Best Team Memorial Respondent Nalsar NFCG Corporate Moot 0 Samridhiseth12 Gmailcom 20210628 172549 1 21

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4th NALSAR NFCG Corporate Moot, 2015

Best Team Memorial - Respondent
In the Supreme Court of Mancunia

In the Matter of
Civil Appeal No. ____/ 2015
Air Ayax PJSC . . Appellant;
Versus
Securities and Exchange Board of Mancunia . . Respondent.
Clubbed with
Mr. Siralex Buxy . . Appellant;
Versus
Clubbed with
Labaan, Daw & GG Capital, Anjidas & Kabdaal Partners, Mrimeena FT
World Ventures . . Appellants;
Versus
(Under Section 15Z of the Securities and Exchange Board of Mancunia Act, 1992)
MEMORANDUM ON BEHALF OF THE APPELLANTS
August 15, 2015
TABLE OF CONTENTS
LIST OF ABBREVIATIONS IV
I NDEX OF AUTHORITIES V
STATEMENT OF JURISDICTION VIII
STATEMENT OF FACTS IX
STATEMENT OF I SSUES XII
SUMMARY OF ARGUMENTS XIII
ARGUMENTS ADVANCED 1
I. THE A CQUISITION OF SHARES OF VENUSIAN BY AYAX RESULTED 1
IN CHANGE OF CONTROL T HEREBY NECESSITATING OPEN OFFER
FOR FURTHER SHARES OF VENUSIAN
[A]. Ayax controls management and policy decisions of Venusian 1
pursuant to Shareholders Agreement dated July 1, 2014
(i). The Affirmative Veto Rights constitutes control of Air Ayax 3
PJSC on Venusian
(a). The affirmative voting rights relate to major structural 6
and strategic changes
[B]. Air Ayax PJSC controls Venusian Ltd. as per CCA 6
[C]. CCM's ‘Joint Control’ does establishes control as per 7
Takeover Regulations, 2011
II. The Acquisition Of Shares of Venusian by Siralex Required 8
an Openo FFER
[A]. The alleged ‘Scheme of Revival’ shall not be exempted 9
under Reg. 10(1)(d)(ii) of SEBM Regulations, 2011
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(i). The SSPA cannot be termed as a valid Scheme of Revival 9

and Reconstruction in the eyes of law
(a). Scheme of arrangement shall be passed under § 391- 10
394 of the Companies Act, 1956 subject to the orders of
court and shareholder's approval
(b). Ministry of Civil Aviation is not the competent authority 11
(c). The alleged “Scheme of Reconstruction” is not available 13
in the Public Domain
(d). Scheme of Revival and Reconstruction can exist only in 14
grounds of financial exigencies which Venusian Ltd. is
not having at the present moment
[B]. The acquisition is against the protection of investments of 14
minority shareholders
III. LD, AK AND MF WERE ‘P ERSONSA CTING INC ONCERT’ [‘PACs ’] 15
AND WERE REQUIRED TO MAKE ANO PEN OFFER FOR FURTHER
SHARES OF VENUSIAN
[A]. LD, AK and MF have a common objective of acquisition of 16
shares and voting rights over Venusian Ltd.
[B]. LD, AK and MF directly cooperated for acquisition of shares, 18
voting rights and control over Venusian Ltd.
[C]. Acquisitions already held by the acquirer shall be clubbed 20
together with the shares so sought to be acquired
PRAYER XV
List of Abbreviations
Abbreviation Full Form
§ Section
§§ Sections
¶ Paragraph
¶¶ Paragraphs
Annex. Annexure
BASA Bilateral Air Service Agreement
BSE Busby Stock Exchange
CCA Commercial Cooperation Agreement
CCM Competition Commission of Mancunia
e.g. Exempli gratia, for example
FSC Full Service Carrier
GAAP Generally Accepted Accounting Principles
Id. The same
LCC Low Cost Carrier
Ltd. Limited
MCA Ministry of Civil Aviation
NHAI National Highway Authority of India Ltd.
NSE National Stock Exchange
PACs Persons acting in concert
PE Private Equity
Pvt. Private
Reg. Regulations
SAIL Steel Authority of India Ltd.
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SAST Substantial Acquisition of Shares & Takeover
SAT Securities Appellate Tribunal
SC Supreme Court of Mancunia
SEBI Securities and Exchange Board of India
SHA Shareholders Agreement
TRAC Takeover Regulations Advisory Committee
UAE United Ayax Emirates
INDEX OF AUTHORITIES
INDIAN CASES REFERRED AND CITED:
Ashwin K. Doshi v. Securities and Exchange Board of India, (2002) 40 1
SCL 545
CCI v. Zero Coupon Optionally Convertible Debentures, CR No C- 3
2012/03/47 (CCI), Order dated May 28, 2012
Century Tokyo Leasing Corporation/Tata Capital Financial Services 6
Limited, CR No. C2012/09/78, Order dated October 4, 2012
CIT Bombay v. Jubilee Mills Ltd, 1963 Supp (1) SCR 83 19
CIT, West Bengal v. East Coast Commercial Co. Ltd., (1967) 63 ITR 19
449
Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati (2010) 157 17
Comp Cas 280
Hindustan Commercial Bank Ltd. v. Hindustan General Electrical 10
Corporation, (1960) 30 Comp Cas 367
Hitachi Home and Life Solutions Inc v. SEBI [2006] 65 SCL 339 16
HMS Real Estate Pvt. Ltd. v. CIT-I, (2010) 230 CTR (AAR) 340 2
>In Re : Garner's Motors Ltd., [1937] Ch. 594 10
In Re : Joonktalle Enterprises Ltd, (2008) 145 Comp Cas 159 13
In Re : Navjivan Mills Co. Ltd., (1972) 42 Comp Cas 265 10
In Re : NRB Bearings India Limited; In Re : SNL Bearings Ltd, (SEBI), 8
Order No. : CO/33 /TO/05/2003, Order dated May 29th, 2003
Jord Engineers India Ltd v. 3A Capital Services Ltd., [2013] 117 CLA 20
300 (CLB)
K.K. Modi v. SAT, (2002) 2 Bom CR 523 16
Kosha Investments Limited v. SEBI, [2005] 64 SCL 454 (SAT-MUM) 20
Luxottica Group Spa v. SEBI, (2004) 1 Comp LJ 258 1
Clearwater Capital Partners (Cyprus) Ltd. v. SEBI, (Appeal No. 21 of 4
2013)
Madhuri S. Pitti v. SEBI, 2014 121 CLA 426 (SAT) 20
Miheer H. Mafatlal v. Mafatlal, (1996) 87 Comp Cas 792 12
Multi Screen Media Pvt. Ltd./ SPE Mauritius Holdings Ltd, (CCI), CR 4
No. C-2012/06/63, order dated August 9, 2012
Naagraj Ganeshmal Jain v. P. Sri Sai Ram, (2003) 4 Comp LJ 465 19
Novartis Vaccines and Diagnostics Inc. v. Aventis Pharma Ltd, (2010) 1
2 Bom CR 317
Radheshyam Tulsian v. SEBI, (2006) 70 SCL 36 (SAT) 20
Raghuvanshi Mills Ltd. v. CIT, Bombay, (1965) 56 ITR 470 18
Regional Director, MCA v. Cavin Plastics and Chemicals (P.) Ltd, 2008 10
85 SCL 30
Rhodia S.A. v. SEBI, (2001) 34 SCL 597 (SAT) 4
Shamrao Vithal Co-op. Bank Ltd v. Kasargod Mallya, (1972) 4 SCC 1
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600
Shirish Finance & Investment (P) Ltd. v. M. Sreenivasulu Reddy, 16
(2002) 35 SCL 27
State of Bihar & Ors.v. Harihar Prasad Debuka, 1989 SCR (1) 796 15
State of Mysore v. Allum Karibasappa, (1974) 2 SCC 498 1
Subhkam Ventures v. SEBI, [2010] 99 SCL 159 (SAT) 3
Sunil Khaitan v. SEBI, [2014] 122 CLA 1 (SAT) 17, 20
Technip SA. v. S.M.S. Holdings (P.) Ltd, (2005) 125 Comp Cas 545 16
Vodafone Essar Gujarat Ltd. v. Department of Income Tax, (2013) 176 10
Comp Cas 7
Vodafone International Holdings v. Union of India, (2012) 6 SCC 613 5
BOOKS REFERRED:
SHISHIR JOSE VAYTTADEN, SEBI’S TAKEOVER REGULATIONS (Lexisnexis Butterworths
Wadhwa, 2010).
SRINIVASAN ANAND, LAW RELATING TO NEW TAKEOVER CODE 2011 (Taxmann Publications
2011).
JAISWAL ABHA, SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS,
2011 - LAW & PRACTICE (3 rd ed., Bharat Law House, 2013).
TAXMANN’S, COMPANY LAW (Vol. 1, Taxmann Publications, 2014).
S RAMANUJAM, MERGERS ET AL : ISSUES, IMPLICATIONS AND CASE LAW IN
CORPORATE RESTRUCTING(3 rd ed., Lexisnexis Butterworths Wadhwa, 2011).
SRIDHARAN & PANDIAN, GUIDE TO TAKEOVERS AND MERGERS(3 rd ed., Lexisnexis
Butterworths Wadhwa, 2010).
HENRY CAMPBELL BLACK, BLACK’S LAW DICTIONARY(8 th ed., 2004).
ARTICLES:
Banaji, Jairus, Thwarting the Market for Corporate Control : Takeover Regulation in
India, FACULTY OF L. & S.S., DEPT. OF DEV. STUDIES (November 10, 2010).
Parekh, Sandeep, Indian Takeover Regulation - under Reformed and Over Modified, 6
INDIAN INSTITUTE OF MANAGEMENT(November 30, 2009).
Chandrachud, Abhinav, The Emerging Market for Corporate Control in India : Assessing
(and Devising) Shark Repellents for India's Regulatory Environment, WASHINGTON
UNIVERSITY GLOBAL STUDIES LAW REVIEW(February 16, 2010).
Shroff, Cyril & Uberoi, Nisha Kaur, Battle for Regulatory Supremacy : Ambiguity in the
Definition of “Control” between SEBI and CCI, 9 CUTS INSTITUTE FOR REGULATION &
COMPETITION(New Delhi 2014).
Nishith Desai Associates, Public M&A in India : Takeover Code Dissected, NDA
PUBLICATIONS(August, 2013).
Bohra, Murtuza, Shubhkam Case - Definition of ‘Control’ in M&A Transaction : Negative
Power or Positive Power, 27 CONSOLIDATED COMMERCIAL DIGEST(December 2010).
STATUTES REFERRED:
Aircraft Act, 1934
Companies Act, 1956
Companies Act, 2013
Securities and Exchange Board of India Act, 1992
Securities Contract (Regulations) Act, 1956
REPORTS:
Justice P. N. Bhagwati Committee Report on Takeovers, SEBI, (January 1997).
Report of the reconvened Committee on SEBI Substantial Acquisition of Shares and
Takeover Regulations under the chairmanship of Justice P. N. Bhagwati, SEBI, (May
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2002).
Report of the Takeover Regulations Advisory Committee under the chairmanship of Mr.
C. Achuthan, SEBI, (July 19, 2010).
RULES & REGULATIONS:
Aircraft Rules, 1937
Companies (Court) Rules, 1959
SEBI (Issue of Capital and Disclosure Requirements) Regulation, 2009
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Securities Contracts (Regulations) Rules, 1957
WEBSITES REFERRED:
www.sebi.gov.in
www.mca.gov.in
www.civilaviation.gov.in
www.dipp.nic.in
www.manupatrafast.com
IMPORTANT NOTE:
As stated in Moot Preposition at ¶ 1, all laws, legal procedures, and judicial
pronouncements of Mancunia are, unless otherwise stated, in pari material with those of
the Union of India.
Statement of Jurisdiction
The Appellants (Mr. Siralex Buxy, Air Ayax PJSC and Labaan Daw & GG Capital , Anjidas
& Kabdaal Partners and Mrimeena FT World Ventures) have approached the Hon'ble
Supreme Court of Mancunia under Section 15Z1 of the Securities and Exchange Board of
Mancunia Act, 1992. The Respondents humbly submits to the jurisdiction of this court.
STATEMENT OF FACTS
I. INCORPORATION OF VENUSIAN LTD.
1. Government of Mancunia repealed the Air Corporation Act, 1953 and then liberalized
the Mancunian Civil Aviation industry owing to the New Economic Policy of 1991. Venusian
Ltd. was incorporated as a Pvt. Ltd. Company on Oct 13, 1993 by two Mancunian nationals
Mr. Siralex Buxy (“Siralex”) and Mr. Vangaal Singh (“Vangaal”).
2. Siralex and Vangaal brought in two Private Equity Funds to fund the scaling of
operations, namely, Labaan Daw & GG Capital (“LD”) & Anjidas & Kabdaal Partners (“AK”).
Upon becoming a Public limited Company and getting listed on the NSE and BSE,
Mrimeena FT World Ventures (“MF”) also invested as a PE fund and became the largest
subscriber of the public offer. Post listing, Siralex and Vangaal held 29.375% each along
with LD, AK and MF acquiring 11.7%, 9.2% and 7.1% respectively and 13.25% being held
by public.
II. VENUSIAN LIMITED AND THE SUBSEQUENT TRANSACTIONS
3. Siralex and Vangaal soon developed differences over the vision for the business.
Siralex wanted to incorporate the LCC Model and Vangaal wanted to concentrate on
expanding the global footprint by incorporating FSC Model. Upon a situation of deadlock in
deteriorating relationships, Vangaal agreed to resign as a director and transferred his
shareholding to Siralex in accordance with SEBM (SAST) Regulations, 1997. Post
Vangaal's exit, Siralex held 60.5% equity, rest of the stake being held by public.
4. Siralex while developing his LCC offerings through Venusian Lite Ltd. and Venusian's
frequent flier program - ‘Venusian Privilege’, was unable to gather fresh funds and make
profits in order to discharge loans taken at steep interest rates. Siralex, in interest of the
airline, handed over the entire shareholding and control to Sirmatt Suraneni. Post public
offer, Sirmatt along with PACs acquired 62.625% equity in Venusian Ltd. After exiting
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Venusian, Siralex armed with a substantial war-chest, whereas Vangaal under his
leadership made Air Ayax PJSC a major global player and a successful national carrier of
UAE.
5. Sirmatt brought in a new CEO, Coleen Thapar, over whose appointment LD, AK and
MF together raised concerns. He also acquired 20 Bombardier Q400 which led Venusian
control about 19.5% of the domestic skies, but also increased massive maintenance cost
due to poor accounting and negotiation practices by inexperienced employees.
6. The Mancunian Airline Industry suffered combined losses exceeding US$ 4 billion in
2012 and 2013. During a panel interview aired on August 10, 2010, the three PE funds
commonly spoke about their dissatisfaction with the business practices adopted by
Venusian Ltd., but nevertheless placed faith on Sirmatt's abilities and expected Venusian
to grow into a full-fledged international carrier.
III. LD, AK, MF & THEIR COMMON OBJECTIVE
7. Ayax's CEO Vangaal and Venusian's chairman Sirmatt met top politicians to discuss
the potential investment by the former in latter. Media outlets reported on the possible
exit of the three PE investors if the tender offer from Ayax arrives. An airline sector
journalist also speculated on the possibility of the “ three PE buddies wanting to beef up
against the new kid” i.e. Ayax.
8. With the news of Ayax's progressive discussions about further investments in
Venusian, the shares of Venusian soared at 14% on the BSE. Despite the fact that the
shares were overly priced and the company had been running into huge losses, LD, AK
and MF acquired by way of bulk deals and block deals, an additional stakes of 1.875%,
0.9% and 0.65% in Venusian, respectively.
IV. AYAX’S ACQUISITION IN VENUSIAN
9. On July 9, 2014 Board of Directors approved issuance, by way of preferential
allotment of 20% of the total outstanding shareholding in Venusian Ltd. to Ayax, at a
premium of 34.8% to the prevailing price. Venusian, Ayax and Sirmatt executed various
Transaction Documents between them, which resulted in and includes grant of affirmative
voting rights with respect to various reserved matters, mandatory presence in quorum,
rights with regard to nomination committee, appointment of board of directors over
various assets and other operations of Venusian Ltd.
10. The CCM Order also recognised Ayax's ability in significantly managing the affairs of
Venusian and considered Ayax to be jointly controlling Venusian. Despite this, Ayax did
not make an open offer of shares.
V. SIRALEX’S ACQUISITION OF 50% STAKE IN VENUSIAN LTD.
11. Post investment of Ayax, Siralex showed his interest in Venusian and acquired
50.1% stake through a Share Sale and Purchase agreement in Venusian, a Public listed
company without making an open offer of further shares. The approval of the shareholders
and the court's approval for the sale were not taken either. Mr. Siralex did not make an
open offer and considered this Share Sale and Purchase agreement to be a Scheme of
Revival and Reconstruction.
12. Upon getting the deal cleared from CCM, Siralex took an approval from the Ministry
of Civil Aviation, assuming the same to be a ‘competent authority’. The consideration of
the share sale purchase agreement was not informed to the Stock Exchanges and the
shareholders.
VI. SEBM & SAT’S INVESTIGATIONS & ORDERS THERETO.
13. On April 13, 2015, Adeshwar Singh, wrote a letter to SEBM and alleged Mr. Siralex
of violating Takeover Regulations, 2011. Based on the same and dissatisfied with their
responses, SEBM issued orders to Siralex, Ayax, LD, AK and MF (together the “noticees”)
and held that their respective actions with respect to securities of Venusian had triggered
the open offer obligations as required under the SEBM Regulations, 2011.
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14. Aggrieved by the orders, noticees filed appeals before SAT, which was further
rejected by the Tribunal. Challenging the SAT Orders, the noticees filed appeals before
this Hon'ble Court, alleging that they have not violated the SEBM Regulations, 2011. This
Hon'ble Court has admitted the appeals and listed the matter to be heard and disposed of.
STATEMENT OF ISSUES
I. Whether the acquisition of shares of Venusian by Ayax pursuant to the Transaction
Documents resulted in a change of control necessitating an open offer for further shares of
Venusian, by Ayax, in accordance with the 2011 Takeover Code?
II. Whether LD, AK and MF were ‘Persons acting in concert’ and were obliged to make,
at any point so far, an open offer for further shares of Venusian, in accordance with the
2011 Takeover Code?
III. Whether the acquisition of shares of Venusian by Siralex pursuant to a transfer by
Sirmatt required an open offer for further shares of Venusian, by Siralex, in accordance
with the 2011 Takeover Code?
SUMMARY OF ARGUMENTS
I. The Acquisition of Shares of Venusian by Ayax Resulted in Change of Control
thereby necessitating open offer for further shares of Venusian.
1. It is submitted that Ayax shall control the management and policy decisions of
Venusian pursuant to the Shareholders Agreement dated July 1, 2014 by virtue of which
Ayax has been given rights to nominate directors for the board of directors and for every
committee, quorum rights and affirmative veto rights which are “participative” rights and
render day to day operational control. Certain matters reserved under such rights also
amount to Structural and Strategic changes thereby rendering control on policy decisions.
The CCA so entered into between the parties gives various exclusive rights to Ayax on the
policy decisions of Venusian. The Competition Commission of Mancunia (“CCM”) has also
in its order held Ayax to be jointly controlling Venusian.
2. Hence, a combined reading of the SHA along with the affirmative voting rights, CCA
and the CCM's Order when read along with the Takeover Committee recommendations and
the judicial precedents highlight the exercise of control by Ayax on Venusian. Hence, Ayax
is required to make an open offer of shares to the shareholders of Venusian.
II. The Acquisition of Shares by Siralex pursuant to transfer by Sirmatt
required an Open Offer for further shares of Venusian.
3. The acquisition of shares of Venusian by Siralex of 50.1% stake obligates an open
offer under Reg. 3(1). The acquisition termed as “Scheme of Revival” cannot be exempt
under Reg. 10(1)(d)(ii) of Takeover Code as Venusian is not suffering from financial
exigencies at the present moment. Secondly, a Share Sale and Purchase Agreement so
entered for acquisition cannot be considered as a Valid scheme of reconstruction under
the eyes of law as such scheme shall be passed under § 391-394 of the Companies Act,
1956 subject to the orders of court and shareholder's approval which in the given case has
not been obtained.
4. Thirdly, the Ministry of Civil Aviation is not the competent authority as it does not
take into consideration whether the shareholder's approval has been obtained or not, the
reasonableness of valuation report and whether it is contrary to public policy. If MCA is
given the status as “competent authority”, then this provision is liable to gross misuse as
other authorities such as NHAI, SAIL etc. will also come within its ambit. Fourthly, the
scheme of reconstruction is not available in the public domain and the minority
shareholder's interest has not been catered to since they have not been informed of the
price of shares leading to violation of Clause 36 of Listing Agreement. Hence, it is the
humble submissions that Siralex is required to make an open offer under Reg. 3 of the
Takeover Code, 2011.
III. LD, AK and MF were ‘persons acting in concert’ and were required to make
an open offer for further shares of Venusian.
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5. LD, AK and MF have the common objective of acquisition of shares and voting rights
which can be ascertained from the Panel interview titled Aug 20, 2010 where the three PE
investors jointly expressed dissatisfactions from Coleen's decisions. The media outlets also
considered these investors to have clubbed their shares together as all three investors
acted in a common manner.
6. To add to the common objective is the direct cooperation between LD, AK and MF
which can also be ascertained from the acquisition by the three PE funds in Venusian as
the news of Ayax entering Venusian started soaring in the market. LD, AK and MF
acquired their respective stakes in Venusian despite aware of the fact that company had
been running into huge losses estimating to US$ 36 billion and high debts coupled with
the fact the prices of shares of Venusian had escalated up to 14% at the time of their
acquisition.
7. These matching and structured transactions fulfil the requisite conditions of Reg. 2
(1)(q)(1) of Takeover Code, 2011 and LD, AK and MF are obligated to make an open offer
for further shares under Reg. 3(1) as the acquisition already held by these PE funds when
clubbed together cross the 25% limit.
ARGUMENTS ADVANCED
I. THE ACQUISITION OF SHARES OF VENUSIAN BY AYAX RESULTED IN CHANGE OF
CONTROL THEREBY NECESSITATING OPEN OFFER FOR FURTHER SHARES OF VENUSIAN.
1. It is humbly submitted that Ayax is controlling Venusian for three reasons. Firstly,
Ayax controls the management and policy decisions of Venusian pursuant to SHA dated
July 1, 2014. [A]. Secondly, Ayax controls Venusian as per the CCA dated July 1, 2014
[B]. Thirdly, CCM Order establishes “control” of Ayax in Venusian [C].
2. The word “control” as defined in Regulation 2(1)(e) of the Takeover Code, 2011,
means not only de jure control but also de facto control.2 The definition of control is an
inclusive definition3 and the plain and ordinary meaning of ‘control’ is ‘ the power of
exercising restraint on direction over something’.4 It is submitted that although Ayax has
acquired 20% shareholding, it still exercises control on the management and policy
decisions of Venusian.
3. As laid down in Ashwin K Doshi v. SEBI, the object of the Act and the regulations
would materially be frustrated if one resorts to a narrow interpretation of the concept of
control.5 Control is a term of wide connotation and amplitude and by its very definition is
not amenable to any precise standard definition of general application.6
[A]. AYAX CONTROLS MANAGEMENT AND POLICY DECISIONS OF VENUSIAN PURSUANT TO
SHAREHOLDERS AGREEMENT [“SHA”] DATED JULY 1, 2014.
4. As laid down in various judicial precedents7 , an agreement shall not be read in
isolation and a combined reading of all the clauses in the Agreement will ascertain the
true purpose of such agreement.8 Hence, the SHA shall be read as a whole in order to
establish its true purpose.
5. The SHA provides for nomination of one director by Ayax and Sirmatt, each for every
committee constituted under the Board.9 It is submitted that this clause does not entitle
Venusian to enjoy majority on any committee and Ayax exercises ‘joint control’ with
Sirmatt over such committees irrespective of the fact that there is a huge difference in
their shareholding pattern.
6. The Nomination & Remuneration Committee consists of 5 directors which shall
consist of one director to be nominated by Ayax and Sirmatt each and the other three
directors to be nominated by the nominees of Ayax and Sirmatt.10 It is submitted that this
clause has been intentionally inserted which though looks origin neutral on its face but
when taken a closer look reveals the indirect control of Ayax over the committee as it can
control more than half of them. Since, Ayax has already invested huge funds, if the
nominees of Ayax appoint two other directors as the facts are silent on the appointment of
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the other directors, there may exist a situation of the majority of Ayax exercising control
over the Nomination Committee.
7. In the present case, the powers of the nomination committee when read with the
composition of board of directors highlight the control so going in hands of Ayax. The
board of directors shall consist of a maximum of 12 directors which gives Ayax and
Sirmatt the right to nominate 2 and 4 directors respectively subject to conditions.11 The
other directors so going to be appointed shall be nominated by the Nomination
Committee. Since, there exists situations where Ayax may enjoy a majority over the
Nomination Committee, the rest of the board of directors so appointed by such committee
would also be as per the recommendations laid down by Ayax. Hence, Ayax has the ability
to appoint majority of directors.
8. The TRAC Report (2010) recommended the “ ability” in addition to the right to
appoint majority of directors and to control the management and policy decisions as
constituting control.12 The CCI in Independent Media Trust and Network 18 case laid down
the “ decisive influence” test and held the conversion of debentures into equity at a later
period amounts to conferring the ability to exercise decisive influence over the
management and affairs of the target company.13 Hence Ayax also has the ability to
control and can exercise decisive influence over the management and policy decisions of
Venusian.
9. With respect to quorum for the meetings, the SHA stipulates quorum of the
meetings of Board and committees there under to be complete with at least one nominee
director representing Ayax and Sirmatt each.14 This provision with regard to mandatory
presence would tantamount to control as without the nominee director of Ayax, the
quorum for the meeting cannot be completed. Hence, in cases where supposedly three
directors attend the Board meeting of Venusian consisting of two directors of Ayax and
one director of Sirmatt, this would be a valid quorum as per the SHA and Ayax will have
the majority along with veto power over the management and policy decisions of
Venusian.
10. In Subhkam Ventures v. SEBI, SAT ruled the acquirer not to be in control because
the quorum constituted of three directors of which only one investor director was required
for quorum.15 The court's rationale therefore relied on the fact that when three or more
directors will be present at the Board meeting, he will always be in minority and will have
no veto power. However, the same situation does not exist in the present case as there
can exist majority of Ayax in all meetings of Board and committees there under.
(i). The affirmative voting rights constitutes control of Air Ayax PJSC on
Venusian.
11. TRAC Report (2010) stated that the question of whether affirmative voting rights
would amount to control “ would have to be discerned from the facts and circumstances
surrounding each case”.16 Clause (2) of SHA stipulates the affirmative voting rights i.e.
veto rights which highlight the fact that decisions for such matters cannot be passed
unless an approval for the same has been obtained by Ayax.
12. These veto rights compel the majority shareholders of the company to abide by the
conditions stipulated by the minority shareholder if the company deems necessary to
undertake a particular course of action, which the company would not have followed
ordinarily. In Rhodia v. S.A., the SAT held that affirmative voting rights tantamount to
controlling the management or policy decisions of the company.17 In MSM India/ SPE
Mauritius18 , the CCI has effectively concluded that the right to block special resolutions
amounts to ‘ negative control’. In Clear Water Capital, SEBI held the affirmative voting
rights granted to Clearwater amounted to handing over control over the target company.19
13. The decision by SAT in Subhkam Ventures v. SEBI which laid down affirmative
voting rights not amounting to control has been set aside by the Supreme Court and held
that it shall not be treated as a precedent.20 Though Subhkam Ventures disregarded
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negative control as amounting to control, however, the driving seat test which requires
the acquirer to be in the driving seat to be in control of the target company, when read
with the imposition of negative rights by an acquirer, proves Ayax to be in the driving seat
of the company.
14. Even if the reasoning as derived in Subhkam Ventures is applied in this case which
laid down that negative rights can amount to control if they relate to the day to day
operational control over the company's business,21 these affirmative voting rights are
“participative rights” as distinguished from “protective rights” and are also recognized by
US GAAP.22 In Vodafone International Holdings v. Union of India, the SC held participative
rights restricts the power of the majority shareholder to exercise control over the
operations of company.23
15. It is submitted that these participative rights relate to the day to day operational
control over Venusian. The matters with respect to the appointment of key managerial
personnel and the determination of their remuneration, the issuance of any equity,
making of any loan are day to day operational in nature and thereby inferring control of
Ayax.
16. Venusian has currently taken debts at very high rates and steady time periods. In
order to sustain itself in the future, it will incur financial assistance and will seek to do so
in the future until it is stable. For every time it plans to inject more funds in order to be
profitable, it needs approval from Ayax and the Debt Equity Ratio is set at 1 : 1 instead of
the ideal 2 : 1.24 So for all decisions that take the debt even slightly higher than its
equity, Ayax can intervene and stop it, thereby rendering day to day control on Venusian.
17. Venusian suffered losses exceeding US$ 36 billion and has refinanced older debts
at even higher yields.25 It is submitted that despite Venusian running into huge losses,
Ayax invested Rs. 11,212,794,000 at a premium of 34.8%. Ayax also acquired three
landing and departure slots owned by Venusian and the purchase of 50.1% shareholding
in Venusian privilege by Ayax for US$ 150 million. Ayax also provided a loan of 150
million US$ to Venusian.26 It is submitted that since Ayax has invested huge amount of
money in Venusian, Ayax would be able to operate and manage affairs of Venusian both
domestically and internationally. In short, Venusian was becoming a virtual subsidiary of
Ayax with effective control in the hands of UAE carrier.
18. Clause (2)(xii) of SHA provides veto rights over any other matters which would
substantially affect the right, preferences and privileges of Ayax under the SHA. ‘
Preference’ means the act of favouring one person or thing over another.27 Therefore, Ayax
has reserved its affirmative voting right for any preference which can be substantially
affected, thereby implying any motion or act of the company which is in contradiction to
the motion or act of Ayax so as to substantially affect the ‘preference’ of Ayax and Ayax
can stop such motion thereby inferring direct control of Ayax in the day to day operational
activities of the company.
19. It is submitted that the SHA has been framed in such a manner which though looks
origin neutral on its face, but when examined carefully reveals the fact that Ayax has the
power to block certain decisions of the company which provides it with indirect and
‘effective’ control.
(a). These Affirmative voting rights relate to Major structural and Strategic Changes.
20. Even if the court considers the affirmative voting rights not to be controlling the
day to day management or policy decisions, In Rhodia S.A., the requirement of the
affirmative voting right being related to the day to day operational control was done away
with and if these rights relate to the ‘structural and strategic decisions’ it would still
constitute control.28 In Century Tokyo Leasing Corporation/Tata Capital Financial Services
Limited, the CCI held that affirmative rights relating to annual budget, annual business
plan, exit and entry into lines of business, appointment of management and
determination of their remuneration or strategic business decisions would be considered
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control.29
21. It is submitted that in the given case, approval of annual business plan,
determination of remuneration of company, the decisions of mergers, amalgamations and
the amendments to the memorandum of association which is the basic structure of the
company are structural and strategic decisions thereby constituting control over Venusian
by Ayax.30
[B]. Ayax Controls Venusian Ltd. As Per Commercial Cooperation Agreement.
22. The CCA advances the administration of Ayax over the policy decisions. The
utilization of Shankarz as the exclusive hub highlights the adverse effect this agreement
will create upon the operations of Venusian31 , as post this agreement Venusian has to
cancel the code share with other airlines and flow its traffic through Shankarz. Venusian
had a major market share which emerged from 7 cities to Brussels which will now as a
consequence of this agreement require all operations to Chicago, New York via Brussels to
be stopped.32
23. It is also asserted that Clause (6) restricts Venusian from entering into any code
sharing agreement with any third party. Code sharing arrangements have been a key
strategic tool for airlines globally.33 The CCA has laid down that cancellation of code
sharing arrangements can lead to market foreclosure and abuse of dominance on such
routes in the absence of other strong players.34 Hence, restricting Venusian to enter into
any code sharing arrangement constitutes an exercise over the policy decisions of
Venusian as it cannot independently act for improving its connectivity to other
destinations.
24. Clause (7) puts an obligation on Venusian to mandatorily consult Ayax for their
opinion for addition to their aircraft fleet or purchase of engines. The level of controlling by
Ayax in Venusian can be established by the fact that the recommendations/opinion of
Ayax cannot be rejected in any circumstances unless it is unviable which means not being
capable of independent existence.35 Therefore, all recommendations have to be
implemented unless it is practically not possible to implement.
25. It is submitted that for a 20% share in Venusian, the policy and management
decisions are framed in a manner so that it favours Ayax in all manners. Hence, Ayax is
trying to circumvent the obligations of open offer under Reg. 4 read with Reg. 13 of
Takeover Code, 2011.
[C]. Ccm Order Under § 31(1) OF CA, 2002 Establishes “Control” of Ayax in Venusian.
26. The CCM vide its order under § 31(1) of the Competition Act, 2002 has stated that
Ayax's acquisition of 20 percent equity stake and the right to nominate two directors, out
of the 12 shareholder directors in the Board of Directors of Venusian is considered as ‘
significant in terms of Ayax's ability to participate in the managerial affairs of Venusian’.36
It is submitted that the CCM also acknowledges the significant ability and the wide
powers so granted to Ayax to participate in the managerial affairs and decisions of
Venusian.
27. The CCM has stated that the effect of the IA, SHA and CCA entered between Ayax
and Venusian Ltd. establishes Ayax's Joint Control over Venusian, more particularly over
the assets and operations of Venusian.37 The Bhagwati Committee even recommended the
concept of joint control which is often seen in practice to be recognised.38
28. It has to be borne in mind that while interpreting the provisions of the said
regulations, due regard has to be paid to the objective behind the enactment of regulation
apart from the protection of the interest of the shareholders in terms of providing an
adequate exit opportunity to the shareholders in the event of change in control or
substantial acquisition of shares/ voting rights by an Acquirer.39 It is humbly submitted
that the CCM also recognizes Ayax jointly controlling over the operations of Venusian and
the SHA along with CCA when read together establishes Ayax controlling the management
and policy decisions of Venusian thereby obligating open offer under Reg. 4 read with
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Reg.13 of the Takeover Code, 2011.
29. Therefore upon combined reading of the Transaction Documents entered between
Ayax and Venusian along with the CCM Order and Takeover Committee recommendations,
Ayax's control over Venusian is very much evident.
II. T HEA CQUISITION OFS HARES OFV ENUSIAN BYS IRALEXR EQUIRES ANO
PENO FFER.
30. It is submitted that the acquisition of shares by Siralex representing 50.1%
shareholding in Venusian obligates an open offer under Reg. 3(1) of the Takeover Code,
2011 for two reasons. Firstly, the alleged “Scheme of Revival” shall not be exempted
under Reg. 10(1)(d)(ii) of the SEBM Reg., 2011. Secondly, this acquisition is against the
protection of the investments of the minority shareholders.
[A]. THE ALLEGED ‘SCHEME OF REVIVAL’ SHALL NOT BE EXEMPTED UNDER REG. 10(1)(D)(II)
OF S EBM REGULATIONS, 2011.
31. Reg. 10(1)(d)(ii) provides exemption from open offer obligations if the following
tests are met. (i) The acquisition of shares or control is pursuant to a scheme of
arrangement or reconstruction. (ii) It is approved by a Court or a competent authority
under any law .
32. It is submitted that this acquisition cannot be exempt under Reg. 10(1)(d)(ii) for
four reasons. Firstly, a Share sale and Purchase Agreement [“SSPA”] cannot be termed as
a valid Scheme of Revival and Reconstruction in the eyes of law [a]. Secondly, Ministry of
Civil Aviation is not the competent authority for exempting open offer obligation [b].
Thirdly, the alleged “Scheme of Reconstruction” is not available in the Public Domain [c].
Fourthly, Scheme of Reconstruction and Revival can only exist in grounds of financial
exigencies which Venusian is not having at the present moment [d].
(i). The SSPA cannot be termed as a valid Scheme of Revival and
Reconstruction in the eyes of law.
33. It is submitted that Siralex's Acquisition of 50.1% is executed by a SSPA.40 Though
the appellants contend this SSPA to be a ‘scheme of reconstruction’, however to the
contrary, a SSPA cannot be considered a scheme of reconstruction in any manner. A SSPA
is a private contractual agreement for the purchase and sale of shares of the company41
and can under no circumstances be equated with a scheme of arrangement. A scheme
when sanctioned becomes a statutory scheme, something which is quite different from a
mere agreement signed by the parties.42 To add further, there exists no legal precedent
which has ever approved a SSPA to be a Scheme of Reconstruction.
(a). Scheme of arrangement shall be passed under § 391-394 of the Companies Act,
1956 subject to the orders of court and shareholder's approval.
34. Reg. 10(1)(d)(ii) exempts acquisitions pursuant to a ‘scheme of arrangement’. The
Takeover Code, 2011 stipulates expressions which are not defined within it to have the
same meaning as prescribed under the Companies Act, 1956.43 The term ‘scheme of
arrangement’ is not defined in the Takeover Code, 2011, therefore, the meaning of
‘scheme of arrangement’ as given under § 391-394 of the Companies Act, 1956 shall be
complied with in due spirit of law. It states an arrangement to include reorganisation of
the share capital of the company.44
35. As laid down in the Vodafone Essar Gujarat Ltd.45 , both reconstruction and
amalgamation are statutorily recognised as an arrangement under § 391. It necessarily
implies that once a scheme is a reconstruction, the same is bound to be recognised as an
arrangement and/or compromise under § 391.46 § 391 is not only a complete code in
itself, but is intended to be in nature of a ‘single window clearance’.47 § 391 of the
Companies Act is of the widest character, ranging from a simple composition or
moratorium to an amalgamation of various companies, with a complete reorganization of
their share and loan capital.48 It is submitted that any ‘scheme of arrangement’
necessarily requires to pass through the regulatory procedures as stipulated under § 391
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which in the given case has not been complied with.

36. The Company Court rules, 1959 when read with § 391 of the Companies Act, 1956
provides that an approved scheme of arrangement shall be presented as a petition to the
Court for confirmation of the compromise or arrangement.49 As laid down in the P.N.
Bhagwati Report of
1997, “Under Indian Law, any scheme of arrangement, reconstruction is subject to
orders of the court and shareholder's approval ”.50
37. The Company Court rules, 1959 when read with § 391 of the Companies Act, 1956
provides that an approved scheme of arrangement shall be presented as a petition to the
Court for confirmation of the arrangement. It gives the power only to the Court to call for
a meeting for reconstruction51 and to approve it if it has passed through the requisite
majority.
38. It is the humble submissions thereby that any scheme of revival and reconstruction
can only be passed by the approval of the shareholders and the orders of the court as has
been recognized. However, in the given case, there has been no special resolution passed
with the approval of the majority shareholders of the company as it has only been
approved by the Board of Directors and the Court has not been approached for sanctioning
of the scheme.
39. In SEBI v. Clariant International Ltd.52 , the scheme was entered voluntarily and
was devised with a commercial objective to regularize de facto control where it was held
that such schemes are not covered under Reg. 3(1)(j)(ii) from exemption. In SEBI v.
Ondel Nalco India Ltd.53 , the term arrangement as given in Takeover Regulation cannot be
interpreted widely as it will open floodgates for various schemes of arrangement which the
companies might enter into and then claim exemption which would result in defeating the
purpose/spirit of the Regulation.
40. It is submitted that the scheme so entered into between Siralex and Venusian is
formulated with a commercial objective and is framed in a manner to circumvent the open
offer obligations. As has been recognized, such a wide interpretation to the term “ scheme
of arrangement” to include SSPA and which has not been approved by shareholders is not
within the ambit of law and such scheme shall be disregarded in its entirety.
(b). Ministry of Civil Aviation is not the competent authority.
41. Even if the court considers the SSPA to be a Scheme for reconstruction, it is hereby
submitted that as stipulated under Reg. 10(1)(d)(ii), an approval from a competent
authority is required for a Scheme which the appellant believes to be the Ministry of Civil
Aviation. However, it is the humble submissions of SEBM that MCA cannot be a competent
authority in any circumstances with respect to approvals of scheme of revival and
reconstruction.>
42. The term “ pursuant to an order of court or competent authority” has been added
by the Takeover Code, 2011. The legislative intent of the insertion of this line is because
there are several countries which do not have courts in their respective jurisdictions and
are usually handled by registrars or the tribunals.54 The competent authorities in that case
shall be the appropriate forum to handle such matters. Also, the emergence of cases such
as Satyam which were handled by the Company Law Board and the constitution of the
Company Law Tribunal under § 408 of the Companies Act, 2013 can be termed to be
within the ambit of Competent Authority as envisaged in Reg. 10(1)(d)(ii) of the Takeover
Code, 2011.
43. A competent authority is one which has the power or authority to do a particular
act.55 It shall have a legally delegated authority, capacity or power to perform a particular
function. The Ministry of Civil aviation governs the aviation industry and the scope of the
legally delegated authority granted to the MCA is limited to the implementation of Aircraft
Act, 1934 and legislations pertaining to the aviation sector in the country.56
44. The Ministry of Civil Aviation does not take into consideration the question whether
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such scheme has been passed by approval of majority shareholders, the price offered for
the shares and whether minority public shareholders need to get the benefit of an open
offer or not.
45. In Miheer H. Mafatlal v. Mafatlal,57 it has been held by the Hon'ble SC that the
sanctioning court has to see to it that all the requisite statutory procedure supporting
such a scheme has been complied with and that the requisite meetings as contemplated
by § 391(1)(a) have been held and that is not to be violative of any law and not contrary
to the public policy.
46. The Court is the appropriate authority to sanction schemes of revival as the court is
cast with the duty to ensure that there is no malice or unreasonableness in the valuation
report.58 Also, it is submitted that the approval so required under Chapter III Civil
Requirements Rules59 is merely a regulatory approval and cannot be understood to be an
approval for the sanctioning of a scheme. It has to be complied with in addition to the
power vested with the Court.
47. It is the humble submissions of SEBM of the grave consequences emanating if the
Hon'ble Supreme Court considers MCA to be a competent authority as it will then entail
other authorities such as NHAI, SAIL and all other authorities to come within the ambit of
competent authorities. This then gives them the power to accord approval to all such
schemes of revival and the interests of the shareholders and the securities market would
not be catered to at all. Therefore submitted that MCA is not the appropriate authority to
sanction the scheme of revival and the exemption cannot be availed as the scheme has
not been approved.
(c). The alleged ‘Scheme of Reconstruction’ is not available in the Public Domain.
48. Venusian is a Public Ltd. Co. which is listed on the BSE as well as the NSE. Any
material event of the company which is publically listed is required to be disclosed to the
public at large. It is submitted that for an acquisition of more than 50% stake in a Public
listed Co, the consideration of the acquisition of shares is not disclosed to the Stock
Exchange.
49. Clause 36 of the SEBM Listing Agreement explicitly provides for any material
change in the company to be notified to the Stock Exchange.60 It stipulates also the
company to notify the consideration for the schemes of reconstruction to the Stock
Exchange.61 A mere notification as to the Scheme of Revival and Reconstruction being
implemented does not end the obligation to inform the stock exchange and the investors
thereby. All such material information including the consideration at which the shares are
acquired needs to be notified to the Stock Exchange. It is humbly submitted that there
cannot be a private transaction in a public company and is thereby a clear violation of
Clause 36 of the Listing Agreement. Therefore, the acquisition of shares by Siralex of
50.1% stake is in contravention of the Reg. 3(1) and 4 read with Reg. 13 of the Takeover
Code, 2011.
(d). Scheme of Revival and Reconstruction can exist only in grounds of financial
exigencies which Venusian Ltd. is not having at the present moment.
50. It is submitted that although the fact that Venusian had been running into losses
and had some debts, however, the financial structure of Venusian has now been settled
with Ayax as mentioned above in ¶ 17.62
51. With Ayax's investment news, the price of shares soared at 14% at the BSE63 along
with the creditors being happy with Ayax's investment in Venusian. Though Coleen stated
about the previous losses and delays, he also reassured the investors that their issues will
be resolved within time.64 It is submitted that Venusian is nowhere suffering from such
financial exigencies so that it needs a scheme of revival. With all these transactions
already being executed by Ayax in favour of Venusian, it does not need financial support
for its ‘Revival’ as it has already been revived by Ayax with all its possible sources of
financial support.
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52. An exemption to a publically listed company only on the basis of certain debts will
in turn encourage other companies to misuse this exemption merely on account of
inability to earn profits and pay off its debts. This Revival scheme of Siralex has been
formulated out of the necessity to skip the open offer obligation.
[B]. THE ACQUISITION IS AGAINST THE PROTECTION OF INVESTMENTS OF MINORITY
SHAREHOLDERS.
53. The Bhagwati Committee Report (1997), it is impractical to devise regulations in
such detail as to cover the entire range of situations which could guide the interpretation
and operation of the Takeover Regulations.65 The general principles which need to be
followed under any ambiguity as to the interpretation of the Regulations are the equality
of treatment and opportunity to all the shareholders and protection of interests of
shareholders.66
54. In Rayban Sun Optics India Ltd., SEBI dismissed the exemption of acquisition of
shares by a Purchase Agreement as it was not considered to be a Scheme of arrangement
on the ground that the object of the said regulations is not to be defeated by any
ingenious devices, arrangements or agreements devised by an acquirer so as to deprive
the shareholders of the exit opportunity available to them under the regulations.67 It is
submitted that making an open offer to the minority shareholders to grant them an exit
opportunity is in the best interest of them and would further advance the intentions so
given under the Takeover Code, 2011.
55. On a combined reading of the above, it is submitted that an acquisition of 50.1%
stake of a Public Ltd. company and then claiming it to be a scheme which has not been
accorded court and shareholder's approval and has neither been approved by the
competent authority along with absence of financial emergencies is only a modus operandi
to regularize the transfer consequentially leading to acquisition of control and majority
shareholding in Venusian.
56. As has been laid down by the Hon'ble Supreme Court, What you cannot do directly,
you are not allowed to do indirectly.68 The action of Siralex primarily attempts to claim an
exemption which the law does not provide and thereby in contrivance of §12A of SEBM
Act, 1992. It is submitted that Mr. Siralex is required to make an open offer as it cannot
be granted an exemption under Reg. 10(1)(d)(ii) and is in the best interest of the
minority shareholders and the securities market as a whole.
III. LD, AK AND MF WERE ‘PERSONS ACTING IN CONCERT’ [‘PACS’] AND WERE REQUIRED
TO MAKE AN OPEN OFFER FOR FURTHER SHARES OF VENUSIAN.
57.It is submitted that LD, AK and MF were PACs since Aug 20, 2010 for acquisition of
shares and
voting rights in Venusian and were obligated to make an open offer of shares as per
Reg. 3(1) of the Takeover code, 2011. They are jointly and severally responsible for
fulfilment of the Open Offer Obligations under Reg. 25(5) of the Takeover Code, 2011.
58. To come within the ambit of ‘ Persons acting in concert’ as defined under Reg. 2(1)
(q)(1) of the Takeover Code, 2011, the following needs to be fulfilled. (i) Two or more
persons should have a common objective or purpose for acquisition of shares, voting
rights or control over the target company (ii) the persons must cooperate with each other
for acquisition of shares or voting rights in, or exercise of control over the target company
and (iii) such cooperation must be pursuant to an agreement or understanding, formal or
informal.69
59. It is a well settled legal principle that the question of whether or not two persons
are PACs is a question of fact, to be answered after evaluating the facts and circumstances
of each case.70 Hence, the test under Regulation 2(1)(q)(1) of Takeover Code has to be
applied to the facts of each case to determine if the alleged persons constitute PACs in
fact.71
60. The Supreme Court in Technip SA. v. S.M.S. Holdings (P.) Ltd. referring to the
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Bhagwati Committee Report (1997) held that to be acting in concert with an acquirer,
persons must fulfil certain ‘ bright line’ tests. They must have commonality of objectives
and a community of interests which could be acquisition of shares or voting rights beyond
the threshold limit, or gaining control over the company and their act of acquiring the
shares or voting rights in a company must serve this common objective.72
[A]. LD, AK AND MF HAVE A COMMON OBJECTIVE OF ACQUISITION OF SHARES AND VOTING
RIGHTS OVER VENUSIAN LTD.
61. PACs must have the common intention or purpose of acquisition of shares of a
target
company.73 It is submitted that LD, AK and MF have a common objective of
acquisitions of shares and voting rights. The initiation of this common intention or
objective can be ascertained from the Panel Interview dated Aug 20, 2010 wherein the
statement by the GP of LD that the business practices adopted by Venusian were quite
unusual in the airline sector received vehement support from AK and MF who nodded
vigorously in that assessment.74 This highlights the common dissatisfaction of the three
PE investors from the decisions so executed by Coleen75 and the huge debts and losses
which Venusian had undertaken.
62. In Sunil Khaitan's case, the court held that the definition of “PACs” as provided is
wide enough as it also includes persons who agree to cooperate and gives ample scope to
persons to act in concert as one unit for the purpose of acquisition of shares/voting
rights.76 It is submitted that the three PE investors also looked in collaboration while
believing Venusian to grow into a full-fledged international carrier and by placing
tremendous faith on Sirmatt's abilities. The intentions and purposes of the three PE
investors with respect to issues within and future prospects of Venusian were all
consolidated into one since this interview.
63. Even an agreement between two parties to exercise the existing voting rights in
cooperation with each other would bring them under the ambit of PACs without any
subsequent acquisition of shares.77 The media outlets also considered these institutional
investors to be acting in concert and exiting when there were rumours about a probable
tender offer from Ayax. Airline Journalist speculated on the three PE buddies LD, AK and
MF to be acting in concert by consolidating their shareholdings against the new kid i.e.
Ayax.78
64. It is submitted that as per the statements made by the three PE investors along
with the Media and Airline Specialists, they can be held to be acting together for a
common purpose of acquisition
of shares and voting rights of Venusian.
[B]. LD, AK AND MF DIRECTLY COOPERATED FOR ACQUISITION OF SHARES, VOTING RIGHTS AND
CONTROL OVER VENUSIAN LTD.
65. It is submitted that it is not just the formulation of the common intention in their
minds, but also the execution of it which establishes LD, AK and MF to be “PACs”. The
idea of “persons acting in concert” can come into being by design, by meeting of minds
between two or more persons leading to the shared common objective or purpose of
acquisition of substantial acquisition of shares, etc. of the target company.79
66. It is submitted that since August 20, 2010, the common intention of these three PE
investors to be acting as one was framed which went ahead to further acquisition in
Venusian. Despite being aware of the fact that Venusian had been operating in huge debts
and losses,80 the PE funds directly cooperated and with the news of Ayax entering
Venusian escalating, they started increasing their shareholding inspite of the fact that
share prices soared 14% at BSE.81 This establishes an implicit cooperation with the
common objective between them to retain majority shareholding/voting rights even if the
shares are purchased at a much costlier rate.
67. As observed in Raghuvanshi Mills by SC, ‘in deciding if there is such a controlling
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interest; there is no formula applicable to all cases’.82 In East Coast Commercial

Company, the Court held that it is sufficient, if having regard to their relation, conduct,
common interest, it may be inferred that they must be acting together. Evidence of actual
concerted acting is normally difficult to obtain and is not insisted upon.83
68. LD acquired an additional 1.875 % equity stake in Venusian, following to which AK
and MF also acquired additional cumulative stakes of 0.90% and 0.65% respectively on
the same day.84 It is submitted that all these acquisitions had been done within a short
period of time i.e. from June 16 to June 30, 2014 and infer acts done in furtherance of the
common intention. In Naagraj Ganeshmal, it was held that the object of subscribing to
the preferential allotment may not be to acquire control but to infuse funds. But the fact
remains that they had acquired shares following the common objective of acquiring
shares.85
69. It is the conduct of the parties that determines their identity of PACs. As laid down
in Dr. Vijay Mallya v. SEBI, acquisition can be in different spells but nexus of the acquirer
and the persons acting in concert is relevant. It submitted before the Hon'ble SC that
these subsequent acquisitions made by LD, AK and MF during the same period of time at
very exorbitant prices and also being aware of the fact that Ayax is going to acquire
shareholding in the company within a short span of time when read with the reality of
Venusian which has been running in huge losses and high debts underline the common
intention and establishes the nexus between the PE fund investors to acquire majority
shareholding and voting rights.
70. In Jubilee Mills, the court held that the test is not whether they have actually acted
in concert but whether the circumstances are such that human experience tells us that it
can safely be taken that they must be acting together. It is not necessary to state the
kind of evidence that will prove such concerted acting.86
71. In Kosha Investments Ltd. v. SEBI, Matching and structured transactions led to
increase in the volume of the trade and was held as one of the reasons to constitute
‘persons acting in concert’.87 In Jord Engineers (India) Ltd. v. 3A Capital Services Ltd.,
two companies who had individually acquired shares representing 14.51% and 11.49% of
the total voting rights from the same seller on the same date with a difference of 2 hrs
were considered to be ‘persons acting in concert’.88 It is submitted that in the given case,
there has been matching and structured transactions executed when the acquisition was
done within the same time frame as all three PE funds acquired even when the price of
the shares were soaring 14%.
[C]. ACQUISITIONS ALREADY HELD BY THE ACQUIRER SHALL BE CLUBBED TOGETHER WITH THE
SHARES SO SOUGHT TO BE ACQUIRED.
72. The Hon'ble SC has laid down that from the expression ‘ acquires or voting rights
which taken together with shares or voting rights which taken together with shares or
voting rights, if any, held by him or by persons acting in concert with him’, it is clear that
an acquirer is under obligation to make the public announcement to acquire shares of the
target company in accordance with the Takeover Regulations in the situation where
shares/voting rights sought to be acquired by an acquirer along with shares or voting
rights already held, if any, by the acquirer prior to the acquisition entitles him to exercise
15% or more voting rights.89
73. Each individual in the group would become an acquirer and all other members
therein were the persons acting in concert with him and, therefore, the shareholding of all
the members put together had to be considered for the purpose of disclosure.90 It is
submitted that if the individual shareholdings of LD, AK and MF as already acquired by
them are clubbed into a consolidated shareholding, since they were PACs, it constitutes
31.65% shareholding in Venusian thereby obligating them for an Open Offer obligation
since it crosses the 25% limit.
74. It is the humble submissions that the investment by LD, AK and MF implies an
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increase in the stake of these PE funds clubbed together and a lesser role for the public
shareholders and non disclosure of material fact virtually amounts to denial of information
to the shareholders to take an appropriate decision whether as to continue in the company
as a shareholder or exit from in, in the context of change of holdings.91 Therefore, LD, AK
and MF were “ persons acting in concert” within the meaning of Reg. 2(1)(q)(1) and are
obligated to make an open offer of shares under Reg. 3 when read with Reg. 25(5) of the
SEBM Reg., 2011.
PRAYER
Wherefore, in light of the issues raised, arguments advanced and authorities cited, it is
humbly prayed that the Hon'ble Supreme Court may be pleased to hold, adjudge and
declare that:
1. Air Ayax PJSC is required to make an open offer for further shares of Venusian Ltd.
as the acquisition of shares of Venusian Ltd. by Air Ayax PJSC results in change of control
as per Regulation 2(1)(e) read with Regulation 4 of Takeover Code, 2011.
2. Mr. Siralex is required to make an open offer for further shares of Venusian Ltd. as it
is in violation of Reg. 3(1) and 4 read with Reg. 13 as per the Takeover Code, 2011.
3. Labaan Daw & GG Capital, Anjidas & Kabdaal Partners and Mrimeena FT World
Ventures are required to make an open offer for further shares of Venusian as they are “
persons acting in concert” within the meaning of Regulation 2(1)(q)(1) read with
Regulation 3 and Regulation 25(5) as per the Takeover Code, 2011.
4. The orders passed by the Securities Appellate Tribunal and Securities Exchange
Board of Mancunia are hereby reaffirmed.
And pass any such order, writ or direction as the Hon'ble Supreme Court may deem fit
in the interest of justice, equity and good conscience.
ALL OF WHICH IS RESPECTFULLY SUBMITTED
COUNSEL FOR THE RESPONDENTS
———
1
Securities and Exchange Board of Mancunia Act, 1992, No. 15 of 1992, § 15Z - Appeal to Supreme Court:
“Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the
Supreme Court within sixty days from the date of communication of the decision or order of the Securities
Appellate Tribunal to him on any question of law arising out of such order:
Provided that the Supreme Court may, if it is satisfied that the applicant was prevented by sufficient
cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding
sixty days.”
2
Ashwin K. Doshi v. Securities and Exchange Board of India, (2002) 40 SCL 545, ¶ 155 [“Ashwin K Doshi”]; Also See,
Report of the Takeover Regulations Advisory Committee, 29, (2010) [“TRAC Report”].
3
Luxottica Group Spa v. SEBI, (2004) 1 Comp LJ 258 (SAT) [“Luxottica Group”].
4
WEBSTER'S ENCYCLOPEDIC, UNBRIDGED DICTIONARY OF THE ENGLISH LANGUAGE 318-319 (Random House ed.,
1994); Also See, State of Mysore v. Allum Karibasappa, (1974) 2 SCC 498; Shamrao Vithal Co-op. Bank Ltd v.
Kasargod Mallya, (1972) 4 SCC 600.
5
Ashwin K Doshi, supra note 2 at ¶ 154.
6
Id. at ¶ 155.
7 Novartis Vaccines and Diagnostics Inc. v. Aventis Pharma Ltd, (2010) 2 Bom CR 317, ¶¶ 40 & 42.
8
HMS Real Estate Pvt. Ltd. v. CIT-I, (2010) 230 CTR (AAR) 340, ¶ 7; Also See Chitty on Contracts, ¶ 12.053 (27th
ed. 1994).
9
See clause 1(iii) of Shareholders’ Agreement dated July 1, 2014, Annexure I, Moot Proposition [“SHA”].
10
See clause 2(ii) of Corporate Governance Code dated July 1, 2014, Annexure I, Moot Proposition [“CGC”].
11
Clause 1(i) and (ii) of SHA stipulates Ayax and Sirmatt to nominate 2 and 4 directors on the Board till they continue
-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
to hold at least 15% and 50.0001% of total outstanding equity shares respectively.
12
TRAC Report (2010), supra note 2, ¶ 3.7.
13
CCI v. Zero Coupon Optionally Convertible Debentures, CR No C-2012/03/47 (CCI), ¶ 14, Order dated May 28,
2012.
14
See clause 1(iv) of SHA dated July 1, 2014, Annexure I, Moot Proposition.
15
[2010] 99 SCL 159 (SAT), ¶ 8 [“Subhkam Ventures”].
16
TRAC Report, supra note 2, ¶ 3.3.
17
2001 34 SCL 597 (SAT).
18
Multi Screen Media Pvt. Ltd./ SPE Mauritius Holdings Ltd, (CCI), CR No. C-2012/06/63, Order dated August 9, 2012.
19
Clearwater Capital Partners (Cyprus) Ltd. v. SEBI, (Appeal No. 21 of 2013). The matter is pending before Securities
Appellate Tribunal.
20
Insight : Analysis of Recent Developments in Indian Corporate Law, Amarchand & Mangaldas & Suresh A. Shroff &
Co. 2, Issue 27 (2011) http://www. ambi.org.in/InsightIssueDec2011.pdf.
21
Subhkam Ventures, supra note 15, ¶ 9.
22Hill, Jennifer G., The Shifting Balance of Power between Shareholders and the Board : News Corp's Exodus to
Delaware and Other Antipodean Tales, 6 VANDERBILT L. & ECO. 11 (2008) http://dx.doi.org/10.2139/ssrn.1086477.
23 (2012) 6 SCC 613, ¶ 76.
24
A. S. Siddiqui, Comprehensive Accountacy 670 (Laxmi Publication, 2012).
25
Moot Proposition, ¶ 22.
26
27
‘Preference’, Black's Law Dictionary 778 (9th ed. 2009).
28 Rhodia S.A, supra note 17.
29
Century Tokyo Leasing Corporation/Tata Capital Financial Services Limited, CR No. C-2012/09/78, Order dated
October 4, 2012.
30
Mathew, Shaun J., Hostile Takeovers in India : New Prospects, Challenges and Regulatory Opportunities, 3
COLUMBIA BUSINESS LAW REVIEW 19 (November 12, 2007).
31
See clause 5 of Commercial Cooperation Agreement dated July 1, 2014, Annexure I, Moot Proposition [“CCA”].
32
Competition Commission of Mancunia Order dated October 10, 2014, ¶¶ 31 & 36, Annexure II, Moot Proposition
[“CCM Order”].
33
34
CCM Order, supra note 32, ¶ 37.
35 Unviable, Black's Law Dictionary 914 (9th ed. 2009).
36
CCM Order, supra note 32, ¶ 8.
37
Id. at ¶ 10.
38
Justice P.N. Bhagwati Committee Report on Takeovers, SEBI (1997), ¶ 6.3. [“TRAC Report (1997)”]
39
In Re : NRB Bearings India Limited; In Re : SNL Bearings Ltd, (SEBI), Order No. : CO/33 /TO/05/2003, Order dated
May 29th, 2003.
40
41
Murray Pickering, Shareholders Voting rights and company control, (1965) 81 LQR 248.
42
In Re : Garner's Motors Ltd., [1937] Ch. 594.
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-
43
SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011, No. 3 of 2011, Reg. 2(2).
44
The Companies Act, 1956, No. 1 of 1956, § 290.
45
Vodafone Essar Gujarat Ltd. v. Department of Income Tax, (2013) 176 Comp Cas 7.
46
Id. at ¶ 58.
47
Regional Director, Ministry of Company Affairs v. Cavin Plastics and Chemicals (P.) Ltd., 2008 85 SCL 30.
48In Re : Navjivan Mills Co. Ltd., (1972) 42 Comp Cas 265, ¶ 38; Hindustan Commercial Bank Ltd. v. Hindustan
General Electrical Corpn., (1960) 30 Comp Cas 367.
49
The Company (Court) Rules, 1959, 79, (October 1, 1959).
50 TRAC Report (1997), supra note 38, ¶ 16.2.
51
Rule 67 the Company Court Rules, 1959 read with § 391(1) of the Companies Act, 1956.
52
SEBI v. Clairant International, (SAT), Order dated October 16, 2002.
53 SEBI v. Ondel Nalco India Ltd., (SAT), Order dated April 9, 2003.
54
Jurisdiction of the South African Courts and Tribunals : A Guide for Legal Practitioners, Law Society of Northern
Province,
http://www.northernlaw.co.za/important_information_for_members/constitutional_court_judgment/jurisdiction.lssa.pdf
(last accessed : August 7, 2015 2 : 34 AM).
55 Competent Authority, Black's Law Dictionary 211 (9th ed. 2009).

56
BHATTACHARYA JAIJIT , ELECTRONIC GOVERNANCE 2.0 POLICIES , PROCESSES AND T ECHNOLOGIES , 26 (Mcgraw Hill Education,
2011).
57
(1996) 87 Comp Cas 792.
58 In Re : Joonktolle Enterprises Ltd, (2008) 145 Comp Cas 159.

59
See Rule 10.7 of Civil Aviation Requirement, Section 3- Air Transport Series “C”, Part II, Minimum requirements for
grant of permit to operate Scheduled Passenger Air Transport Services, DGCA, Govt. of India, (March 1, 1994).
60
Guidance Note on Clause 36 of the Listing Agreement, National Stock Exchange (NSE) of India Limited, http://www.
nseindia.com/content/equities/NSE_CIRC_30092014.pdf (last accessed 23rd July 2015 03 : 04 AM)
61
Id.
62
See supra note 26 and text accompanying ¶ 17.
63 Moot Proposition, ¶ 31.
64
65
TRAC Report (1997), supra note 38, ¶ 16.2.
66
Id. at ¶ 21.2.
67
Luxottica Group, supra note 3.
68 State of Bihar v. Harihar Prasad Debuka, (1989) 1 SCR 796.
69
Shirish Finance & Investment (P) Ltd. v. M. Sreenivasulu Reddy, (2002) 35 SCL 27. ¶ 82.
70
Hitachi Home and Life Solutions Inc v. SEBI [2006] 65 SCL 339 ¶ 42; K.K. Modi v. SAT, (2002) 2 Bom CR 523, ¶ 1.
71Nishith Desai Associates, Public M&A in India : Takeover Code Dissected, NDA PUBLICATIONS 9 & 10 (August,
2013).
72
(2005) 125 Comp Cas 545; Also See TRAC Report (1997), supra note 38, ¶ 2.22.
73
Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati (2010) 157 Comp Cas 280 ¶ 48 [“Daiichi Sankyo”].
74
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75
76
Sunil Khaitan v. SEBI, [2014] 122 CLA 1 (SAT), ¶ 30.
77
Daiichi Sankyo, supra note 73, ¶ 36.
78
79
Daiichi Sankyo, supra note 73, ¶ 44.
80
81
82
Raghuvanshi Mills Ltd. v. CIT, Bombay, (1965) 56 ITR 470, ¶ 7.
83
CIT, West Bengal v. East Coast Commercial Co. Ltd., (1967) 63 ITR 449, ¶ 20.
84
85
Naagraj Ganeshmal Jain v. P. Sri Sai Ram, (2003) 4 Comp LJ 465, ¶ 23.
86
CIT, Bombay v. Jubilee Mills Ltd, Bombay, 1963 Supp (1) SCR 83, ¶ 20.
87 Kosha Investments Limited v. SEBI, [2005] 64 SCL 454 (SAT-MUM).
88
Jord Engineers India Ltd v. 3A Capital Services Ltd., [2013] 117 CLA 300 (CLB), ¶ 14.
89
Sunil Khaitan v. SEBI, [2014] 122 CLA 1 (SAT), ¶ 29.
90 Radheshyam v. SEBI, (2006) 70 SCL 36 (SAT), ¶ 4; Madhuri. Pitti v. SEBI, 2014 121 CLA 426 (SAT), ¶ 23.
91
Far East Investments Ltd. and European Investments Ltd. v. SEBI, & Ananta Barua, Appeal No. 40/2002, Order
dated March 13, 2003), ¶ 23.
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Page 1 Monday, June 28, 2021

4th NALSAR NFCG Corporate Moot, 2015

In the Supreme Court of Mancunia

(i). The SSPA cannot be termed as a valid Scheme of Revival 9

which in the given case has not been complied with.

interest; there is no formula applicable to all cases’.82 In East Coast Commercial

55 Competent Authority, Black's Law Dictionary 211 (9th ed. 2009).

58 In Re : Joonktolle Enterprises Ltd, (2008) 145 Comp Cas 159.

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