-TABLE OF CONTENTS-

TEAM CODE: T14

IN THE SUPREME COURT OF INDIA

(CIVIL APPELLATE JURISDICTION)

11TH NUJS-HERBERT SMITH FREEHILLS NATIONAL MOOT COURT

COMPETITION, 2018 – 2019

CIVIL APPEAL NO. 1481 OF 2018

OFFICIAL LIQUIDATOR, MEHTA AERONAUTICS PVT LTD

…APPELLANT

VERSUS

SEYMOUR & FITCH PLC

…
RESPONDENT NO. 1

CIVIL APPEAL NO. 1482 OF 2018

OFFICIAL LIQUIDATOR, MEHTA AERONAUTICS PVT LTD

…APPELLANT

VERSUS

SURESH KRISHNAN

…
RESPONDENT NO. 2

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INDEX OF AUTHORITIES...............................................................................................III
STATUTES.........................................................................................................................III
CASES: INDIA...................................................................................................................III
CASES: U.K.......................................................................................................................IV
MISCELLANEOUS CASES..............................................................................................IV
BOOKS.................................................................................................................................V
OTHER AUTHORITIES.....................................................................................................V
STATEMENT OF JURISDICTION..................................................................................VI
QUESTIONS PRESENTED..............................................................................................VII
STATEMENT OF FACTS...............................................................................................VIII
SUMMARY OF PLEADINGS............................................................................................XI
PLEADINGS...........................................................................................................................1
ISSUE 1. That the Spencer Judgment is entitled to recognition and conclusive in
India………..............................................................................................................................1
A. That the judgement is pronounced by a court of competent jurisdiction.......................1
B. That the proceedings are not opposed to principles of natural justice...........................2
C. That the judgement is decided on merits.......................................................................3
D. That he Spencer judgement operates as res judicata.....................................................4
ISSUE 2. That MAPL’s claim against Seymour & Fitch fails in any event by reason of
the defence of illegality...........................................................................................................5
A. That the defence of illegality is governed by Ruritanian law........................................5
a. Proper Law of the Contract........................................................................................5
b. Intention of the parties to be governed by Ruritanian Laws......................................6
B. That MAPL’s claim is barred by the defence of illegality under the Ruritanian law....6
a. Directors acting as agents of the company.................................................................7
b. Captain Mehta was the directing mind and will of the company...............................7
c. Defence of illegality bars MAPL’s claim...................................................................8
ISSUE 3. That Mr. Krishnan is Entitled to Rely on the Defense of Ratification even
when MAPL Was, In April 2015, In A Precarious Financial Position............................10
A. That MAPL was cash flow solvent and therefore, not on the verge of insolvency.....10
B. That Mr. Krishnan had reasonable expectation of solvency of the company and
therefore had no knowledge of the ‘Twilight Zone’...........................................................11

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a. Reliance placed on the report of forensic auditor.....................................................13

b. There is a long gestation period in aviation manufacturing companies...................14
c. No active participation in the activities of the company..........................................15
PRAYER FOR RELIEF..................................................................................................XVII
APPENDIX......................................................................................................................XVIII

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-INDEX OF AUTHORITIES-

INDEX OF AUTHORITIES

STATUTES
CODE CIV. PROC., §11 (1908)...................................................................................................1
CODE CIV. PROC., §13 (a) (1908).............................................................................................1
CODE CIV. PROC., §13 (b) (1908).............................................................................................1
CODE CIV. PROC., §13 (d) (1908).............................................................................................1
Companies Act, Eliz. 2, § 172 (2006) (U.K.).........................................................................12
Companies Act, No. 18, § 166 (2) (2013)...............................................................................11
Companies Act, No. 18, § 166 (3) (2013)...............................................................................11
Companies Act, No. 18, § 433 (2013)....................................................................................10
Corporation Act 2001 § 588 H (3) (2001) (Austl.)................................................................14
Corporation Act 2001 § 588 H (3) (2001) (Austl.).................................................................14
INSOLVENCY & BANKRUPTCY CODE, § 66 (2016) (India)......................................................12

CASES: INDIA
Algemene Bank Nederland v. Satish Dayalal Choksi, A.I.R. 1990 Bom. 170 (India).............2
Bank of Poona Ltd. v. Narayandas Shriman Somani, A.I.R. 1961 Bom. 252 (India)............11
C.I.M.B. v. Dresdner Kleinwort Ltd., [2008] 4 S.L.R. 543 (India)..........................................6
China Shipping Development Co. v. Lanyard Foods Ltd., (2008) 142 Comp. Cas. 647 Bom.
(India)....................................................................................................................................4
Chockalinga v. Duraiswami, A.I.R. 1928 Mad. 327 (India).....................................................4
DINSHAH FARDUNJI MULLA, MULLA: THE CODE OF CIVIL PROCEDURE (B. M. Prasad ed.,
18th ed., Vol. 1, 2011)............................................................................................................4
Edulji v. Manekji, (1886) I.L.R. 11 Bom. 241 (India)..............................................................2
Iridium India Telecom Ltd. v. Motorola Inc., (2011) 1 S.C.C. 74 (India)................................8
Jayam Sunder Raja Ratnam v. Muthuswami, A.I.R. 1958 Mad. 203 (India)...........................3
Lalji Raja & Sons v. Firm Hansraj Nathuram, A.I.R. 1971 S.C. 974 (India)...........................2
M.K. Sivagaminatha Pillai v. K. Nataraja Pillai, A.I.R. 1961 Mad. 385 (India)......................4
M/S Alcon Electronics Pvt. Ltd. vs. Celem S.A. OF Fos 34320 Roujan, France & Anr., Civ.
App. No. 10106 of 2016 Unreported Judgement (2016) (India)...........................................3
Moazzim Hossein Khan & Anr. v. Raphael Robinson, (1901) I.L.R. 28 Cal. 641 (India).......2
N. Narayanam v. S.E.B.I., (2013) 12 S.C.C. 152 (India)........................................................11
National Thermal Power v. Singer Co. & Ors., A.I.R. 1993 S.C. 998 (India).........................5
P.A. Tendolkar v. Official Liquidator & Ors., (1967) 37 Comp. Cas. 511 Kar. (India).........15
Prem Kataruka v. Union of India & Ors., (2015) L.N.I.N.D. 2468 Jhar. (India)...................15
S.M.S. Pharmaceuticals Ltd. v. Neeta Balla, (2005) 3 A.C.R. 3082 (India)..........................15
State of N.C.T. v. Rajiv Khurana, A.I.R. 2010 S.C. 2986 (India)..........................................15
Subramania v. Annaswami, A.I.R. 1948 Mad. 203 (India)......................................................2
Syed Mohd Salie Labbai v. Mohd Hanifa, (1976) 4 S.C.C. 780 (India)..................................4
Vithalbhai Shivabhai Patel v. Lalbhai Bhimbhai, A.I.R. 1942 Bom. 199 (India)....................3

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-INDEX OF AUTHORITIES-

CASES: U.K.
Aberdeen Rly Co. v. Blaikie Bros., [1854] U.K.H.L. 1 (U.K.)................................................7
B.N.Y. Corporate Trustee Services Ltd. v. Eurosail-UK 2007-3Bl plc, [2011] 1 W.L.R. 2524
(U.K.)...................................................................................................................................15
Buchler A.G. v. Chronos Richardson Ltd., [1998] 2 All E.R. 960 (U.K.)................................4
Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853 (U.K.).....................4
El-Ajou v Dollar Land Holdings Plc., [1994] 2 All E.R. 685 (U.K.).......................................7
Ferguson v. Wilson, (1866) 2 Ch. App. 77 (U.K.)....................................................................7
Foss v. Harbottle, (1843) 67 E.R. 189 (U.K.).........................................................................11
Foster v. Driscoll, [1929] 1 K.B. 470 (U.K.)............................................................................5
H.L. Bolton (Engg) Co. Ltd. v. T.J. Graham & Sons Ltd., (1956) 3 All E.R. 624 (U.K.)......8
Hall v. Poolman, [2007] 65 A.C.S.R. 123 (U.K.)...................................................................12
Harris v. Taylor, [1915] 2 K.B. 580 (U.K.)..............................................................................2
Jones v. Lipman, [1962] 1 W.L.R. 832 (U.K.).........................................................................8
Kalls Enterprises Pty. Ltd. v. Balaglow, [2007] 25 A.C.L.C. 1094 (U.K.)............................12
Lennarrd Carrying Co. Ltd v. Asiatic Petroleum Co. Ltd, [1915] A.C. 705 (U.K.).................8
Mohammed v. Bank of Kuwait & the Middle East K.S.C., [1996] 1 W.L.R. 1483 (U.K.)......1
Multinational Gas & Petrochemical Co. v. Multinational Gas & Petrochemical Services Ltd.,
[1983] Ch. 258 (U.K.)...........................................................................................................8
Ralli Brothers v. Compania Naviera Sota Y Aznar. [1920] 2 K.B. 287 (U.K.)........................5
Re Douglas Construction Services Ltd., [1988] B.C.L.C. 397 (U.K.)....................................14
Re Hawkes Hill Publishing Co. Ltd. (in liq.) Ward v. Perks & Anr., [2007] B.C.C. 937
(U.K.)...................................................................................................................................13
Re Purpoint Ltd., [1991] B.C.L.C. 491 (U.K.).......................................................................10
Regentcrest plc. v. Cohen, [2001] 2 B.C.L.C. 80 (U.K.)........................................................12
Rex v. International Trustee for the Protection of Bondholders Aktiengesellschaft, [1937]
A.C. 500 (U.K.).....................................................................................................................6
Spilada Maritime Corp. v. Cansulex Ltd., [1987] 1 A.C. 460 (U.K.).......................................1
Stone & Rolls Ltd. v. Moore Stephens, [2009] U.K.H.L. 39 (U.K.)........................................9
Tesco Supermarkets v. Nattrass, [1971] U.K.H.L. 1 (U.K.).................................................7, 8
Vita Food Products Inc. v. Unus Shipping Co. Ltd., [1939] 260 A.C. 277 (U.K.)...................5

MISCELLANEOUS CASES
3M Australia Pty. Ltd. v. Kemish, [1986] 10 A.C.L.R. 371 (Austl.).....................................12
Gould v. Mount Oxide Mines Ltd. (in liq.), [1916] H.C.A. 81 (Austl.).................................15
Hang Lung Bank Ltd. v. Datuk Tan Kim Chua, [1988] 2 M.L.J 567 (Sing.)...........................6
North-West Transporta Co. Ltd v. Beatty, [1886] 12 S.C.R. 598 (Can.)...............................11
Re H.I.H. Insurance Ltd. (Australian Securities & Investments Comm’n v. Adler), [2002]
168 F.L.R. 253 (Austl.).......................................................................................................14
Vines. v A.S.I.C., [2007] 62 A.C.S.R. 1 (Austl.)....................................................................14

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-INDEX OF AUTHORITIES-

BOOKS
ALAN DIGNAM & JOHN LOWRY, COMPANY LAW 347 (2010)................................................12
AMANDA PINTO & MARTIN EVANS, CORPORATE CRIMINAL LIABILITY 61 (3rd ed. 2013).......8
AVTAR SINGH, COMPANY LAW 264 (16th ed. 2013).................................................................7
CHESHIRE, NORTH & FAWCETT, PRIVATE INTERNATIONAL LAW 139 (James Fawcett et al.
eds., 14th ed. 2008).................................................................................................................1
DICEY & MORRIS: THE CONFLICT OF LAWS (11th ed. 1987)....................................................5
DINSHAH FARDUNJI MULLA, MULLA: THE CODE OF CIVIL PROCEDURE (B. M. Prasad ed.,
18th ed., Vol. 1, 2011)............................................................................................................2
ENCYCLOPAEDIA OF PRIVATE INTERNATIONAL LAW 1051 (Franco Ferrari et al. eds., 2017). 2
LOUISE GULLIFER & JENNIFER PAYNE, CORPORATE FINANCE LAW: PRINCIPLES AND POLICY
96 (2nd ed. 2015)..................................................................................................................10
MANZAR SAEED, COMMENTARY ON THE INSOLVENCY AND BANKRUPTCY CODE, 2016 523
(2nd ed. 2017).......................................................................................................................10
MARTINUS NIJHOFF, RE-EXAMINING CONTRACT AND UNJUST ENRICHMENT  176-181 (Paula
Giliker ed. 2007)....................................................................................................................5
PAUL L. DAVIES & SARAH WORTHINGTON, PRINCIPLES OF MODERN COMPANY LAW (9th ed.
2012)......................................................................................................................................7
SUMANT BATRA, CORPORATE INSOLVENCY LAW AND PRACTICE (1st ed. 2017).............12, 13

OTHER AUTHORITIES
JAMSHED J. IRANI COMMITTEE, REPORT OF THE EXPERT COMMITTEE ON COMPANY LAW:
MINISTRY OF COMPANY AFFAIRS, 15 (2005)......................................................................10
Report of PricewaterhouseCoopers-Confederation of Indian Industry: Changing Dynamics –
Indian Aerospace Industry https://www.pwc.in/assets/pdfs/industries/changing-dynamics-
india-aerospace-industry-091211.pdf..................................................................................14
Report of Working Group on Civil Aviation for formulation of Twelfth Five Year Plan
(2012-2017), Ministry of Civil Aviation
http://www.civilaviation.gov.in/sites/default/files/Committee%20reports%209.pdf.........14
U.N., UNCITRAL Legislative Guide on Insolvency Law Part four: Directors’ obligations in
the period approaching insolvency (Nov. 2013),
http://www.uncitral.org/pdf/english/texts/insolven/Leg-Guide-Insol-Part4-ebook-E.pdf. .13
U.N., UNCITRAL Legislative Guide on Insolvency Law Part four: Directors’ obligations in
the period approaching insolvency (Nov. 2013),
http://www.uncitral.org/pdf/english/texts/insolven/Leg-Guide-Insol-Part4-ebook-E.pdf.. 12

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-STATEMENT OF JURISDICTION-

STATEMENT OF JURISDICTION

In accordance with Article 136 of the Constitution of India read with Order XXII Rule 8 of
the Supreme Court Rules, 2013, the Appellants have approached the Hon’ble Supreme Court
of India. The Respondents humbly submit to the Jurisdiction of the Court

Article 136 of the Constitution of India, 1950

“(1) 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 India.

(2) Nothing in clause (1) shall apply to any judgment, determination, sentence or order
passed or made by any court or tribunal constituted by or under any law relating to armed
forces.”

Order XXII Rule 8 of the Supreme Court Rules, 2013

“On the granting of the special leave, the petition for special leave shall be treated as a
petition of appeal and shall be registered and numbered as such. “

Thus, the Respondent has approached this Hon’ble Court for adjudicating the matter brought
forth in the court of law.

All of which is most respectfully submitted

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-QUESTIONS PRESENTED-

QUESTIONS PRESENTED

ISSUE 1. WHETHER THE SPENCER JUDGMENT IS ENTITLED TO

RECOGNITION AND CONCLUSIVE IN INDIA

ISSUE 2. WHETHER MAPL’S CLAIM AGAINST SEYMOUR & FITCH IS

BARRED BY THE REASON OF DEFENCE OF ILLEGALITY

ISSUE 3. WHETHER MR. KRISHNA CAN RELY ON THE DEFENCE OF

RATIFICATION EVEN THROUGH MAPL WAS, IN APRIL 2015, IN A
PRECARIOUS FINANCIAL POSITION

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-STATEMENT OF FACTS-

STATEMENT OF FACTS

Background of Captain Mehta

Captain Mehta began his career as a pilot in Air India and became a senior commander
flying some of the most prestigious international routes. In 2001, he became a senior
consultant in Airbus’ Commercial Aircraft division in Toulouse from where he was
summarily dismissed for misrepresentation about his background, experience and violating
company policy, He returned to India with his reputation intact as his reasons for departure
were not widely known and with an intention to form a company manufacturing helicopters
and short-range aircraft.

Incorporation of Mehta Aeronautics Pvt Ltd (hereinafter ‘MAPL’)

MAPL is a private company incorporated in Mumbai in the year 2012. Captain Mehta did
not want to list the company or expose it to regulatory control to which public companies are
subject under Indian company law. He also intended to raise funds in form of debt and not
equity. Captain Mehta held 99,999 shares and 1 share was held by his close associate and
confidant, Alok Sharma.

As per the Articles of Association, directors were authorized to receive remuneration in

accordance with terms of their contracts of employment and over and above such
remuneration, directors holding executive posts were entitled to receive ‘special bonus’ by a
unanimous consent of all the board of directors.

Ornamental Position of Mr. Krishnan in MAPL

Mr. Krishnan was the CEO of India’s leading helicopter charter service and was a respected
figure. He was persuaded by Captain Mehta to join the company after expressing
reservations about Mehta’s background. Mr. Krishnan was reassured by Captain Mehta’s
representation that his post of Chairman of the Board of Directors would be largely
ornamental and would make a modest demand in his time as the company would essentially
be run by Captain Mehta and Alok Sharma. His involvement in the company was primarily
to enhance the ability to raise funds and credibility.

Business Dealings and Investigation by Seymour & Fitch Plc.

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-STATEMENT OF FACTS-

MAPL incurred a smaller net loss than is customary in aeronautics business in its first year.
A Consortium of Banks, after various negotiations with Captain Mehta, lent Rs. 450 crores
to the company. Thereafter, in 2014, Captain Mehta entered into a Technology Acquisition
Agreement (hereinafter ‘TAA’) with a company incorporated in Cayman Islands on behalf
of MAPL in which Mr. Krishnan was intentionally not involved.

After rumors of financial impropriety in MAPL’s affairs and of the unexpected increase in
company’s net loss in the year 2014, the Consortium asked a commission of independent
investigation to which Captain Mehta was initially reluctant. Thereafter, a well-known firm
of forensic accountants, namely Seymour and Fitch incorporated in Ruritania, entered into a
contract to investigate the circumstances in which TAA was entered into. This contract was
expressly governed by Ruritanian law and no jurisdiction or arbitration agreement. The
Report highlighted no evidences of financial impropriety which gave considerable
reassurance to Mr. Krishnan.

In 2015, MAPL incurred a net loss of 4 crores. Mr. Krishnan, initially expressed his
reservation in approving the special bonus proposal presented by Captain Mehta for the
amount of Rs. 20 crores and 10 crores for Mr. Mehta and Mr. Sharma respectively but later
approved of it as losses were normal for a company in an industry with a long gestation
period.

Winding up of MAPL

In 2015, Economic Times ran a story received by a whistleblower at MAPL who stated that
he was in possession of documents proving that Captain Mehta used the company as a
vehicle to defraud the creditors and that the TAA was a related party transaction which was
ultimately controlled by himself and his beneficiaries. Warrants were issued against Captain
Mehta and Alok Sharma; the former fled abroad and the latter confessed that the
whistleblower’s allegation were true.

Considering the situation, the Consortium demanded the amount outstanding to be repaid but
MAPL’s liabilities substantially exceeded its assets and on 21 April 2016, the Bombay High
Court ordered for winding up of the company.

Spencer Judgment

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-STATEMENT OF FACTS-

Seymour and Fitch plc commenced proceedings against MAPL in Ruritania City. Thereafter,
MAPL participated in the proceedings by filing an acknowledgment of service on 19
September 2016 and an application on 30 September 2016, seeking a stay of the proceedings
on the ground that Indian court was the forum conveniens.

Spencer J concluded that MAPL failed to establish the fact that the Indian Court was more
appropriate forum and this order was not challenged by MAPL.

The trial commenced before Spencer J. and it was held that Seymour & Fitch was not
negligent as the TAA fraud was very effectively concealed and also that MAPL’s claim was
barred by the defence of illegality which was to be governed by Ruritanian law.

Judgments by the Single Judge and Division Bench of Bombay High Court

The Official Liquidator with the sanction of the Bombay High Court issued application
against Seymour & Fitch for negligent investigation and Mr. Krishnan for breach of
directors’ duty in approving the special bonus in 2015.

The Single Judge held that the Spencer Judgment was not entitled to recognition as the
Ruritanian court was not the court of competent jurisdiction as per Indian Private
International law and that MAPL’s claim was not barred by the illegality defence as the
conduct of Captain Mehta was not attributable to MAPL. It held Mr. Krishnan liable as the
payment of such a special bonus was not in the interest of the company. Though the
company was on the verge of balance sheet solvency it was cash flow solvent, yet it was held
that the interest of creditors must have been considered and ratification by shareholders
could not be relied upon.

The Division Bench agreed held the Spencer Judgment to be conclusive because the
application of 30th September 2016 by MAPL amounted to submission to the Ruritanian
jurisdiction. Also, since Captain Mehta’s conduct was attributable to the company, its claim
was barred by the defence of illegality which was to be governed by Ruritanian law. As
regards, Mr. Krishnan, the Bench held the shareholders were also parties to the decision to
pay the bonus, the breach was unanimously ratified by the shareholders and therefore, he
must be absolved from any breach.

Aggrieved by this decision, the Official Liquidator has approached the Supreme Court and
has been granted leave and has been listed for final hearing.

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-SUMMARY OF PLEADINGS-

SUMMARY OF PLEADINGS

ISSUE 1. Whether the Spencer Judgment is entitled to recognition and conclusive in

India

It is humbly submitted before this Hon’ble Court that the Spencer judgement is entitled to
recognition and conclusive in India since the judgement is pronounced by a court of
competent jurisdiction as the exercise of civil jurisdiction must be founded upon either of the
two principles, namely, the principle of effectiveness or the principle of submission and the
courts have jurisdiction in an action inter partes if the defendant is served with process and
by applying the principle of forum conveniens. Further, the proceedings are not opposed to
principles of natural justice as the appellant was served with notice of suit but chose to not
appear before the court after the order on jurisdiction, the judgement is also decided on
merits and the Spencer judgement operates as res judicata as it is adjudicated by a court of
competent jurisdiction and thus, raises an estoppel against the appellant company.

ISSUE 2. Whether MAPL’s claim against Seymour & Fitch fails in any event by reason
of the defence of illegality

It is humbly submitted before this Hon’ble Court that the defence of illegality is governed by
the Ruritanian Laws as the law governing the contract applies to this defence because
Ruritanian Law was the ‘proper law of the contract’ between the appellant and the
respondent no. 1 as, MAPL’s contract with Seymour & Fitch was expressly governed by
Ruritanian law and the intention of the parties was to be governed by Ruritanian Laws.

It is humbly submitted before this Hon’ble Court that defence of illegality will bar the claim
of MAPL as MAPL was a one-man company and the acts of the directors can be attributed
to the acts of the company. Since, the directors are the agents of the company and Captain
Mehta was the directing mind and will of MAPL, the defence of illegality bars the claim of
MAPL.

ISSUE 3. Whether Mr. Krishnan is entitled to rely on the defence of ratification even
though MAPL was, in April 2015, in a precarious financial position

It is humbly submitted before this Hon’ble Court that Mr. Krishnan has rightly relied on the
defense of ratification by the shareholders as MAPL was cash flow solvent at the time of the

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-SUMMARY OF PLEADINGS-

breach of duty and therefore the company was not on the verge of insolvency. Further, Mr.
Krishnan had reasonable expectation of solvency since he placed reliance on an expert report
i.e. the report of Seymour and Fitch plc., there is a long gestation period in aviation
manufacturing companies and there was no active participation by Mr. Krishnan in the
activities of the company. Therefore, Mr. Krishnan had no knowledge of the ‘Twilight
Zone’.

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-PLEADINGS-

PLEADINGS

ISSUE 1. WHETHER THE SPENCER JUDGMENT IS ENTITLED TO RECOGNITION AND

CONCLUSIVE IN INDIA

¶1. It is humbly submitted that the Spencer judgement is entitled to recognition and
conclusive in India as firstly, the judgement is pronounced by a court of competent
jurisdiction [A]1; secondly, the proceedings are not opposed to principles of natural
justice [B]2; thirdly, the judgement is decided on merits [C]3 and lastly, the Spencer
judgement operates as res judicata [D]4.

A. That the judgement is pronounced by a court of competent jurisdiction.

¶2. It is submitted before this Hon’ble court that the Spencer Judgement is pronounced by
a court of competent jurisdiction as the Ruritanian Court was the appropriate forum. 5 It
is humbly submitted that the general doctrine of English law is that the exercise of civil
jurisdiction must be founded upon either of the two principles, namely, the principle of
effectiveness or the principle of submission.6 Hence, the court assuming the
jurisdiction must be the appropriate forum where the case can be tried for the interests
of all parties based on the principle of effectiveness.7
¶3. It also submitted that under English Law the courts have jurisdiction in an action inter
partes if the defendant is served with process, irrespective of the fact that he is a
foreigner8 and hence, are the appropriate forum under English Laws as the interest of
the parties are not harmed. In the present case the appellant had been served with
process and the same had been acknowledged via an acknowledgement of service9 and
thus, the Ruritanian court had jurisdiction to try the suit instituted by the respondent
no. 1.

1
CODE CIV. PROC., §13 (a) (1908) (India).
2
CODE CIV. PROC., §13 (d) (1908) (India).
3
CODE CIV. PROC., §13 (b) (1908) (India).
4
CODE CIV. PROC., §11 (1908) (India).
5
Mohammed v. Bank of Kuwait & the Middle East K.S.C., [1996] 1 W.L.R. 1483 (U.K.).
6
CHESHIRE, NORTH & FAWCETT, PRIVATE INTERNATIONAL LAW 139 (James Fawcett et al. eds., 14th ed. 2008).
7
Spilada Maritime Corp. v. Cansulex Ltd., [1987] 1 A.C. 460 (U.K.).
8
PARAS DIWAN, PRIVATE INTERNATIONAL LAW: INDIAN & ENGLISH (4th ed., 1998).
9
Moot Compromis ¶ 24.

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-PLEADINGS-

¶4. Further, according to the principle of forum conveniens10 the burden rests with the
appellant to show that there existed another forum which was clearly or distinctly more
appropriate than the Ruritanian Court11 but the appellant failed to demonstrate
existence of another forum more appropriate than the Ruritanian Commercial Court 12
and hence, the Ruritanian Court was the competent court of jurisdiction. Moreover, if
the defendant in the foreign suit, while protesting against the jurisdiction, appears on
the argument on the point of jurisdiction, thereby taking the chance of getting a
decision in his favour, he will be deemed to have submitted himself to the jurisdiction
of the court.13

B. That the proceedings are not opposed to principles of natural justice.

¶5. It is humbly submitted that there is no basis for the contention that any principle of
natural justice has been contravened in the present case as the appellant was served
with notice of suit but chose to not appear before the court after the order on
jurisdiction which is not opposed to principle of natural justice.14
¶6. It is submitted that this Hon’ble Court has held that “just because the suit was decreed
ex parte, although the defendants were served with the summons, does not mean that
the judgment was opposed to natural justice.”15 In the instant case the appellant had
personal notice of the suit and thus, cannot take the plea that the proceedings are
opposed to the principles of natural justice.16 
¶7. It is also submitted that in Algemene Bank Nederland Nv v. Satish Dayalal Choksi17 the
defendant was given sufficient opportunities both by the Hong Kong Court to defend
his case but the defendant has not made proper use of such opportunities which were
given to him. It cannot, therefore, be said that the principles of natural justice have
been violated in any manner or that the proceedings in which the foreign judgment had
been obtained are opposed to the principles of natural justice. 18 Similarly, the

10
Spilada Maritime Corp. v. Cansulex Ltd., [1987] 1 A.C. 460 (U.K.).
11
ENCYCLOPAEDIA OF PRIVATE INTERNATIONAL LAW 1051 (Franco Ferrari et al. eds., 2017).
12
Moot Compromis ¶ 25.
13
Subramania v. Annaswami, A.I.R. 1948 Mad. 203 (India); See also Harris v. Taylor, [1915] 2 K.B. 580
(U.K.); See also DINSHAH FARDUNJI MULLA, MULLA: THE CODE OF CIVIL PROCEDURE (B. M. Prasad ed.,
18th ed., Vol. 1, 2011).
14
Moazzim Hossein Khan & Anr. v. Raphael Robinson, (1901) I.L.R. 28 Cal. 641 (India).
15
Lalji Raja & Sons v. Firm Hansraj Nathuram, A.I.R. 1971 S.C. 974 (India).
16
Edulji v. Manekji, (1886) I.L.R. 11 Bom. 241 (India).
17
Algemene Bank Nederland v. Satish Dayalal Choksi, A.I.R. 1990 Bom. 170 (India).
18
Id.

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appellants had the opportunity to defend the case and be heard but it was the conscious
choice of the appellant to take no further part in the proceedings of the Ruritanian
Court after the judgement on jurisdiction was passed.
¶8. It is therefore submitted that, a foreign judgment is not conclusive if the proceedings in
which it was obtained are opposed to natural justice 19 but since, in the present matter
the Spencer judgement was in consonance with the principles of natural justice it is
bound to be conclusive and recognized in India.

C. That the judgement is decided on merits.

¶9. It is humbly submitted that the execution of the judgement of the Ruritanian Court
pertaining to dismissal of challenge to its jurisdiction, including order for costs and
interest thereon, is conclusive in Indian Courts as it was decided on merits of the
case.20 In Vithalbhai Shivabhai Patel v. Lalbhai Bhimbhai21, it was held that where the
Court had taken evidence and examined witnesses and after taking all the oral evidence
and considering the same together with the documents had decreed the claim, the
decision must be treated as given on merits and the fact that the defendant did not
appear cannot make it otherwise.22
¶10. In the case of M/S Alcon Electronics Pvt. Ltd. vs. Celem S.A. OF Fos 34320 Roujan,
France & Anr.23 the English Court had duly considered oral and documentary evidence
adduced by parties; passed a detailed order on the question of jurisdiction; and that the
appellant did not prefer an appeal against the same thereby giving it finality. The
Indian Court held that the English Order was given on merits.24 Similarly, though the
appellant was absent, the respondent’s evidence was taken and after considering the
same, together with the documents, the Ruritanian Court decreed the plaintiffs claim.25
¶11. Further, the same had been affirmed in Jayam Sunder Raja Ratnam v. Muthuswami26,
where it was held that even an ex parte judgment of a foreign court if based on a
consideration of the evidence adduced by the plaintiff, must be deemed to have been

19
R. Viswanathan v. Rukn-Ul-Mulk Syed Abdul, A.I.R. 1963 S.C. 1 (India).
20
M/S Alcon Electronics Pvt. Ltd. v. Celem S.A. OF Fos 34320 Roujan, France & Anr., Civ. App. No. 10106
of 2016 Unreported Judgement (2016) (India).
21
Vithalbhai Shivabhai Patel v. Lalbhai Bhimbhai, A.I.R. 1942 Bom. 199 (India).
22
Id.
23
Id.
24
Id.
25
Supra note 20.
26
Jayam Sunder Raja Ratnam v. Muthuswami, A.I.R. 1958 Mad. 203 (India).

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given on the merits of the case. The Madras High Court has also held that even though
a decree in a foreign court may be passed ex parte, it will be binding if evidence was
taken and the decision was given on a consideration of the evidence. 27 In the present
case, the Spencer J, who was adjudicating the suit had taken evidence from Seymour &
Fitch’s factual and expert witnesses and had passed a detailed judgement on the
question of jurisdiction and the interests thereupon 28 and hence, the Spencer judgement
becomes conclusive and recognized in India as it was given on merits of the case.
¶12. Moreover, an ex parte decree is not necessarily one that is always, and ipso facto, not
on merits.29 If the court had considered and weighed the plaintiff’s case and assessed
his evidence, it will be on merits, notwithstanding that it was ex parte.30 In the instant
matter the ex parte judgment passed in favour of the respondent no. 1 is given on
merits as it considered the evidence that was adduced on behalf of the respondent no. 1
and thus, the Spencer judgement is conclusive in India.31

D. That the Spencer judgement operates as res judicata.

¶13. It is humbly submitted before this Hon’ble Court that the Spencer judgement operates
as res judicata as it is adjudicated by a court of competent jurisdiction and thus, raises
an estoppel against the appellant company.32 Further, the principle of res judicata in
the instant matter creates a bar to the present suit33 before this Hon’ble Court.
¶14. The conditions prerequisite for a plea of res judicata, i.e. the subject matter of the suit
must be identical, the matter must be finally and conclusively decided between the
parties34 and, the suit must be decided by a court of competent jurisdiction 35 are
satisfied in the present case as the parties are identical; the subject matter of
adjudication i.e. laws governing the defence of illegality and whether it bars the claim
of appellant, is identical; the judgement was final between the parties 36; and it was

27
M.K. Sivagaminatha Pillai v. K. Nataraja Pillai, A.I.R. 1961 Mad. 385 (India).
28
Moot Cpmpromis ¶ 26.
29
China Shipping Development Co. v. Lanyard Foods Ltd., (2008) 142 Comp. Cas. 647 Bom. (India).
30
Id.
31
DINSHAH FARDUNJI MULLA, MULLA: THE CODE OF CIVIL PROCEDURE (B. M. Prasad ed., 18th ed., Vol. 1,
2011).
32
Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853 (U.K.).
33
Chockalinga v. Duraiswami, A.I.R. 1928 Mad. 327 (India).
34
Buchler A.G. v. Chronos Richardson Ltd., [1998] 2 All E.R. 960 (U.K.).
35
Syed Mohd Salie Labbai v. Mohd Hanifa, (1976) 4 S.C.C. 780 (India); See also Supra note 32.
36
Moot Compromis ¶ 26.

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adjudicated by a court of competent jurisdiction. Thus, the judgement becomes binding

on the parties and is to be recognized and considered conclusive in India.

ISSUE 2. WHETHER MAPL’S CLAIM AGAINST SEYMOUR & FITCH FAILS IN ANY EVENT

BY REASON OF THE DEFENCE OF ILLEGALITY

A. That the defence of illegality is governed by Ruritanian law.

¶15. It is humbly submitted that the defence of illegality is governed by the Ruritanian
Laws as firstly, the law governing the contract applies to this defence [a], and
secondly, the intention of the parties was to be governed by Ruritanian Laws [b].

a. Proper Law of the Contract.

¶16. It is humbly submitted that ‘proper law of a contract’ is the “system of law by which
the parties intended the contract to be governed or, where their intention is neither
expressed nor to be inferred from the circumstances, the system of law with which the
transaction has its closest and most real connection.”37 Hence, Ruritanian Law was the
‘proper law of the contract’ 38 between the appellant and the respondent one as,
MAPL’s contract with Seymour & Fitch was expressly governed by Ruritanian law39.
¶17. It is also humbly submitted that where one party alleges illegality by a law other than
the lex fori, the foreign law would be relevant only if it is the governing law of the
contract i.e., the proper law.40 Further, in Vita Food Products case41 the Court gave
effect to the contracting parties’ choice of the governing law of the contract applying
the principle that the express law indicated in the contract is supreme.
¶18. It is therefore submitted that the parties in the present case had indicated by the terms
of the contract which system of law they intended to be applied to the construction of
the contract, and hence, the Ruritanian Laws is to be applied to determine the rights
and to defences against claims arising out of the contract. 42 Moreover, the lex
fori merely plays a subsidiary role of stepping in only if the effect of applying the

37
DICEY & MORRIS: THE CONFLICT OF LAWS (11th ed. 1987).
38
National Thermal Power v. Singer Co. & Ors., A.I.R. 1993 S.C. 998 (India).
39
Moot Compromis ¶ 16.
40
Foster v. Driscoll, [1929] 1 K.B. 470 (U.K.); See also Ralli Brothers v. Compania Naviera Sota Y Aznar.
[1920] 2 K.B. 287 (U.K.).
41
Vita Food Products Inc. v. Unus Shipping Co. Ltd., [1939] 260 A.C. 277 (U.K.).
42
National Thermal Power v. Singer Co. & Ors., A.I.R. 1993 S.C. 998 (India).

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foreign governing law of the contract to the restitutionary aftermath offends forum’s

public policy,43 but since that is not the case in the instant matter the proper law of the
contract i.e., the Ruritanian Laws govern the defence of illegality.

b. Intention of the parties was to be governed by Ruritanian Laws.

¶19. It is humbly submitted that the intention of the contracting parties is inferred by

various countries by looking at the terms of the contract to see if taken as a whole they
by necessary implication led to the inevitable conclusion that it was the parties’
intention that their mutual rights and obligations under it should be governed by a
particular system of law.44 Only where the contracting parties have not expressly
provided for the proper law to apply to their contract, their intention is to be inferred or
presumed by the court from the terms of the contract and the relevant surrounding
circumstances.45
¶20. It is therefore humbly submitted that since the contract between the appellant and the
respondent no. 1 contained an express governing law, 46 the defence of illegality as a
matter arising from the contract is to be governed by the proper law of the contract i.e.,
the Ruritanian Laws. Further, as the contract did not contain any other specifications
regarding another system of law that will govern the disputes and claims arising out of
the contract the Indian courts are to apply the governing law of the contract to the
defence of illegality.
¶21. Furthermore, it is also submitted that it is unlikely that the parties in the present case
intended one law to govern one contractual dispute and a different law to govern
another dispute between them as the disputes arose out of the same transaction.47

B. That MAPL’s claim is barred by the defence of illegality under the Ruritanian
law.

¶22. It is humbly submitted before this Hon’ble Court that defence of illegality will bar the
claim of MAPL as MAPL was a one-man company and the acts of the directors can be

43
MARTINUS NIJHOFF, RE-EXAMINING CONTRACT AND UNJUST ENRICHMENT 176-181 (Paula Giliker ed.
2007).
44
Hang Lung Bank Ltd. v. Datuk Tan Kim Chua, [1988] 2 M.L.J 567 (Sing.).
45
Rex v. International Trustee for the Protection of Bondholders Aktiengesellschaft, [1937] A.C. 500 (U.K.).
46
Moot Compromis ¶ 16.
47
C.I.M.B. v. Dresdner Kleinwort Ltd., [2008] 4 S.L.R. 543 (India).

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attributed to the acts of the company as firstly, the directors are the agents of the
company [a], secondly, Captain Mehta was the directing mind and will of MAPL [b]
and lastly, the defence of illegality bars the claim of MAPL [c].

a. Directors acting as agents of the company.

¶23. It is submitted that the company can act only through directors and the case is, as
regards those directors, merely the ordinary case of principal and agent. 48 It is the
general principles of agency that govern the relations of directors with the company
and of persons dealing with the company through its directors. 49 The requirement of
mandatorily having to appoint directors forces the amalgamation between the company
and those who think and act for it.50 When the directors or any other person makes
decisions which are integral to the company or act on behalf of the company, it does so
as the company itself, as an organ merged with the company. Individuals in these
bodies cannot incur personal liability.51
¶24. It is submitted that the directors are a body to whom the duty of managing the general
affairs of the company is delegated. A corporate body can only act by agents, and it is
the duty of those agents so to act as best to promote the interests of the corporation
whose affairs they are conducting. Such agents have duties to discharge of a fiduciary
nature towards their principal.52
¶25. It is also submitted that in the present case, since Captain Mehta is at the forefront
when it came to taking important decisions, he acted as the agent of the company.53

b. Captain Mehta was the directing mind and will of the company.

¶26. It is humbly submitted before this Hon’ble Court that the directing mind and will
identifies living person who could be regarded as the “embodiment” of the company. 54
The natural persons or persons who had management and control in relation to the act
or omission in point could be regarded as its directing mind and will for that purpose. 55

48
Ferguson v. Wilson, (1866) 2 Ch. App. 77 (U.K.).
49
AVTAR SINGH, COMPANY LAW 264 (16th ed. 2013).
50
PAUL L. DAVIES & SARAH WORTHINGTON, PRINCIPLES OF MODERN COMPANY LAW 140 (9th ed. 2012).
51
Id.
52
Aberdeen Rly Co. v. Blaikie Bros., [1854] U.K.H.L. 1 (U.K.).
53
Supra note 50, at 165.
54
Tesco Supermarkets v. Nattrass, [1971] U.K.H.L. 1 (U.K.).
55
El-Ajou v. Dollar Land Holdings Plc., [1994] 2 All E.R. 685 (U.K.).

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The company is identified with the actions of those officers who are the directing mind
and will of the company.56
¶27. Further, Captain Mehta can also be identified as the embodiment of the company as he
is a whole-time director who held 9,999 out of the available 10,000 shares. He can also
be identified as the person having management and control in relation when it came to
the act of fraud57 which can be indicated by the fact that he negotiated the major
arrangements in relation to TAA and was heavily involved in the management and the
major decisions of the company.
¶28. It is therefore submitted that since the Captain Mehta possesses requisite knowledge
58
and intent to deceive, this state of mind can be attributed to the company itself.
Further, a company has a brain and nerve centre which controls what it does. It also
has the hands which hold the tools and act in accordance with the directions from the
centre. 59
¶29. Therefore, since an incorporated company cannot perform the actus reus of a crime,
nor can it have the mens rea to commit such a crime, MAPL, being an artificial entity
and cannot act on its own, the acts of Captain Mehta must be construed to be the act of
the company.
¶30. It is also submitted that in the case of Multinational Gas and Petrochemical Co v
Multinational Gas and Petrochemical Services Ltd60 it was held that as long as the
company is solvent the shareholders are in substance the company. Captain Mehta was
not only the directing mind and will of the company but he was also the majority
shareholder of the company.

c. Defence of illegality bars MAPL’s claim.

¶31. It is submitted that when a company is only being used as a façade to separate the one-
person from their fraud, the corporate veil can be lifted so that the company can be
equated with the one-person.61 The Supreme Court of India in the case of Iridium India
Telecom Ltd. v Motorola Inc.62 rejected Motorola’s argument that a corporate body,
56
Lennarrd Carrying Co. Ltd v. Asiatic Petroleum Co. Ltd, [1915] A.C. 705 (U.K.).
57
Tesco Supermarkets v. Nattrass, [1971] U.K.H.L. 1 (U.K.).
58
AMANDA PINTO & MARTIN EVANS, CORPORATE CRIMINAL LIABILITY 61 (3rd ed. 2013).
59
H.L. Bolton (Engg) Co. Ltd. v. T.J. Graham & Sons Ltd., (1956) 3 All E.R. 624 (U.K.).
60
Multinational Gas & Petrochemical Co. v. Multinational Gas & Petrochemical Services Ltd., [1983] Ch. 258
(U.K.).
61
Jones v. Lipman, [1962] 1 W.L.R. 832 (U.K.).
62
Iridium India Telecom Ltd. v. Motorola Inc., (2011) 1 S.C.C. 74 (India).

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being an artificial person, is not capable of a mental state and therefore cannot be held
criminally liable for offences such as cheating.
¶32. It is further submitted that in the case of Stone & Rolls Ltd. v. Moore Stephens63 the
court declined to hold liable a one-man company’s auditors, where the auditors failed
to discover that the company’s controlling director had perpetrated a fraud. However,
the knowledge and fraud of the company’s only director was attributed to the
company, which could not claim against its auditors for their failure to discover the
fraud that the company itself committed through its controlling mind.
¶33. It is, therefore, submitted that since Captain Mehta was the directing mind and will of
the company; the fraudulent acts of Captain Mehta can be attributed to MAPL which
in turn will bar its claim as MAPL cannot rely on its fraudulent acts to make Seymour
& Fitch liable. Since MAPL was a one-man company, the acts of Captain Mehta were
equivalent to the acts of the company. MAPL’s claim is barred by the sole fact that the
company was incorporated through illegal means and to solely serve Captain Mehta’s
purpose i.e. to defraud the creditors. Hence, MAPL’s claim against the forensic
auditor, Seymour & Fitch plc, should be barred.
¶34.

63
Stone & Rolls Ltd. v. Moore Stephens, [2009] U.K.H.L. 39 (U.K.).

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ISSUE 3. WHETHER MR. KRISHNAN IS ENTITLED TO RELY ON THE DEFENSE OF

RATIFICATION EVEN THOUGH MAPL WAS, IN APRIL 2015, IN A PRECARIOUS

FINANCIAL POSITION

¶35. It is humbly submitted before this Hon’ble Court that Mr. Krishnan has rightly relied
on the defense of ratification as firstly, MAPL was solvent at the time of the breach of
duty [A] and secondly, Mr. Krishnan had reasonable expectation of solvency and no
knowledge of the ‘Twilight Zone’[B].

A. That MAPL was cash flow solvent and therefore, not on the verge of
insolvency.

¶36. It is humbly submitted before this Hon’ble Court that an Indian company is wound up
by the Court when it is unable to pay its debts. 64 Inability to pay its debts would be a
case where, a company’s entire capital is lost in heavy losses and no accounts are
prepared and filed and no business is done for one year.65 The test of insolvency should
be default in payment of matured debt on demand within a prescribed time i.e.
liquidity test.66
¶37. It is further submitted that it is possible for a company to be balance sheet insolvent
and not cash flow insolvent.67 The triggering of potential liability for wrongful trading
appears to commence once companies are both balance sheet insolvent and cash flow
insolvent.68 The liability under the Twilight Zone69, shall therefore, not be triggered
unless that the company is cash flow insolvent.70 Solvency is determined on a cash
flow basis and the same has been determined by the courts as requiring a cash flow test
rather than a balance sheet.71
¶38. It is also submitted that the fact that company had only the minimum issued capital and
financed itself through bank borrowings was not determinative against the director

64
Companies Act, 2013, No. 18, § 433 (India).
65
MANZAR SAEED, COMMENTARY ON THE INSOLVENCY AND BANKRUPTCY CODE, 2016 523 (2nd ed. 2017).
66
JAMSHED J. IRANI COMMITTEE, REPORT OF THE EXPERT COMMITTEE ON COMPANY LAW: MINISTRY OF
COMPANY AFFAIRS, 15 (2005).
67
LOUISE GULLIFER & JENNIFER PAYNE, CORPORATE FINANCE LAW: PRINCIPLES AND POLICY 96 (2nd ed.
2015).
68
Id.
69
Infra 3[B].
70
Re Purpoint Ltd., [1991] B.C.L.C. 491 (U.K.).
71
Melbase Corporation Pty. Ltd. v. Segenhoe Ltd., [1995] 17 A.C.S.R. 187 (Austl.).

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because the court accepted that a reasonable director might have believed that through
attracting new business the company could in fact trade profitably.
¶39. It is also submitted that a breach of duty is a wrong done to the company and the
claimant in proceedings in respect of the breach is the company itself. 72 Further, every
shareholder has an absolute right to vote upon any such question even though he may
have a personal interest in the subject-matter opposed to or, different from, the general
or particular interests of the company. On the other hand, a director of a company is
precluded from dealing and from entering into engagements in which he has a personal
interest conflicting, or which possibly may conflict, with the interests of those whom
he is bound by fiduciary duty to protect. Any such dealing or engagement may,
however, be affirmed or adopted by the company, provided such affirmance or
adoption is not brought about by unfair or improper means, and is not illegal or
fraudulent or oppressive towards those shareholders who oppose it.73
¶40. It is, therefore, submitted that at the time when Mr. Krishnan had approved the special
bonus proposal, Captain Mehta and Alok Sharma in the capacity of shareholders had
rightly ratified his act and since it the MAPL was at that time cash flow solvent, 74
MAPL was solvent which results in Mr. Krishnan successfully relying on the defence
of ratification by the shareholders.

B. That Mr. Krishnan had reasonable expectation of solvency of the company and
therefore had no knowledge of the ‘Twilight Zone’.

¶41. It is humbly submitted before Hon’ble Court that the directors are under a fiduciary
duty to act in good faith and in the interests of the company75 and to exercise
reasonable care and independent judgment.76 The greatest good faith is expected in the
discharge of their duties.77 The Supreme Court of India has described it as a failure of
corporate governance on the part of directors if they fail to exercise due care and
diligence thereby allowing fabrication of figures and false disclosure. 78 The classic
formulation upon which the directors must exercise their discretion bona fide in what

72
Foss v. Harbottle, (1843) 67 E.R. 189 (U.K.).
73
North-West Transporta Co. Ltd v. Beatty, [1886] 12 S.C.R. 598 (Can.).
74
Moot Compromis ¶ 29.
75
Companies Act, 2013, No. 18, § 166 (2) (India).
76
Companies Act, 2013, No. 18, § 166 (3) (India).
77
Bank of Poona Ltd. v. Narayandas Shriman Somani, A.I.R. 1961 Bom. 252 (India).
78
N. Narayanam v. S.E.B.I., (2013) 12 S.C.C. 152 (India).

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they consider, not what the court may consider, is in the interests of the company. 79
The issue is as to the director’s state mind.80
¶42. It is humbly submitted that the period between the point when there is knowledge or
awareness of no real prospect of avoiding an insolvency proceeding and its actual
commencement under the Insolvency and Bankruptcy Code constitutes the ‘Twilight
Zone’.81 The IBC identifies it as the starting point of the period from the time when the
director “knew or ought to have known that there was no reasonable prospect of
avoiding the commencement of corporate insolvency”.82
¶43. It is therefore submitted that the most appropriate formula for the trigger of the duty
would be where the circumstances of the company are such that that its directors know,
or can reasonably expect, that the action upon which they are going to embark could
lead to insolvency of the company.83 When to the knowledge of the directors there is a
real and not remote risk of insolvency, the directors must consider creditors’ interests.84
The rationale of this approach is to catch directors who are unreasonable in their
running of a company that is experiencing financial difficulty and to provide incentives
to take appropriate action at an optimal time.85
¶44. It is submitted that the expectation of solvency means a higher degree of certainty than
mere hope or possibility or suspecting.86 Therefore, to establish the defence of
reasonable expectation, the director must demonstrate both, an actual expectation that
the company was and would continue to be solvent and that the grounds for that
expectation are reasonable. Further, assuming that the directors have in mind a certain
event occurring that would enable them to have a reasonable expectation that the
company would be able to pay all its debts at some point in the future, the question is
whether the capital raising is an outcome that is “certain, probable, more likely than
not, possible, possible with a bit of luck, possible with a lot of luck, remote, or whether
there no real way of knowing”.87

79
ALAN DIGNAM & JOHN LOWRY, COMPANY LAW 347 (2010); Companies Act, Eliz. 2, § 172 (2006) (U.K.).
80
Regentcrest plc. v. Cohen, [2001] 2 B.C.L.C. 80 (U.K.).
81
SUMANT BATRA, CORPORATE INSOLVENCY LAW AND PRACTICE 183 (1st ed. 2017).
82
INSOLVENCY & BANKRUPTCY CODE, § 66 (2016) (India).
83
SUMANT BATRA, CORPORATE INSOLVENCY LAW AND PRACTICE 186 (1st ed. 2017).
84
Kalls Enterprises Pty. Ltd. v. Balaglow, [2007] 25 A.C.L.C. 1094 (U.K.).
85
U.N., UNCITRAL Legislative Guide on Insolvency Law Part four: Directors’ obligations in the period
approaching insolvency (Nov. 2013), http://www.uncitral.org/pdf/english/texts/insolven/Leg-Guide-Insol-
Part4-ebook-E.pdf.
86
3M Australia Pty. Ltd. v. Kemish, [1986] 10 A.C.L.R. 371 (Austl.).
87
Hall v. Poolman, [2007] 65 A.C.S.R. 123 (U.K.).

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¶45. It is further submitted that wrongful trading regime recognizes that while a company
might currently be insolvent, this could well be a temporary issue which will not
necessarily lead to insolvency, as the company could be restored to solvency by
improved trading conditions.88 Directors will not be liable for wrongful trading if, at
the relevant time, they had realistic grounds for believing that company could still be
turned around.89
¶46. It is submitted that each director is judged by reference to both the standards
reasonably expected of any director, and also by reference to their own particular skills
and qualifications. Though it might appear that the point of no return was reached and
ignored, the wrongful trading regime cannot be used against directors whose belief
turned out to be mistaken, as long as that belief was reasonable at that time. Directors
are not clairvoyant and the fact that they fail to see what eventually comes to pass does
not mean that they are guilty of wrongful trading.90
¶47. Furthermore, Mr. Krishnan had reasonably expected that the company was solvent as
firstly, he placed reliance on the report of the forensic auditor [a], secondly, there is a
long gestation period in aviation manufacturing companies [b], and lastly, no active
participation in the activities of the company [c].

a. Reliance placed on the report of forensic auditor.

¶48. It is humbly submitted that directors are expected to act reasonably and take adequate
and appropriate steps to monitor the situation so as to remain informed. One such step
is specialist advice or assistance, including specialist insolvency advice could be
sought.91 Essentially, the standard of knowledge required a directors’ judgment to be
assessed against the knowledge that a reasonably competent director should or ought to
have had in circumstances.
¶49. It is submitted that the director had reasonable grounds to believe that a competent and
reliable person was responsible for providing the defendant with information about

88
SUMANT BATRA, CORPORATE INSOLVENCY LAW AND PRACTICE 544 (1st ed. 2017).
89
Id. at 544-45.
90
Re Hawkes Hill Publishing Co. Ltd. (in liq.) Ward v. Perks & Anr., [2007] B.C.C. 937 (U.K.).
91
U.N., UNCITRAL Legislative Guide on Insolvency Law Part four: Directors’ obligations in the period
approaching insolvency (Nov. 2013), http://www.uncitral.org/pdf/english/texts/insolven/Leg-Guide-Insol-
Part4-ebook-E.pdf.

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solvency, and thus expected solvency on the basis of information provided by that
person.92
¶50. It is further submitted that although reasonableness of the reliance must be determined
in each case, one of the factors which determines reasonableness is the relationship
between the director and delegate, must be such that the director honestly holds the
belief that the delegate is trustworthy, competent and someone on who reliance can be
placed.93 Where there is no cause for suspicion nor circumstances demanding critical
and detailed attention, it is reasonable for an officer to rely on advice, without
independently verifying the information or scrutinizing the data or circumstances upon
which that advise is based.94
¶51. It submitted that the courts will usually take into account whether directors have acted
with the benefit of expert professional advice when trading in the twilight zone and
those that have done so are far less likely to be regarded as culpable.95
¶52. It is submitted that Seymour & Fitch plc, which is a well-known firm of forensic
accountants96 had given a report about the company’s financial situation which gave
considerable reassurance to Mr. Krishnan. 97

b. There is a long gestation period in aviation manufacturing companies.

¶53. It is submitted that manufacture of aircraft and components has long gestation period
and perception of significant risk.98 Further, it has also been stated in the
Pricewaterhouse Coopers-CII report that such industries demand large upfront
investments and a longer gestation period.99
¶54. It is further submitted that the position to trading in the vicinity of insolvency was
held to be a balance between the right of an honest and prudent businessman, who is
prepared to work hard, to continue to trade out of his difficulties if he can genuinely

92
Corporation Act 2001 § 588 H (3) (2001) (Austl.).
93
Re H.I.H. Insurance Ltd. (Australian Securities & Investments Comm’n v. Adler), [2002] 168 F.L.R. 253
(Austl.).
94
Vines. v A.S.I.C., [2007] 62 A.C.S.R. 1 (Austl.).
95
Re Douglas Construction Services Ltd., [1988] B.C.L.C. 397 (U.K.).
96
Moot Compromis ¶ 16.
97
Moot Compromis ¶ 18.
98
Report of Working Group on Civil Aviation for formulation of Twelfth Five Year Plan (2012-2017),
Ministry of Civil Aviation http://www.civilaviation.gov.in/sites/default/files/Committee%20reports%209.pdf.
99
Report of PricewaterhouseCoopers-Confederation of Indian Industry: Changing Dynamics – Indian
Aerospace Industry https://www.pwc.in/assets/pdfs/industries/changing-dynamics-india-aerospace-industry-
091211.pdf.

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-PLEADINGS-

see a light at the end of the tunnel, and the corresponding obligation to put up the
shutters, when, by continuing to trade, he would be doing so at the expense of his
creditors and in disregard of those business considerations which a reasonable
businessman is expected to observe.100
¶55. Hence, the industry of which MAPL is a part of incurs net losses in its initial
incorporation phase. Further, since the company had future prospects, it was
reasonable for Mr. Krishnan to expect that the company was solvent and approve the
special bonus proposal for the directors. Further, even though there is a loss, looking to
the performance of the employee, additional remuneration is always being paid by the
employer because profit or loss depends upon the fluctuation of the market and several
other types of factors. The profit or loss also depends upon the value of rupees in the
international market, but what is to be appreciated for payment is efficiency and not
the profit or loss of the said company.101

c. No active participation in the activities of the company.

¶56. It is submitted that it cannot be alleged that the directors cannot trust the manager or
officers of the company to perform the duties honestly and till there is any reason to
distrust them, the director is not liable for mere omission to take all possible care and
negligence of director must not be just omission to take all possible care but must be,
in business sense, culpable or gross.102
¶57. It is further submitted that liability arises from being in charge of and responsible for
conduct or business of the company at the relevant time and the role one plays in the
affairs of the company and not designation or status. 103 It is further submitted that it is
the complainant who has to state how a director who is sought to be made an accused,
was in charge of the business of the company or responsible for the conduct of the
company’s business.104 The extent of a director’s duty must depend on the particular
function he is performing, the circumstances of the specific case, and the terms on
which he has undertaken to act as director. 105 Mr. Krishnan did not participate in the
management of MAPL on a regular basis as his position was largely ornamental and

100
B.N.Y. Corporate Trustee Services Ltd. v. Eurosail-UK 2007-3Bl plc, [2011] 1 W.L.R. 2524 (U.K.).
101
Prem Kataruka v. Union of India & Ors., (2015) L.N.I.N.D. 2468 Jhar. (India).
102
P.A. Tendolkar v. Official Liquidator & Ors., (1967) 37 Comp. Cas. 511 Kar. (India).
103
S.M.S. Pharmaceuticals Ltd. v. Neeta Balla, (2005) 3 A.C.R. 3082 (India).
104
State of N.C.T. v. Rajiv Khurana, A.I.R. 2010 S.C. 2986 (India).
105
Gould v. Mount Oxide Mines Ltd. (in liq.), [1916] H.C.A. 81 (Austl.).

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-PLEADINGS-

most of the dealing and negotiations of the affairs of the company were done by
Captain Mehta and Alok Sharma.
¶58. Therefore, given his minimal role in the activities of the company and his experience
in the same profession coupled with the fact that the forensic auditor’s report did not
disclose any financial impropriety of the company, he had reasonable grounds to the
expect that MAPL was solvent at the time his approved the special bonus proposal.

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-PRAYER FOR RELIEF-

PRAYER FOR RELIEF

Wherefore, in the light of the issues raised, arguments advanced and authorities cited, it is
most humbly prayed and implored before this Hon’ble Court that it may be pleased to hold
and adjudge:

1. Declare that the MAPL is bound by the Spencer Judgment as it is not entitled to
recognition and conclusive in India.

2. Declare that the defence of illegality is governed by Ruritanian law.

3. Declare that MAPL’s claim against Seymour and & Fitch is barred by the reason of
the defence of illegality.

4. Hold Seymour and Fitch is not liable for breach of contract and negligence.

5. Hold that Mr. Krishnan has absolved his liability of breach of directors’ duty under
Section 166(2) and 166 (3) of the Companies Act, 2013 as he has rightly relied on
the defence of ratification by the shareholders.

AND/OR

Pass any such orders or issue such directions or grant such relief that it may deem fit in lights
of justice, equity and good conscience.

For this act of Kindness, the Respondents, as in duty bound, shall humbly pray.

All of which is most respectfully submitted.

Counsel for the Respondents.

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 -APPENDIX-

APPENDIX

I. CODE CIV. PROC., §11 (1908) (India)

Res judicata.—No Court shall try any suit or issue in which the matter directly
and substantially in issue has been directly and substantially in issue in a former
suit between the same parties, or between parties under whom they or any of them
claim, litigating under the same title, in a Court competent to try such subsequent
suit or the suit in which such issue has been subsequently raised, and has been
heard and finally decided by such Court.

Explanation I.—The expression “former suit” shall denote a suit which has been
decided prior to a suit in question whether or not it was instituted prior thereto.

Explanation II.—For the purposes of this section, the competence of a Court shall
be determined irrespective of any provisions as to a right of appeal from the
decision of such Court.

Explanation III.—The matter above referred to must in the former suit have been
alleged by one party and either denied or admitted, expressly or impliedly, by the
other.

Explanation IV.—Any matter which might and ought to have been made ground
of defence or attack in such former suit shall be deemed to have been a matter
directly and substantially in issue in such suit.

Explanation V.—Any relief claimed in the plaint, which is not expressly granted
by the decree, shall for the purposes of this section, be deemed to have been
refused.

Explanation VI.—Where persons litigate bona fide in respect of a public right or

of a private right claimed in common for themselves and others, all persons
interested in such right shall, for the purposes of this section, be deemed to claim
under the persons so litigating .

Explanation VII.—The provisions of this section shall apply to a proceeding for

the execution of a decree and references in this section to any suit, issue or former
suit shall be construed as references, respectively, to a proceeding for the
execution of the decree, question arising in such proceeding and a former
proceeding for the execution of that decree.

Explanation VIII. —An issue heard and finally decided by a Court of limited
jurisdiction, competent to decide such issue, shall operate as res judicata in a
subsequent suit, notwithstanding that such Court of limited jurisdiction was not
competent to try such subsequent suit or the suit in which such issue has been
subsequently raised.

..

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-APPENDIX-

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 -APPENDIX-

II. CODE CIV. PROC., §13 (1908) (INDIA)

When foreign judgment not conclusive.—A foreign judgment shall be conclusive

as to any matter thereby directly adjudicated upon between the same parties or
between parties under whom they or any of them claim litigating under the same
title except—

(a) where it has not been pronounced by a Court of competent jurisdiction;

(b) where it has not been given on the merits of the case;

(c) where it appears on the face of the proceedings to be founded on an incorrect

view of international law or a refusal to recognise the law of India in cases in
which such law is applicable;

(d) where the proceedings in which the judgment was obtained are opposed to
natural justice; (e) where it has been obtained by fraud;

(f) where it sustains a claim founded on a breach of any law in force in India.

III. COMPANIES ACT, 2013, NO. 18, § 166 (2) (INDIA)

Duties of directors

(1) Subject to the provisions of this Act, a director of a company shall act in

accordance with the articles of the company.

(2) A director of a company shall act in good faith in order to promote the objects
of the company for the benefit of its members as a whole, and in the best interests
of the company, its employees, the shareholders, the community and for the
protection of environment.

(3) A director of a company shall exercise his duties with due and reasonable care,
skill and diligence and shall exercise independent judgment.

(4) A director of a company shall not involve in a situation in which he may have
a

direct or indirect interest that conflicts, or possibly may conflict, with the interest
of the company.

(5) A director of a company shall not achieve or attempt to achieve any undue
gain or advantage either to himself or to his relatives, partners, or associates and if
such director is found guilty of making any undue gain, he shall be liable to pay
an amount equal to that gain to the company.

(6) A director of a company shall not assign his office and any assignment so
made

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 -APPENDIX-

shall be void.

(7) If a director of the company contravenes the provisions of this section such

director shall be punishable with fine which shall not be less than one lakh rupees
but which may extend to five lakh rupees.

IV. COMPANIES ACT, 2013, NO. 18, § 433 (INDIA)

Circumstances in which company may be wound up by Court. A company may be

wound up by the Court,-

(a) if the company has, by special resolution, resolved that the company be wound
up by the Court;

(b) if default is made in delivering the statutory report to the Registrar or in

holding the statutory meeting;

(c) if the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of a public company, below
seven, and in the case of a private company, below two;

(e) if the company is unable to pay its debts;

(f) if the Court is of opinion that it is just and equitable that the company should
be wound up.

V. CORPORATION ACT 2001 § 588 H (3) (2001) (AUSTL.).

Defences about reasonable grounds, illness or reasonable steps

(1) This section has effect for the purposes of proceedings for a contravention of
subsection 588G(2) in relation to the incurring of a debt (including proceedings
under section 588M in relation to the incurring of the debt).

(2) It is a defence if it is proved that, at the time when the debt was incurred, the
person had reasonable grounds to expect, and did expect, that the company was
solvent at that time and would remain solvent even if it incurred that debt and any
other debts that it incurred at that time.

(3) Without limiting the generality of subsection (2), it is a defence if it is proved

that, at the time when the debt was incurred, the person:

(a) had reasonable grounds to believe, and did believe:

(i) that a competent and reliable person (the other person ) was
responsible for providing to the first-mentioned person adequate information
about whether the company was solvent; and

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 -APPENDIX-

(ii) that the other person was fulfilling that responsibility; and

(b) expected, on the basis of information provided to the first-mentioned

person by the other person, that the company was solvent at that time and would
remain solvent even if it incurred that debt and any other debts that it incurred at
that time.

(4) If the person was a director of the company at the time when the debt was
incurred, it is a defence if it is proved that, because of illness or for some other
good reason, he or she did not take part at that time in the management of the
company.

(5) It is a defence if it is proved that the person took all reasonable steps to
prevent the company from incurring the debt.

(6) In determining whether a defence under subsection (5) has been proved, the
matters to which regard is to be had include, but are not limited to:

(a) any action the person took with a view to appointing an administrator of
the company; and

(b) when that action was taken; and

(c) the results of that action.

VI. U.N., UNCITRAL LEGISLATIVE GUIDE ON INSOLVENCY LAW PART FOUR:

DIRECTORS’ OBLIGATIONS IN THE PERIOD APPROACHING INSOLVENCY (NOV. 2013),

HTTP://WWW.UNCITRAL.ORG/PDF/ENGLISH/TEXTS/INSOLVEN/LEG-GUIDE-INSOL-

PART4-EBOOK-E.PDF.

Part four: Directors’ obligations in the period approaching insolvency

II. Elements of directors’ obligations in the period approaching insolvency

A. The nature of the obligations

2. Civil liability

5. Adequate and appropriate steps might include, depending on the factual

situation, some or all of the following:

(d) Specialist advice or assistance, including specialist insolvency advice could be

sought. While legal advice may be important for directors at this time, key
questions relating to the financial position of the company are typically
commercial rather than legal in nature. It is desirable that directors examine the
company’s financial position and assess the likely outcomes themselves, but also
seek advice to ensure that any decisions taken could withstand objective and
independent scrutiny. In this instance, the directors, either collectively, as inside
directors or as independent directors, may retain independent accountants,
restructuring experts, or counsel to pro- vide separate advice as to the options

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-APPENDIX-

available to the board to determine the viability of any proposals made by

management;

B. When the obligations arise: the period approaching insolvency

11. A somewhat different approach examines the knowledge of a director at a

point before commencement of insolvency proceedings when, for example, the
director knew, or ought to have known, that the company was insolvent or that
insolvency was imminent and there was no reasonable prospect that the company
could avoid having to commence insolvency proceedings or that the continuity of
the business was threatened. The ration- ale of this approach is to catch directors
who are unreasonable in their running of a company that is experiencing financial
difficulty and to provide incentives to take appropriate action at an optimal time.
Although a concern with that type of standard might be the difficulty of
determining with certainty the exact point at which the requisite knowledge could
be imputed, provided a company’s accounts have been properly kept and are
accurate, a director should be able to deduce when the company is in difficulty
and when it might be in danger of satisfying these insolvency tests. Alternatively,
the director can be assumed to have known the information that would have been
revealed had the company complied with its obligations to maintain proper books
of account and to prepare annual accounts. Essentially, the standard requires a
director’s judgement to be assessed against the knowledge that a reasonably
competent director should or ought to have had in the circumstances. Such a
standard would require a wider consideration of circumstances and context,
including, for example, examining the books of the company and its financial
position in its entirety. It could involve looking at revenue flows and debts
incurred and contingencies, including the ability to raise funds. Generally
speaking, evidence of a temporary lack of liquidity would not be sufficient.

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