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TEAM CODE: S-10

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

UNIVERSITY MOOT COURT SELECTIONS (SUMMER EDITION), 2018

Before,

THE HON’BLE SUPREME COURT OF HOEGAARDEN


CIVIL APPEAL NUMBER 10/2018
UNDER SECTION 53T OF THE COMPETITION ACT, 2002

KIPL…………....................................................................................................APPELLANT
V.

COMPETITION COMMISSION OF HOEGAARDEN............................RESPONDENT


CLUBBED WITH

CIVIL APPEAL NUMBER 15/2018


UNDER ARTICLE 136 O F CONSTITUTION O F HOEGAARDEN

STATE OF FOSTERS PRADESH...................................................................APPELLANT


V.

SHRI LOKI……………..................................................................................RESPONDENT
CLUBBED WITH

CIVIL APPEAL NUMBER 27/2018


UNDER SECTION 423 OF THE COMPANIES ACT, 2013

MELLIFLUOUS SUGARS LIMITED............................................................APPELLANT


V.

JOHN & OTHERS……..…………………………................................RESPONDENTS

WRITTEN SUBMISSION ON BEHALF OF THE APPELLANTS


MEMORIAL ON BEHALF OF THE APPELLANTS

TABLE OF CONTENTS

TABLE OF CONTENTS ......................................................................................................... i

LIST OF ABBREVIATION.................................................................................................. iii

INDEX OF AUTHORITIES .................................................................................................. iv

STATEMENT OF JURISDICTION .................................................................................. viii

STATEMENT OF FACTS ..................................................................................................... ix

STATEMENT OF ISSUES .................................................................................................... xi

SUMMARY OF ARGUMENTS ...........................................................................................xii

ARGUMENTS ADVANCED .................................................................................................. 1

1. THAT THE COMPETITION COMMISSION OF HOEGAARDEN HAS NO


JURISDICTION TO INQUIRE/INVESTIGATE INTO THE ALLEGATIONS OF
BID RIGGING ON KIPL AND BFL. ................................................................................ 1

[1.1] Sale Of Sugar Mills Through Slump Sale Agreements Cannot Be Classified As
Sale Of Goods Or Provision Of Services ........................................................................... 1

[1.2] The Sale Of Sugar Mills Can Only Be Classified As Acquisition Of Assets Under
The Act............................................................................................................................... 3

2. THAT KIPL HAS NOT CONTRAVENED THE PROVISIONS OF SECTION


3(3)(a) OR 3(3)(d) OF THE ACT. ...................................................................................... 4

[2.1] There Is No Agreement Between The Parties ........................................................... 5

[2.2] The Parties Are Engaged In Different Business........................................................ 5

[2.3] The Parties Have Neither Rigged The Bidding Process Nor Fixed The Price Of
Sugar Mills ......................................................................................................................... 6

[2.4] There Is No Appreciable Adverse Effect On Competition ....................................... 8

3. THAT THE SECTIONS 3-C AND 3-D OF FOSTERS PRADESH SUGAR


UNDERTAKING(ACQUISITION) ACT, 2009 ARE CONSTITUTIONALLY
VALID AS THEY ARE WITHIN THE LEGISLATIVE COMPETENCE OF THE
STATE OF FOSTERS PRADESH. ................................................................................... 9

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MEMORIAL ON BEHALF OF THE APPELLANTS

[3.1] The Sections Are Within The Legislative Competence Of The State As They
Neither Are Beyond The Jurisdiction Of State .................................................................. 9

4. THAT 3C AND 3D ARE VALID SECTIONS AS UNDER DOCTRINE OF PITH


AND SUBSTANCE AND WITH REGARDS TO INTENTION OF LEGISLATURE
IN THE SURROUNDING CIRCUMSTANCES. ........................................................... 11

[4.1] The Doctrine Of Pith And Substance Is Applicable ............................................... 11

[4.2] The Sections Are Valid With Regard To The Intention Of Legislation In
Surrounding Circumstances And Presumption Of Constitutionality ............................... 12

5. THAT THE DIRECTORS OF MSL ARE LIABLE FOR BREACH OF


FIDUCIARY DUTIES AND SHOULD RETURN THE PERSONAL PROFITS
MADE PURSUANT TO THE LAND DEAL BY FEL IN THE REAL ESTATE
TRANSACTION. ............................................................................................................... 14

[5.1] Shareholders Of The Company Can Bring The Suit On Behalf Of The Company
As The Directors Are Wrong Doers ................................................................................ 15

[5.2] The Directors Are Trustees Towards The Company And Its Shareholders ............ 15

[5.3] The Directors Breached Their Fiduciary Duty When They Made Personal Profits
Contrary To The Company’s Interest And They Should Be Held Accountable For Profits
They Made ....................................................................................................................... 16

6. THAT THE DIRECTORS CANNOT BE EXCUSED UNDER SECTION 463 OF


THE COMPANIES ACT (CORRESPONDING TO THE SECTION 633 OF THE
COMPANIES ACT, 1956). ............................................................................................... 19

PRAYER ................................................................................................................................ xiv

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MEMORIAL ON BEHALF OF THE APPELLANTS

LIST OF ABBREVIATION

1. & And
2. § Section
3. ¶ Paragraph
4. AAEC Appreciable Adverse Effect on Competition
5. AC Appeal Court
6. AIR All India Reporter
7. Art Article
8. BFL Black Fort Limited
9. CCH Competition Commission of Hoegaarden
10. Co Company
11. DG Director General
12. EC European Commission
13. EOI Expression of Interest
14. FEL FreshCo Estates Limited
15. FPSSCL Fosters Pradesh State Sugar Corporation Limited
16. GoFP Government of Fosters Pradesh
17. IDR Industries (Development and Regulation) Act
18. KIPL Kalyani Industries Private Limited
19. Ltd Limited
20. MSL Mellifluous Sugars Limited
21. OPs Opposite Parties
22. Ors Others
23. Pvt Private
24. RFP Request for Proposal
25. RFQ Request for Qualification
26. ROC Registrar of Companies
27. SCM Swiss Challenge Method
28. TFEU Treaty on the Functioning of the European Union
29. v. Versus
30. ZPL Zingaro Private Limited

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MEMORIAL ON BEHALF OF THE APPELLANTS

INDEX OF AUTHORITIES

Cases
Allen v Hyatt [1914] 30 TLR 44 .............................................................................................. 17
Baijnath Kardio v State of Bihar AIR 1970 SC 1436 .............................................................. 10
Baillie v Oriental Telephone & Electric Co Ltd [1915] 1 Ch 503 ........................................... 15
Belsund Sugar Co Ltd v State of Bihar AIR 1999 SC 3125 ...................................................... 9
Bhagwan (Baksh) Singh (Raja) v Secretary of State AIR 1940 PC 82 .................................... 13
Bhagwati Foods (P) Ltd v Registrar of Companies 2008 143 Comp Cas 531 ........................ 19
Calcutta Gas Co (Properitors) Ltd v State of WB AIR 1962 SC 1044 ..................................... 9
Calcutta Gas Co v State of WB AIR 1962 SC 1044 ................................................................ 11
Case C-286/13 P - Dole Food Company Inc & Dole Fresh Fruit Europe v Commission
[2015] ..................................................................................................................................... 5
Case C-89/85 A Ahlstrom Osakeyhtio & Ors v Commission [1993] ECR I-1307 .................... 8
CCE v Eastend Paper Industries Ltd (1989) 4 SCC 244 ........................................................... 2
Charan Lal Sahu v Union of India (1990) 1 SCC 613 ...................................................... 10, 13
Chiranjitlal Chowdhury v Union of India AIR 1951 SC 41 .................................................... 13
City Equitable Fire Insurance Co Ltd In re [1925] I Ch 407 .................................................. 15
Coal Marketing Co of India (P) Ltd In re 1967 37 Comp Cas 720 (Cal) ................................ 19
Commissioner of Sales Tax v Mugneeram Bangur 57 ITR 299 ................................................ 2
Consumer Online Foundation v Tata Sky Ltd & Ors 2011 SCC OnLine CCI 12 ..................... 5
Cook v Deeks [1916] 1 AC 554 ......................................................................................... 17, 19
Coromandel Fertilizers Ltd v State of AP 1998 6 ALD 752...................................................... 2
D Doss v CP Cormell 1937 7 Comp Cas 429 (Mad) ............................................................... 20
Dale and Carrington Invt (P) Ltd v P K Prathapan AIR 2005 SC 1624 ................................ 15
Deputy Commissioner (CT) v K Behanan Thomas1976 SCC OnLine Mad 421 ....................... 2
Devadoss (dead) by L Rs v Veera Makali Amman Koil Athalur AIR 1998 SC 750 ................ 13
Devi Das Gopal Krishnan v State of Punjab AIR 1967 SC 1895 ............................................. 4
DG Gose & Co (Agents) (P) Ltd v State of Kerala (1980) 2 SCC 410...................................... 3
Dhakeshwari Cotton Mills Ltd v Nil Kamal Chakravarti AIR 1937 Cal 645 ......................... 15
DLF Qutab Enclave Complex Educational Charitable Trust v State of Haryana & Ors (2003)
5 SCC 622 ............................................................................................................................ 12
Engg Kamgar Union v Electro Steel Casting Ltd AIR 2004 SC 2401 .................................... 11

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MEMORIAL ON BEHALF OF THE APPELLANTS

Fateh Chand Kad v Hindsons (Patiala) Ltd [1957] 27 Camp Cas 340 ................................... 16
Gensor ACP Ltd v Dalby [2000] 2 BCLC 734 ........................................................................ 18
Godfrey Phillips India Ltd v State of UP AIR 2005 SC 1103 ................................................. 11
Great Northern Rly Co v United States of America (1942) 315 US 262 ................................. 13
Hamdard Dawakhana v Union of India AIR 1960 SC 554 ..................................................... 13
Hariprasad Shivshankar Shukla v AD Divelkar AIR 1957 SC 121 ........................................ 13
Herrietta Muir Edwards v AG of Canada AIR 1930 PC 120 .................................................. 13
Herron v Rathmines & Rathgar Improvement Commissioners [1892] AC 498 ...................... 13
Hogg v Cramphorn Ltd [1967] Ch 254.................................................................................... 17
Ice Co v Ansell [1888] 39 Ch D 339 ........................................................................................ 18
Imperial Mercantile Credit Association v Coleman [1882] 6 Ch App 558 ............................. 18
Ishwari Khetan Sugar Mills (P) Ltd & Ors v State of UP & Ors (1980) 4 SCC 136 ................ 9
Keates v Lewis Merthyr Consolidated Collieries Ltd [1911] AC 641 ..................................... 13
Kerala State Electricity Board v Indian Aluminium Co Ltd (1976) 1 SCR 552 ...................... 11
Kewal Chand Mimani v SK Sen (2001) 6 SCC 512 ................................................................... 4
M A Malik v S Thiruvengadasami Mudaliar [1949] 19 Comp Cas 311 .................................. 15
M Hamsa Haji v Sales Tax Officer 20 (1967) STC 470 ............................................................ 3
Mac Pherson v European Strategic Bureau Ltd [2002] EWCA Civ 248 ................................ 16
Monsanto Co v Spray-Rite Service Corp 465 US 752 (1984). .................................................. 8
Nagappa Chettiar [NVR] v Madras Race Club AIR 1951 Mad 831 ....................................... 15
Nationwide Building Society v Various Solicitors [1999] 40 DLR [3rd] 371 [Canada] ........... 18
New Fleming Spinning Weaving Co Ltd v Kessowjinaik [185] 1 LR 9 Bom 373 ................... 17
Offshore Holding (P) Ltd v Bangalore Development Authority (2011) 1 JT 384 ................... 11
Percival v Wright [1902] 2 Ch 421 .......................................................................................... 17
PK Nedungadi v Malayatee Bank Ltd AIR 1971 SC 829 ........................................................ 18
Quinn and Axtens Ltd v Salmon [1909] AC 442 [HL] ............................................................. 15
Raghubir v State of Ajmer AIR 1959 SC 475 .......................................................................... 10
Rajeev Saumitra v Neetu Singh & Ors 2016 SCC OnLine Del 512 ........................................ 17
Ramchandra Sons (P) Ltd v State 1966 36 Comp Cas 585 (All)............................................. 19
Re Alkali & Chemical Corporation of India Ltd, Calcutta & Bayer (I) Ltd RTPE 21 of 1981. 7
Re All India Tyre Dealers’ Federation v Tyre Manufacturers 2012 SCC OnLine CCI 65 ....... 5
Re Alleged Cartelization by Steel Producers 2014 SCC OnLine CCI 7 ................................... 5
Re Chloride India Ltd & Ors1986 SCC OnLine MRTPC 11 .................................................... 7
Re Forest of Dean Coal Mining Co [1878] 10 Ch D 450 ........................................................ 15

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MEMORIAL ON BEHALF OF THE APPELLANTS

Re Oriental Gas Co AIR 1961 Cal 207 ................................................................................... 10


Regal Hastings v Gulliver [1942] 1 All ER 378 ...................................................................... 16
RK Mahapatra v Secretary of Government 1998 92 Comp Cas 809 (AP) .............................. 20
RL Arora v State of UP (1964) 6 SCR 784 .............................................................................. 13
Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97 ...................................................... 17
Sanghi Jeevaraj Ghewar Chand v Secretary, Madras Chillies (1969) 1 SCR 366 ................. 13
Sarasmati Printers Ltd v State 1960 30 Comp Cas 523 (Raj) ................................................. 19
Smith v Croft [1987] BCLC 355 .............................................................................................. 15
Southern Petrochemical Industries Co Ltd v Electricity Inspector (2007) 5 SCC 447 ............. 2
State of Bombay v FN Balsara 1951 SCR 682 ........................................................................ 11
State of Karnataka v Ranganatha Reddy (1978) 1 SCR 641 ............................................. 11, 12
State of Orissa v MA Tulloch AIR 1964 SC 1284 ................................................................... 10
State of West Bengal v Committee for Protection of Democratic Rights AIR 2010 SC 1476. 11
State of West Bengal v Union of India AIR 1963 SC 1241 ..................................................... 10
The Competition Act 2002, § 2(u) ............................................................................................. 3
The Deputy Commissioner of Sales v Dat Pathe (1985) [59] STC 374 Kerala ......................... 3
Theatre Enterprises v Paramount Film Distributing Corp 346 US 537 (1954) ........................ 7
Thomas Marshall (Exports) Ltd v Guinle [1978] 3 All ER 193 .............................................. 18
Tri-sure India In re 1983 54 Comp Cas 197 (Bom) ................................................................ 19
Union of India v Elphinstone Spinning and Weaving Co JT 2001 (1) SC 536........................ 13
Union of India v HS Dhillon (1972) 2 SCR 33 ........................................................................ 11
Union of India v Shah Goverdhan L Kabra Teachers’ College (2002) 8 SCC 228 ................ 11
VC Rangadurai v D Gopalan AIR 1979 SC 281 ..................................................................... 13
Zameer Ahmed Latifur Rehman Sheikh v State of Maharashtra & Ors (2010) 5 SCC 246 .... 11
Statutes
The Companies Act 2013, § 166(4) ......................................................................................... 14
The Companies Act 2013, § 166(5) ......................................................................................... 14
The Competition Act 2002, § 19(1) ........................................................................................... 1
The Competition Act 2002, § 19(3) ........................................................................................... 8
The Competition Act 2002, § 19(3)(a) ...................................................................................... 8
The Competition Act 2002, § 19(3)(b) ...................................................................................... 8
The Competition Act 2002, § 19(3)(c) ...................................................................................... 9
The Competition Act 2002, § 2(a) ......................................................................................... 1, 3
The Competition Act 2002, § 2(h) ............................................................................................. 2

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MEMORIAL ON BEHALF OF THE APPELLANTS

The Competition Act 2002, § 20(1) ........................................................................................... 4


The Competition Act 2002, § 3(3) ............................................................................................. 6
The Competition Act 2002, § 3(3)(a) ........................................................................................ 6
The Competition Act 2002, § 3(3)(d) ........................................................................................ 6
The Competition Commission of India (Procedure In Regard To The Transaction Of Business
Relating To (Combinations) Regulations 2011, Schedule I Rule 3 ....................................... 4
The Income Tax Act 1961, § 2(42-C) ........................................................................................ 1
The Industries (Development and Regulation) Act 1951, § 18AA(1)(b) ................................ 10
The Sale of Goods Act 1930, § 2(7) .......................................................................................... 2
Uttar Pradesh Sugar Undertaking (Acquisition)(Amendment) Act 2009 ................................ 12
Other Authorities
CUTS International & National Law University Jodhpur, ‘Study of Cartel Case Laws in
Select Jurisdictions - Learnings for the Competition Commission of India’ [2008] 17 ........ 6
CUTS International & National Law University Jodhpur, ‘Study of Cartel Case Laws in
Select Jurisdictions - Learnings for the Competition Commission of India’ [2008] 21 ........ 5
Treatises
Treaty on the Functioning of the European Union [1957], art 81(1) ......................................... 6
Treaty on the Functioning of the European Union [1957], art 85 ............................................. 6
Books
Alison Jones, EU Competition Law (4th edn, Oxford University Press 2011) 840 .................... 7
Black's Law Dictionary (10th edn, Thomson Reuters 2014). ................................................... 10
L V V Iyer, Guide to Company Directors (4thedn, Lexis Nexis2015) 238.............................. 14
Richard Whish, Competition Law (7thedn, Oxford University Press 2012) 536 ....................... 6
Richard Whish, Competition Law (7thedn, Oxford University Press 2012) 561 ....................... 5

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MEMORIAL ON BEHALF OF THE APPELLANTS

STATEMENT OF JURISDICTION

1. The Appellants have come under Section 53T of the Competition Act, 2002. The
Supreme Court of Hoegaarden has jurisdiction in this matter under this Section which
reads as;
“53T. The Central Government or any State Government or the Commission or any
statutory authority or any local authority or any enterprise or any person aggrieved by
any decision or order of the Appellate Tribunal may file an appeal to the Supreme Court
within sixty days from the date of communication of the decision or order of the Appellate
Tribunal to them;”
2. The Appellants have come under Article 136 of the Constitution of Hoegaarden. The
Supreme Court of Hoegaarden has jurisdiction in this matter under this Article which
reads as;
“136. Special leave to appeal by the Supreme Court — 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 Hoegaarden”
3. The Appellants have come under Section 423 of the Companies Act, 2013. The Supreme
Court of Hoegaarden has jurisdiction in this matter under this Section which reads as;
“423. Appeal to Supreme Court.— Any person aggrieved by any order of the Appellate
Tribunal may file an appeal to the Supreme Court within sixty days from the date of
receipt of the order of the Appellate Tribunal to him on any question of law arising out of
such order:”

This memorial sets forth the facts, contentions and arguments for the Appellants in the
given cases.

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MEMORIAL ON BEHALF OF THE APPELLANTS

STATEMENT OF FACTS

1. The Union of Hoegaarden is a sovereign, socialist, secular, democratic & republic country,
which gained independence in 1947 and constitution of Hoegaarden came into force on 26 th
January 1950 & three organs of Union were established: the parliament, executive &
judiciary, demarcation amongst all of them is provided in Schedule VII of the Constitution.
2. Soon after independence, serious problems were created by owners of certain sugar mills in
the State of Fosters Pradesh which affected the general economy adversely. To ameliorate
threats posed & to secure interest of cane farmers & workers of sugar mills, Governor of
Fosters Pradesh acquired the sick sugar mills and vested them in Government Co. FPSSCL
under Fosters Pradesh Sugar Undertaking (Acquisition) Act, 1971.
3. The efforts of State Government did not yield positive results. FPSSCL was referred to
BIFR under Sick Industrial Companies (Special Provisions) Act, 1985. BIFR declared
FPSSCL to be a sick company & 11 sugar mills remained under management of FPSSCL
while remaining were transferred to FPSSCDL. As loss of both FPSSCL & FPSSCDL were
increasing state government through G.O. dated 04/06/2007 decided to sell/privatize all
sugar mills under management of FPSSCL & Fosters Pradesh Sugar Undertakings
(Acquisition) (Amendment) Ordinance, 2008 was promulgated amending the 1971 Act.
Under §3-A, the state govt. was authorized to divest, sell off or otherwise part with any of
its shares & §3-B, the FPSSCL or any of its subsidiaries were authorized to sell or transfer
any of its assets or liabilities vested in FPSSCL. Later Fosters Pradesh Sugar Undertaking
(Acquisition) Amendment Act, 2009 was passed replacing Ordinance w.e.f. 29/09/2008.
4. Independent valuation was conducted for the disinvestment of 11 sugar mills & M/s. ICFL
submitted & suggested the reserved price/expected price to the CGS constituted by state
government which accepted the recommendation of reserved/expected price. Government
by means of EOI-cum-RFQ & RFP invited bids for the purchase of 11 sugar mills. Later it
was alleged that bidders who had participated cartelized by quoting lower prices. While the
inquiry by state government was pending, Shri Thanos filed information with CCH for
investigation in the alleged matter. It prima facie appeared that sugar mills sold by FPSSCL
were in violation of the provisions of section 3(3)(a) & 3(3)(d) of the Competition Act,
2002 & the matter was referred of the DG for investigation. DG in his report found
documentary evidences of collusion among 2 participating companies and established
violation of section 3 of competition act, 2002 & CCH heard all the parties concerned,

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MEMORIAL ON BEHALF OF THE APPELLANTS

rejecting arguments of the opposite parties i.e. KIPL & BFL imposed a penalty of 10% of
average turnover for last three preceding financial years. In objection the opposite parties
challenged jurisdiction of CCH & filed an appeal before COMPAT which was dismissed.
Against the order of Hon’ble COMPAT, they filed a civil appeal before Hon’ble Supreme
Court.
5. Meanwhile, Shri Loki, a sugarcane farmer challenged constitutional validity of §3-C & §3-
D of Amendment Act, 2009 on ground that both of these 2 sections were repugnant to IDR
Act. The Hon’ble High Court of Fosters Pradesh struck down §3-C & §3-D of the Act. State
of Fosters Pradesh against the order of High Court filed a SLP in Supreme Court.
6. MSL, a subsidiary of FPSSCL in northern states had 5 sugar mills. The board realized that
value of property would increase twice if the two adjoining plots which belonged to SGL
could be acquired through a sale or lease agreement & later the company or business of
company could be sold to third party at a profit.
7. Pursuant to this, after extensive negotiations, Mr. Sanguine Johnson, owner of SGL, refused
to sell but agreed to give land for a long term lease of 200 years. MSL formed a subsidiary
called FEL for the purpose of acquisition of 2 leaseholds & transferred 5 sugar mills &
made it the consolidated holder of the sugar mills. During incorporation of FEL, MSL
acquired share capital of FEL of 20 lakhs & expressed its inability to fund entire share
capital of FEL & stated that it could commit to a maximum amount of 20 lakh rupees after
John, Cadbury, Davidson & Robert who were directors in both the companies i.e. MSL &
FEL decided not to invest anymore if the company’s money in FEL. To fund share capital
deficit, all the directors of MSL subscribed to shares of FEL to extent of 5 lakhs each but
they had not obtained authorization from MSL shareholders for their investment in FEL.
8. Later SGL retracted & to recover from setback MSL acquired two wastelands through FEL
and then sold consolidated land holding through FEL for real estate business. It was
revealed later that at the time of incorporation of FEL, MSL had Rs. 1 Crore in its free
reserves & securities premium account which could be used for dividend distribution.
9. The shareholders filed an application before NCLT alleging that directors should return
profits made pursuant land deal in the real estate business contending that directors used
information they received as directors for their personal advantage & therefore called for the
directors to account for profits made. The respondents contended investment made by the
directors in FEL was valid and in furtherance of their obligation towards MSL. Though
NCLT rejected the petition filed by applicants, they approached NCLAT which was also
rejected. At last they filed a civil appeal before Supreme Court.

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MEMORIAL ON BEHALF OF THE APPELLANTS

STATEMENT OF ISSUES

1. WHETHER THE COMPETITION COMMISSION OF HOEGAARDEN HAS


JURISDICTION TO INQUIRE/INVESTIGATE INTO THE ALLEGATIONS OF
BID RIGGING ON KIPL AND BFL.
2. WHETHER THE PARTIES CONTRAVENED THE PROVISIONS OF SECTION
3(1) READ WITH SECTION 3(3)(a) AND 3(3)(d) OF THE ACT.
3. WHETHER THE SECTION 3-C AND 3-D OF FOSTERS PRADESH SUGAR
UNDERTAKING (ACQUISITION) ACT, 2009 ARE BEYOND THE
LEGISLATIVE COMPETENCE OF THE STATE OF FOSTERS PRADESH.
4. WHETHER 3C AND 3D ARE VALID SECTIONS AS UNDER DOCTRINE OF
PITH AND SUBSTANCE AND WITH REGARDS TO INTENTION OF
LEGISLATURE IN THE SURROUNDING CIRCUMSTANCES.
5. WHETHER THE DIRECTORS OF MSL ARE LIABLE FOR BREACH OF
FIDUCIARY DUTIES AND SHOULD RETURN THE PERSONAL PROFITS
MADE PURSUANT TO THE LAND DEAL BY FEL IN THE REAL ESTATE
TRANSACTION.
6. WHETHER THE DIRECTORS CAN BE EXCUSED UNDER SECTION 463 OF
THE COMPANIES ACT (CORRESPONDING TO THE SECTION 633 OF THE
COMPANIES ACT, 1956).

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MEMORIAL ON BEHALF OF THE APPELLANTS

SUMMARY OF ARGUMENTS

1. THAT THE COMPETITION COMMISSION OF HOEGAARDEN HAS NO


JURISDICTION TO INQUIRE/INVESTIGATE INTO THE ALLEGATIONS OF
BID RIGGING ON KIPL AND BFL.

The Competition Commission of Hoegaarden has no jurisdiction to inquire/investigate into


the allegations of Bid-Rigging on KIPL and BFL. The Commission can inquire into the
affairs of Anti-Competitive agreements under § 19(1) read with § 3(1). But, § 3(1) restricts
the Commission’s jurisdiction to the matters of agreements in respect of production, storage,
supply, distribution or sale of goods and provision of services only. And, in the present case,
there was a ‘Slump sale Agreement’ for the sale of sugar mills which can neither be regarded
as Goods, nor services. The sale agreement can be covered under § 5, 6 and 20 of the Act but
these provisions were not enforced when the deal was executed.

2. THAT THE PARTIES HAVE NOT CONTRAVENED THE PROVISIONS OF


SECTION 3(3)(a) OR 3(3)(d) OF THE ACT.

The parties have neither violated § 3(3)(a) nor §3(3)(d) of the Act. For bid rigging and price
fixing, the parties must have entered into an agreement but none of the information collected
by the DG indicates that there was an agreement between the OPs whether oral or written.
Further, the OPs are engaged in different trade and § 3(3) cannot be taken into cognizance
until and unless both the parties are engaged in same trade. Only a handful of enterprises
were in the competition and when the competition is so low, the market becomes predictable
and the competitors become aware of each other. Thus, the OPs quoted similar prices.

3. THAT THE §3-C AND 3-D OF FOSTERS PRADESH SUGAR


UNDERTAKING(ACQUISITION) ACT, 2009 ARE CONSTITUTIONALLY
VALID AS THEY ARE WITHIN THE LEGISLATIVE COMPETENCE OF THE
STATE OF FOSTERS PRADESH.

The State Act was within the competency of the Legislature as the Union by the provisions of
Industries (Development and Regulation) Act, 1951 does not include within its ambit the
validity of closure of any scheduled undertaking.

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MEMORIAL ON BEHALF OF THE APPELLANTS

4. THAT 3C AND 3D ARE VALID SECTIONS AS UNDER DOCTRINE OF PITH


AND SUBSTANCE AND WITH REGARDS TO INTENTION OF LEGISLATURE
IN THE SURROUNDING CIRCUMSTANCES.

The submission is twofold, i.e., the doctrine of pith and substance is applicable and the
substace of the legislations falls within the State List and incidental encroachment on any of
the matters enumerated in the Union List, the State Act would not become invalid. Secondly,
keeping in mind the intention of Legislature and the surrounding circumstances §3C and 3D
are constitutionally valid.

5. THAT THE DIRECTORS OF MSL ARE LIABLE FOR BREACH OF FIDUCIARY


DUTIES AND SHOULD RETURN THE PERSONAL PROFITS MADE
PURSUANT TO THE LAND DEAL BY FEL IN THE REAL ESTATE
TRANSACTION.

The Directors are liable for breach of their fiduciary duty towards the company, MSL and
should return the profits made pursuant to the land deal by FEL. The directors have a duty to
act in good faith of the Company and not to have interests conflicting to that of the company.
But, in the present case, the Directors restricted the investment in the subsidiary Company to
half and used their own money for the other half. They made personal profits and that too
without the authorization of the shareholders. So, they are liable to return the profits they
made.

6. THAT THE DIRECTORS CANNOT BE EXCUSED UNDER SECTION 463 OF


THE COMPANIES ACT (CORRESPONDING TO THE SECTION 633 OF THE
COMPANIES ACT, 1956).

The Directors cannot be excused under § 463 of the Companies Act as they did not act
reasonably and honestly in the Company’s interest and gained personal profits in contradiction
of the same.

xiii
MEMORIAL ON BEHALF OF THE APPELLANTS

ARGUMENTS ADVANCED

1. THAT THE COMPETITION COMMISSION OF HOEGAARDEN HAS NO


JURISDICTION TO INQUIRE/INVESTIGATE INTO THE ALLEGATIONS OF BID
RIGGING ON KIPL AND BFL.

1. The Appellants humbly submit that the Competition Commission of Hoegaarden


(hereinafter referred to as “The Commission”) has no jurisdiction to inquire/investigate
into the allegations of Bid Rigging on KIPL and BFL. According to the Competition Act,
2002 (hereinafter referred to as “the Act”), the Commission may inquire into a matter if it
falls within the purview of § 3(1) of the Act.1 But, the Act, under § 3(1) restricts the
powers of the Commission to inquire/investigate only into the matters involving
production, supply, distribution, storage, acquisition or control of goods or provision of
services. And, in the present case there was a “Slump Sale Agreement” for the sale of
Sugar Mills which do not qualify as Goods or Services.
2. This sale, however, comes under the definition of Acquisition of Assets under § 2(a)2 of
the Act and fulfils the parameter of § 5 of the Act. Thus, the inquiry on this matter can
only be made under § 6 and § 20 of the Act but, even that is not possible in the present
case as these provisions were included after the sale deed was executed.

[1.1] SALE OF SUGAR MILLS THROUGH SLUMP SALE AGREEMENTS CANNOT BE


CLASSIFIED AS SALE OF GOODS OR PROVISION OF SERVICES

3. It is submitted that the sale of the sugar mills by FPSSCL was on a ‘Slump Sale’ and
‘Going Concern’ basis as per the slump sale agreement in respect of each unit. The
consideration amount was the lump-sum consideration for slump sale of the unit as a
whole on ‘as is where’ basis. Slump Sale means the transfer of one or more undertakings
as a result of the sale for a lump-sum consideration without values being assigned to the
individual assets and liabilities in such sales3 and such sale cannot be classified as a sale of
Goods or provision of Services.

1
The Competition Act 2002, § 19(1).
2
The Competition Act 2002, § 2(a).
3
The Income Tax Act 1961, § 2(42-C).

1
MEMORIAL ON BEHALF OF THE APPELLANTS

[1.1.1] Sugar Mills Are Not Goods As They Classify As Immovable Property and Are
Annexed To The Earth

4. Good means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or forming part of
the land which are agreed to be severed before sale or under the contract of sale. 4 Goods
have been understood to be known as identifiable and movable articles known in the
market as goods and marketed or marketable in the market as such. 5 “Goods” may be
tangible or intangible property. It would become goods provided it has the attributes
thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c)
capable of being transmitted, transferred, delivered, stored and possessed. 6 Evidently, the
Sugar Mills are not movable property, nor are they capable of being transmitted,
transferred, delivered, or stored per se. Sugar Mills are the parts of the Land on which they
are situated on so, clearly they cannot be classified as Goods.

[1.1.2] Sale of a Business Undertaking Is Not Sale of Goods

5. When a person who is carrying on business sells the entire business or a branch of the
business, he sells the same as a running business or a going concern. The sale proceeds of
such a transaction cannot be said to constitute turnover as defined in the Act, because the
sale proceeds are not proceeds of sale of goods made in the course of business as defined
in the Sale of Goods Act.7 FPSSCL was a government company which was running sugar
mills8 and the sale of those mills is a branch of FPSSCL’s business only.
6. Where there is a sale of entire business undertaking or a branch of the business
undertaking as a going concern the sale cannot be regarded as sale in the course of
business nor can we treat the seller as having been engaged in any business activity. The
sale proceeds of such a transaction cannot be said to constitute turnover for the sale of
goods in course of business.9 The stock-in-trade transferred to the firm formed assesse
capital in the firm, and that such transfer could not be treated as sale of goods. It was also

4
The Sale of Goods Act 1930, § 2(7); The Competition Act 2002, § 2(h).
5
CCE v Eastend Paper Industries Ltd (1989) 4 SCC 244.
6
Southern Petrochemical Industries Co Ltd v Electricity Inspector (2007) 5 SCC 447.
7
Deputy Commissioner (CT) v K Behanan Thomas1976 SCC OnLine Mad 421.
8
Moot Proposition ¶ 2.
9
Coromandel Fertilizers Ltd v State of AP 1998 6 ALD 752; Commissioner of Sales Tax v Mugneeram Bangur
57 ITR 299.

2
MEMORIAL ON BEHALF OF THE APPELLANTS

observed that even assuming that there was a sale, it was not a sale in the course of trade
or business; nor was it a transaction by a dealer as defined in the Income Tax Act.10
7. In the present case, there was a sale of Sugar Mills owned by FPSSCL. 11 These Industries
form a branch of the business of FPSSCL. Thus, these sale proceeds cannot be said to be
made in course of business transactions and certainly cannot be said to be Sale of Goods.

[1.1.3] Sale of Sugar Mills Is Not Provision of Services Either

8. Service means service of any description which is made available to potential users
and includes the provision of services in connection with business of any industrial or
commercial matters such as banking, communication, education, financing, insurance,
chit funds, real estate, transport, storage, material treatment, processing, supply of
electrical or other energy, boarding, lodging, entertainment, amusement, construction,
repair, conveying of news or information and advertising.12
9. Clearly the Sale of a bunch of Sugar Mills does not come under any of the aforementioned
commercial matters, so this Sale cannot be termed as a Provision of Services.
10. Hence, it is proved that the Commission has no right to investigate/inquire into the
allegations of Bid Rigging on KIPL and BFL as there was no agreement between any
parties in respect of production, supply, distribution, storage, acquisition or control of
goods or provision of services.

[1.2] THE SALE OF SUGAR MILLS CAN ONLY BE CLASSIFIED AS ACQUISITION OF ASSETS
UNDER THE ACT

11. It is submitted that the Sale of Sugar Mills by Slump Sale Agreement in the present case
does not come under the sale of Goods but under the acquisition of assets as defined
under § 2(a) and § 5. Thus, the inquiry is subject to be made w.r.t. Regulation of
Combinations under § 6 and § 20 but these provisions were not enforced at the time of the
sale and also have a limitation period of 1 year.
12. Acquisition means, directly or indirectly, acquiring or agreeing to acquire - shares, voting
rights or assets of any enterprise; or control over management or control over assets of any
enterprise.13 Assets mean “property in general; all that one owns.”14

10
M Hamsa Haji v Sales Tax Officer 20 (1967) STC 470; The Deputy Commissioner of Sales v Dat Pathe (1985)
[59] STC 374 Kerala.
11
Moot Proposition ¶ 6.
12
The Competition Act 2002, § 2(u).
13
The Competition Act 2002, § 2(a).
14
DG Gose & Co (Agents) (P) Ltd v State of Kerala (1980) 2 SCC 410.

3
MEMORIAL ON BEHALF OF THE APPELLANTS

13. Acquisition is the act by which a person acquires property in a thing. “Acquire” is to
become the owner of the property. One can, therefore, acquire a property either by
voluntary or involuntary transfer.15 Acquisition involves permanency, finality and transfer
of title over a property from one person to another.16
14. Acquisition of Assets where the assets being acquired represent substantial business
operations in a particular location or for a particular product or service of the enterprise, of
which assets are being acquired, irrespective of whether such assets are organized as a
separate legal entity or not are likely to have an appreciable adverse impact on
Competition.17
15. The Sugar Mills which were being sold were the property that FPSSCL owned which
makes them assets of the Company and the three enterprises, namely, KIPL, BFL and ZPL
were trying to acquire these assets. It clearly satisfies the definition under § 2(a) and § 5 of
the Act. Acquisition of Enterprises under § 5 can be subject to inquiry only under § 6 read
with § 20 of the Act and the Combination Regulations, 2011. The said provisions were
enforced on 31st of May 2011 but the whole sale deed was executed by 6th January 2011.
Moreover, the inquiry under § 20 can only be made within one year of a Combination
taking place.18 But, in the present case, the whole sale deed was executed by 6th January
201119 while the information was received by the Commission after 31st November 2012
and the investigation was started on 10th January 2013.20 So, these provisions are not
applicable.
16. Hence, the Commission has no jurisdiction to inquire into the present matter.

2. THAT KIPL HAS NOT CONTRAVENED THE PROVISIONS OF SECTION


3(3)(a) OR 3(3)(d) OF THE ACT.

1. It his humbly submitted before the Hon’ble Court that that the OPs have not formed a
cartel and violated the provisions of § 3(3)(a) and § 3(3)(d) of the Act. There was no
agreement between the OPs either formal or informal, the OPs are engaged in different
business and their act cannot be termed as anti-competitive.

15
Devi Das Gopal Krishnan v State of Punjab AIR 1967 SC 1895.
16
Kewal Chand Mimani v SK Sen (2001) 6 SCC 512.
17
The Competition Commission of India (Procedure In Regard To The Transaction Of Business Relating To
(Combinations) Regulations 2011, Schedule I Rule 3.
18
The Competition Act 2002, § 20(1).
19
Moot Proposition, ¶ 10(viii).
20
Moot Proposition, ¶ 11.

4
MEMORIAL ON BEHALF OF THE APPELLANTS

[2.1] THERE IS NO AGREEMENT BETWEEN THE PARTIES

2. ‘Agreement’ as defined under § 2(b) is a wide and inclusive definition which not only
includes formal written agreement which is enforceable in law but also informal
‘understanding’ and ‘arrangement’ in the widest possible meaning.21 Existence of an
agreement (oral or written) is one of the essential conditions is to be fulfilled to establish a
cartel.22
3. In Re: Alleged cartelization by Steel Producers, where the Commission was of the view
that non-competitive nature of a market does not imply an agreement and interdependent
behaviour of enterprises does not necessarily indicate collusive conduct.23 The theory runs
that in an oligopolistic market rivals are interdependent: they are acutely aware of each
other’s presence and are bound to match one another’s marketing strategy.24 In Online
Foundation v Tata Sky Ltd and Others,25 the CCI held that the existence of direct evidence
is a must for establishing any contravention of the provisions of the Act. In Bananas,26 the
Commission imposed heavy fines on three producers of banana for holding bilateral phone
calls to discuss their pricing intention.
4. In the case at hand, 80 enterprises participated in the pre-bid meeting.27 Only 10 applicants
submitted EOI cum RFQ for the sale of 11 sugar mills28 out of which only 3 submitted
RFP.29 This indicates that not many were interested in the sale of sugar mills. Thus, there
existed a competition between only a handfuls of prospective buyers for the mills. This
further indicates that the parties were aware of each other’s presence and were bound to
match one other’s marketing strategy. Further, the DG was unable to find an iota of
evidence which proves that there existed an agreement between the parties whether written
or oral.

[2.2] THE PARTIES ARE ENGAGED IN DIFFERENT BUSINESS

5. It is submitted that § 3(3) which relates to bid rigging specifically envisages that the
agreement in relation to bid rigging must be between enterprises or person who are

21
Re All India Tyre Dealers’ Federation v Tyre Manufacturers 2012 SCC OnLine CCI 65.
22
CUTS International & National Law University Jodhpur, ‘Study of Cartel Case Laws in Select Jurisdictions -
Learnings for the Competition Commission of India’ [2008] 21.
23
Re Alleged Cartelization by Steel Producers 2014 SCC OnLine CCI 7.
24
Richard Whish, Competition Law (7thedn, Oxford University Press 2012) 561.
25
Consumer Online Foundation v Tata Sky Ltd & Ors 2011 SCC OnLine CCI 12.
26
Case C-286/13 P - Dole Food Company Inc & Dole Fresh Fruit Europe v Commission [2015].
27
Moot Proposition ¶ 8(ii).
28
Moot Proposition ¶ 8(iii).
29
Moot Proposition ¶ 9.

5
MEMORIAL ON BEHALF OF THE APPELLANTS

engaged in identical or similar production or trading of goods or provision of services. 30 §


3(3) of the Act requires that for bid rigging there must be an agreement between
enterprises or persons who are engaged in identical or similar production or trading of
goods or provision of services.31
6. In the present case, KIPL was engaged in the business of manufacturer, distiller and
refiner of and deals in methylated spirit rectified spirit, alcohol, molasses, sugar and its
business activity include manufacturing & sale of sugar cane products etc 32 whereas BFL
is engaged in manufacture, process, prepare, pressure, refine, bottle and dealing in foods
meats eggs, poultry, canned and tinned and processed foods, protein, health and instant
foods of all kinds including baby and dietetic foods etc.33 Thus, they are engaged in
different trade.
7. It is clear from the above facts that since the OPs are not engaged in identical or similar
trade, the provision of § 3(3) cannot be applied. The entities are engaged in different trades
and, therefore, the provisions of § 3(3)(a) and 3(3)(d) cannot be applied.

[2.3] THE PARTIES HAVE NEITHER RIGGED THE BIDDING PROCESS NOR FIXED THE PRICE
OF SUGAR MILLS

8. § 3(3)(a) of the Act prohibits any anti-competitive agreement which directly or indirectly
determines the purchase or sale prices.34 § 3(3)(d) of the Act prohibits any agreement that
directly or indirectly results in bid rigging or collusive bidding.35 Article 81(1)(a) of
TFEU36 treats price fixing as anti-competitive agreement whether horizontal or vertical.
Collusive tendering is a practice whereby firms agree amongst themselves to collaborate
over their response to invitations to tender.37
9. Article 85 of the Treaty38 prohibits any form of collusion which distorts competition
though it does not deprive economic operators of the right to adapt themselves
intelligently to the existing and anticipated conduct of their competitors.
10. In the case of Theatre Enterprises, the Commission held that like price parallelism, price
leadership too is a common feature of an oligopolistic market and cannot be considered as

30
The Competition Act 2002, § 3(3).
31
CUTS International & National Law University Jodhpur, ‘Study of Cartel Case Laws in Select Jurisdictions -
Learnings for the Competition Commission of India’ [2008] 17.
32
Moot Proposition ¶ 9(i).
33
Moot Proposition ¶ 9(iii).
34
The Competition Act 2002, § 3(3)(a).
35
The Competition Act 2002, § 3(3)(d).
36
Treaty on the Functioning of the European Union [1957], art 81(1).
37
Richard Whish, Competition Law (7thedn, Oxford University Press 2012) 536.
38
Treaty on the Functioning of the European Union [1957], art 85.

6
MEMORIAL ON BEHALF OF THE APPELLANTS

concerted effort.39 It is a well-accepted fact that an oligopolistic entity will take into its
decisions the prevailing practices of the other players in the market and a result parallelism
may be observed.40
11. In the case at hand, more than 80 enterprises participated in pre-bid meeting41 but only 10
had submitted EOI-cum-RFQ42 which indicates that very less people were interested in the
bidding process. Others parties left the process and did not participate in the bid as they
found that the mills were not viable from economic point of view. It is very much clear
that when the competition is so low, the market becomes predictable and the competitors
become aware of each other. BFL being a customer of KIPL further strengthens as they
were aware of each other previous market decision, they could surely assess each other’s
move in the bidding process. This resulted in price parallelism between the two parties and
establishes that KIPL has not violated § 3(3)(a) of the Act.
12. In Re Chloride India Ltd & Others,43 the respondents were alleged for quoting similar
prices for storage batteries against the tender invited. The Court here held that one of the
respondent cannot be liable being the bulk supplier of batteries, having a large share of the
market and other respondents could not be blamed for treating him as a price leader and
quoting prices either identical with or similar to the prices quoted by it.
13. In the present case, KIPL was already engaged in manufacturing and sale of sugar cane
products etc with a net worth of 3000 Crores44, so it was already a known name in the
sugar industry. BFL being closely related to it was aware of its working pattern and could
figure out its decision making strategy. Thus they quoted similar price. So KIPL cannot be
blamed for bid rigging if one of them is an established name in this field and the other
happens to be aware of its working pattern.
14. In Re Alkali and Chemical Corporation of India Ltd, it was stated that the most crucial
ingredient of cartelisation behaviour is collusive manipulation of prices by the
competitors. A mere simultaneous movement of prices, especially for homogeneous
products, is not by itself sufficient to prove a cartel.45 The plaintiff must present direct or
circumstantial evidence that reasonably tends to prove that the manufacturer and others
had a conscious commitment to a common scheme designed to achieve an unlawful

39
Theatre Enterprises v Paramount Film Distributing Corp 346 US 537 (1954).
40
Alison Jones, EU Competition Law (4th edn, Oxford University Press 2011) 840.
41
Moot Proposition ¶ 8(ii).
42
Moot Proposition ¶ 8(ii).
43
Re Chloride India Ltd & Ors1986 SCC OnLine MRTPC 11.
44
Moot Proposition ¶ 9(i).
45
Re Alkali & Chemical Corporation of India Ltd, Calcutta & Bayer (I) Ltd RTPE 21 of 1981.

7
MEMORIAL ON BEHALF OF THE APPELLANTS

objective46 and if the respondents are able to establish a rational business justification for
the alleged resolution then the allegation of cartelization must fail on this legal standard. 47
15. In the case before this Hon’ble Court, it is not possible to draw an inference of collusion
merely based on the fact that two out of three participating bidders had common
directors48 and submitted demand drafts/stamp paper bearing consecutive numbers49
because since the parties were closely related and had cordial relationship, KIPL just
simply submitted EOI-cum-RFQ on behalf of BFL as well. It is to be noted that EOI-cum-
RFQ is only a document which declares that the entity filling it is interested in the sale of
sugar mills and the bid value for the same is not provided in that. There is no evidence
collected by the DG which establishes that the parties were related in any way after the
submission of EOI-cum-RFQ. Furthermore, the GoFP introduced SCM in which any third
party could bid against the original bidder50 and this makes the possibility of bid rigging
even more difficult. No evidence has been found by the DG that establishes that the non-
submission of financial bids observed at the RFP stage or non-participation/limited
participation observed in the SCM round was because of collusion or meeting of mind
amongst the bidders. Moreover, it is no offence that two successful bidders happen to be
closely related. There is no law which prohibits entities of a group to bid or purchase
different units simultaneously. This cannot be termed as ‘anti-competitive activity.’
16. Thus, it is concluded that KIPL has not violated the provisions of § 3(3)(a) or § 3(3)(d) of
the Act.

[2.4] THERE IS NO APPRECIABLE ADVERSE EFFECT ON COMPETITION

17. § 19(3) of the Act51 states that the Commission shall, while determining whether an
agreement has an appreciable adverse effect on competition under § 3, have due regard to
all or any of the factors therein. In the present case, the issue of subsection (a),(b),(c) of §
19 can be raised.
18. It is stated that there is no probative evidence to suggest that the conduct of the OPs had
the effect of creation of barriers to new entrants in the market52 or driving existing
competitors out of market53 or foreclosure of competition by hindering entry into the

46
Monsanto Co v Spray-Rite Service Corp 465 US 752 (1984).
47
Case C-89/85 A Ahlstrom Osakeyhtio & Ors v Commission [1993] ECR I-1307.
48
Moot Proposition ¶ 12(ii).
49
Moot Proposition ¶ 12(iii).
50
Moot Proposition Annexure II.
51
The Competition Act 2002, § 19(3).
52
The Competition Act 2002, § 19(3)(a).
53
The Competition Act 2002, § 19(3)(b).

8
MEMORIAL ON BEHALF OF THE APPELLANTS

market54. The GoFPintroduced SCM in order to facilitate price discovery of assets.55


Under SCM, any third party could bid against the original bidder 56 and get the tender.
SCM method provides a mechanism under which anyone can bid in the sale of sugar mills
after the initial bidding stage is over. Further, the report of the DG was unable to find any
complaint that had been received from any company stating that it had been prevented
from participation in bidding process.
19. Thus, there is no AAEC.

3. THAT THE SECTIONS 3-C AND 3-D OF FOSTERS PRADESH SUGAR


UNDERTAKING(ACQUISITION) ACT, 2009 ARE CONSTITUTIONALLY VALID
AS THEY ARE WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE OF
FOSTERS PRADESH.

1. It is humbly submitted before this Hon’ble court of appeal that the §3-C and 3-D of
Fosters Pradesh Sugar Undertaking (Acquisition)(Amendment) Act, 2009 (herein referred
as “the Amendment Act”) are constitutionally valid, being within the legislative
competence of Fosters Pradesh and not repugnant to Industries (Development and
Regulation) Act, 1951 and thereby should not be struck down.

[3.1] THE SECTIONS ARE WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE AS
THEY NEITHER ARE BEYOND THE JURISDICTION OF STATE

2. The State can only be denuded of legislative power only in respect of which declaration is
made and to the extent as manifested by legislation incorporating the declaration and no
more.57
3. Entry 52 of List I and Entry 24 of List II of the VI Schedule deal with “industry” and the
expression ‘industry’ bears the same meaning58 because the 2 entries are interconnected
and giving different meanings to the word ‘industry’ in the two entries would snap their
connection. If the Parliament by law makes a relevant declaration or declaration, the
industry or industries would be taken out of the State field and passed on to Parliament.59
But the subjection of Entry 52 of List I does not mean that once the declaration is made by
the Parliament in respect of an industry, the industry as a whole would be taken out of

54
The Competition Act 2002, § 19(3)(c).
55
Moot Proposition Annexure II.
56
Moot Proposition Annexure II.
57
Ishwari Khetan Sugar Mills (P) Ltd & Ors v State of UP & Ors (1980) 4 SCC 136.
58
Calcutta Gas Co (Properitors) Ltd v State of WB AIR 1962 SC 1044.
59
Belsund Sugar Co Ltd v State of Bihar AIR 1999 SC 3125.

9
MEMORIAL ON BEHALF OF THE APPELLANTS

Entry 24 of List II.60 Before the State Legislature is denuded of the power to legislate in
respect of the declared industry, the scope of the declaration and consequent control
assumed by the Union must be demarcated with precision and then ascertain whether the
impugned State Legislation trenches upon the expected field.61 It is not merely some
abstract control but the extent of the control assumed by the Union by the provisions of
IDR Act that State is denuded of its power to legislate in respect of such declared
industry.62
4. In this connection it would be advantageous to refer to Chanan Mal case63 where repelling
the contention regarding legislative incompetence it was observed that it is difficult to see
how the field of acquisition could become occupied by a Central Act in the same way as it
had been in the West Bengal case.64 In the case at hand, § 3-C and 3-D of the Amendment
Act are within the legislative competence of the Legislature as the Union by the provision
of IDR Act does not include within its ambit. The validity of closure of any Scheduled
undertaking. Validity just means effective and legal65 and §18-AA clause 1(b),66 states that
the Central Government may take over the management of an undertaking or any part of
the undertaking, closed for a period of not less than three months, “whether by reason of
the voluntary winding up of the company owning the industrial undertaking or for any
other reason”, if it is possible and necessary for the interests of the general public to
restart that undertaking. It does not extend its control to closing the undertaking, but its
powers include re-starting a closed industry, if it deems fit. Moreover, § 18AA(1)(b)
clearly states that an industrial undertaking maybe closed for any reason, which means that
closure of an industry does not explicitly fall under the powers of the Union under the
provisions of the IDR.
5. Thereby, as mentioned earlier the State can only be denuded of legislative power only in
respect of which declaration is made and to the extent as manifested by legislation
incorporating the declaration and no more, these Sections are constitutionally valid as
“closure of industries” does not even fall under the IDR Act.

60
Raghubir v State of Ajmer AIR 1959 SC 475.
61
Re Oriental Gas Co AIR 1961 Cal 207.
62
Baijnath Kardio v State of Bihar AIR 1970 SC 1436.
63
Charan Lal Sahu v Union of India (1990) 1 SCC 613.
64
State of West Bengal v Union of India AIR 1963 SC 1241; State of Orissa v MA Tulloch AIR 1964 SC 1284.
65
Black's Law Dictionary (10th edn, Thomson Reuters 2014).
66
The Industries (Development and Regulation) Act 1951, § 18AA(1)(b).

10
MEMORIAL ON BEHALF OF THE APPELLANTS

4. THAT 3C AND 3D ARE VALID SECTIONS AS UNDER DOCTRINE OF PITH


AND SUBSTANCE AND WITH REGARDS TO INTENTION OF LEGISLATURE IN
THE SURROUNDING CIRCUMSTANCES.

1. It is humbly submitted that the §3C and 3D are saved under the doctrine of pith and
substance. Moreover, the courts have to consider the intention of legislature and the
surrounding circumstances while dealing with its validity.

[4.1] THE DOCTRINE OF PITH AND SUBSTANCE IS APPLICABLE

2. §3-C and 3-D should not be struck down as the State had legislative competence according
to the theory of Pith and Substance, as evolved by the Court.67 Where a challenge is made
to the constitutional validity of a particular State Act with reference to a subject mentioned
in any entry in List I, the Court has to look to the substance of the State Act and on such
analysis and examination, if it is found that in the pith and substance, it falls under an
entry in the State List but there is only an incidental encroachment on any of the matters
enumerated in the Union List, the State Act would not become invalid.68
3. The doctrine of “Pith and Substance”, which was first evolved in The State of Bombay
And Another v. F.N. Balsara69 to mean that if an enactment substantially falls within the
powers expressly conferred by the Constitution upon the legislature which enacted it, it
cannot be held to be invalid, merely because it incidentally encroaches on matters assigned
to another legislature. In order to examine the true character of the enactment, the entire
Act, its object, scope and effect, is required to be gone into.70 This doctrine is invoked to
find out the nature and content of the legislation and the court must reject the construction
which will rob one of the entries and make it nugatory.71 Thereby such competing Entries
must be read harmoniously, that is to read the Entries together and to interpret the
language of one by that of the other.72 It is only in case of irreconcilable conflict between
Union and State Lists, supremacy of Parliamentary law will be adopted. 73

67
Union of India v HS Dhillon (1972) 2 SCR 33; Kerala State Electricity Board v Indian Aluminium Co Ltd
(1976) 1 SCR 552; State of Karnataka v Ranganatha Reddy (1978) 1 SCR 641.
68
Zameer Ahmed Latifur Rehman Sheikh v State of Maharashtra & Ors (2010) 5 SCC 246.
69
State of Bombay v FN Balsara 1951 SCR 682.
70
Union of India v Shah Goverdhan L Kabra Teachers’ College (2002) 8 SCC 228.
71
Engg Kamgar Union v Electro Steel Casting Ltd AIR 2004 SC 2401.
72
Godfrey Phillips India Ltd v State of UP AIR 2005 SC 1103.
73
State of West Bengal v Committee for Protection of Democratic Rights AIR 2010 SC 1476; Offshore Holding
(P) Ltd v Bangalore Development Authority (2011) 1 JT 384; Calcutta Gas Co v State of WB AIR 1962 SC
1044.

11
MEMORIAL ON BEHALF OF THE APPELLANTS

[4.1.1] Applicability of The Doctrine As The True Nature of 3C and 3D of State Act Falls
Within The State List and Any Incidental Encroachment Cannot Make It Invalid

4. As stated, to determine the substance of a particular legislation falls within Entry 24 of the
List II the object, scope and effect of the challenged legislation need to fall within the
State list.
5. Firstly, the object of the sections were to treat the serious problems created by owners of
certain sugar mills which were adversely affecting the producers, labourers and general
economy of the areas where they situated, by closing certain industrial undertakings, if
necessary.74 Secondly, the scope in question of the legislative competence was the
“closure of the scheduled undertaking”, which has been proved in Issue 3 was not
repugnant to any provision of the IDR and thereby the State was not denuded from
exercising its legislative powers with respect to closure of the industrial undertakings.
Lastly, the effect of such provision would be the closure of the schedule undertakings or
sugar mills of the corporation and its subsidiaries.
6. In the light of the facts of the case, the only incidental encroachment by such a legislation
would be when the validation of such closure is for an unspecified time that the §
18AA(1)(b) of the IDR became inapplicable. The apex court in DLF Qutab Enclave
Complex Educational Charitable Trust v. State of Haryana and Other75 held “Right of
transfer of land is indisputably incidental to the right of ownership”, similarly in the
present case, change the land use is the incidental encroachment to the closure of the
industrial undertakings. Thereby, such an encroachment would only be incidental to the
mentioned legislation and Untwalia J. speaking for the Constitution Bench in the case of
State of Karnataka v. Ranganatha Reddy76 has in terms stated that the pith and substance
of the Act has to be looked into and an incidental trespass would not invalidate the law.

[4.2] THE SECTIONS ARE VALID WITH REGARD TO THE INTENTION OF LEGISLATION IN
SURROUNDING CIRCUMSTANCES AND PRESUMPTION OF CONSTITUTIONALITY

7. It is humbly submitted on behalf of the Appellant that a presumption that the Legislature
does not exceed its jurisdiction, and the burden of establishing that the Amendment Act is

74
Uttar Pradesh Sugar Undertaking (Acquisition)(Amendment) Act 2009.
75
DLF Qutab Enclave Complex Educational Charitable Trust v State of Haryana & Ors (2003) 5 SCC 622.
76
State of Karnataka v Ranganatha Reddy (1978) 1 SCR 641.

12
MEMORIAL ON BEHALF OF THE APPELLANTS

not within its competence, or it has transgressed other constitutional mandates, such as
those relating to fundamental rights, is always on the person who challenges its vires.77
8. “The subject-matter with which the Legislature was dealing, and the facts existing at the
time with respect to which the Legislature was legislating are legitimate topics to consider
in ascertaining what was the object and purpose of the Legislature in passing the Act”.78 In
the words of Lord Atkinson: “In the construction of statutes it is, of course, at all times and
under all circumstances permissible to have regard to the state of things existing at the
time the statute was passed and to the evils, which, as appears from the provisions, it was
designed to remedy.”79 The Supreme Court has referred with approval the following
passage from an American decision in80 Hariprasad Shivshankar Shukla case.81
9. The correct interpretation is one that best harmonizes the words with the object of the
statute. “A right construction of the Act” said Lord Porter “can only be attained if its
whole scope and object together with an analysis of its wondering and its circumstances in
which it is enacted are taken into consideration.82 The application of the given legislation
to new and unforeseen needs and situations broadly falling within the interpretative
jurisdiction of the courts. This is not legislation in strict sense but application and is within
the court’s province.83 The learned Chief Justice then said: “Given this freedom it is rare
opportunity though never to be misused and challenged for the judges to adopt and give
meaning to the Act articulate and inarticulate, and thus translate the intention of the
Parliament and fulfil the object of the Act.”84
10. So far as Statement of Objects and Reasons, accompanying a legislative bill is concerned,
it is permissible to refer to it for understanding the background, the antecedent state of
affairs, the surrounding circumstances in relation to the statute and the evil which the
statute sought to remedy.85
11. Similarly, in the present case, the whole object of the Amendment Act was to solve the
serious problems created by owners or lessees of certain sugar mills were adversely

77
Chiranjitlal Chowdhury v Union of India AIR 1951 SC 41; Hamdard Dawakhana v Union of India AIR 1960
SC 554; Union of India v Elphinstone Spinning and Weaving Co JT 2001 (1) SC 536.
78
RL Arora v State of UP (1964) 6 SCR 784; Sanghi Jeevaraj Ghewar Chand v Secretary, Madras Chillies
(1969) 1 SCR 366.
79
Herron v Rathmines & Rathgar Improvement Commissioners [1892] AC 498; Herrietta Muir Edwards v AG
of Canada AIR 1930 PC 120; Keates v Lewis Merthyr Consolidated Collieries Ltd [1911] AC 641.
80
Great Northern Rly Co v United States of America (1942) 315 US 262.
81
Hariprasad Shivshankar Shukla v AD Divelkar AIR 1957 SC 121.
82
Bhagwan (Baksh) Singh (Raja) v Secretary of State AIR 1940 PC 82.
83
VC Rangadurai v D Gopalan AIR 1979 SC 281.
84
Charan Lal Sahu v Union of India (1990) 1 SCC 613.
85
Devadoss (dead) by L Rs v Veera Makali Amman Koil Athalur AIR 1998 SC 750.

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MEMORIAL ON BEHALF OF THE APPELLANTS

affecting the producers, labourers and general economy of the areas where they situated.
Moreover, since these mills were of less utility in financial aspect, they were not crushing
sugarcane and despite of many efforts were made to bring such sugar mills to run in
profits, these mills were not able to run properly. Thereby, the object of the Act was in the
domain on State list and it was due to the changing circumstances that the State list, in
public interest, as stated under §3C and to fulfil its entire object of helping the producers,
labourers and general economy, enact an act to change the land use of the closed
undertakings.

5. THAT THE DIRECTORS OF MSL ARE LIABLE FOR BREACH OF FIDUCIARY


DUTIES AND SHOULD RETURN THE PERSONAL PROFITS MADE PURSUANT
TO THE LAND DEAL BY FEL IN THE REAL ESTATE TRANSACTION.

1. The Appellants humbly submit that the Directors of MSL and FEL, John, Cadbury,
Davidson and Robert (hereinafter collectively referred to as “the Directors”) are liable for
the Breach of Fiduciary duties towards MSL (hereinafter referred to as “the Company”)
and its shareholders (hereinafter referred to as “the Shareholders”) and they have to return
the profits they made pursuant to the land deal by FEL (hereinafter referred to as “the
Subsidiary”). According to the Companies Act, 2013, the Directors owe a duty to not
make any undue gains taking advantage of his position86 and they should not have a direct
or indirect interest that conflicts with that of the Company.87 They breached that duty by
making personal profits using their position as Directors. Thus, they should be made liable
to return the profits which they made pursuant to the land deal by FEL.
2. The general duties of directors include two strands of fiduciary duties-the 'no-conflict' rule
and the 'no profit' rule. The 'no-conflict' rule precludes a director from entering into a
transaction where the director has an interest which conflicts with that of the company.
The second duty requires a director to account for the profits that he makes from his
position unless there has been consent from the company.88

86
The Companies Act 2013, § 166(5).
87
The Companies Act 2013, § 166(4).
88
L V V Iyer, Guide to Company Directors (4thedn, Lexis Nexis2015) 238.

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MEMORIAL ON BEHALF OF THE APPELLANTS

[5.1] SHAREHOLDERS OF THE COMPANY CAN BRING THE SUIT ON BEHALF OF THE
COMPANY AS THE DIRECTORS ARE WRONG DOERS

3. It is submitted that although, a Company acts through its Directors and proceeding on
behalf of the company is the domain of management, Shareholders can sue on behalf of
the Company if directors are the ones at fault.89 In the normal course of business, the
company’s Board of Directors is empowered by §179 of the Companies Act to exercise all
the powers of the company which include the power to proceed against persons who are
damaging the company’s interests. But, where for one reason or another, directors fail to
live up to their duties, the courts have been authorizing under a derivative authority, an
authority to a shareholder or some shareholders to sue on behalf of the company for
asserting the company’s rights. Relief, if any, will go to the company. 90 Hence, in the
present case, the Shareholders can sue on behalf of the Company and ask for the Directors
to return the profits they made pursuant to the land deal by the Subsidiary, to the
Company.

[5.2] THE DIRECTORS ARE TRUSTEES TOWARDS THE COMPANY AND ITS SHAREHOLDERS

4. It is submitted that the directors are trustees, as regards the shareholders of the Company
and they owe a fiduciary duty towards the Company and the shareholders. It was held in
Forest of Dean Coal Mining Co91 that directors are trustees. They are no doubt trustees of
assets which have come into their hands or which are under their control but directors are
not trustees of a debt due to the company. They are bound, no doubt, to use fair and
reasonable diligence in the management of the affairs of the company and to act honestly.
It was also held in Wincham Shipbuilding, Boiler and Salt Co92 that directors are trustees
for the shareholders.
5. It was held in M A Malik v S Thiruvengadasami Mudaliar93 that although a director is not
an express trustee, he occupies a fiduciary position with regard to the members of the
company and they can call upon him to account for the property over which he has control
on their behalf. In City Equitable Fire Insurance Co Ltd,94 it was said “When it is said that

89
Dhakeshwari Cotton Mills Ltd v Nil Kamal Chakravarti AIR 1937 Cal 645; Nagappa Chettiar [NVR] v
Madras Race Club AIR 1951 Mad 831.
90
Baillie v Oriental Telephone & Electric Co Ltd [1915] 1 Ch 503; Smith v Croft [1987] BCLC 355; Quinn and
Axtens Ltd v Salmon [1909] AC 442 [HL].
91
Re Forest of Dean Coal Mining Co [1878] 10 Ch D 450.
92
Re Wincham Shipbuilding, Boiler & Salt Co [1878] 9 Ch D 331.
93
M A Malik v S Thiruvengadasami Mudaliar [1949] 19 Comp Cas 311.
94
City Equitable Fire Insurance Co Ltd In re [1925] I Ch 407; Dale and Carrington Invt (P) Ltd v P K
Prathapan AIR 2005 SC 1624.

15
MEMORIAL ON BEHALF OF THE APPELLANTS

directors are trustees, it means no more than that directors in the performance of their
duties are in a position of trustees towards the company.”95 The directors must act in the
best interest of the company. Interest of the company implies the interest of present and
future members of the company.96
6. Directors of companies are their agents as regards strangers but as regards shareholders
they are always clothed with a fiduciary character with reference to any dealings with
property of the company. A director being in a fiduciary position is expected to protect the
company's interests and not to utilize his position and knowledge possessed by him by
virtue of his office, to the detriment of the company's interests and for his personal
benefit.97

[5.3] THE DIRECTORS BREACHED THEIR FIDUCIARY DUTY WHEN THEY MADE PERSONAL
PROFITS CONTRARY TO THE COMPANY’S INTEREST AND THEY SHOULD BE HELD
ACCOUNTABLE FOR PROFITS THEY MADE

7. It is submitted that the Directors have breached their fiduciary duty towards MSL and its
shareholders. The Directors restricted the Company’s investment in the subsidiary to half
and used their own money for the other half. They used their position as Directors of the
Company to get the information and made undue gains out of it. Thus, they are liable to
return the profits they made.
8. In a leading case98, it was held “One occupying a position of trust must not make a profit
which he can acquire only by use of his fiduciary position, or, if he does, he must account
for the profit so made.” In this case, the Directors of a company restricted its investment
in an amalgamated and used their own money to earn personal profits. The House of Lords
held that those directors were liable for Breach of Trust. It was also stated, “The directors
standing in fiduciary relationship to the plaintiff company in regard to the exercise of their
powers as directors, and having obtained these shares by reason and only by reason of the
fact that they were directors of the company and in the course of the execution of that
office are accountable for the profits which they have made out of them.”

95
Mac Pherson v European Strategic Bureau Ltd [2002] EWCA Civ 248.
96
Dr G K Kapoor, Company Law and Practice: Comprehensive Textbook on Companies Act 2013 (21st
edn,Taxmann 2015) 464.
97
Fateh Chand Kad v Hindsons (Patiala) Ltd [1957] 27 Camp Cas 340.
98
Regal Hastings v Gulliver [1942] 1 All ER 378.

16
MEMORIAL ON BEHALF OF THE APPELLANTS

[5.3.1] The Directors Are Liable For The Breach Of Their Fiduciary Duty

9. Although the directors are not trustees in every sense of the term, they have a fiduciary
relationship towards their shareholders with respect to the moneys and business placed in
their charge. They are liable to be sued for breach of trust in case they have not dealt with
such property as a man of ordinary prudence would do dealing with his own property.99 A
director who committed a breach of trust, or procured it to do so was held liable for any
loss caused to the beneficiaries of the trust as a result of his actions. It was necessary for
this liability to arise that those actions could be characterized as dishonest rather than
negligent.100
10. In Allen v Hyatt101, the directors of one Lakeside Carming Co. Ltd. persuaded the
respondent shareholders to sell their shares at par to them, stating that it would help them
in negotiations for amalgamation with another company. The directors bought these shares
and made good profit. The Privy Council upholding the decision of the lower Court held
that the directors were bound to account to the shareholders for the profits made by them.
The Court had observed that in Percival v Wright,102 the directors had dealt with the
shareholders at arm's length whereas the directors in this case held themselves out as
acting as agents of the shareholders. Where a director acts dishonestly to the interest of the
company, he will be held liable for breach of fiduciary duty.103
11. Thus a director should not make any secret profits. He should also not exploit to his own
use the corporate opportunity. In Cook v Deeks,104 it was observed that men who assume
complete control of a company's business must remember that they are not at liberty to
sacrifice the interest which they are bound to protect and while ostensibly acting for the
company, direct in their own favour business which should properly belong to the
company they represent. Under the Companies Act, it has been interpreted by the Hon’ble
High Court of Delhi at a more advanced level that even if a director is doing something to
promote the objects of the company, in the best interests of the company, its employees
and shareholders, there should be no personal interest in the same activity.105
12. According to the § 186, No Company can acquire the shares or securities of a body
corporate exceeding hundred percent of its Free Reserves and Securities Premium

99
New Fleming Spinning Weaving Co Ltd v Kessowjinaik [185] 1 LR 9 Bom 373.
100
Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97.
101
Allen v Hyatt [1914] 30 TLR 44.
102
Percival v Wright [1902] 2 Ch 421.
103
Hogg v Cramphorn Ltd [1967] Ch 254.
104
Cook v Deeks [1916] 1 AC 554.
105
Rajeev Saumitra v Neetu Singh & Ors 2016 SCC OnLine Del 512.

17
MEMORIAL ON BEHALF OF THE APPELLANTS

Account. The Company had rupees one crores lying in their Free Reserves and Securities
Premium Account106 and the total share capital of the Subsidiary was worth rupees 40
lacs107 which is only 40%. The Company could have invested in 100% shares of the
Subsidiary but the Directors decided to restrict the Company’s investment to half of the
share capital of the subsidiary and invested their own money in the other half. They did
not even ask for the shareholders’ authorization for this act. Their interest was earning
personal profits, which was clearly in contradiction with the company’s. Hence, it is
proved that the Directors made secret personal profits contrary to the Company’s interest
and thus, are liable for Breach of fiduciary duty.

[5.3.2] The Directors Should Be Held Accountable For The Profit They Made Pursuant To
The Land Deal By The Subsidiary.

13. The directors are liable to the company for all the personal profits or gains made by them
taking advantage of their position as directors. In Boston deep sea fishing and Ice Co v
Ansell,108 a director was held liable to repay the commission he received from the supplier
who Sold goods to the company. In Imperial Mercantile Credit Association v Coleman,109
the brokerage received by the director on debentures purchased by the company had to be
handed over to the company.
14. The court laid down guidance on the assessment of equitable “damages” for breach of
fiduciary duty in cases where the fiduciary was not acting dishonestly or in bad faith. The
general rule is that the beneficiary is to be placed in the position he would have been, had
the breach of fiduciary duty not occurred.110
15. Where a director misapplies or misappropriates money or properties of the company or has
been guilty of breach of trust or misfeasance, the Court may order him to repay the money
or restore the property or to pay compensation.111 For instance, directors were held to be
accountable for profits made from the sale of goods earlier dealt with by the company to
company's customer,112 profit made by forestalling company's business opportunity
(diversion of company's business to himself),113 or requesting the customer to place orders

106
Moot Proposition ¶ 22.
107
Moot Proposition ¶ 20.
108
Ice Co v Ansell [1888] 39 Ch D 339.
109
Imperial Mercantile Credit Association v Coleman [1882] 6 Ch App 558.
110
Nationwide Building Society v Various Solicitors [1999] 40 DLR [3rd] 371 [Canada].
111
PK Nedungadi v Malayatee Bank Ltd AIR 1971 SC 829.
112
Gensor ACP Ltd v Dalby [2000] 2 BCLC 734.
113
Thomas Marshall (Exports) Ltd v Guinle [1978] 3 All ER 193.

18
MEMORIAL ON BEHALF OF THE APPELLANTS

for goods with a company turned by the directors of the company which was supplying
goods to the customer.114
16. Hence, it is requested before the Hon’ble Court that the directors should be asked to return
the profits they made pursuant to the land deal by the subsidiary.

6. THAT THE DIRECTORS CANNOT BE EXCUSED UNDER SECTION 463 OF


THE COMPANIES ACT (CORRESPONDING TO THE SECTION 633 OF THE
COMPANIES ACT, 1956).

1. The Appellants humbly submit that the Directors cannot be excused under §463 of the
Companies Act as they did not act honestly and reasonably. §463 gives the court the
power to excuse the officers of the company if they acted honestly and reasonably, having
regard to the circumstances of the case. The power to grant relief which court has under §
633(1) and (2) of the 1956 Act corresponding to § 463 of the 2013 Act is a discretionary
power. It should be exercised only where the court is satisfied that the defaulting director
has acted honestly and reasonably and that having regard to all the circumstances of the
case, he ought fairly to be excused. It is then only that the court may relieve him either
wholly or partly from his liability on such terms as it thinks fit.115 That is the language of §
633(1) of the 1956 Act which applies to any pending proceeding for negligence, default,
breach of duty, misfeasance or breach of trust against an officer of a company, which
includes directors.116
2. Before excusing under § 633 of the 1956 Act corresponding to § 463 of the 2013 Act, the
Court must be reasonably satisfied that he has acted honestly and reasonably and that, in
circumstances of case he ought fairly to be excused. The relief under § 633 of the 1956
Act is, as the use of the word ‘may’ implies, discretionary, the discretion to be judicially
exercised.117 In the context of § 633 of the 1956 Act, the expression ‘appears to the Court’
must mean that the Court is reasonably satisfied that the requirements of the section are
met.118
3. No relief can be given to a director if he did not act reasonably, though had acted honestly
- In discharging the duties of his position a director must, of course, act honestly; and he

114
Cook v Deeks [1916] 1 AC 554.
115
Sarasmati Printers Ltd v State 1960 30 Comp Cas 523 (Raj).
116
Coal Marketing Co of India (P) Ltd In re 1967 37 Comp Cas 720 (Cal).
117
Tri-sure India In re 1983 54 Comp Cas 197 (Bom); Ramchandra Sons (P) Ltd v State 1966 36 Comp Cas 585
(All).
118
Bhagwati Foods (P) Ltd v Registrar of Companies 2008 143 Comp Cas 531.

19
MEMORIAL ON BEHALF OF THE APPELLANTS

must also exercise some degree of both skill and diligence.119 In the above case minimum
subscription had been subscribed, but the amounts due on them by the directors had not all
been paid and the certificate permitting the company to commence business had been
obtained as the result of a false declaration made by one of the directors. Other directors
knew of the obtaining of this certificate and they were fully aware that the company had
started business in contravention of § 103 of the 1913 Act (§ 149 of 1956 Act). The
directors were held liable for the loss under § 235 of the 1913 Act. The question was
whether the directors could be relieved of the liability. The Court was unable to grant them
any relief under this section.
4. In the present case, the Directors intended to gain personal profits against the interest of
the company as they restricted the Company’s investment in the Subsidiary and invested
their own money. Clearly, they were not acting honestly. So, they cannot be granted relief
under § 463.
5. Where company was not put to any loss nor had the Directors gained any personal
advantage as a result of deployment of funds, it could be said that directors had acted
honestly, reasonably and in good faith.120 But, here the Directors gained personal profits
against the Company’s interest so they ought not to be excused under this Section.

119
D Doss v CP Cormell 1937 7 Comp Cas 429 (Mad).
120
RK Mahapatra v Secretary of Government 1998 92 Comp Cas 809 (AP).

20
MEMORIAL ON BEHALF OF THE APPELLANTS

PRAYER

Wherefore, in the light of facts of the case, issues raised, arguments advanced and authorities
cited, may this Hon’ble court be pleased to adjudge and declare that:

1. The Competition Commission of Hoegaarden has no jurisdiction to investigate/inquire


into the allegations of Bid Rigging on KIPL and BFL.
2. KIPL has not cartelized with BFL to rig or manipulate the Bidding process or to
determine the sale prices and thus remove the penalty imposed on KIPL by the
Competition Commission of Hoegaarden.
3. §3C and 3D are within the legislative competence of State Legislature and thereby
constitutionally valid.
4. The directors are accountable for the personal profits made by them using the
information they received being the directors of the Company.

And pass any other order in favour of the Appellants that it may deem fit, pursuant to the
ends of equity, justice and good conscience.

Sd/-

(Counsels for the Appellants)

xiv