TEAM NUMBER

IN THE SUPREME COURT OF INDIA

SPECIAL LEAVE PETITION

UNDER ARTICLE

136 OF THE CONSTITUTION OF INDIA

PIYUSH AND ABHIJIT...PETITIONER

V.

FLUME CAPITAL, NURTURE CAPITAL,

ARCOT, SMITH & BROWN LIMITED &
FLYABHI.COM PVT LTDRESPONDENT

MOST REPSECTULLY SUBMITTED

COUNSEL FOR APPELLANTS

TABLE OF CONTENTS

INDEX OF AUTHORITIES

STATEMENT OF JURSIDICTION
The Appellant has approached this Honble Court under Article 136 of the Constitution of
India.

STATEMENT OF FACTS
1. THE FOUNDERS AND THE ANGEL INVESTORS
1.1. Piyush and Abhijit, the founders of flyabhi.com, came up with an idea to make travel
more efficient in India by maximizing use of private aircrafts. The company was
established in Lucknow with the each founder owning 50% of initial share capital.
1.2. On December 31, 2010 two investors, Flume Capital and Nurture Capital, were
chosen to invest of flyabhi.com for a cash consideration of Rs. 100 crores.
1.3. BESTCO was appointed as transaction counsel.
2. THE COMPANY AND THE INVESTMENT AGREEMENT
2.1. All the directors signed the investment agreement and it was incorporated into the
articles of association.
2.2. The main terms of the investment agreement included:
2.2.1.1.

In the case that business targets were not met, the founders were to put

all securities at the option of the investors, provide all further equity and
debt to the company.
2.2.1.2.

Founders and investors directors to approve appointment of all key

management personnel give their consent for key decisions involving the
company.
2.2.1.3.

All rights granted by the investment would terminate if the party held

less than 10% shareholding. Each party was bound to offer the companys
securities to the others before selling it to any person who was not a
shareholder in the company.
2.2.1.4.

All disputes would be subject to SIAC arbitration in Singapore.

3. APPOINTMENT OF NEW CEO

3.1. On July 21, 2011 during the monthly board meeting, due to the inability of the
company to meet business targets, the investors proposed to hire Arjun Iyer, a wellknown and experienced man in the business. The founders voted against this
expensive hire, however, the majority of the directors on the board disagreed and
Arjun Iyer was hired with immediate effect.
3.2. Arjun Iyer was given 5% Class A equity stake in the company, $1 million per annum
of stock options which would vest at a nominal price of Rs.100 over a period of 3
years.

4. REQUIREMENT OF BRIDGE FINANCING

4.1. The Company was in need of immediate influx of cash. Piyush was willing to
provide the bridge finance, but he was discouraged from doing so. The investors had
the right under the investment agreement and the articles to make further investment
in equity and debt.
4.2. Arcot, Smith & Brown Ltd., an Indian NBFC and an affiliate of Flume and Nurture,
agreed to provide a bridge loan of Rs. 20 crores for a tenure of 1 year, at an interest
of 18% p.a.
4.3. On April 10, 2012 it was realized that this bridge loan had not yielded any positive
results.
5. THE NOVATION
5.1. On July 21, 2012, Flume and Nurture novated the investment agreement to over 20
of their affiliates.
5.2. This novation greatly concerned the founders, but were assured by the angel
investors that they change in shareholding was merely a legal requirement and with
the composition of the BOD remaining the same, everything remained the same on
an operational level for the founders.
6. CONVERSION OF 50% DEBT INTO EQUITY
6.1. On August 07, 2012, all the affiliates notified the company that they wished to
convert 50% of their debt into equity with immediate effect. On the same day, their
nominee directors gave notice of a board meeting to be held at 0900 hrs on August
14, 2012 with an EGM to be held on the same day at 1600hrs.
6.2. Despite the founders protest, three resolutions of: (i) Allotment and issue of Class B
equity shares to the affiliates, (ii) Amendment and adoption of new articles of
association, and (iii) reconstitution of the BOD, were passed on August 14, 2012 by
majority of the BOD.
6.3. Issuance of shares resulted in the shareholding of each of the founders to reduce to
6% of the equity share capital.
6.4. The other two resolutions were passed at the EGM, which the founders did not
attend in protest.
7. LEGAL NOTICE BY FOUNDERS
7.1. On August 16, 2012, the founders, through JSK Law, wrote to BESTCO claiming
that the termination of the investment agreement, amendments to the articles of

association and the removal of the founders from the BOD were illegal.

The

founders offered to purchase all the securities of the company owned by the
investors at a fair market value.
7.2. On August 24, 2012, the founders filed an application before the Company Law
Board (CLB) complaining of continuing acts of oppression and mismanagement
by the majority shareholder.
7.3. On September 2012, each of the investors filed identical applications of dispute
under S.45 of the Arbitration and Conciliation Act, 1996 seeking the referral of the
dispute to arbitration.
7.4. On October 04, 2012, all parties were heard and on November 05, 2012, the dispute
was referred to arbitration.
7.5. On February 2013, this decision was appealed by the founders to the High Court.
The counsel for the appellant filed a writ petition for the court to consider this
appeal. On April 11, 2014, the High Court dismissed the appeal and the writ. This
was appealed immediately by the founders.
8. PROPOSAL OF SCHEME OF ARRANGEMENT
8.1. With the worsening of the company, Arjun Iyer resigned, selling all the Class A
equity shares he had received The investors held more than 50% of Class A equity
shares. Directors resigned from the board, leaving behind Mr. Rane, the director and
Ms. Iyer.
8.2. In order to restructure the business, the two directors met at 0900 hrs on July 04,
2014 and recommended to the shareholders the aircraft business be demerged from
flyabhi.com and merged into Arcot, Smith & Brown Ltd.
8.3. On the same day, at 1400hrs, the receipt of letters of consent from (i) all the Class B
equity shareholders, (ii) more than 50% of Class A shareholders and (iii) all secured
and unsecured creditors, for the scheme of arrangement were recorded. BESTCO
was instructed to file the scheme of arrangement before the Allahabad High Court,
Lucknow Bench.
9. LEGAL PROCEEDINGS
On July 14, 2014, Arcot, Smith & Brown Limited began the process of seeking approval for
the scheme of arrangement. On December 06, 2014, the Calcutta High Court approved the
scheme. The founders challenged the scheme of arrangement before the Allahabad High
Court, Lucknow Bench. On July 15, 2014, Arcot, Smith & Brown sent a notice to the

founders exercising their right under s. 235(1) of the Companies Act. The founders
immediately applied to the Allahabad High Court, Lucknow Bench to hear them before
allowing the notice to take effect. Pending the disposal of the scheme of arrangement, the
court allowed the founders' application and injuncted Arcot, Smith & Brown from taking any
action pursuant to the notice or the scheme. Arcot, Smith & Brown approached the Supreme
Court under Article 136 of the constitution of India against this order and although leave to
appeal was granted, the injunction remained. After hearing all the parties, the Allahabad
High Court approved the scheme of arrangement on April 11, 2015 but stayed the
implementation of the scheme for a period of 90 days to enable the founders to appeal the
decision to the Supreme Court. The appeal by the founders to the Supreme Court was heard
and the injunction granted by the High Court continued until further orders.

QUESTIONS PRESENTED
APPEAL 1:
1. WHETHER A VALID ARBITRATION AGREEMENT EXISTS BETWEEN THE PARTIES?
A. The existence of the arbitration clause is dependent upon the main agreement.
B. The novation of the investment agreement rendered the arbitration clause
inoperable.
C. The doctrine of separability is inapplicable.
2. WHETHER THERE IS A PRIMA FACIE CASE OF OPPRESSION AND
MISMANAGEMENT?

A. A single act of oppression and mismanagement is sufficient to file a petition.

B. The actions of the respondents and their affiliates constitute oppression and
mismanagement.
3. WHETHER THE PETITIONERS CLAIMING OPPRESSION AND MISMANAGEMENT MUST
BE HEARD BY THE CLB?

A. Petitions under Section 241 are actions in rem.

B. Filing a petition under Section 241 is a statutory right and cannot be negated
by an arbitration agreement.
C. The CLB is the only judicial body capable of granting relief under Section
241.

APPEAL 2:
4. WHETHER THE SCHEME OF ARRANGEMENT IS VALID?
A. Statutory procedure was complied with.
a. Failure to convene a meeting.
b. Failure to obtain required consent to dispense with the meeting.
c. Absence of informed consent.
5. WHETHER ALL CLASS A EQUITY SHAREHOLDERS HAVE BEEN FAIRLY
REPRESENTED?

A. There exists no commonality of interest between the majority shareholders

and the minority shareholders.
B. There exists no homogeneity of legal rights among all Class A Equity
shareholders.

6. WHETHER THE PROPOSED SCHEME OF ARRANGEMENT IS BENEFICIAL TO THE

TRANSFEROR COMPANY?

7. WHETHER THE APPLICATION UNDER S.235(1) IS VALID?

SUMMARY OF PLEADINGS
APPEAL 1:
I.

THERE DOES NOT EXIST A VALID ARBITRATION CLAUSE

BETWEEN THE TWO PARTIES

In order for parties to be referred to arbitration, it is essential for there to be a valid

arbitration agreement subsisting between them. Thus it is submitted that the case cannot be
sent before an arbitral tribunal as the contract which initially bound the parties is no longer in
existence. The termination was followed by the novation of the contract which worked to
supersede the original investment agreement entirely rendering the separability doctrine
inapplicable. Further, the Respondents were not party to the second contract and thus have
no device through which to refer the parties to arbitration.
II.

THERE HAS BEEN A PRIMA FACIE CASE OF OPPRESSION AND

MISMANAGEMENT

It must be shown that there has been oppressive and prejudicial conduct directed against the
minority in order to make a claim under oppression and mismanagement. It is submitted that
the conduct of the Respondents followed by those of their affiliates constitute a continuous
story or chain that clearly establishes oppressive conduct. Firstly, it is possible for a single
act to constitute oppression and mismanagement and the novation of the investment
agreement worked to indefinitely disadvantage the Appellants. Secondly, the actions of the
affiliates in diluting the shares of the minority and triggering their expulsion from the board
constitute oppression as it was done with the sole intention of usurping control of the
company. The Respondents were further liable for reckless mismanagement through the
appointments of Arjun Iyer and taking the bridge loan from Arcot, Smith & Brown.
III.

A CLAIM UNDER SECTION 241 CANNOT BE REFERRED TO

ARBITRATION

A claim under oppression and mismanagement cannot be referred to an arbitration as the

CLB is conferred exclusive authority to pass orders with regards to matters under oppression
and mismanagement. Firstly, petitions under Section 241 being actions in rem cannot be
adjudicated by a private tribunal. Secondly, the right to file a petition is a statutory right. The

statute further provides that the CLB is the preferred forum for adjudication of disputes with
regards to a case under oppression and mismanagement. Further, the powers conferred upon
the CLB with regards to deciding a case of oppression and mismanagement are far wider
than those available to an arbitral tribunal thus making the latter impotent with regards to
providing justice in such a claim.
Appeal 2:
IV.

THAT THE SCHEME OF ARRANGEMENT IS NOT VALID

Section 230 requires that a specific procedure be followed, the non-compliance of which,
invalidates the scheme of arrangement. It is submitted that the Respondents failed to follow
the statutorily mandated procedure on three counts. Firstly, no meeting was convened.
Secondly, consent to dispense with meetings was not obtained, and thirdly, there was an
absence of informed consent. The Statute requires that a meeting be a court convened
meeting. In the present case, no application for such meeting was made to the Court. Further,
the Duomatic Principle requires that where the Statute is being overridden, consent for the
same be taken from all members of the respective class. This consent was not taken from all
members. Moreover, it is the essence of procedure, i.e., informed consent, which is required
to be fulfilled. This is achieved through both the required 21 day notice period and through
deliberations at the meeting itself. By drastically hastening the process of obtainment of
letters of consent, this essence was not achieved.
V.

ALL CLASS A EQUITY SHAREHOLDERS HAVE NOT BEEN FAIRLY

REPRESENTED

In order for members to be classified into one class, three elements of (i) homogeneity of
legal rights, (ii) common interest, and (iii) identical schemes offered to all members within
the same class, must be present. It is submitted that all Class A equity shareholders have not
been fairly represented on two grounds, i.e., firstly, lack of common interest, and secondly,
lack of homogenous legal rights. In the first instance, it is contended that the affiliation of the
majority shareholders with the transferee company is indicative of conflict of interest. In
such case, majority interest differs from that of the dissenting minority shareholders,
requiring the constitution of a separate class. In the second instance, the majority
shareholders hold a right distinct from that of the minority shareholders. This distinctness of

right is enough to require the constitution of separate class for each group that holds such
distinct right. The premise of the stated contentions is based on the idea of protection of
minority rights wherein inability to form fair and proper classes could lead the majority to
ride roughshod over the minority.
VI.

THAT THE PROPOSED SCHEME OF ARRANGEMENT IS NOT

BENEFICIAL TO THE TRANSFEROR COMPANY

It is submitted that the proposed scheme of arrangement is not to the benefit of the transferor
company. The primary ground for such contention lies in the nature of the arrangement itself,
i.e., a conglomerate merger. A number of studies have been conducted by renowned
economists who have found that conglomerate mergers do not lead to an increase in
economic efficiency, or increase in profits. The appellants contend that the respondents,
being an NBFC, do not have the requisite expertise or experience to run an aviation business.
It is contended that there will be a loss of managerial focus, which is detrimental to the
future of the transferor company. A scheme, in order to be sanctioned, must be beneficial to
all members and creditors of both, the transferor company as well as the transferee company.
Thus, the appellants contend that the scheme must not be sanctioned.
VII.

THAT THE APPLICATION UNDER SECTION 235(1) OF THE

COMPANIES ACT, 2013 IS NOT VALID.

It is submitted that owing to the nature of S.235 which allows the compulsory acquisition of
shares of the minority shareholders by the majority shareholders, the parties have to strictly
adhere to the established procedure. Within two months after the expiration of a four month
period, calculated from the date of making an offer for the transfer of shares, the majority
shareholders can send notice to the minority shareholders to acquire their shares. This is
subject to the condition of consent of not less than nine-tenths of the shareholders has been
obtained. The Respondents could constitute not more than 88% of the majority, with the
dissenting minority constituting at least 12%. Therefore, it is not possible for the
Respondents to have obtained consent from 90% in value of the members and this Section
may not be invoked.

PLEADINGS
APPEAL I
THE HIGH

COURTS

DECISION

TO

REFER

THE

CASE

TO

ARBITRATION MUST BE OVERTURNED

I.

THERE IS NO VALID ARBITRATION AGREEMENT BETWEEN THE TWO

PARTIES
1. In a case of foreign arbitration, the Court may refer the parties once it is satisfied that
a valid and binding arbitration agreement covering the subject matter of the dispute
exists.1 However wide ranging the arbitration clause may be, it depends upon the
continuation of the contract for its own existence.2 It is submitted that the arbitration
agreement between the parties no longer subsists for the following reasons:
2. Firstly, the operation of an arbitration clause depends upon the existence of the
principal contract (A) and the novation of the investment agreement has caused the
arbitration clause within it to perish as well (B). Secondly, the doctrine of separability
as it pertains to the arbitration agreement cannot apply in this case due to the nature
of the dispute (C).
A. THE EXISTENCE OF THE ARBITRATION CLAUSE IS DEPENDENT UPON THE MAIN
AGREEMENT
3. An arbitration agreement is created through the inception of a contract and may also
be destroyed by the extinguishing of the contract. 3 Once the principal agreement has
ceased to exist, the contract which houses the arbitration clause becomes non-existent
as the agreement itself has become non-existent.4
4. There are well established principles with regards to the fate of an arbitration clause
when the main agreement which it was part of has been rendered void. 5 The relevant
ones are:i)
However comprehensive the terms of the arbitration agreement may be, the
ii)

existence of the contract is a necessary pre-requisite for its operation

Though the contract was validly executed, the parties may put an end to the
same as if it had never existed and substitute a new contract for it solely
governing their rights and liabilities

1 Section
2 The Union of India v. Kishorilal Gupta & Bros., 1959 AIR 1362, 1960 SCC (1) 493.
3 Heyman v Darwins Ltd., [1942] AC 356.
4 Union of India v. Jagdish Kaur, AIR 2007 All 67.
5 Supra 2

iii)
In both the former and the latter case, the arbitration clause cannot operate
5. It is submitted in the present case that the fourth principle, second in the order given
above, enunciated in the Kishorilal Gupta6 judgment is fulfilled. Read with principle
5, third above, it clearly shows that the arbitration clause contained in the agreement
between the two parties has been extinguished due to its novation and substitution by
a new contract.
B. THE NOVATION OF THE INVESTMENT AGREEMENT RENDERED THE ARBITRATION
CLAUSE INOPERABLE
6. Parties to a contract may terminate the existing agreement and substitute in its place a
new contract or alter the original such that it cannot continue. As a result, the contract
need not be performed any longer7
7. In a situation where parties executed a valid contract have mutually agreed to replace
the old agreement with a new one it must necessarily result in the abrogation of the
former.8 Where the dispute between the parties is that the contract itself does not exist
due to its replacement by another, the matter cannot be referred to arbitration.9
8. The argument has been affirmed in the Young Achievers10 case where it was adjudged
that the parties could not return to the novated contract and would be solely governed
according to the provisions of the new contract.
9. Furthermore, while it has also been held at times that novated agreements may still
give rise to arbitration11 this is subject to an agreement for the same
10. It is submitted in the present case that the parties have rescinded the investment
agreement and novated it to the affiliates of the respondent who is not party to the
new contract. The substitution has thus eclipsed the rights and liabilities that arose
from the initial agreement. The arbitration clause contained within it is therefore
inoperable.
C. THE DOCTRINE OF SEPARABILITY IS INAPPLICABLE
11. In order to circumvent the doctrine of separability, the arbitration agreement itself
must be directly impeached rather than a parasitical challenge to the validity of the
main agreement.12
6 Id.
7 Indian Contract Act, 1872, S.62.
8 Mulheim Pipecoatings Gmbh v. Welspun Fintrade Ltd., (2014) 2 AIR Bom R 196.
9 Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141.
10 Young Achievers v. IMS Learning Resources, (2013) 10 SCC 535.
11 Chatterjee Petrochem Co. v. Haldia Petrochemicals Ltd., (2014) 14 SCC 574.
12 Premium Nafta Products Ltd. v. Filli Shipping Co., [2007] UKHL 40.

12. A claim against the arbitration agreement must be based on facts which are specific
to the agreement itself.13 In essence, it must be determined whether it is merely the
further performance of the contract which has been brought to an end or the existence
of the contract itself. In the latter case, the arbitration clause would not survive the
impeachment of the principal agreement.14 While admittedly an arbitration agreement
would survive mere termination of the main agreement, novation causes the contract
itself to no longer exist.15 Thus, the validity of the arbitration clause will depend upon
the nature of the dispute and its effect on the main contract.
13. In the present case it is submitted that the parties mutually agreed on the creation of a
fresh document in place of the initial one. The respondents while not being part of the
new agreement initiated the novation which was carried out at their insistence. Thus,
the arbitration clause contained in the initial contract perishes with it.
II.

THERE EXISTS A PRIMA FACIE CASE OF OPPRESSION AND

MISMANAGEMENT
14. The reference of a case to the CLB requires only the existence of a prima facie case
of oppression and management.16 Courts have over the years carved out exceptions to
the majority rule principle. Suits by minority shareholders against oppression and
mismanagement are one such exception.17
15. It has been noted that the wording of Section 241 is to be construed flexibly and must
be interpreted according to the facts of each individual case.18 Furthermore, the
majority principle cannot be automatically applied when it comes to India in
ignorance of Indian corporate realities.19
16. Thus, it is submitted in the present case that: Firstly, a single act of oppression is
sufficient cause of action to file under Section 241 (A). Secondly, that the actions of
the respondents and their affiliates constitute oppression and mismanagement (B).
A. A SINGLE ACT OF OPPRESSION AND MISMANAGEMENT IS SUFFICIENT TO FILE A
PETITION

13 Supra 8.
14 Supra 8.
15 Supra 10.
16 Legal services India (need better citation)
17 CDS Financial Services (Mauritius) Ltd. V. BPL Communication Ltd., [2004] 121 Comp
Cas 374 (Bom).
18 Ramaiya, A., GUIDE TO THE COMPANIES ACT, (2014, 18th EDN) Nagpur LexisNexis.
19 ICICI Ltd. V. Parasrampuria Synthetic Ltd., (2002) 9 SCC 428.

17. A single act is sufficient to constitute oppression under Section 241 as long as the act
in question is capable of causing perpetual damage. Essentially the action in question
would be one of a continuing nature which has the potential of depriving a
shareholder of his rights indefinitely.20
18. The short duration of the oppressive action is thus irrelevant when filing a petition
under Section 241.21 A petitioner need not have submitted himself to oppression over
a period of time in order to avail of the ability to file for oppression and
mismanagement.22 It would merely be a rule of prudence to recognize that a single
act may be burdensome, wrongful and oppressive.23
19. In the present case, it is submitted that the forcible novation of the investment
agreement was a precursor and starting point to the oppressive acts which followed.
It is therefore the cause of all the actions which followed and worked to indefinitely
disadvantage the position and rights of the Appellants.
B. THE ACTIONS OF THE RESPONDENTS AND THEIR AFFILIATES CONSTITUTE
OPPRESSION AND MISMANAGEMENT
20. A case of oppression and mismanagement will always involve a mixed question of
fact and law.24 It is a right granted to those fulfilling the requirement of Section 244
to move the court in case they believe that the affairs of the company are being
conducted in a manner which is oppressive to any members, though the exact
definition of oppressive conduct will be construed on a case by case basis.25
21. It is submitted in the present case that the factual score and sequence of events
indicate mala fide intent directed against the appellants in order to undermine their
standing within the company. This qualifies as i) Oppression and ii) Mismanagement.
i.

The actions of the Respondents and their affiliates constitute oppression.

20 Tea Brokers (P) Ltd. V. Hemendra Prosad Barooah, (1998) 5 Comp Lj 463.
21 Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd., AIR 1966 Cal 512.
22 Id.
23 Maharashtra Power Development Corpn. Ltd. V. Dabhol Power Co., 2003 (117) Comp
Cas 651 (Bom).
24 K. Muthusamy v. S. Balasubramanian, (2011) 167 Comp Cas 167.
25 Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535.

22. Oppressive acts are essentially burdensome, harsh and wrongful and must be
continuing to the date of the petition. The oppressive conduct in question is required
to be prejudicial to a petitioners rights as a member of company.26
23. It is submitted in the present case that the acts of oppression include: i.a) Novation of
the investment agreement, i.b) Dilution of Appellants shareholding, i.c) Removal of
Appellants from the Board and i.d) Amendment of Articles of Association.
24. An investment agreement signed between two parties gives rise to the doctrine of
legitimate expectations which acts as the foundation of the company. Breach of an
agreement incorporated into the AoA,27 is sufficient grounds for a petition under
Section 241.28 The AoA being a contract meant to regulate the actions of
shareholders, its provisions are compulsory upon all parties privy to it.29 Furthermore,
transfer in contravention rendered null and void.30
25. A lapse in time between the arousal of the cause of action and the filing of the suit
does not in itself act as an estoppel against a claim under Section 241. When there
exists facts which are vital to the cause of the delay, such as fraud the court may not
immediately dismiss the petition.31 The ability to explain the cause of such a lag is
sufficient to empower a party to enforce seemingly waived rights.32 Additionally, the
sudden transfer of all debentures to unknown and numerous affiliates is sufficiently
oppressive in itself to give rise to a claim under Section 241.33
26. Furthermore, the law of estoppel is inapplicable so far as it pertains to use by the
Respondents. A party which attempts to utilize the argument of equity must come
with clean hands in order to accuse the other of unclean hands or waiver of rights.34
27. It is submitted in the present case that the Right Of First Refusal, which was part of
the initial investment agreement and subsequently incorporated into the AoA, was
subsequently breached by the Respondents at the time of the novation thus
constituting an act of oppression.
28. The dilution of shares must thereafter fulfil the proper purposes doctrine in that the
allotment of new shares must be done fairly and in the companys best interest.35 The
26 Lord Hailsham, HALSBURYS LAWS OF ENGLAND, (1996, 4th EDN, Vol. 7) 1011.
27 Factsheet
28 Supra 11.
29 Claudie Lila Parulekar v. M/S Sakal Papers, (2005) 11 SCC 73.
30 Shanta Genevieve Pommeret v. Sakal papers Pvt. Ltd., (1990) 69 Comp Cas 65.
31 Bank of India v. Avinash D. Mandivikar, (2005) 7 SCC 690.
32 State of Rajasthan v. Karamchand Thappar & Bros., AIR 1965 SC 913.
33 N. R. Harikumar v. WW Apparels (India) (P) Ltd., (2015) 2 LW 987 (Mad)
34 Needle Industries (India) Ltd. V. Needle Industries Newey (India) Holding Ltd., (1981) 3
SCC 333.
35 Id.

action must also be undertaken bona fide for the betterment of the company and with
utmost good faith.36
29. Allocation of new shares with mala fide intent and with the purpose of diluting the
shares of the majority is an act of oppression. When done with the intention of
converting the majority into a minority and usurping authority of the company, it
constitutes a sufficient cause of action for a claim under Section 241.37
30. In the present case, it is submitted that the reason behind the dilution of
shareholding38 was to gain control of the company. The swift actions of the affiliates
in converting their debt to equity immediately following the novation of the
investment agreement was a calculated move intended to gain an advantage over the
Appellants for personal benefit rather than for the betterment of the company.
31. Where the powers of the Directors are utilized for extraneous purposes or for
granting one group of shareholders an advantage over another, the actions in pursuit
of this shall be set aside.39 Allocation of shares with the intention of gaining a
majority and thereby removing the minority from the Board40 would constitute such
an action.
32. It is submitted in the present case that the Board of Directors powers were used
oppressively when calling for an EGM the agenda of which was to dilute the shares
of the Appellants. Their removal from the Board of Directors in the very same
meeting exhibits mala fide intent. Thus this forms part of a chronology of events
which specifically targeted the Appellants and worked to weaken their position
within the company.
33. Oppression occurs when there exists a lack of probity and fair dealing in the
company.41 The chronology of events must be shown to be part of a causal chain
which leads to an unfair advantage for the majority over the minority.
34. The Amendment to the Articles of Association making it possible for decisions to be
passed by majority vote42 further increases the ability of the majority to assert its
dominance in the workings of the company. The acts of the majority clearly exhibit
mala fide intent in the pursuit of personal gain.

36 Dale & Carrington Invt. (P) Ltd. V. P.K. Prathapan, (2005) 1 SCC 212.
37 Id.
38 Factsheet
39 Supra 36
40 Abha Puri (find better citation)
41 Elder v. Elder and Watson Ltd., 1952 SC 49.
42 Factsheet

ii.

The actions of the Respondents and their affiliates constitute mismanagement

35. Inefficient and reckless management is germane to a case of mismanagement.43

Conduct on the part of shareholders or directors appointed by them which works to
the detriment of the company satisfies the requirement under Section 241.44
Essentially a claim of mismanagement is brought when the conduct of the affairs of
the company are being carried out against its own interests.45
36. It is submitted in the present case that the appointments of Arjun Iyer and bridge loan
from Arcot, Smith & Brown were detrimental to the goal of meeting the business
targets of the company. The affiliates insistence on these decisions were carried out
in opposition to the wishes of the Appellants. The fortunes of the company however
did not enjoy a significant improvement and financial problems continued.46
III.

PETITIONS CLAIMING OPPRESSION AND MISMANAGEMENT MUST

BE HEARD BY THE CLB
37. It is an accepted principle that not all disputes can be arbitrated. 47 For example, as
stated by Russell, only disputes concerning civil rights may be referred to
arbitration.48 There exists a five part test to determine whether or not a dispute can be
referred to arbitration. The following requirements are those relevant to this case and
must be met prior to a referral to arbitration49:i)
Existence of a valid and subsisting agreement between the parties.
ii)
The relief sought for in the petition is capable of being granted by an
arbitration tribunal
It is submitted that the High Court judge erred in referring the parties to arbitration
by virtue of the following:
38. Firstly, only disputes which have an action in personam can be referred to arbitration
while actions in rem are beyond the jurisdiction of an arbitrator (A). Secondly,
statutory rights cannot be ousted through contractual agreements and can only be
adjudicated by a designated judicial authority (B). Thirdly, the Company court

43 Supra 34 ; See also Supra 25.

44 Dr. S.Mangalam Srinivasan v Mani Forgings P. Ltd., (2008) 141 Comp Cas 860 (CLB).
45 Manohar Rajaram Chhabaria v Union of India, (2002) 110 Comp Cas 162.
46 Factsheet
47 England and McKenna Arbitrability of land disputes (Find equivalent Indian citation)
48 Sutton, D, Russell, Gill, J., Russell On Arbitration, (2003, 22nd EDN), Sweet and
Maxwell Publication, p 28.
49 Company Law Board v. Saz

possesses far wider powers to grant reliefs in cases of oppression and

mismanagement than an arbitration tribunal (C).
A. PETITIONS UNDER SECTION 241 ARE ACTIONS IN REM
39. Adjudication of certain proceedings is reserved exclusively for public forum as a
matter of public policy as an arbitrator cannot enforce nor make certain kinds of
decisions.50 There is a clear distinction that has been drawn between actions in
personam and actions in rem which cannot be referred to an arbitrator due to their
nature affecting third parties.51 It has been further identified by courts that petitions
under Section 241 are essentially actions in rem. 52 For example, in the case of
Haryana Telecomm53, it was deemed that the winding up petition could not be
referred to arbitration as it was an action in rem that would affect third parties and not
merely the two parties to the agreement.
40. Furthermore, bifurcation of the cause of action cannot be entertained and even in a
situation where a petition contains both actions in rem and in personam, there can
be no separation of the involved rights.54
41. In the present case, it is submitted that the reliefs asked for are in rem due to the fact
that they will affect third parties not privy to the arbitration agreement. Therefore this
out rightly acts as an estoppel against the referral of the present case to arbitration.55
B. FILING A PETITION UNDER SECTION 241 IS A STATUTORY RIGHT AND CANNOT BE
NEGATED BY AN ARBITRATION AGREEMENT
42. While an arbitration agreement is contractual in nature, the rights vested upon
shareholders to seek remedies in cases of oppression and mismanagement are
statutory and cannot be undermined or ousted through an agreement between the
parties. Thus regardless of there being an arbitration clause in a contract between the
two parties, the statutory right to file a petition under Section 241 cannot be

50 Mustill, Boyd, PRACTICE OF COMMERCIAL ARBITRATION IN ENGLAND , (1989, 2nd EDN),

LexisNexis, p 73.
51 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532; Chiranjilal
Shrilal Goenka v. Jasjit Singh, (1993) 2 SCC 507.
52 Rakesh Malhotra v. Ranjinder Kumar Malhotra, 2014 SCC Bom 1146.
53 Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., (1999) 5 SCC 688.
54 Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531
55 Oxford article (FEI)

estopped.56 The ability of the CLB to provide relief in such cases is completely
unfettered by any other provisions of any other Act.57
43. It is submitted that in the present case the existence of an arbitration agreement
between the two parties does not prevent the filing of a petition under Section 241.
An arbitration agreement being contractual cannot be preferred to statutory rights.
44. Furthermore an arbitration agreement being a contractual agreement is validated by
Section 7 of the Arbitration Act 1996. Thus it falls under purview of Section 6 of the
Companies Act which has an overriding effect on all contractual agreements. 58
Consequently an arbitration agreement which is repugnant to any statutory rights
arising out of the Companies Act will be superseded.
45. A plain reading of Section 2(3) of the Arbitration Act clearly shows that the Act is in
consonance and not in derogation of any law that is already in force at the time. 59 It is
submitted in the present case that the petition under Section 241 cannot be stayed or
mitigated by any arbitration agreement that may exist between the parties.
C. THE CLB IS THE ONLY JUDICIAL BODY CAPABLE OF GRANTING RELIEF UNDER
SECTION 241
46. The Arbitration Act is not sufficiently empowered in terms of dealing with cases
concerning oppression and mismanagement. An arbitrator can be referred to only
those disputes which he/she is competent to decide. 60 Therefore a matter involving
section 241 cannot be subjected to arbitration as the arbitrator is not vested with the
wide range of powers which are granted to the CLB under Section 242. 61
Furthermore the consideration quite often is not whether a dispute is capable of
settlement, but rather if it ought to be referred at all.62
47. It is thus submitted that the CLB being empowered to decide disputes of oppression
and mismanagement is the more appropriate forum for the adjudication of such
matters. Claims of oppression and mismanagement are of such a nature that they
require the widest range of powers, such as those afforded under Section 242, to
56 Surendra Kumar Dhawan v. R. Vir, [1977] 47 Comp Cas 276; O.P. Gupta v. Shiv
General Finance (P) Ltd., 1975 SCC 147; Manavendra Chitnis v. Leela Chitnis Studios (P)
Ltd., 1983 SCC Bom 302.
57 Bennett Coleman & Co. v. Union of India, (1972) 2 SCC 788.
58 Section
59 Section
60 Oxford Article
61 Govindarajan Arbitrability of disputes, 2014
62 Mustill, Boyd, PRACTICE OF COMMERCIAL ARBITRATION IN ENGLAND , (1989, 2nd EDN),
LexisNexis, p 73.

properly adjudicate.63 The Company Court is thus the forum conveniens for such
disputes.
48. In the past, courts have referred disputes to arbitration when there existed a prior
agreement for the same. In such cases it has been deemed mandatory to place the
matter before an arbitration tribunal.64 However upon a closer examination of such
cases, it is clear that when determining the arbitrability of a dispute, courts have kept
in mind the remedy sought for and the scope of an arbitrator in granting an
appropriate and justified relief.
49. It is not only in a winding up petition that there may be a refusal to refer the parties to
arbitration. Courts have passed orders against referring parties to arbitration in a
series of cases for varied reasons.65 In Rakesh Malhotras66 case, the court ascertained
that the remedy sought was essential in determining whether the case could be
decided by an arbitrator. Further it was determined that even when a lesser remedy is
sought it may still be outside the powers of an arbitrator. Even in situations where a
case of oppression has not been made out, the court is not powerless to render
justice.67
50. It is submitted in the present case that the remedies sought for can only be granted by
the CLB. Moreover, even a just and appropriate remedy is beyond the powers vested
in an arbitration tribunal. Therefore the case cannot be referred to arbitration.

APPEAL II
THE

PROPOSED

SCHEME

OF ARRANGEMENT

SHOULD

NOT

BE

SANCTIONED BY THE COURT

In the present case, the appellants, the founders of flyabhi.com, filed a Special Leave
Petition under Article 136 in the Supreme Court, pursuant to the judgment given by the
Allahabad High Court. The Supreme Court has accepted the appeal, which is now at the
stage of final hearing. Thus, the appellants contend that the question of locus standi does
63 Richardson & Cruddas Ltd. v. Haridas Mundra [1959] 29 Comp Cas 549 (Cal).
64 Naveen Kedia v. Chennai Power Generation Ltd., [1998] 4 Comp. Lj 128.
65 Find most appropriate cases from list
66 Supra 52.
67 Supra 34.

not arise.
IV.
51.

THE SCHEME OF ARRANGEMENT IS NOT VALID

Section 230 of the Companies Act, 2013 (hereinafter CA) provides for a

compromise or arrangement between a company and its creditors, or between a

company and its members or any class therein. The Court must be satisfied about three
matters before sanctioning any scheme of arrangement, that (a) the statutory provisions
have been complied with; (b) the class or classes of members and shareholders have
been fairly represented; and (c) the arrangement is such as a man of business would
reasonably approve.68
52.

It is submitted that the proposed scheme of arrangement is not valid on the

grounds that [A] firstly, the statutory process was not complied with, [B] secondly, the
members of Class A equity shareholders were not fairly represented, and [C] thirdly,
the proposed scheme is not beneficial to the company. Further, [D] the application
under Section 235 of the CA, as filed by the transferee company is invalid.
A. STATUTORY PROCESS WAS NOT COMPLIED WITH
53. It is submitted that Section 230(1) of the CA requires the Court or Tribunal, upon application
of the company or of any creditor or member of the company, to order a meeting of the
creditors, members or of the respective classes, as the case may be, to be held in accordance
with the directions of the Court. This meeting is not called by the Company, but is ordered
by the Court - it is solely a Court convened meeting.69
54. The Respondents failed to comply with the statutory requirements on three counts. Firstly,
they failed to convene a meeting; Secondly, they failed to obtain required consent to dispense
with the meeting; and Thirdly, there was an absence of informed consent.
i.

Failure To Convene A Meeting

68 Manekchowk and Ahmedabad Manufacturing Company, Ltd. v. Industrial Court, [1970] 40 Comp Cas 819
[headnote 3]; In Re: Anglo-Continental Supply Co. Ltd., [1922] 2 Ch 723; Miheer H. Mafatlal v. Mafatlal
Industries Ltd., AIR 1997 SC 506; In Re: Navjivan Mills Co. Ltd., Kalol (1972) 42 Comp Cas 265; Buckley,
Arden, Hon Dame Mary, Prentice, Dan, BUCKLEY ON THE COMPANIES ACT Indian Reprint 2010, Issue 15,
2009), Nagpur LexisNexis, p 409.
69 Companies Act v. Unknown, (2014) 184 Comp Cas 441, 15.

55.

It is submitted that the Court has no power to dispense with meetings

altogether under Section 391 of the Companies Act, 1956 (now Section 230 CA).70 A
second court hearing for sanctioning a scheme can be initiated only after a meeting
has been held by the Company with its creditors or members or any class of them, as
directed by the Court, and approval has been obtained from the parties.71
56.
Further, under Section 230(9) of the CA, the Tribunal may dispense only with
the meeting of the creditors or a class of creditors, where the same is consented to by
at least ninety percent in value of the parties concerned. Such provision can be
availed of only upon application by the concerned parties to the Court. 72 In addition,
Section 230(9) of the CA makes no mention of a dispensation of meetings of
shareholders. Thus, this cannot be done away with.73
57.
In the present case, no application was made by the Company to the Court to
convene a meeting with the required classes of members. Further, no meeting was
held, whether Court convened or not.74 This is in contravention of Section 230(1),
CA. Additionally, no application for the dispensation of the meeting of the creditors
was made before the Court.
ii.
58.

Failure to Obtain Required Consent to Dispense Meeting

It is submitted that a meeting with the equity shareholders may be

dispensed with only if consent for the same has been obtained from all equity
shareholders.75 This is reiterated in the Duomatic Principle 76, which states that if a
statute or a company's articles provide that an action can be taken only with the
sanction of a certain group, which sanction is to be given in accordance with a
70 Ramaiya, A., GUIDE TO THE COMPANIES ACT, (2014, 18th EDN) Nagpur LexisNexisp 3708.
71 Manekchowk and Ahmedabad Manufacturing Company, Ltd. v. Industrial Court, [1970] 40 Comp Cas 819;
K. Sudhakar Gupta v. Electro Thermics (Pvt) Limited [2004] 122 Comp Cas 625 AP.
72 PDK Estates Private Ltd. & Anr. v. Unknown, [2013] SCC OnLine Cal 18235; In Re: IDFC Ltd, Chennai,
[2015] Indlaw MAD 1560, [2015] 191 Comp Cas 469.
73 Ramaiya, A., GUIDE TO THE COMPANIES ACT, (2014, 18th EDN) Nagpur LexisNexis,Vol II, p 3683, 3708.

74 Factsheet, 25
75 Vintron Infrastructure and Projects Private Limited v. Unknown, [2015] SCC OnLineGuj 1123 3;
Company Act v. Unknown, (2014) 184 Comp Cas 441.
76 In Re: Duomatic Limited., [1969] 2 Ch 365.

prescribed procedure, then, where all the members of the group agree to the action,
the prescribed procedure is not normally treated as being of the essence. 77 Thus, a
meeting is not mandatory.78
59.
If the formal procedure is being done away with, it is required there
exist no possible dissenting members who do not have the forum to convey their
express dissent through letters of consent. Letters of consent may not serve as
meetings have a definite object and purpose to be fulfilled.79
60.
In the present case, the Respondents obtained letters of consent from
(a) all Class B equity shareholders, (b) more than 50% of Class A equity
shareholders, and (c) all secured and unsecured creditors. All Class A equity
shareholders have clearly not provided letters of consent. Thus, the meeting cannot
be done away with.
iii.
61.

Absence of informed consent

It is submitted that the approval of the proposed arrangement is

necessary before any application for its sanction can be moved. 80 Informed consent is
the first step in the process, and this is achieved in two ways. 81 Firstly, a notice for
the meeting must be sent to all relevant members 21 days before the date of the
meeting along with a copy of the proposed scheme.82 This time period gives the
members the opportunity to make an informed decision. Secondly, a meeting is
necessary to ascertain that all members are aware of the pros and cons of the
scheme.83 Any decision arrived at by them prior to the filing of the petition for
sanction of the scheme of amalgamation is not a ground to contend that the meeting
of shareholders should be dispensed with.84 The right of members is not merely to
cast a vote in favor of or against a scheme, but also to have the benefit of collective

77 In Re: Torvale Groups Ltd, [1999] All ER (D) 944; Brilliant Bio Pharma Ltd. v. Brilliant Industries Ltd.,
(2013) 180 Comp Cas 168; In Re: Sumitra Pharmaceuticals And Chemicals Ltd., (1997) 88 Comp Cas 619; In
Re: Raasi Cement Ltd., (2000) 1 ALD 65 : (1999) 98 Comp Cas 835 : (1999) 3 An WR 303.
78 In Re: Kirloskar Electric Co. P. Ltd., (2003) 116 Com Cases 413: (2003) 4 Comp lJ 13(Kant).
79 In Re: Ansys Software P. Ltd., (2004) 122 Com Cases 526.
80 Saharay, H.K., Company Law, (2008 5th Edn), Universal Law Publishing, p 488.
81 M/s. Subhiksha Trading Services v. Mafatlal Industries, (2010) 6 CTC 348.
82 Companies (Court) Rules, 1959, Rule 73.
83 In Re: Ne Plus Technologies P. Ltd., (2002) 112 Com Cases 376 (Mad).
84 Id.

wisdom.85
62.

In the present case, the requisite time was not accorded to the required

stakeholders and the letters of consent were obtained hastily, within hours of the
Board proposing a scheme of arrangement.86 Such letter cannot fulfill the purpose of
the statutorily mandated procedure of garnering consent.
63.
Thus, it is submitted that the Respondents not only failed to comply
with the statutory procedure, but also failed to fulfill the essence of the procedure informed consent.
V.

ALL CLASS A EQUITY SHAREHOLDERS HAVE NOT BEEN

FAIRLY REPRESENTED
1.

It is submitted that Section 230(6) of the CA requires the scheme to be

approved by a three-fourth majority in value of members that constitute a particular

class. While there is no absolute definition of class, it includes the elements of
homogeneity of legal rights, common interest and identical schemes being offered to
all members of that class.87 Since a scheme is binding on even the dissenting
members, the Court must ensure that the scheme is fair, just, reasonable, and does not
contravene public policy or any statutory provision.88 If classes are not established
properly, the whole scheme will be nullified.89
2.

It is submitted that all members of Class A Equity Shares have not been fairly represented as
they have been categorized as a single class. A separate class is required due to [A] a lack of
common interest, and [B] a lack of homogenous legal rights.

A.

THERE EXISTS NO COMMONALITY OF INTEREST BETWEEN THE MAJORITY AND MINORITY

SHAREHOLDERS

85 Pallavi Saluja, The Viewpoint - Recent Decisions on Schemes of Arrangment and

Capital Reduction (2014), << http://barandbench.com/recent-decisions-schemesarrangement-and-capital-reduction/, >>, accessed 13 Feb, 2016.
86 Factsheet 25.
87 Buckley; Arden, Hon Dame Mary; Prentice, Dan, BUCKLEY ON THE COMPANIES ACT Indian Reprint
2010, Issue 15, 2009), Nagpur LexisNexis, p 406; Sovereign Life Assurance Co. v. Dodd, (1892) 2 Q.B. 573,
State Bank of India & Ors v. Alstom Power Boilers Ltd. & others, (2003) 5 Bom CR 421 : (2003) 116 Comp
Cas.
88 JS Davar v. Dr Shanakar Vishnu Maratha, AIR 1967 Bom 456;
89 Finch, Vanessa, CORPORATE INSOLVENCY LAWS: PERSPECTIVES & PRINCIPLES, (2002,
1st EDN.), Cambridge University Press, p.327.

1. It is submitted that if people with heterogeneous interest are combined

in one class, the majority may ride roughshod over the minority, who represent a
distinct interest.90 Members of the same class must share a common interest,
enabling common consultation with a common view.91
2. In Hellenic & General Trust Ltd92, the majority shareholder, being a
subsidiary of the transferor company, would hold an interest similar to the
transferor company. The Court held that this common interest would have an
adverse effect on the dissenting minority, and used this ground to further subgroup the class. Additionally, the Court may protect minority rights by treating
the shareholders whose interests are at risk from the decision of the majority
members as a separate group.93
3. In the present case, the transferor company is an affiliate of the
majority shareholders, i.e., the investors. An affiliate is defined as a company
that has shared resources, interests, or business dealings. 94 It may be inferred that
there exists a commonality of interest between the transferor and transferee
company. Thus, it is required that the dissenting minority shareholders constitute
a separate class to enable them to consult on their common interest without
interference from the majority.95
B.

THERE EXISTS NO HOMOGENEITY OF LEGAL RIGHTS AMONG ALL CLASS A EQUITY

SHAREHOLDERS
1. It is submitted that all members within the same class must possess the
same legal rights, and the existence of a distinct right is a ground for forming a
separate class.96 The Singapore Court of Appeal has held that the existence of a
Right of First Offer or Refusal (hereinafter ROFO and ROFR) constitutes a
90 Manekchowk and Ahmedabad Manufacturing Company, Ltd. v. Industrial Court, [1970] 40 Comp Cas 819;
In Re: Hoganas India Limited, (2008) 6 Bom CR 782.
91Buckley; Arden, Hon Dame Mary; Prentice, Dan, BUCKLEY ON THE COMPANIES ACT India Reprint 2010,
Issue 15, 2009), Nagpur LexisNexis, p.406.
92 (1975) 3 All ER.
93 K.P. Chackochan v. Federal Bank, (1989) 66 Comp Cas 953 (Ker); In Re: Hindustan Coop. Insurance
Society Ltd., (1961) 31 Comp Cas 193 (Cal).
94 Garner, Bryan A; Black, Henry Campbell, BLACKS LAW COLLEGE, (2009, 9th EDN), United States of
America West 2009.
95 In Re: Sandvik Asia Ltd., 1 2004 (4) Bom. C.R 287; In Re: Hoganas India Limited, (2008) 6 Bom CR 782
96 Sovereign Life Assurance Co. v. Dodd, [1892] 2 QB 573; In Re: Hoganas India Limited v.Unknown,
(2008) 6 Bom CR 782; D.A. Swamy And Others v. India Meters Ltd, 1994 79 CompCas 27 Mad

special legal right, and is a ground for forming a separate class.97 A ROFR refers
to a right in a contract where the seller must give the holder of the right the
chance to match the offer that a third party has made to buy a certain asset. 98 A
ROFO refers to a right in a contract where the seller must give the holder of the
right the first chance to make an offer to purchase the assets being sold.99
2. In the present case, the investors hold more than 50% of Class A
equity shares100 and hence constitute the majority, while the Appellants together
hold 12% of Class A equity shares and constitute the minority. 101 As per the
investment agreement, the investors hold the special legal right of a
ROFR/ROFO.102 Further, this right does not lie with the Appellants, who lost it
as per clause 6.1.8 of the investment agreement. 103 Thus, the majority
shareholders (investors) who hold this right should constitute a separate class. It
would not be proper to uphold convening of a meeting between two such classes
that constitute differing rights and interest.104
3. Thus, it is submitted that the present case constitutes one of unfairness
due to the opinions of the minority not having been considered, and the relation
between the investors and the transferee company clearly reflecting a conflict of
interest.
VI.

THE PROPOSED SCHEME OF ARRANGEMENT IS NOT BENEFICIAL TO THE

TRANSFEROR COMPANY
1. It is submitted that any amalgamation, even though between two
companies, is an affair that essentially relates to the transferor company.105
Conglomerate mergers are mergers between firms that have no existing or
potential relationship, either as competitors, suppliers or customers - a merger of
companies from unrelated sectors.106 Conglomerate mergers lead to diversion of
97 The Royal Bank of Scotland , N.V. & Ors v. T.T. International, [2012] SGCA 9.
98 Garner, Bryan A; Black, Henry Campbell, BLACKS LAW COLLEGE , (2009, 9th EDN), United States of
America West 2009.
99 Garner, Bryan A; Black, Henry Campbell, BLACKS LAW COLLEGE, (2009, 9th EDN), United States of
America West 2009.
100 Factsheet 25.
101 Factsheet 21.
102 Factsheet 6.1.8.
103 Factsheet 6.1.8.
104 In Re: Hoganas India Ltd., (2008) 6 Bom CR 782
105 In Re: W. A. Beardsell and Co. (P.) Ltd. and Mettur Industries Ltd. [1968] 38 Comp Cas 197.
106 Tetra Laval v. Commission, [2002] ECR II - 4381.

managerial attention from running existing operations, due to which such

mergers seldom lead to significant efficiencies.107 Such mergers do not increase
economic efficiency.108 While sanctioning a scheme, a Court must ensure that it
is beneficial to members and creditors of both the transferor company and the
transferee company.109
2. The transferor company is engaged in aviation business, with the
transferee company being a non-banking financial company (hereinafter
NBFC). It is clear ipso facto that this is a case of conglomerate merger. Thus,
owing to the difference in the nature of businesses of both companies, this
scheme is not beneficial to either. It compromises the future of the aviation
business of flyabhi, and the transferee company does not have the expertise to
handle a business in the aviation sector.

VII.

THE APPLICATION UNDER SECTION 235(1) OF COMPANIES ACT, 2013 IS

INVALID

1.

It is submitted that Section 235 of the CA gives the transferee company in a scheme of
arrangement the right to acquire the shares held by the dissenting members of the transferor
company, unless the Court orders otherwise.110 Owing to the gravity of this power, it has

2.

been held that the statutory requirements must be observed.111

Section 235(1) of the CA requires that an offer made by the transferee company be approved
by holders in nine-tenths in value of shares whose transfer is involved, within four months of
such offer being made. A notice indicating the transferee companys desire to exercise its
rights under S. 235 of the CA is to be sent within two months of the expiry of the
abovementioned four months. A notice can be sent before expiration of four months,

107 Scherer, The Posnerian Harvest: Separating Wheat from Chaff, (1977) 86 Yale L.J., p 974, 988.
108 Mueller, The Effects of Conglomerate Mergers: A Survey of the Empirical Evidence, (1977) I J. of
Banking & Finance, p 315, 344; John Kenneth Galbraith, Future of Small Business in America(pt.2): Hearings
Before the Subcomm, on Antitrust, Consumers and Employment of the House Comm. on Small Business, 95th
Cong., 2d Sess. 39 (1978).
109 In Re: Carron Tea Co. Ltd., (1966) 2 Comp LJ 278 (Cal).
110 S.Viswanathan v. East India Distilleries and Sugar Factories Ltd. AIR 1957 MAD 341.
111 Carlton Holding Ltd. v. Priam Investments Ltd. (1971) 2 All ER 1082; In Re: Simo Securities Trust Ltd.
(1972) 42 Com Cases 457, 467 : (1971) 3 All ER 999 (Ch D).

provided the approval of at least 90% of shareholders is obtained. 112 Time is to be calculated
from the date of the offer.113
3.

It is submitted that the notice under Section 235 is invalid in the present case. The requisite
nine-tenths in value of approval was not obtained, as the Appellants together hold 12% in
value of the total shareholding.114 Further, the time period between the offer and notice of the
transferee company is ten days. This is before the statutorily permitted time.

112 In Re: Western Manufacturing, (Reading) Ltd. (1955) 3 All ER 733 : (1957) 27 Com Cases 144 (Ch D);
Buckley; Arden, Hon Dame Mary; Prentice, Dan, BUCKLEY ON THE COMPANIES ACT Indian Reprint 2010,
Issue 15, 2009), Nagpur LexisNexis, p I-48.
113 Mussoon v. Howard Glasgow Associates Ltd., (1960) SC [Scottish] 371 : (1961) SLT 87.
114 Factsheet, 21.

PRAYER
Wherefore in light of the issues raised, arguments presented and authorities cited, it is
humbly prayed that this Court may be pleased to hold, adjudge and declare that:
1. There was oppression and mismanagement.
2. Overturn the order granted by the Allahabad High Court and the Calcutta High Court
and reject the scheme of arrangement.
3. The application concerning the acquisition of shares be rejected.
And pass any other order it may deem fit in the interest of justice, equity and good
conscience.
All of which is humbly prayed,
Team Code _____
Counsel for the Appellant.