore, in light of the statute, the standards of public
interest for these sections must be construed differently.
46. Under general cases of amalgamation under sections 391-394, the court examines a scheme
to ensure that such provisions of the arrangement is not prejudicial to public interest or
against the interests of the general public. It must be fair and reasonable depending on case
to case basis.67 The standard is low, as the check is only to ensure that there is no adverse
impact on sections of the public at large. However, the standard for invoking section 396 is
higher. The central government must be satisfied that it is essential for two companies to
amalgamate, and such amalgamation will lead to fulfilling some need, object or purpose of
positively benefitting public interest.68
47. In the instant case, no such overt benefit is accrued to the public at large by amalgamating
the two companies. The primary intention of the government is to secure the investor rights.
However, the bank guarantee expected to be furnished by the parent company is sufficient to
secure investors rights. Also, the order of the High Court of Santos granting an injunction on
Dreaamzz to not sell any assets or property, unless a bank guarantee or parent company
guarantee is furnished, is sufficient to secure the debts of the investors. Therefore, the
amalgamation order is serving no purpose or object towards public interest.
48. Besides not serving public interest, this amalgamation order is also detrimental to the rights
of the existing shareholders of Mojo, as it is infringing upon their right of freedom to trade
under article 19(1) (g), and their rights to property under article 300A, as established under
issue II.
49. In objective terms, the higher standard of public interest must cater to the interests of the
larger populace, and the wellbeing of the general population. In this scenario, there are a total
of 5000 unit holders in the Durga Scheme whose investor rights are at stake. However, this
65Union of India and Ors. v. Ambalal Sarabhai Enterprises Ltd., 1983 55 CompCas 623 (Guj).
66Bank of India Ltd. v. Ahmedabad Manufacturing & Calico Printing Co. Ltd., (1972) 42 CompCas 211
(Bom); Mathew Michael and Ors. v. Teekoy Rubbers (India) Ltd. &Anr, (1983) 54 Comp Cas 88.
67 In Re: Tech-men Tools (P.) Ltd., (2009) 150 Comp Cas 800 (AP).
68Union of India and Ors. v. Ambalal Sarabhai Enterprises Ltd., (1983) 55 CompCas 623 (Guj); In Re:
Wood Polymer Limited, In Re: Bengal Hostels Pvt. Ltd.; (1977) 109 ITR 177 (Guj).
26

6TH NLIU Juris Corp National Corporate Law Moot Court


Competition, 2015
amalgamation is adversely impacting almost 10 lakh shareholders of Mojo by violating their
rights. Therefore, amalgamation is not in public interest, as a majority of people, who are
shareholders of Mojo are being adversely impacted.
50. It is submitted, that in the instant case, amalgamation is not serving public interest, therefore,
this draft notification should be quashed.

______________________________________________________________________________
PRAYER

Wherefore in light of issues raised, arguments advanced and authorities cited, it is humbly
requested that this Honble Court may be pleased to:
1. The Special Leave Petition is maintainable under Article 136.
2. Read down the section 396 of the Companies Act, 1956.
3. Quash the impugned Draft Notification.

And pass any such order as it deems fit and proper, for this the Appellants shall duty bound pray.

All of which is respectfully submitted


Counsel for the Apellants

27