Intramurals Vertical 2 2024-2025 Moot Problem PDF

 BEFORE THE JOINT NCLT-HIGH COURT BENCH CP NO. 420 / 2024 Mr. Hari Singh Puttar & Ors. …Petitioners v. SMRP Private Limited & Ors....

 BEFORE THE JOINT NCLT-HIGH COURT BENCH CP NO. 420 / 2024 Mr. Hari Singh Puttar & Ors. …Petitioners v. SMRP Private Limited & Ors. …Respondents FACTUAL MATRIX 1. SMRP Private Limited (“SMRP”), incorporated on 01 January 2014, under the Companies Act, 2013, operates in the consumer electronics sector across Western India. The company has shown steady growth and has established a strong brand presence. It is currently seeking to expand its operations by raising additional capital through a rights issue. 2. Mr. Shaliesh Sunder and Ms. Ravina Raichand are the primary promoters of SMRP, having significant control over the company's direction and operations (“Promoter Group”). The Promoter Group not only holds a substantial stake in the company but also effectively manages its strategic decisions through their influence on the board of directors. In addition to the Promoter Group, in April 2014, SMRP attracted a significant investment from a well-known institutional investor, Voldy Capital. This investment was seen as a vote of confidence in SMRP's potential, bringing both financial support and an added layer of oversight. Promoter Group 45% Voldy Capital 20% Other individual shareholders 35%  (with each individual holding a small stake between 1% and 2%) 3. Composition of the board of directors: SMRP's board of directors is composed of seven members who are responsible for overseeing the company's strategic direction and management. The board is made up of (i) three directors appointed by the Promoter Group, (ii) two directors chosen by Voldy Capital and (iii) two independent directors (collectively “Board”). 4. In May 2024, the Promoter Group and Voldy Capital proposed to diversify SMRP’s operations into the renewable energy sector, requiring an amendment to the company’s Memorandum of Association (“MoA”). An emergency shareholders’ meeting was convened to approve this Proposed Amendment. 5. The resolution for the Proposed Amendment was supported by the Promoter Group and Voldy Capital but was rejected by some individual shareholders, including Mr. Hari Singh Puttar and Ms. Hetal Gill (“Individual Shareholders’ Group”), who raised concerns about the risks and lack of core expertise related to the new business line. Consequently, the resolution did not pass due to insufficient shareholder approval (less than 75%). 6. In March 2024, the Promoter Group, backed by Voldy Capital, proposed a rights issue to raise capital for SMRP’s expansion. This rights issue was structured to enable the Promoter Group and Voldy Capital to increase their combined shareholding to over 75%, thus diluting the individual shareholders' stake. 7. The Board approved the rights issue with majority support from the Promoter Group’s appointees and Voldy Capital’s representatives, despite concerns from the two independent directors regarding potential dilution of minority interests. The Notice for the  rights issue was sent to shareholders in April 2024 but failed to disclose the potential impact on the shareholding structure or considerations as to alternative funding options. 8. The Individual Shareholders’ Group (led by Mr. Puttar and Ms. Gill), representing 8% of the total shareholding of SMRP, opposed the rights issue and raised objections regarding its structure and potential impact on minority shareholders. They suggested alternative funding methods that would not dilute existing equity. 9. In June 2024, the Individual Shareholders’ Group filed a petition in the National Company Law Tribunal (“NCLT”) under Sections 241 and 242 of the Companies Act, 2013, alleging oppression and mismanagement. The said petition was filed on 04 June 2024 and came to be numbered as CP No. 420 of 2024 (“O&M Petition”). 10. The Individual Shareholders’ Group has alleged in the O&M Petition that the act of rights issue is oppressive as the same has caused substantial dilution in their shareholding in SMRP. Moreover, the Notice in this regard was improper causing mismanagement in the affairs of SMRP. It is also the case of the Individual Shareholders’ Group that the rights issue was done solely for the purpose of diluting the shareholding of the Individual Shareholders’ Group and increasing the voting rights of Promoters Group and Voldy Capital. In light of this, the Individual Shareholders’ Group has prayed that the affairs of SMRP should be investigated and that just and equitable reliefs must be granted by the NCLT. 11. Further, the Individual Shareholders’ Group prayed that till the time the O&M Petition is decided, the rights issue shall be stayed in the interim, and the status quo should be maintained. 12. SMRP’s management argues that the rights issue is a genuine business decision essential for the company’s growth. They assert that all shareholders were provided equal  opportunities to participate and claim that the petitioners are attempting to obstruct a crucial business strategy without substantive grounds. 13. Concurrent with the developments mentioned earlier, SMRP, in January 2021 began exploring the development and introduction of a new AI-based smart voice-controlled speaker and home automation system in the Indian market. To advance this initiative, SMRP entered into a development agreement with Artemis AI Solutions Pvt. Ltd. (Artemis) on 25.04.2021. The contract specified that all technology and intellectual property rights would remain with SMRP. Additionally, the agreement required that the system's development be completed by 30.04.2022 at the latest. The contract also included a non-disclosure clause prohibiting Artemis from sharing the system’s know-how or technology with any other company. 14. However, Artemis failed to adhere to the agreement and entered into a parallel contract with AVMedia Solutions (AVMedia), the main competitor of SMRP. Additionally, Artemis also failed to meet the deadline for the project. Resultantly, SMRP invoked the arbitration clause, requesting relief against Artemis from sharing or releasing their product with the competitor. 15. SMRP later also discovered that Artemis had made a secret backdoor investment, acquiring a 25% stake in AVMedia Solutions. Consequently, SMRP also sent a notice invoking the arbitration clause against AVMedia. Due to the extensive records, expert evidence, and technical details involved, the arbitration proceedings were prolonged and could not be completed within the initial twelve-month period. Both parties agreed to a six-month extension, extending the deadline to 31.01.2024. However, since the award was still not issued by that time, SMRP approached the Civil Court on 02.02.2024, under Section 29A(4) read with Section 29A(5), seeking an extension of the time limit for the issuance of the award. The Civil Court granted SMRP’s application, extending the deadline by two  months to 31.03.2024. The arbitral tribunal eventually issued an award on 27.02.2024, prohibiting both Artemis and AVMedia from engaging in any dealings or releasing the product. 16. AVMedia has since approached the High Court, seeking relief against the arbitral award on the ground that it was not a party to the contract, and therefore, no arbitration proceedings could lie against it. They also argue that Artemis played a limited role in the product design. Additionally, Artemis has challenged the arbitral award in the High Court, both on merits and on the ground of delay. LEGAL ISSUES 1. Whether the O&M Petition filed by Individual Shareholders’ Group under Section 241 and 242 of the Companies Act, 2013, is maintainable and should be admitted by the NCLT? 2. Whether the actions of the Promoter Group and Voldy Capital in proposing the rights issue and the Proposed Amendment constitute oppression under the Companies Act, 2013. 3. Whether the refusal to pass the Proposed Amendment and the subsequent actions related to the rights issue amount to mismanagement as defined under the Companies Act, 2013. 4. Whether the decisions made by the Board and the management reflect a breach of fiduciary duties towards the minority shareholders, and if so, what are the implications for the legitimacy of these decisions? 5. Whether the arbitral tribunal could have passed an award against AVMedia? 6. Was the arbitral award passed after the tribunal became functus officio? NOTE: 1. The Moot Court proceedings shall be deemed to be a joint NCLT-High Court hearing for the purposes of this competition. 2. For the purposes of the moot court problem, the applicable laws are that of India. 3. Participants are allowed to club the issues together in the memorial and oral rounds for better structurization and presentation of the flow of arguments.