Difference between revisions of "All India Corporate Law Moot Court Competition, NLU Delhi"

From Legallypedia
Jump to navigation Jump to search
Line 16: Line 16:
==Moot problem in 2010-11==
==Moot problem in 2010-11==
The moot problem for the Competition can be found on the University website or may be downloaded from [http://www.nludelhi.ac.in/pdf/mootproblem.pdf here].
(Company Petition No. 2005 of 2010)
In the matter of:
Mr. Nandan Shah ……… Petitioner No. 1
Mr. Ashok Kumar and other minority shareholders ……… Petitioner No. 2
Mr. Akhil Rao and other nominees of EBIL …….. Respondent No. 1
Tropical Formulations Limited …….. Respondent No. 2
1. Tropical Formulations Limited (TFL) is a company limited by shares, incorporated under the
Companies Act, 1956 on January 17, 1999 and having its registered office at No. 14/1,
Business Arcade, KJ Road, New Delhi – 110 007. TFL is listed on the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE), where its stocks are frequently
traded. The main realm of its operations consists of the manufacture and sale of fruit juices
packaged in tetra-packs, plastic bottles and cans (Business), under the brand-name ‘Surreal’.
TFL engaged several famous cine actors, sports persons and models to endorse its products,
and annually distributed about 50,000 units of its products to orphanages and destitute homes
as part of its obligations under corporate social responsibility. Surreal was increasingly
getting popular among the youth and adults alike, and as a result, TFL had the largest share in
the Indian food and beverage market segment.
2. TFL was broadly and substantially controlled by 2 (two) groups of shareholders, who were
also the promoters of the company (Promoters) – Mr. Nandan Shah alongwith relatives
(collectively, Shah Group) and Mr. Akhil Rao alongwith relatives (Collectively, Rao Group)
– jointly holding around 58% of the equity share capital in the company, in equal proportion.
These 2 groups had entered into and executed a mutual collaboration agreement (MCA) in the
year 2002, pursuant to which 3 individuals nominated by each of the parties were appointed
to the board of directors of TFL (Board), in addition to the independent directors as required
under the BSE Listing Agreement. The provisions of the MCA were duly incorporated in the
articles of association of TFL (Articles).
3. Under the terms of the MCA, Mr. Nandan Shah was appointed the Managing Director while
Mr. Akhil Rao was elected to act as the Chairman of TFL. In addition, the parties to the MCA
had agreed as follows:
Section 11: From and following the expiration of the closing hereof, the Shah Group shall not
transfer any of the shares held by them in TFL without first offering such shares (ROFR
Shares) to the Rao Group, by giving them an advance notice (ROFR Notice) at a price per
share set out therein, which shall be the higher of a mutually agreed upon price or the price
determined in accordance with the applicable law (ROFR Price). The Rao Group or its
representative/ nominee shall remit the ROFR Price to the Shah Group which shall
simultaneously transfer the ROFR Shares to Rao Group or such representative/ nominee.
Subject to the receipt of all requisite approvals under the applicable law, the sale and delivery
of the ROFR Shares shall be consummated within 15 days from the receipt of the ROFR
Notice, subject to the provisions under the applicable law.
The aforesaid process shall apply mutatis mutandis to a transfer by the Rao Group, vis-à-vis
the Shah Group.
Section 17: Until such time that any party’s equity shareholding in the company does not fall
below 14%, the decisions by the Board in the following instances shall be passed by a
majority of directors; provided however that, such majority comprises of the affirmative vote
by at least 1 (one) nominee of each of the parties:
(a) Any single item of capital expenditure by the company, beyond Rs. 50,00,000/-;
(b) Any transfer of equity interests of 5% or more of the company’s paid up capital to any
third parties and the terms and conditions thereof;
… Among others.
Section 25: This Agreement shall automatically terminate upon a change in control of the
4. EffBee Limited (EBL) is another company limited by shares, incorporated under the [Irish]
Companies Act, 1963 on April 18, 2001 and having its registered office in Dublin. EBL is
known world-over for its food and beverage products, sold under the common chain-name of
‘HungerKiller’. In the month of January 2010, the management of EBL noted that the
company had a considerably low profit margin in the Indian market, where although its
products were marketed with the help of leading national entities, the revenues did not match
the desired levels. A full-fledged survey accompanied with a commercial due diligence was
undertaken, as a result of which it was revealed that the Indian consumers were more inclined
to purchase the locally manufactured products. Accordingly, EBL set up a wholly-owned
subsidiary in India under the name of EffBee India Private Limited (EBIL), with its registered
office located at No. 27/D, The Wave Plaza, Noida (U.P.) – 201 301. The main objects under
EBIL’s memorandum of association comprised manufacture, storage and supply of biscuits,
preserved cakes and other related confectionary items. EBIL’s market for its products,
distributed under the brand name ‘Biscakes’ was fairly widespread in India and was
concentrated among the school children. EBIL deployed several advertising campaigns with
the fair use of copyrights owned by producers of famous cartoon characters world over.
5. To improve its profit margins and deploy its surplus distributable reserves, EBL decided to
buy a substantial stake in TFL through EBIL by way of downstream investment, and
consequently executed a share purchase agreement with the Promoters (SPA) on April 20,
2010, pursuant to which EBIL would buy shares representing in the aggregate 32% of equity
share capital of TFL, from the Promoters (out of which 18% would be purchased from the
Rao Group) for a mutually agreed upon consideration (Consideration). In addition, as
required in terms of the provisions of Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997, as amended, EBIL would conduct a
public open offer for Twenty-Five per cent (25%), conditional upon the acquisition of at least
22% of the issued and paid-up equity share capital of TFL, at a price determined in
accordance with the applicable law. Other salient points as contemplated under the SPA are
set forth below.
As part of the Conditions Precedent to the Closing:
Section 4.5: The Promoters shall have executed and delivered all such consents as may be
required under its charter documents and taken all such actions to allow EBIL to nominate its
representatives for appointment to the Board in accordance with law, once EBIL has
deposited 100% of the consideration in the Designated Escrow Account.
Section 4.9: There shall not have been or occurred any event, change, occurrence or
circumstance that, individually or in the aggregate with any other events, changes,
occurrences or circumstances, has had or could reasonably be expected to have a Material
Adverse Effect.
In respect of the aforesaid, “Material Adverse Effect” would mean an effect on: (1) the value
of the Business, such that the value is reduced by an amount equal to or more than 15% of the
Consideration; or (2) the Business, such that either the prospects or the future cash flows of
the Business are affected by an amount equal to or more than 15% of the Consideration,
including, but not limited to, for example, in the event that TFL is blacklisted by any
governmental authority.
As part of the Mutual Covenants:
Section 7.1: The Promoters shall cause their nominees to vote in favour of the resolutions
tabled before the Board at the first and the second Board meetings in respect of appointment
of the EBIL nominees to the Board, among other matters.
Section 7.5: For a period commencing the closing date and until the fourth anniversary
thereof, the Promoters shall not, directly or indirectly through any other person, own, manage,
operate or control or participate in the ownership, management, operation or control of any
business, whether in corporate, proprietorship or partnership form or otherwise) any business
that competes with the Business in India or abroad. The parties specifically acknowledge and
agree that a remedy under applicable law for any breach of the foregoing will be inadequate
and that EBIL, in addition to any other relief available to it, shall be entitled to temporary and/
or permanent injunctive relief without the necessity of proving any actual damage.
In addition to the above, the Letter of Offer stated that the acquisition will not result in
change in control of the company.
6. Following the closure of the public offer and consummation of the transactions contemplated
under the SPA, EBIL held 56% of the equity capital in TFL. On June 4, 2010, TFL passed
certain board resolutions by majority: one ratifying a supplemental letter agreement (SLA)
pursuant to which certain additional shares held by the Rao Group (representing in the
aggregate 6% of the paid up capital of EBIL) would be transferred in favour of EBIL and Mr.
Akhil Rao would be appointed as an additional director in EBIL; and the other pertaining to
disposal by sale and conveyance of certain immoveable properties (land, building and
permanent fixtures thereon) owned by the Rao Group to EBIL, whereby EBIL could achieve
economies of scale and scope by investing in and utilizing TFL’s existing infrastructure for
expansion of its business. The nominees of the Shah Group negatively voted in respect of
these resolutions.
7. Mr. Nandan Shah filed a company petition before the Hon’ble Company Law Board at New
Delhi (CLB) on August 25, 2010, challenging the legality of the resolutions passed at the
meeting of the Board, as aforesaid. He further alleged fraudulent practices and breach of
fiduciary duties by certain directors on the Board, particularly the nominees of Rao Group and
EBIL. In addition and shortly thereafter, as the SPA came into operation and EBIL began
taking an active role in the operations of TFL, Mr. Ashok Kumar alongwith certain other
individual shareholders in TFL (collectively holding 11% of the paid up capital of TFL),
complained of oppression and mismanagement in TFL, and also challenged the validity of the
MCA as also the transfer of shares by Promoters in favour of EBIL, consequent to the SPA.
8. The CLB, in view of common issues involved in the aforesaid 2 (two) petitions, decided to
club them up and called for evidence on submissions advanced by Mr. Nandan Shah and Mr.
Ashok Kumar. A written statement was filed by Mr. Akhil Rao, and after several hearings, the
matter has now been posted for the final hearing on [November 27, 2010]. The petitions
contained averments which include but are not limited to, the following:
 Section 7.1 of the SPA was not permissible under the Companies Act and therefore,
the board resolutions passed on June 4, 2010, were non-est and did not bind TFL;
 TFL was not bound to register the transfer of additional shares by the Rao Group, in
terms of the board resolution passed on June 4, 2010;
 The provisions of the SLA were in breach of section 7.5 of the SPA;
 The MCA had automatically terminated owing to change in control of the company;
 The nominees of the Rao Group and EBIL had not acted in the best interests of TFL,
and were consequently in breach of their fiduciary duties;
 Section 11 of the MCA was in violation of the Companies Act.
Based on the above, the petitioners have prayed for appropriate direction(s) and/or order(s) be
issued in respect of the above. Further, the petitioners have requested that the Respondents
herein be declared guilty of mismanagement and oppression in TFL, and that the TFL open
offer be re-conducted.

Revision as of 18:47, 6 January 2011


National Law University, Delhi will be organizing the IInd Corporate Law Moot Court Competition in collaboration with UKCA Law Chambers, a leading Corporate Law firm of Delhi.


National Law University, Delhi UKCA Law Chambers


National Law University, Delhi Sector-14 Dwarka New Delhi - 110078

Dates of moot in 2011

18-20 February, 2011

Moot problem in 2010-11

The moot problem for the Competition can be found on the University website or may be downloaded from here.