MOOT COURT COMMITTEE

NATIONAL LAW UNIVERSITY, JODHPUR

WINTER INTRA-UNIVERSITY MOOT COURT COMPETITION, 2019

PROPOSITION

Organised by:
Moot Court Committee
National Law University, Jodhpur
Email: intra.nlu@gmail.com
1. The Republic of Shibuya (“Shibuya”) is the largest democratic republic in the world,
with a population of around 1.5 billion. Ever since the Government of Shibuya
liberalised the Shibuyan economy in 1991, the country has been an attractive destination
for making investments and doing business. Megasaki is the capital state of Shibuya and
also tops the list of the most business-friendly states in the country. In order to keep in
line with the growing economy and evolving corporate governance norms, the
Government of Shibuya replaced the Companies Act, 1956 with the Companies Act,
2013. It has also enacted the Arbitration & Conciliation Act, 1996 which provides a
robust mechanism for arbitration of disputes in Shibuya.
2. Kobe Inc (“Company”) is a central public sector undertaking incorporated in Megasaki
in the year 2010 which is involved in the manufacturing of healthcare and hygiene
products (primarily, contraceptives and sanitary pads). Given the labour-intensive nature
of distribution, the scale of operations as well as the electoral commitment of the
incumbent government to prioritise healthcare and hygiene, a workforce of around 5000
workmen had been engaged on the Company’s payroll. In order to sustain its operations,
it manufactured different types of sanitary pads – such as, a basic version which was
distributed on a low-cost basis and other varieties (e.g. “ActiveX”) which were sold for a
premium in the market. Similarly, basic contraceptives were available on a low-cost basis
and other varieties with varying features were sold for a premium.
3. In 2011, a Memorandum of Settlement dated 15.8.2011 (“2011 Settlement”) was entered
into between the Company and its four recognised trade unions whereby under Clause
9.1 it was agreed that “[t]he existing age of superannuation of 60 years for employees on the rolls of
the Company as on the date of this settlement will remain unchanged.” Under Clause 9.2, it was
agreed that “[t]he age of superannuation for employees recruited after the date of this settlement shall be
58 years.” Clause 14 provided that “any dispute regarding interpretation and/or implementation of
this Settlement shall be referred by either party for arbitration to the Labour Commissioner and his
decision shall be final and binding on both parties.”
4. Given the growing awareness about healthcare and hygiene (partly owing to the
Company’s dedicated workforce for running grassroots awareness programmes), and the
efficient manpower-driven supply chain of the Company which allowed it to reach
interior and rural areas, the Company saw steady financials in the initial years.
Accordingly, the Central Government, vide Office Memorandum dated 1.7.2012 decided

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 to increase the age of superannuation of all workmen to 60 years. Necessary compliances
were undertaken and the decision in the Office Memorandum to increase the age of
superannuation was implemented.
5. Subsequently, with the advent of other private manufacturers, the Company began to
face stiff competition in the market. The Company was also unable to invest sufficient
resources into its R&D wing (given its large wage bill) and was therefore unable to keep
pace with better alternatives to its existing product line. Starting April 2015, the financial
health of the Company began to severely deteriorate. On 15.5.2015, the trade unions,
being aware of the worsening financial condition, wrote a bona fide letter to the
management requesting it to “kindly review the decision taken to enhance the retirement age of all
employees to 60 so that substantial amount can be saved.”
6. Taking note of the financial health of the Company, the Central Government wrote a
letter dated 21.6.2015 to the Company stating that “the annual salary bill of the workmen is
more than Rs 280 crores. The workforce must be rationalised to a manageable level inter alia by
reconsidering the age of superannuation.”
7. Over the next six months, the management had various discussions with different
stakeholders and came up with several measures to improve the financial health of the
Company such as reducing the manufacturing costs, reducing overheads and
restructuring the number and remuneration of both, managerial and non-managerial
workforce. However, notwithstanding such measures, the projected loss for the
Company for the year 2015-16 was in excess of Rs 300 crores. Given the continuing
downward slide of the Company’s financials, the Central Government was advised to
take stringent and urgent action.
8. Accordingly, the Central Government vide letter dated 14.2.2016 stated that “[t]his letter
is to convey approval of the competent authority for rolling back the age of superannuation of all
workmen of Kobe Inc. from 60 to 58 years.” Subsequently, vide order dated 1.3.2016, the
Company ordered the superannuation age of all workmen to be reduced to 58 years due
to the adverse financial position of the company, the possibility that the company was
potentially sick, the lack of sustainable working capital and the unviability of continued
operation of certain plants / manufacturing units.
9. On 15.3.2016, the workmen challenged the order dated 1.3.2016 as well as the letter
dated 14.2.2016 before the Hon’ble High Court of Megasaki by way of a writ petition

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 praying for the above to be set aside and the age of retirement to be reinstated to the
status quo prior to the said communications. The workmen urged that since the 2011
Settlement continued to bind the Company, the impugned order and the impugned letter
were in teeth of the same.
10. The learned Single Judge of the Hon’ble High Court dismissed the Writ Petition vide
judgment dated 1.4.2016 (see relevant extracts at Annexure-A) with an observation that
“[i]t is made clear that it shall be open to the petitioners to work out their remedies available by law”.
Subsequently, a writ appeal preferred by the workmen on 30.4.2016 was also dismissed
by way of judgment dated 22.7.2016 (see relevant extracts at Annexure-B) wherein the
Hon’ble Division Bench held that “we find no reason to interfere with the conclusion of the learned
Single Judge”.
11. Thereafter, upon continuation of the dispute, the Government of Megasaki (the
appropriate government) vide reference dated 11.9.2016, referred for adjudication, an
industrial dispute to the Labour Court, Megasaki on the following terms:
“Whether the action of the management of Kobe Inc. in having reduced the age of
superannuation of pre-2011 workmen from 60 to 58 years is justifiable or not? If not,
what reliefs are the workmen entitled to?”
12. The Labour Court vide its award dated 25.12.2016 inter alia held that “[s]ince the learned
Single Judge vide his judgment dated 1.4.2016 has dealt with the same dispute as what is before us
presently, we find the reference barred by res judicata.”
13. On 7.1.2017, the workmen preferred a writ petition under Article 226 of the
Constitution challenging the award dated 25.12.2016 passed by the Labour Court. The
High Court vide its judgment dated 26.1.2017 held that the reference was not barred by
res judicata and remanded the matter back to the Labour Court for an examination of the
matter on the merits of the dispute (see relevant extracts at Annexure-C).
14. The Company filed a writ appeal against the judgment dated 26.1.2017. The Division
Bench of High Court of Megasaki upheld the order on 3.12.2017. Thereafter the
workmen preferred and were granted special leave (Special Leave Petition No.
1234/2018) against the judgement dated 3.12.2017 before the Hon’ble Supreme Court of
Shibuya, seeking for the same to be set aside and the Labour Court’s award to be upheld
on the issue of res judicata.

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15. Alongside public sector undertakings, many private corporations and small companies
also have their registered offices in Megasaki.
16. Stark Enterprises Private Limited (“SEPL”) is one such private company, limited by
shares under the Companies Act, 1956. It was founded in Megasaki by Eddard Stark and
Brandon Stark, two brothers, on 18.2.1987. It is inter alia engaged in the business of
design, manufacture and distribution of pharmaceutical and chemical products.
17. Brandon was a bachelor and died issueless on 3.3.1997. Thereafter, the entirety of the
shareholding of SEPL came to be held by Eddard Stark. Given the fact that Mr. Eddard
Stark suffered a severe heart attack on 3.6.2003, he divested all his shares in equal
proportion in favor of his three sons- Robb Stark, Rickon Stark and Bran Stark (“Selling
Shareholders”/“Stark Brothers”). Therefore, as on 30.6.2003, the authorized and
issued share capital of SEPL was as follows:

Sl. Particulars Percentage of

Nos. Shareholding

1. Robb Stark 33.333%

2. Rickon Stark 33.333%
3. Bran Stark 33.333%
Total 100%

18. In March 2010, SEPL faced intense competition as far as its pharmaceutical business was
concerned. In March 2008, Lannister Enterprises Limited (“LEL”), one of the biggest
pharmaceutical conglomerates in the country and arch rival of SEPL, had entered into a
Joint Venture Agreement (“JVA”) with Golden Pharmaceuticals, a company
incorporated in United States of Kawasaki. Owing to this transaction, LEL had funds
worth $800 million for expansion of its market and manufacturing facilities in Shibuya.
These investments had borne fruit and resulted in LEL increasing its market share in the
pharmaceutical industry from 22% to 37%. Consequently, the SEPL market share in the
pharmaceutical business had dropped from 34% to 23%.
19. In order to prevent a further slide of its market share in the pharmaceutical segment, the
Stark Brothers entered into a Share Purchase Agreement (“SPA”) with Tully Enterprises

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 Limited (“TEL”), a company based in United Kingdom. It may be noted that TEL is
the largest pharmaceutical conglomerate in the world. Pursuant to the SPA, TEL
acquired 60% of the authorized and issued share capital of SEPL on 13.3.2013. The
remaining 40% of the share capital of SEPL continued to be held by Stark Brothers in
equal proportion.
20. In order to ensure proper functioning and management of SEPL, the Stark Brothers and
TEL also entered into a Joint Venture Agreement (“JVA”) on 13.3.2013. All the terms of
the JVA were incorporated into the Articles of Association (“AoA”) of SEPL. The
object and purpose of the JVA had been set out in its recitals as follows:
“TEL and Stark Brothers are entering into the partnership with a view to (a) bring SEPL to
the next level of existence; (b) professionalize and enhance the competence of the second
management layer of SEPL; and (c) enhance shareholder value and gradually prepare SEPL
and its organization for the exit of Stark Brothers after an agreed period of time in accordance
with the provisions of this Agreement”.
21. The JVA vested the management rights of the SEPL with the Stark Brothers for a period
of 5 years from 13.3.2013. The relevant extracts of the JVA pertaining to management of
SEPL are set out below:
“6. Management of the Company
6.1 On and from 13.3.2013, Robb Stark shall be the managing director of SEPL and shall have an
initial term of 5 years from 13.3.2013 (subject to the Employment Agreement executed between Robb
Stark and SEPL). The terms and conditions of the Managing Director’s employment shall be as set
forth in the Employment Agreement executed between Robb Stark and SEPL.
“6.2…..
6.3 The Board of SEPL will comprise of 7 members of which 4 will be nominated by TEL.
For a period of 5 years from 13.3.2013, Robb, Rickon and Bran shall be the Starks’
nominees to the Board. The Chairman of the Board shall always be from amongst the nominees
of TEL.
6.4. Notwithstanding anything contained in Article 6.1, if Robb Stark is prevented from
performing his duties as a Director on account of any condition of illness or any physical, mental
or legal disability, TEL shall have a right to appoint a Managing Director of its choice.
6.5…
6.6…

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 6.7…
6.8. From 13.3.2013,
(i) The Managing Director shall have the right to appoint and terminate all employees of the
company. TEL may recommend the appointment of individuals to new or vacant positions to
the Managing Director. If TEL recommends the appointment of any individual on or prior to
31.12.2016, the Managing Director shall consider such recommendations and bona fide discuss
it with the Chairman of the Board. The Managing Director may thereafter reject the
appointment of the individual proposed by TEL after furnishing his reasons to the satisfaction
of the Chairman of the Board.
(ii) Notwithstanding anything contained in Clause 6.8(i) of the AoA, on and after 13.3.
2018, TEL shall gain the authority to make any appointments to any vacant positions in
SEPL and terminate the employment of any individuals that they deem fit.”

22. The JVA also contemplated a plethora of options in case either the Starks or TEL
wanted to exit SEPL. In this regard, it is pertinent to note that Clause 14.1(iv) of the JVA
conferred a call option on TEL to purchase the shares of all the Starks in case:
“SEPL terminated the Employment Agreement executed with Robb, Rickard or Bran in
accordance terms contained therein”.
In other words, TEL could compel the Stark family to divest all its shareholding
in SEPL if any of their Employment Agreement were lawfully terminated.
23. Clause 14.1 of the JVA stipulated that:

“(i) All disputes or differences arising out of or in relation to the JVA/AoA shall be
submitted to binding arbitration at the request of any party.

(ii) Any such arbitral tribunal may choose to decide the dispute or difference between the parties
ex aequo et bono/ amiable compositeur.

(iii) All proceedings of such arbitration shall take place in London.”

24. Clause 9 of Robb Stark’s Employment Agreement stipulates the circumstances for
termination of his employment with SEPL. It reads as follows:

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 “Notwithstanding anything contained in this Agreement, the Board after having provided Robb
Stark with a notice to rectify the cause of termination, may terminate his employment as
Managing Director for any of the following reasons:
(a) Breach of any of the terms of the AoA/JVA;
(b) Breach of any statutory law as applicable.”
Clause 10 of Robb Stark’s Employment Agreement stipulates that
“Any dispute or difference in relation to this Agreement shall be referred to arbitration in terms
of the JVA/AoA.”
25. Jon, Robb Stark’s son had just returned after completing his Masters in Business
Administration (Finance) from King Zlatan University, a renowned institute in Sweden,
in April 2017. Mr. Robb Stark was very keen that Jon join SEPL and learn the ropes of
pharmaceutical and chemical business. Luckily, in May 2017, Mr. Bolton, the Chief
Financial Officer (“CFO”) of SEPL had resigned from the post of CFO in SEPL owing
to personal reasons.
26. Mr. Bolton had grudgingly been appointed to the post of CFO by Mr. Robb Stark after
persistent requests made by the Chairman of the Board. While TEL seldom interfered
with the affairs of SEPL and gave Starks complete freedom in managing its affairs, it
always insisted that the CFO of SEPL be appointed after seeking its express approval.
This is because TEL wanted to have broad oversight over the day-to-day affairs of
SEPL.
27. A series of correspondences were exchanged between Mr. Robb Stark and Chairman of
the Board. While Mr. Robb Stark insisted that Mr. Jon Stark should be considered for
the position, it was strongly resisted by TEL. In an email dated 23.5.2017, the Chairman
of SEPL Board stated:
“Dear Robb,
Dealing with the Starks is becoming increasingly difficult. I have time and again reiterated that,
our partnership was premised on the fact that CFO will be our nominee. This is because you
run the show at SEPL and we do not have any oversight over its day-to-day functioning.
Having our nominee act as CFO gives us comfort regarding SEPL being in order. This is not
an unjust demand considering the fact that we own 60% of shares in SEPL.

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 Therefore, request you not to precipitate matters and press for appointment of Mr. Jon Stark.
The fact that he is biologically related to you itself disqualifies him from being considered, let
alone holding the position of CFO of SEPL.
We would also wish to inform you that Mr. Rhaegar Targareyan, gold medalist from Harvard
Business School has been interviewed by us for this vacant position. He has over 14 years
experience in the pharmaceutical and chemical industry in various financial departments of
world renowned organizations. Request you to appoint him to the position.
Best,
Andy”
28. Mr. Robb Stark was flabbergasted when he received the above-mentioned letter from
Andy, Chairman of the Board. Robb’s response to the letter dated 23.5.2017 is
reproduced below:
“25 May 2017
Dear Andy,
Let me remind you that I am well within my rights to appoint whomsoever I choose as CFO.
While you have created a song and dance about our partnership, do you not trust the Starks to
run the Company with integrity? It is under the leadership of my brothers and I that SEPL
has experienced 26% growth year-on-year basis since 2013. That alone will establish the
integrity with which we have run the Company.

There has always been a Stark at SEPL. Therefore, it is but natural that the next generation
will have to be integrated into SEPL. Hence, the appointment of Jon as CFO is part of the
transition process. Trust this clarifies.

Please ask Mr. Targareyan to look for other job prospects because the next CFO will be a
Stark.

Best,
Robb”
29. While the matter stood thus, on 30.5.2017, Mr. Robb Stark held a press conference at
the registered office of SEPL in Megasaki. Therein, Mr. Robb Stark announced that Mr.
Jon will be joining SEPL as its CFO with effect from 1.6.2017. The Chairman or the

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 other TEL nominee directors were not at all informed regarding this appointment by
Mr. Robb Stark. To the utter and shock of the TEL nominee directors, they also learnt
that Mr. Jon, as CFO, will draw a salary of the Shibuyan Rupee 79,00,000/- per annum, a
22% hike from salary drawn by Mr. Bolton (i.e. the previous CFO).
30. On 01.6.2017, a legal notice was issued by the advocates of TEL calling upon Mr. Robb
Stark to terminate the appointment of Mr. Jon Stark because (i) it was ultra vires of AoA
of SEPL; and (ii) appointment was in contravention of Section 188 of the Companies
Act, 2013. The said legal notice called upon Mr. Stark to remedy the situation in 10 days,
failing which appropriate action will be taken in terms of the AoA and the Employment
Agreements. Given the fact that Mr. Robb Stark, did not even respond to this letter, on
17.6.2017, TEL sent the following legal notice to the Stark Brothers:
“Dear Starks,
Despite our best efforts to amicably resolve the difference in relation to appointment of CFO,
there is no co-operation forthcoming from your end.
Mr. Robb’s appointment of Mr. Jon as CFO is in breach of our rights under the JVA.
Further, given the fact that Mr. Jon is biologically related to Mr. Robb, there was a need to
seek approval of the Board of SEPL under the Companies Act, 2013. Therefore, Mr. Robb
Stark has acted in contravention of his Employment Agreement and his employment stands
terminated with immediate effect.
Additionally, we exercise our rights under 14.1(iv) of the JVA and hereby call upon the Stark
brothers to sell their shares and exit SEPL. All our rights remained reserved.”
31. On 23.6.2017, the Stark Brothers approached the National Company Law Tribunal
under Section 241 and 242 of the Companies Act, 2013 alleging oppression,
mismanagement and unfair prejudice against TEL. In the said petition, the Stark
Brothers, among other things contended that TEL acted in a burdensome, harsh and
unfair manner by terminating the employment of Mr. Robb Stark and compelling the
Stark Brothers to divest its shares in SEPL. Accordingly, it prayed for quashing of the
notice dated 17.6.2017 and a direction to TEL to sell all its shares in SEPL at fair market
value to the Stark Brothers.
32. TEL resisted this petition by filing an application under Section 45 of the Arbitration
and Conciliation Act, 1996, on 24.9.2017. The National Company Law Tribunal
dismissed the application under Section 45 of the Arbitration and Conciliation Act, 1996.

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 Further, it quashed the notice dated 17.6.2017, thereby reinstating Mr. Robb Stark as
Managing Director of SEPL and cancelling the call option.
33. Aggrieved, TEL preferred and was granted special leave (Special Leave Petition No.
120/2017) against the order of the National Company Law Tribunal before the Hon’ble
Supreme Court of Shibuya.
34. Special Leave Petition No. 1234/2018 and Special Leave Petition No. 120/2017 were
clubbed by the Supreme Court and have been listed for hearing on February 2, 2019.

NOTES:

• The Constitution of Shibuya, 1950 and all laws within the Republic of Shibuya are pari
materia with the laws of India.

• The courts of Shibuya treat decisions of India and other foreign jurisdictions as having
high persuasive value.

• Participants are not expected to argue on procedural issues relating to the transfer or
clubbing of matters, and maintainability of the claims.

• Participants arguing from the FOR side would be representing the

Appellant(s)/Petitioner(s), and participants arguing from the AGAINST side would be
representing the Respondent(s).

• Please refer to the annexures attached to the Proposition for the purpose of your
arguments.

 Participants appearing for Respondent-Workmen are advised not to raise the issue of
delay/laches.

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 ANNEXURE A

HIGH COURT OF MEGASAKI

W.P. (C) No. 619/2016

Hon’ble Mr Justice Kawhi Leonard

1.4.2016

[…]

10. The hardship that the majority of the employees would suffer as a result of the economic
crisis faced by the Petitioner Company would outweigh the advantage to the minority of the pre-
2011 employees by retention of their age of superannuation as 60 years. Hence, retention of the
retirement age of 60 years for a minority of the employees would be arbitrary. If the Company
is not saved by taking appropriate drastic measures, the entire settlement itself would become
impossible to perform.

11. There were compelling reasons for the Company to reduce the age of superannuation. On a
consideration of circumstances, I do not think it is just or proper to interfere with the impugned
letter or the impugned order and the petition is accordingly dismissed.

12. However, it is made clear that it shall be open to the petitioners to work out their remedies
available by law.

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 ANNEXURE B

HIGH COURT OF MEGASAKI

W.A. (C) No. 316/2016

Hon’ble Ms Justice Becky Hammon

Hon’ble Mr Justice Dusan Bulut

22.7.2016

[…]

8. The workmen seek an enforcement of the 2011 Settlement. The Industrial Disputes Act,
1947 provides an effective remedy. If the 2011 Settlement is in terms of the Act, the remedy
must also lie before the forum created under the Act. It is true that the Act is a piece of welfare
legislation and the approach of the courts has been to normally be liberal and grant appropriate
reliefs to workmen.

9. However, the Company was facing an acute financial crisis. Taking the totality of the
circumstances laid down in the learned Single Judge’s judgment dated 1.4.2016, we find no
reason to interfere with the conclusions of the learned Single Judge in paragraphs 11 and 12 of
the impugned judgment.

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 ANNEXURE C

HIGH COURT OF MEGASAKI

W.P. (C) No. 786/2017

Hon’ble Mr Justice Phil Jackson

26.1.2017

[…]

7. The decision of the Labour Court on the issue of res judicata is clearly unsustainable. The
learned Single Judge and the Hon’ble Division Bench in the judgments dated 1.4.2016 and
22.7.2016 were essentially considering the question as to whether in the peculiar facts and
circumstances of the case, this Court should exercise the discretionary jurisdiction under Article
226 of the Constitution.

8. The above two judgments merely state that this Court was not inclined to exercise its
discretionary jurisdiction to interfere with the impugned order dated 1.3.2016 and the impugned
letter dated 14.2.2016 relegating the parties to other remedies available under law.

9. Therefore, I am unable to persuade myself to accept the finding on the bar of res judicata.
The said finding of the Labour Court is set aside and the matter is remanded back to the Labour
Court for a consideration on the merits of the dispute.

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