PAGE | I

TEAM CODE: ___-P

SURANA & SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION

17TH FEBRUARY TO 19TH FEBRUARY, 2017

JSS LAW COLLEGE, MYSORE

BEFORE

THE NATIONAL COMPANY LAW TRIBUNAL

DISPUTE RELATING TO

WINDING-UP OF COMPANY AND TAX CLAIMS

COMPANY APPLICATION (CA) 1 OF 2017

COMPANY APPLICATION (CA) 2 OF 2017

COMPANY APPLICATION (CA) 3 OF 2017

IN

COMPANY PETITION (CP) 10 OF 2017

[Under Section 434(1)(a) r/w Section 433(e) along with Section 433(f) of the Companies

Act, 1956]

IN THE MATTER OF

GLOBAL OFFICE SUPPLIERS PVT. LTD., BENGALURU.................................(PETITIONER NO. 1)

SHAREHOLDERS OF STALWART ONLINE STORES PVT. LTD.........................(PETITIONER NO. 2)

ADDITIONAL COMMISSIONER OF INCOME-TAX, BENGALURU.....................(PETITIONER NO. 3)

DEPUTY COMMISSIONER OF COMMERCIAL TAX, BENGALURU...................(PETITIONER NO. 4)

VS.

STALWART ONLINE STORES PVT. LTD., BENGALURU.........................................(RESPONDENT)

MEMORIAL for PETITIONER

 PAGE | II

TABLE OF CONTENTS

LIST OF ABBREVIATIONS................................................................................................III

INDEX OF AUTHORITIES.................................................................................................IV

STATEMENT OF JURISDICTION...................................................................................VII

STATEMENT OF FACTS..................................................................................................VIII

STATEMENT OF ISSUES....................................................................................................IX

SUMMARY OF ARGUMENTS.............................................................................................X

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

ISSUE I: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE

WOUND-UP FOR NON-PAYMENT OF ITS DUES........................................................1
[A] THE PRESENT PETITION TO WIND-UP STALWART IS MAINTAINABLE...1
(1) The Tribunal has the requisite jurisdiction in the present matter.........................1
(2) Global has the locus standi to file the winding-up petition.................................1
(3) Global has the requisite cause to file the winding up petition.............................2
[B] STALWART WAS UNABLE TO PAY ITS DEBT WITHIN THE STATUTORY
PERIOD.............................................................................................................................2

ISSUE II: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE

WOUND-UP VIS-À-VIS THE ACTS OF ALLEGED OPPRESSION............................3
[A] THE PETITION TO WIND UP STALWART UNDER SECTION 271(1) (G) OF
THE COMPANIES ACT, 2013 IS MAINTAINABLE......................................................4
(1) The shareholders have the required locus standi.................................................4
(2) The shareholders have the requisite cause...........................................................4
[B] THE 26% SHAREHOLDERS WERE OPPRESSED WHICH IS A ‘JUST AND
EQUITABLE’ GROUND FOR WINDING UP THE COMPANY....................................5
(1) There has been a related party transaction without the approval of the 26%
shareholders....................................................................................................................5
(a) Stalwart, Galileo Investors Pvt. Ltd. and Sam are related parties....................5
(b) The loan advancement was a related party transaction....................................6
(c) The shareholder’s approval was not sought while advancing the loan to
Galileo........................................................................................................................6
 PAGE | III

(2) Sam should have not participated in the meeting where the said resolution
regarding loan advancement was passed........................................................................7

ISSUE III: THE NCLT HAVE THE JURISDICTION TO DEAL WITH THE
MERITS OF THE ISSUES PERTAINING TO TAX........................................................8

ISSUE IV: THE LOAN ADVANCED TO GALILEO INVESTORS PTE. LTD. IS

‘DIVIDEND’ UNDER THE INCOME TAX ACT, 1961 AND/ OR INDIA-
SINGAPORE TAX TREATY..............................................................................................8
[A] THE LOAN ADVANCED IS A DIVIDEND UNDER THE IT ACT.....................9
(1) The loan advanced is a dividend under Section 2(22)(e).....................................9
(a) Stalwart is not a ‘company in which public are substantially interested’........9
(b) There is a payment by Stalwart by way of ‘loan’...........................................10
(c) Galileo is a shareholder, being the person who is the beneficial owner of
shares........................................................................................................................10
(d) It is to the extent of accumulated profit..........................................................10
(2) Even if the loan is repaid, it still constitutes deemed dividend..........................11
[B] THE LOAN ADVANCED IS A DIVIDEND UNDER INDIA-SINGAPORE TAX
TREATY...........................................................................................................................11

ISSUE V: STALWART ONLINE STORES PVT. LTD. IS NOT LIABLE TO PAY

VAT AND CST IN KARNATAKA....................................................................................12
[A] STALWART IS A DEALER UNDER KVAT ACT, 2003......................................12
(1) Stalwart acts as a mercantile agent.....................................................................13
(2) Stalwart is indirectly involved in supplying and distributing goods for a
commission..................................................................................................................13
[B] TAXABLE EVENT TAKES PLACE....................................................................14
[C] PLACE OF SALE IS KARNATAKA....................................................................15

PRAYER.................................................................................................................................XI
 LIST OF ABBREVIATIONS

§ Section
¶ Paragraph
AAR Authority For Advance Ruling
All. Allahabad
Bom. Bombay
CDT Central Board of Direct Taxes
CIT Commissioner of Income Tax
DCIT Deputy Commissioner of Income Tax
Del. Delhi
DIT Director of Income Tax
Id. Ibid
ITA Income Tax Appeals
ITAT Income Tax Appellate Tribunal
ITR Income Tax Reporter
JCIT Joint Commissioner of Income Tax
Mum. Mumbai
Pvt. Private
SC Supreme Court
SCC Supreme Court Cases
TTJ Tax Tribunal Judgement
v. Versus

MEMORIAL for PETITIONER LIST OF ABBREVIATIONS

 INDEX OF AUTHORITIES

CASES

ACIT v. Bhaumik Colour Pvt. Ltd., 313 ITR AT 146 (Mum.) (SB) 10
Bachitrananda Panda v. Orissa Construction Corpn. Ltd., AIR 1995 Ori. 249 2
Bagalkot Cement Co. v. State of Mysore, (1976) 37 STC 73 13
Caprihans India Ltd. v. Mey’s Pharmaceuticals Ltd., AIR 1994 Del. 178 3
CIT v. Creative Dyeing and Printing (P) Ltd., 184 Taxman 483 11
CIT v. G. Venkataraman, (1975) 101 ITR 673 (Mad.) 10
Color Coats v. Venkatarama Hotels Ltd., (1998) 16 SCL 345 3
Crowford v. Spooner, (1846) 4 MIA 179 13
Dr. Alexander Educational Foundation v. Union of India and Ors., W.P.(C) 2455 of
6
1993
Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd., (1971) 41 Comp.
7
Cas. 377 (Bom.)
Havell’s India Ltd. v. The Commissioner of Value Added Tax and Anr., W.P.(C)
14
5430 of 2008
In Re, Anglo-Continental Produce Co. Ltd., (1939) 1 All ER 99 5
Indian Steel and Wire Products Ltd v. CIT, (1966) 62 ITR 334 (Cal.) 9
Integrated Broadcasting Co. (P.) Ltd. v. Nettlinx Ltd., (2012) CDJ APHC 365 1
ITO v. Kalyan Gupta, (2007) 293 ITR 249 11
Kandula Radhakrishna Rao v. Province of Madras, (1952) 3 STC 121 (Mad.) 14
Kesoram Industries and Cotton Mills Ltd. v. CWT, (1966) 59 ITR 767 (SC) 2
Lucknow Development Authority v. M. K. Gupta, AIR 1994 SC 787 6
P. K. Badiani v. CIT, (1976) 105 ITR 642 (SC) 10
Pramod Kumar Dang v. JCIT, (2006) 105 TTJ 511 (Del.) 11
Raja Surrindar Singh v. P.B. and A. Products Co. Ltd., (1956) 26 Comp. Cas. 41
4
(PEPSU)
Rameshwarlal Sanwarmal v. CIT, (1980)122 ITR 1 (SC) 10
Registrar of Companies v. Kavita Benefit (P.) Ltd., (1978) 48 Comp. Cas. 231
2
(Guj.)
Shanti Prasad Jain v. Kalinga Tubes Ltd, AIR 1965 SCC 1535 4

MEMORIAL for PETITIONER INDEX OF AUTHORITIES

Shrimati Tarulata Shyam and Ors v. CIT, (1977) 108 ITR 345 (SC) 11
State of Andhra Pradesh v. Hyderabad Vegetable Products Co. Ltd., (1962) 32
2
Comp. Cas. 64 (AP)
V. M. Rao and Ors. v. Rajeswari Ramakrishnan and Ors., (1987) 61 Comp. Cas.
5
20 (Mad.)
Walchand and Co. Ltd. v. CIT, 100 ITR 598 (Bom.) 11
STATUTES

Karnataka Value Added Tax Act, No. 32 of 2004 13

The Companies (Amendment) Act, 2015 6
The Companies (Meetings of Board and its Power) Rules, 2014 6
The Companies Act, No. 18 of 2013 2
The Income Tax Act, No. 43 of 1961 9
BOOKS

A. Ramaiya, Guide to Companies Act, 2013 (18th edn. 2015) 5

G. P. Singh, J., Principles of Statutory Interpretation (11th edn. 2008) 13
Kanga and Palkhiwala, The Law and Practice of Income Tax (Arvind P. Datar
10
th
eds., 10 edn. 2014)
OTHER AUTHORITIES

Convention for the Avoidance of Double Taxation and the Prevention of Fiscal
9
with Respect to Taxes on Income, India-Singapore
Department’s File No. 8/50/299/61 – PR 7
Merriam Webster Dictionary 13
Ministry of Corporate Affairs, Notification No. S.O. 3677(E), dt. 07.12.2016 1

MEMORIAL for PETITIONER INDEX OF AUTHORITIES

 STATEMENT OF JURISDICTION

The PETITIONERS have invoked, in the dispute relating to winding-up and tax claims, the

jurisdiction of the Hon’ble National Company Law Tribunal under Section 280(e) of the

Companies Act, 2013.

Thereby, the PETITIONER submits this memorial which sets forth the facts & the laws on

which the claims are based.

MEMORIAL for PETITIONER STATEMENT OF JURISDICTION

 STATEMENT OF FACTS

BACKGROUND

Global Office Suppliers Pvt. Ltd. and Stalwart Online Stores Pvt. Ltd. are companies

registered under the Companies Act, 1956 and 2013, respectively with their Registered Office

in Bengaluru. Whereas Stalwart also has its Corporate Office in Chennai. Both the companies

entered into an SSA, whereby Global will sell the stationary items to Stalwart as well as

directly to the consumers of Stalwart under the two different models of Stalwart.

SHAREHOLDING OF STALWART ONLINE STORES PVT. LTD.

The shareholding pattern of Stalwart includes: (a) Two Indian promoters holding

40%; (b) Sam, an Indian citizen and a tax resident, held 10%; (c) A private equity investors,

Galileo Investors Pte. Ltd, situated in Singapore held 24%; and, (d) The remaining 26%

shares were held by resident shareholders.

LEGAL DISPUTE

Corporate: Due to the non-clearance of certain invoices and the interest due by Stalwart

within the specified time period, a winding-up petition was filed by Global before the NCLT.

Stalwart advanced a loan to Galileo Investors Pte. Ltd to the tune of INR 50 Crores without a

loan agreement by passing a Board Resolution with 74% of the Shareholders The remaining

26% Shareholders filed an application to implead themselves as Petitioner No. 2 in the

winding-up petition filed by Global pending before the NCLT.

Tax: According to the ITD the loan amount given by Stalwart shall be treated as a ‘Dividend’

and therefore be subjected to appropriate tax. On the other hand, the STD of Bengaluru

claims that Stalwart comes under the definition of ‘dealer’ and thus be subjected to VAT and

CST as per the provisions of KVAT Act, 2003. Both these departments also, independently,

filed application to be impleaded as Petitioner Nos. 3 and 4 in the winding-up petition filed

by Global pending before the NCLT.

MEMORIAL for PETITIONER STATEMENT OF FACTS

 STATEMENT OF ISSUES

ISSUE I: Whether Stalwart Online Stores Pvt. Ltd. is liable to be wound-up for non-

payment of its dues.

ISSUE II: Whether Stalwart Online Stores Pvt. Ltd. is liable to be wound-up vis-à-vis the

acts of alleged oppression.

ISSUE III: Whether the NCLT have the jurisdiction to deal with the merits of the issues

pertaining to tax.

ISSUE IV: Whether the loan advanced to Galileo Investors Pte. Ltd. is a ‘Dividend’ under

the Income Tax Act, 1961 and/ or India-Singapore Tax Treaty.

ISSUE V: Whether Stalwart Online Stores Pvt. Ltd. is LIABLE to pay VAT and CST in

Karnataka.

MEMORIAL for PETITIONER STATEMENT OF ISSUES

 SUMMARY OF ARGUMENTS

ISSUE I: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE WOUND-UP FOR NON-

PAYMENT OF ITS DUES.

[A.] The petition to wind-up Stalwart under Section 271(1)(a) r/w Section 271(2) of the

Companies Act, 2013 is maintainable; and, [B.] Stalwart was unable to pay a debt within the

statutory period after Global served a legal notice on it.

ISSUE II: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE WOUND-UP VIS-À-VIS

THE ACTS OF ALLEGED OPPRESSION .

[A.] The petition to wind-up Stalwart under Section 271(1)(g) of the Companies Act, 2013 is

maintainable; and, [B.] There was oppression of the remaining 26% shareholders which is a

‘just and equitable’ ground for winding up the company.

ISSUE III: THE NCLT HAVE THE JURISDICTION TO DEAL WITH THE MERITS OF THE

ISSUES PERTAINING TO TAX .

[A.] Section 280(e) of the Companies Act, 2013 endows upon the Tribunal, the jurisdiction to

entertain or dispose of any obligations in any matter arising out of or in relation to winding-

up of the Company.

ISSUE IV: THE LOAN ADVANCED TO GALILEO INVESTORS PTE. LTD. IS ‘DIVIDEND’

UNDER THE INCOME TAX ACT, 1961 AND/ OR INDIA-SINGAPORE TAX

TREATY.

[A.] The loan advanced is ‘dividend’ under Section 2(22)(2) of the Income Tax Act, 1961;

and, [B.] The loan advanced is a dividend under Article 10 of India-Singapore Tax Treaty.

ISSUE V: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO PAY VAT AND CST IN

KARNATAKA.

[A.] It is a ‘dealer’ under KVAT Act, 2003; [B.] Taxable event took place; and, [C.] The place

of sale is Karnataka.

MEMORIAL for PETITIONER SUMMARY OF ARGUMENTS

 PAGE | 1

ARGUMENTS ADVANCED

ISSUE I: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE

WOUND-UP FOR NON-PAYMENT OF ITS DUES.

¶ 1. The present petition falls within the ambit of Section 271(1)(a) r/w Section 271(2) of

the Companies Act, 2013 as the petition to wind-up Stalwart is maintainable [A]; and, as

Stalwart was unable to pay its debts within the stipulated statutory period [B].

[A] THE PRESENT PETITION TO WIND-UP STALWART IS MAINTAINABLE

¶ 2. The petition to wind up Stalwart under Section 271(1)(a) read with Section 271(2) of

the Companies Act, 2013 is maintainable as the Tribunal has the requisite jurisdiction in the

present matter [1]; further, Global has the locus standi [2]; and, there was a requisite cause to

file the winding-up petition [3].

(1) THE TRIBUNAL HAS THE REQUISITE JURISDICTION IN THE PRESENT MATTER

¶ 3. The Ministry of Corporate Affairs (“MCA”) has notified the provisions dealing with

winding-up of a company as provided by the Companies Act, 2013.1 Thus, under the new

Companies Act, the Tribunal has the necessary jurisdiction to address winding-up petitions.

¶ 4. Moreover, the mere existence of an arbitration clause would not bar exercise of

jurisdiction by the court under this Section.2 Thus, in the present case, mere presence of an

arbitration clause3 in the SSA does not take away the jurisdiction of the Tribunal.

(2) GLOBAL HAS THE LOCUS STANDI TO FILE THE WINDING-UP PETITION

¶ 5. Section 271(1)(a) of the Companies Act, 2013 provides for the winding up of a

company if it is unable to pay its debts.4 A debt is a sum of money which is now payable or

1
Ministry of Corporate Affairs, Notification No. S.O. 3677(E), dt. 07.12.2016.
2
Integrated Broadcasting Co. (P.) Ltd. v. Nettlinx Ltd., (2012) CDJ APHC 365.
3
Moot Proposition, ¶ 5.
4
The Companies Act, No. 18 of 2013, § 271(1)(a).

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 2

will be payable in future by reason of a present obligation, debitum in praesenti solvendum in

futuro.5

¶ 6. Further, Section 272 (1) (b) of the Companies Act, 2013 6 allows for a creditor to

present a winding up petition to the Tribunal. In the present case, Global is a creditor as it has

a pecuniary claim7 against Stalwart of INR 13.92 crores. 8 Thus, Global has the required locus

standi to file this petition.

(3) GLOBAL HAS THE REQUISITE CAUSE TO FILE THE WINDING UP PETITION

¶ 7. In the present case, Global has waited for the statutory period as mentioned under

section 271 (2) (a)9 before filing the winding up petition which shows that Stalwart has not

paid the sum due to Global within the specified time. Thus, Global has the requisite cause to

file the winding up petition.

[B] STALWART WAS UNABLE TO PAY ITS DEBT WITHIN THE STATUTORY

PERIOD

¶ 8. ‘A debt’ is a sum of money which is now payable or will become payable in future by

reason of a present obligation. 10 The existing obligation to pay a sum of money is the sine

qua non of a debt. In the present case, Stalwart was unable to settle the invoices raised by

Global from July 2015 to December 201511 as well as those from January 2016 to June

2016.12 Thus, Stalwart owed a debt to Global of INR 13.92 crores as the 6 crores that it paid

5
Kesoram Industries and Cotton Mills Ltd. v. CWT, (1966) 59 ITR 767 (SC); Bachitrananda Panda v. Orissa
Construction Corpn. Ltd., AIR 1995 Ori. 249.
6
The Companies Act, No. 18 of 2013, § 272.
7
State of Andhra Pradesh v. Hyderabad Vegetable Products Co. Ltd., (1962) 32 Comp. Cas. 64 (AP).
8
Moot Proposition, ¶ 14.
9
Moot Proposition, ¶ 15.
10
Registrar of Companies v. Kavita Benefit (P.) Ltd., (1978) 48 Comp. Cas. 231 (Guj.).
11
Moot Proposition, ¶ 6.
12
Moot Proposition, ¶ 7.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 3

intermittently, was adjusted towards the penalty and then on the interest on the pending

amounts that Stalwart was required to pay.13

¶ 9. Further, section 271 (2) (a)14 lays down when a company shall be deemed to be unable

to pay its debts. It requires the creditor to serve a notice claiming the amount due to him and

if the company fails to pay the amount within a period for twenty one days, the debtor

company shall be presumed unable to pay its debts. In the case of Color Coats v.

Venkatarama Hotels Ltd.15 it was held that if the payment is not made within a period of three

weeks, it is to be presumed that the respondent company is unable to pay its debts.

¶ 10. In the instant matter, Global served a legal notice on December 31, 2016 and waited

for the statutory period as was the statutory requirement. 16 Stalwart did not settle the debt due

to Global in spite of being served a legal notice, it should be inferred that the company was

not in a position to discharge its debt and was not financially sound, and it would be a fit case

where the company should be ordered to be wound up.17

ISSUE II: STALWART ONLINE STORES PVT. LTD. IS LIABLE TO BE

WOUND-UP VIS-À-VIS THE ACTS OF ALLEGED OPPRESSION.

¶ 11. Stalwart should be wound up under Section 271(g) of Companies Act, 2013 as the

petition to wind up Stalwart is maintainable. [A]; and the 26% shareholders were oppressed

which is a ‘just and equitable’ ground for winding up the company [B].

[A] THE PETITION TO WIND UP STALWART UNDER SECTION 271(1) (G) OF

THE COMPANIES ACT, 2013 IS MAINTAINABLE

13
Moot Proposition, ¶ 14.
14
The Companies Act, No. 18 of 2013, § 271(2)(a).
15
Color Coats v. Venkatarama Hotels Ltd., (1998) 16 SCL 345.
16
Moot Proposition, ¶ 15.
17
Caprihans India Ltd. v. Mey’s Pharmaceuticals Ltd., AIR 1994 Del. 178.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 4

¶ 12. The petition to wind up Stalwart under section 271(1) (g) of the Companies Act, 2013

is maintainable as the shareholders have the required locus standi to file the winding up

petition [1]; the shareholders have the requisite cause to file the winding up petition [2].

(1) THE SHAREHOLDERS HAVE THE REQUIRED LOCUS STANDI

¶ 13. The word ‘contributory’ includes a fully paid- up shareholder of a company. 18 In the

present case, the issued share capital and paid-up share capital of Stalwart was INR 350

crores.19 This shows that the remaining 26% shareholders held fully-paid up shares in the

company. Thus, the shareholders have the required locus standi to file the winding up petition

as this falls within the ambit of Section 272 (1) (c)20.

(2) THE SHAREHOLDERS HAVE THE REQUISITE CAUSE

¶ 14. Section 271(g)21 deals with winding up of a company by a Tribunal in case the

Tribunal is of the opinion that it is just and equitable that the company should be wound up.

Oppression of minority shareholders is a just and equitable ground in order to wind up a

company.22 In the present case, the carrying out of a related party transaction by the Company

without the shareholder approval and consent has resulted in oppression. Thus, the

shareholders have the requisite cause to file the winding up petition.

[B] THE 26% SHAREHOLDERS WERE OPPRESSED WHICH IS A ‘JUST AND

EQUITABLE’ GROUND FOR WINDING UP THE COMPANY

¶ 15. In Re, Anglo-Continental Produce Co. Ltd.23 it was held that oppression of minority

18
Raja Surrindar Singh v. P.B. and A. Products Co. Ltd., (1956) 26 Comp. Cas. 41 (PEPSU).
19
Moot Proposition, ¶ 10.
20
The Companies Act, No. 18 of 2013, § 272(1)(c).
21
The Companies Act, No. 18 of 2013, § 271(1)(g).
22
Shanti Prasad Jain v. Kalinga Tubes Ltd, AIR 1965 SCC 1535.
23
In Re, Anglo-Continental Produce Co. Ltd., (1939) 1 All ER 99.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 5

shareholders’ will be a just and equitable ground where those who control a company abuse

their power to seriously prejudice the interests of minority shareholders.24 Stalwart should be

wound up under Section 271 (g) of Companies Act, 2013 as the 26% shareholders have been

oppressed by the abuse of power by the majority shareholders which is burdensome, harsh

and wrongful to them25 by conducting of a related party transaction without their approval

[1]; Furthermore, Sam should have not participated in the meeting where the said resolution

regarding loan advancement was passed [2].

(1) THERE HAS BEEN A RELATED PARTY TRANSACTION WITHOUT THE APPROVAL OF

THE 26% SHAREHOLDERS

¶ 16. There has been a related party transaction without the approval of the 26%

shareholders as Stalwart, Galileo Investors Pvt. Ltd. and Sam are related parties [a];

furthermore, the loan advancement was a related party transaction [b]; and moreover, the

shareholder’s approval was not sought while advancing the loan to Galileo [c].

(a) Stalwart, Galileo Investors Pvt. Ltd. and Sam are related parties

¶ 17. Section 2(76)(iv) lays down that a private company in which a director or manager is

a member or director is a related party. 26 In the present case, Sam, who is a shareholder in

Stalwart Online Stores Pvt. Ltd., is also a director of the company. 27 Further, Sam also holds

24.99% voting shares in Galileo Investors Pte. Ltd.28 which makes him a member in the

company.29 Thus, Stalwart, Galileo Investors Pvt. Ltd. and Sam are related parties.

(b) The loan advancement was a related party transaction

24
A. Ramaiya, Guide to Companies Act, 2013 4590 (18th edn. 2015).
25
V. M. Rao and Ors. v. Rajeswari Ramakrishnan and Ors., (1987) 61 Comp. Cas. 20 (Mad.).
26
The Companies Act, No. 18 of 2013, § 2(76)(iv).
27
Moot Proposition, ¶ 16.
28
Moot Proposition, ¶ 10.
29
The Companies Act, No. 18 of 2013, § 2(93).

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 6

¶ 18. The concept of service is very wide and what it means depends in the context in

which it has been used in an enactment. The Black’s Law Dictionary explains the word “any”

has a diversity of meaning and may be employed to indicate “all” or “every” as well as

“same” or “one” and its meaning in a given statute depends upon the context and subject
30
matter of the statute. It is an expression indicating intention to widen the ambit of the

meaning of the word that is qualifies.31

¶ 19. In the present case, the words ‘any services’ in section 188(1)(d)32 indicate the

legislative intention to widen the scope of the provision. The loan advancement should be

thus brought under the scope of this section.

(c) The shareholder’s approval was not sought while advancing the loan to Galileo

¶ 20. The first proviso to sub-section (1) of section 18833 when read with the corresponding

rule34, infers that, no contract or arrangement, in case of a company having a paid up share

capital of INR 10 Crore or more, or transactions exceeding the limits prescribed in the rule,

shall be entered into except with the prior approval of the company by a resolution. Further,

the limits prescribed under the rule are bifurcated into a company having a paid up share

capital of INR 10 Crore or more or a company exceeding the individual transaction(s) limits

mentioned thereunder. Due to this it can be inferred that for companies having a paid up share

capital of INR 10 Crore or more, shareholder’s approval will be required irrespective of the

value of transaction(s) whether breaching the limit or not. However, the present set of facts

indicate that the company had a paid up share capital of INR 350 crore which clearly

breaches the limit specified by the Ministry of Corporate Affairs. Thus, in the instant case the

30
Lucknow Development Authority v. M. K. Gupta, AIR 1994 SC 787.

31
Dr. Alexander Educational Foundation v. Union of India and Ors., W.P.(C) 2455 of 1993.

32
The Companies Act, No. 18 of 2013, § 188.
33
The Companies (Amendment) Act, 2015.
34
The Companies (Meetings of Board and its Power) Rules, 2014, Rule 15.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 7

approval of the shareholders was not taken in the board and shareholder’s meeting which was

made mandatory by law.

(3) SAM SHOULD HAVE NOT PARTICIPATED IN THE MEETING WHERE THE SAID

RESOLUTION REGARDING LOAN ADVANCEMENT WAS PASSED.

¶ 21. An interested directed should not participate in a meeting in which his contract or

arrangement is discussed according to Rule 15(2) of Companies (Meetings of Board and its

Powers) Rules, 201435 and section 184 (2) (a) of Companies Act, 2013 36. An interested

director is a director who is in any way interested in a contract even through a body

corporate.37 The words ‘in any way’ show widest possible application of the section. 38

Moreover, the legislative intention behind not attempting to define the word ‘interest’ was to

give it as general a meaning as possible and not lay down any confining limits to the

operation of the section.39

¶ 22. As per a clarification issued by the Department40, the idea underlying this is that the

director’s membership in a body corporate will be deemed to constitute his interest in such

body corporate because he is presumed to share directly in the gain or profit arising from a

contract with such a body corporate. 41 In the present case, since Sam holds 24.99 % shares in

Galileo, he is an interested party due to this reason. Hence, Sam should have not participated

in the meeting where the said resolution regarding loan advancement was passed.

ISSUE III: THE NCLT HAVE THE JURISDICTION TO DEAL WITH THE

35
The Companies (Meetings of Board and its Powers) Rules, 2014, Rule 15(2).
36
The Companies Act, No. 18 of 2013, § 184.
37
The Companies Act, No. 18 of 2013, § 2(49).
38
A. Ramaiya, supra note 24, at 3285.
39
Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd., (1971) 41 Comp. Cas. 377 (Bom.).
40
Department’s File No. 8/50/299/61 – PR.
41
A. Ramaiya, supra note 24, at 3287.

MEMORIAL for PETITIONER ARGUMENTS ADVANCED

 PAGE | 8

MERITS OF THE ISSUES PERTAINING TO TAX.

¶ 23. Section 280(e)42 of the Companies Act, 2013 endows upon the Tribunal, the

jurisdiction to entertain or dispose of any obligations in any matter arising out of or in

relation to winding up of the company. Further, the section makes it clear that the jurisdiction

of the Tribunal under the section shall not be subject to anything contained in any other

provision of the Act or any other law for the time being in force. Moreover, the dues of the

company towards the tax liabilities would come within Section 327(1)(a) 43 which is to be

paid in priority to all other debts.

¶ 24. In the present matter, there are debt claims by the income tax and sales tax

department, and since the winding up petition has been filed the Tribunal has the necessary

jurisdiction to hear the petitions notwithstanding any law for the time being in force.44

ISSUE IV: THE LOAN ADVANCED TO GALILEO INVESTORS PTE. LTD. IS

‘DIVIDEND’ UNDER THE INCOME TAX ACT, 1961 AND/ OR

INDIA-SINGAPORE TAX TREATY.

¶ 25. In the present cast appropriate taxes should have been withheld by Stalwart Online

Stores Pvt Ltd(hereinafter referred to as ‘Stalwart’) as the loan advanced is a dividend within

the meaning of income tax act, 1961 [A]; and the India-Singapore Tax Treaty45[B].

[A] THE LOAN ADVANCED IS A DIVIDEND UNDER THE IT ACT

¶ 26. Any distribution or payment amounts to ‘dividend’ if it falls within the ambit of the

42
The Companies Act, No. 18 of 2013, § 280.
43
The Companies Act, No. 18 of 2013, § 327(1)(a).
44
The Companies Act, No. 18 of 2013, § 280.

45
Convention for the Avoidance of Double Taxation and the Prevention of Fiscal with Respect to Taxes on
Income, India-Singapore, Article 10, Clause 4.

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provisions in Section 2(22).46 The Loan advanced is dividend under Section 2(22)(e) as all the

conditions specified therein are satisfied [1]; and even if the loan is repaid, it still constitutes

deemed dividend [2].

(1) THE LOAN ADVANCED IS A DIVIDEND UNDER SECTION 2(22)(E)

¶ 27. The loan advanced is a dividend as all the four limbs of the section 47 are satisfied i.e.

Stalwart is not a company in which ‘public are substantially interested’ [a]; there is a

payment by Stalwart of a sum by way of ‘loan’ [b]; Galileo is a shareholder, being the person

who is the beneficial owner of shares [c]; and it is to the extent of accumulated profit [d].

(a) Stalwart is not a ‘company in which public are substantially interested’

¶ 28. Section 2(18)48 of the IT Act defines ‘company in which public are substantially

interested.’ Further, Private Company do not come under the ambit of ‘company in which

public are substantially interested’.49

¶ 29. Stalwart is a private company incorporated under the Companies Act, 2013, 50 and

does not come under the ambit of Section 2(18). Thus it is not a ‘company in which public

are substantially interested.’

(b) There is a payment by Stalwart by way of ‘loan’

¶ 30. To qualify as ‘loan’ there should be an actual cash advance or loan from the company

to the assessee and the mere creation of a debtor and creditor relationship between the

company and the assessee will not be enough. There should be an outgoing or flow of money

from the company to the shareholder.51

46
The Income Tax Act, No. 43 of 1961, § 2(22).
47
The Income Tax Act, No. 43 of 1961, § 2(22)(e).
48
The Income Tax Act, No. 43 of 1961, § 2(18).
49
Indian Steel and Wire Products Ltd v. CIT, (1966) 62 ITR 334 (Cal.).
50
Moot Proposition, ¶ 4.
51
CIT v. G. Venkataraman, (1975) 101 ITR 673 (Mad.).

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¶ 31. Stalwart had advanced loans to Galileo to the tune of 50 crore in the month of

February 2016,52 which led to an outflow of money from Stalwart to its shareholder (Galileo).

Thus, there was payment by way of loan.

(c) Galileo is a shareholder, being the person who is the beneficial owner of shares

¶ 32. The expression ‘shareholder’ referred to in section 2(22)(e) refers to both a registered

shareholder and beneficial shareholder.53 Beneficial owner of shares are those who have

commercial interest in the shares.

¶ 33. In the present case, Galileo is the registered as well as the beneficial owner of shares

as it holds 24% voting shares in Stalwart.54

(d) It is to the extent of accumulated profit

¶ 34. The Supreme Court held that Accumulated profits mean commercial profits and not

assessed income. The undistributed profit includes profit accumulated of past years as well as

current profit till the date of disbursement of loans and advances. 55 Further, even loans

advanced out of sale proceeds of goods purchased on credit will constitute “deemed

dividend”, the only condition being that the company should have adequate accumulated

profit on the date of such payment. 56 Further, the onus is on the assesse to prove that the loan

or advance is in the “Ordinary Course of Business” and Lending of money constitutes

substantial part of the company’s business is on assessee.57

¶ 35. Any payment by the company way of loan is deemed to be a dividend within the

52
Moot Proposition, ¶ 11.

53
ACIT v. Bhaumik Colour Pvt. Ltd., 313 ITR AT 146 (Mum.) (SB); Rameshwarlal Sanwarmal v. CIT,
(1980)122 ITR 1 (SC); Kanga and Palkhiwala, The Law and Practice of Income Tax (Arvind P. Datar eds., 10th
edn. 2014).
54
Moot Proposition, ¶ 10.

55
P. K. Badiani v. CIT, (1976) 105 ITR 642 (SC); The Income Tax Act, No. 43 of 1961, § 2(22), Explanation 2.

56
Pramod Kumar Dang v. JCIT, (2006) 105 TTJ 511 (Del.).
57
Walchand and Co. Ltd. v. CIT, 100 ITR 598 (Bom.); CIT v. Creative Dyeing and Printing (P) Ltd., 184
Taxman 483.

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mischief of this clause. Further, a bare reading of the section reveals that it bring within its

fold all payments, made from whatever source, be it sale proceeds as it is in the present

matter.58 Moreover, the company is a successful startup company, holding substantial market

share in stationary items and has been achieving whopping sales and profit since its

inception.59

¶ 36. Furthermore, there is nothing to show that the company did not possess accumulated

profit to the extent of loan amount and same has not been contended by Stalwart.

(4) EVEN IF THE LOAN IS REPAID, IT STILL CONSTITUTES DEEMED DIVIDEND

¶ 37. The Supreme Court has held that ‘Even if the loan or advance ceases to be

outstanding at end of previous year it can still be deemed dividend if other four conditions

factually exist to extent of accumulated profits possessed by company.’60

¶ 38. Thus, even if the loan is repaid, the loan amount will still constitute deemed dividend.

[C] THE LOAN ADVANCED IS A DIVIDEND UNDER INDIA-SINGAPORE TAX

TREATY

¶ 39. An income amounts to ‘dividend’ if it falls within the ambit of the provisions of

Article 10.61 The wording ‘income from other corporate rights’ implies that the income should

flow from the shareholding rights. In the present case, Stalwart is closely held company,

whose majority shares are held by a small group of shareholders who manage the affairs of

the company.62 Further, the facts suggests that it was owing to the shareholding of Galileo to

58
Moot Proposition, ¶ 11.
59
Moot Proposition, ¶ 3.
60
Shrimati Tarulata Shyam and Ors v. CIT, (1977) 108 ITR 345 (SC); ITO v. Kalyan Gupta, (2007) 293 ITR
249.
61
Convention for the Avoidance of Double Taxation and the Prevention of Fiscal with Respect to Taxes on
Income, India-Singapore, Article 10, Clause 4.
62
Moot Proposition, ¶ 10.

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the extent of 24%, that Stalwart was constrained to heed to its demand.63

¶ 40. Thus, Deemed Income in the form of deemed dividend comes within the ambit of

Article 10 as it is an income which is attributable to the shareholding rights and with

reference to the broad interpretation of the term ‘paid’ and further because deemed dividends

are taxed in the same way as paid dividends. Therefore, deemed dividends are comprised by

Article 10.

¶ 41. Therefore, appropriate taxes should have been withheld by stalwart, at the applicable

rates u/s 194,64 either under the IT Act or under the India-Singapore Tax Treaty.

ISSUE V: STALWART ONLINE STORES PVT. LTD. IS NOT LIABLE TO PAY

VAT AND CST IN KARNATAKA.

¶ 42. Stalwart is required to pay VAT and CST on it intra state and interstate sales as it is a

‘dealer’ under KVAT Act, 2003 [A]; taxable event takes place [B] and the Place of sale is

Karnataka [C].

[A] STALWART IS A DEALER UNDER KVAT ACT, 2003

¶ 43. Stalwart is a ‘dealer’ under KVAT Act, 2003 as it acts a mercantile agent [1] and is

indirectly involved in supplying and distributing goods for a commission [2].

(1) STALWART ACTS AS A MERCANTILE AGENT

¶ 44. Section 2(12)65 of the KVAT Act defines ‘dealer’ as any person who carries on the

business of buying, selling, supplying or distributing goods, directly or otherwise, for a

commission and includes mercantile agent.66

63
Moot Proposition, ¶ 11.
64
The Income Tax Act, No. 43 of 1961, § 194.
65
Karnataka Value Added Tax Act, No. 32 of 2004, § 2(12).
66
Karnataka Value Added Tax Act, No. 32 of 2004, § 2(12)(c).

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¶ 45. The Supreme Court has observed that,67 “A mercantile agent is one having, in the

customary course of his business as such agent, authority either to sell goods, or to consign

goods for the purpose of sale, or to buy goods, or to raise money on the security of goods.”

¶ 46. As per the facts of the case, when goods are purchased by the online buyers, they are

then secured and consigned by Stalwart, to the sellers, for the purpose of sale and thereafter

goods are supplied by the sellers directly.

¶ 47. Thus, Stalwart comes within the ambit of ‘mercantile agent.’

(5) STALWART IS INDIRECTLY INVOLVED IN SUPPLYING AND DISTRIBUTING GOODS FOR

A COMMISSION

¶ 48. The words of statute are to be first understood inteir natural, ordinary and popular

sense and phrases and sentences are construed according to their grammatical meaning,

unless object of the statute suggest the contrary. 68 Supply means ‘to make a product

available.69 Distribute means ‘to arrange by class or order.’70

¶ 49. In the present case, although the sellers were directly supplying and delivering the

goods to the customer,71 Stalwart by listing the goods on its portal made the goods available

to the customers online. Now, as and when an online purchase was made through the online

portal, the same was forwarded to the seller and payment was received from the customer by

Stalwart.72

¶ 50. Thus, because of such an arrangement between the sellers, Stalwart and online buyer,

Stalwart was indirectly involved in supplying and distributing goods of the sellers for a
67
Bagalkot Cement Co. v. State of Mysore, (1976) 37 STC 73.

68
Crowford v. Spooner, (1846) 4 MIA 179; G. P. Singh, J., Principles of Statutory Interpretation 53 (11th edn.
2008).
69
Merriam Webster Dictionary.
70
Id.
71
Moot Proposition, ¶ 5.
72
Moot Proposition, ¶ 2.

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commission. Therefore, it is ‘dealer’ under the KVAT Act.

[D] TAXABLE EVENT TAKES PLACE

¶ 51. It is pertinent to note that under section 373, the taxable event or incidence and levy of

tax is on every ‘sale’ of goods within the state’, and ‘sale’ has been defined under section

2(29)74 to mean ’every transfer of property in goods by one person to another in the course of

trade or commerce for cash deferred payment or other valuable consideration.’

Transfer of ’property in goods’ implies that the ’ownership or title of the goods’ must

necessarily get transferred from one person to another. 75 The dealer is liable to pay the tax

even if the goods sold by him do not belong to him so long as he has the right of disposal

over them and can pass a valid title over them to the buyers.76

¶ 52. Presently, the customer purchase the goods online through the online portal of

Stalwart77 and money is received from the customer by stalwart 78, the only function

performed by the seller is merely ‘physical transfer’ of the goods to the customer. 79 Further,

the facts, do not indicate that title or ownership of goods got transferred from the actual

sellers to customers.

¶ 53. It is noteworthy that it is ‘transfer of property in goods’ and not ‘transfer of goods’

which constitutes ‘sale’ within the meaning of Section 2(29) of the Act. Thus Stalwart is

liable to pay the tax as it has the right to pass a valid title over goods to customers.

[E] PLACE OF SALE IS KARNATAKA

73
Karnataka Value Added Tax Act, No. 32 of 2004, § 3
74
Karnataka Value Added Tax Act, No. 32 of 2004, § 2(29).
75
Havell’s India Ltd. v. The Commissioner of Value Added Tax and Anr., W.P.(C) 5430 of 2008.

76
Kandula Radhakrishna Rao v. Province of Madras, (1952) 3 STC 121 (Mad.).

77
Moot Proposition, ¶ 5.
78
Moot Proposition, ¶ 2.
79
Moot Proposition, ¶ 5.

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¶ 54. According to Section 680 of the KVAT Act, ‘a sale or purchase of goods shall be

deemed to have taken place inside the State if the goods are within the State at the time of

making the contract of sale in case of ascertained goods’.

¶ 55. Thus, in the present case, as the good are available in Bangalore for such sale or

purchase, and the goods being ascertained will be deemed to be made in Karnataka.

80
Karnataka Value Added Tax Act, No. 32 of 2004, § 2(29).

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PRAYER

Wherefore, in the light of the facts stated, arguments advanced and authorities cited, it

is most humbly prayed and implored before the Hon’ble National Company Law Tribunal,

that it may be graciously pleased to adjudge and declare that:

I. Stalwart Online Stores Pvt. Ltd. is liable to be wound-up for non-payment of its dues.

II. Stalwart Online Stores Pvt. Ltd. is liable to be wound-up vis-à-vis the acts of alleged

oppression.

III. The NCLT have the jurisdiction to deal with the merits of the issues pertaining to tax.

IV. The loan advanced to Galileo Investors Pte. Ltd. is ‘dividend’ under the Income Tax

Act, 1961 and India-Singapore Tax Treaty.

V. Stalwart Online Stores Pvt. Ltd. is liable to pay VAT and CST in Karnataka.

Also, pass any other order that it may deem fit in the favour of the PETITIONER to meet the

ends of equity, justice and good conscience.

For this act of Kindness, the Petitioner shall duty bound forever pray.

Place: Bengaluru s/d

Dated: 19th February, 2017 Addl. Advocate General

MEMORIAL for PETITIONER PRAYER