TC-10

HERITAGE LAW COLLEGE MOOT COURT COMPETITION, 2021

BEFORE THE HON’BLE HIGH COURT AT DELHI

IN THE MATTER OF:

GADGETPAY PRIVATE LIMITED (PETITIONER)

v.

MR. ASISH KAPOOR (RESPONDENT)

APPEAL NO. / 2022

ON SUBMISSION TO THE HON’BLE HIGH COURT AT DELHI UNDER

SECTION 241 OF THE COMPANIES ACT, 2013

WRITTEN SUBMISSIONS ON BEHALF OF THE PETITIONER

 Memorial for Petitioners

TABLE OF CONTENTS

TABLE OF ABBREVIATION…………………………………………………………..III

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

STATEMENT OF JURISDICTION………………………………………………………V

STATEMENT OF FACTS………………………………………………………………VI

STATEMENT OF ISSUES……………………………………………………………..VIII

SUMMARY OF ARGUMENTS………………………………………………………….IX

ARGUMENTS ADVANCED……………………………………………………………...10

1. WHETHER THE PETITION FILED UNDER SECTION 241 OF COMPANIES

ACT, 2013 BY A MINORITY SHAREHOLDER OF GADGETPAT LIMITED
MAINTAINABLE……………………………………………...…………………………...10

1.1. THAT THE JURISDICTION OF SECTION 244 OF THE COMPANIES ACT, 2013 IS RESTRICTIVE……… 10

2. HOW FAR THE REMOVAL OF ASHISH KAPOOR VALID AS PER COMPANIES

ACT, 2013…………………………………………………………………….........11
2.1. THAT MR KAPOOR LACKS PERFORMING THE DUTIES OF A DIRECTOR... . 11

2.1.1. ALTERATION IN ARTICLE OF ASSOCIATION ................................................ 11

3. HOW FAR RELATED PARTY TRANSACTION IS VALID WHEN WRITING OFF OF LOAN
WAS NOT DISCLOSED TO SHAREHOLDERS……………………………………………....13

4. ANY OTHER ISSUES AT THE DISCREATION OF THE HON’BLE HIGH COURT….15

PRAYER....................................................................................................................................... .XVI

II
 Memorial for Petitioners

TABLE OF ABBREVIATIONS

ABBREVIATIONS EXPANSION

¶ Paragraph

AIR ALL INDIA REPORTER

Art. Article

Const. Constitution

Mr. Mister

ed. Edition

Hon’ble Honorable

BOD Board of Directors

SCR Supreme Court Reporter

TN Tamil Nadu

LTD. Limited

UoI Union of India

v. Vs

Sec Section

Comp. Company

III
 Memorial for Petitioners

INDEX OF AUTHORITIES

CASES

1. Needle Industries vs Needle Industries Newey (1981) 3 SCC 333. ............................................

2. N. Narayanan v. Adjudicating Officer, SEBI 12 SCC 152: AIR 2013 SC 3191. .........................

3. Bhullar v Bhullar [2003] EWCA Civ 424, 2 BCLC 241 …………

4. Glucoseries (P)Ltd. v. DebKanta Ray (2000) 38 CLA 39 Ca. ..................................................

5. Barron v.Pottter (1914) 1 Ch 895.. ............................................................................................

6. Askari Mirza v. Bibi Jai Kishori, 1912 16 IC 344………………………………………….

STATUTES

1. COMPANIES ACT, 2013 ………………………………………………………………….

BOOKS

1. Avtar Singh, Company Law Book, 2014 .................................................................................

2. R.K Bangia, Company Law Book ,2016 .....................................................................................
3. M.N. Shukla, Company Law Book ,2021 ....................................................................................

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 Memorial for Petitioners

STATEMENT OF JURISDICTION

Section 241: Application to Tribunal for relief in cases of oppression, etc.

(1) Any member of a company who complains that—
(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or
in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to
the interests of the company; or
(b) the material change, not being a change brought about by, or in the interests of, any creditors, including
debenture holders or any class of shareholders of the company, has taken place in the management or
control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership
of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever,
and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner
prejudicial to its interests or its members or any class of members, May apply to the Tribunal, provided such
member has a right to apply under section 244, for an order under this Chapter.

(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a
manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.

The present memorial on behalf of the petitioner sets forth the facts, contentions, and arguments in the
present case.

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 Memorial for Petitioners

STATEMENT OF FACTS

1. Mr. Ashish Kapoor and Mr. Samrat Dolakia incorporated a private limited company named
"GadgetPay Private Limited", registered with ROC, Delhi in April, 2016. The Authorized Share
Capital was 3,00,00,000 shares of Rs. 10 each, the issued and fully paid-up share capital was the
same as authorized capital, which was held by both of them in equal proportion and both were the
first directors of the company. The initial capital of the company was raised by taking a loan by way
of issuing 25%, 5-year convertible equity shares to Bank Earth.

2. In 2018, the directors of the company decided to issue equity shares to High-Net-worth Individuals
(HNI) without increasing the Authorized and Issued & Paid-up Capital. The company approached 5
HNIs through Private Placement under Companies Act, 2013. All the 5 HNIs decided to invest Rs.
90, 00,000 each in lieu of 12% of equity share each, and to be made directors of the company. Hence
as agreed, in the new Board of Directors, Mr. Ashish Kapoor was made the Chairman and CEO,
while Mr. Samrat Dolakia was appointed as CFO.

3. However, in 2020, there were excessive unpaid debts and losses during the lockdown. The resolution
of issuing equity shares to venture capitals (VCs)in order to raise funds was approved by the Board
of directors except Mrs. Shweta Basu and Mr. Rahul Mehra. TigorCapital was chosen by the board
and it demanded 15% of the equity shares. Hence, the 5 HNIs had to let go 1% equity share each,
hence having 11% each and Mr. Kapoor and Mr. Dolakia had 15% equity shares each.

4. Mr. Samrat Dolakia resigned from directorship of Company after raising funds from TigorCapital in
May 2020 and in August 2020, two new directors - Mr. Jai Advani and Mrs. Indira Jha were
appointed as directors by the Board because of their expertise in the field of fintech services and
were issued 5 percent equity shares in the company. The 5 HNIs had to let go 1% of their shares
leaving them 10% each.

5. In 2021, GadgetPay Private Limited reported a profit, however due to its non-payment of loan which
it had taken in the year 2016, the Bank opted to convert its debt to equity. The Board agreed with
Bank Earth having 25% of equity shares, TigorCapital with 15%, the 5 HNIs holding 10% equity
share each and Mr. Jai Advani, Mrs. Indira Jha, Mr. Dolakia and Mr. Kapoor having only 2.5 % of
share capital each.

6. In April 2022, in a Board Meeting Mr. Ashish Kapoor was asked to resign as Chairman to which he
refused and a Board Resolution was passed, with only his vote against the resolution to oust him as
Chairman, as a result, Mr. Kapoor was ousted as Chairman of the Board and Mrs. Fatima Poonawala
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 Memorial for Petitioners
was made the interim chairperson. In June 2022, a requisitionist EGM was called by Mr. Rahul
Mehra and Mrs. Shweta Basu and the interim chairperson accepted the request and a resolution was
passed ousting director, Mr. Ashish Kapoor from the directorship of company without giving him a
reasonable opportunity of being heard.

7. The grounds of removal were given by the majority directors. The very next day, a press meeting
was called by the two removed directors, to air issues from their aspect.

8. Mr. Ashish Kapoor approached the NCLT under Section 241 and 244 of The Companies Act ,2013.
However, on the plea being rejected NCLT and thereby, on the appeal to NCLAT and the petition
being accepted, the former CEO was ordered to be reinstated as director of the company.

Thus, the appeal has been filed by the company against the judgment in favour of Mr. Ashish
Kapoor given by the NCLAT

VII
 Memorial for Petitioners

STATEMENT OF ISSUES

I. WHETHER THE PETITON FILED UNDER SECTION 241 OF THE

COMPANIES ACT, 2013 BY A MINORITY SHAREHOLDER OF GADGETPAY
PRIVATE LIMITED MAINTAINABLE?

II. HOW FAR THE REMOVAL OF MR. ASHISH KAPOOR VALID AS PER
COMPANIES ACT, 2013?

III. HOW FAR RELATED PARTY TRANSACTION IS VALID WHEN WRITING

OFF OF LOAN WAS NOT DISCLOSED TO SHAREHOLDERS?

IV. ANY OTHER ISSUES AT THE DISCREATION OF THE HON’BLE COURT?

VIII
 Memorial for Petitioners

SUMMARY OF ARGUMENTS

I. WHETHER THE PETITON FILED UNDER SECTION 241 OF THE COMPANIES

ACT, 2013 BY A MINORITY SHAREHOLDER OF GADGETPAY PRIVATE
LIMITED MAINTAINABLE?
No, there has been no such oppression and mismanagement in the company by cutting down
the shares of the respondent. It was the respondent’s inability and lack of proper decision
making which led to Bank Earth converting its debt to equity against the non-payment of loan
which was taken by the respondent in the year 2016. Section 241 of the Companies Act, 2013
states that 10% of the shareholding is the maintainable criteria whereas Mr. Kapoor was having
only 2.5% of the overall shareholding.

II. HOW FAR THE REMOVAL OF MR. ASHISH KAPOOR VALID AS PER
COMPANIES ACT, 2013?

The removal of Mr. Ashish Kapoor is strongly valid because of the severe mismanagement of the individual
as Chairman and the CEO of the company. Along with the justification, Mr. Ashish Kapoor was ousted as
the Chairman and CEO after the collective votes of the company. The mismanagement is clearly visible on
the fact of how the CEO who had 50% of the company’s equity shares, came down to having 2.5% of the
shares, making himself a minority shareholder.

III. HOW FAR RELATED PARTY TRANSACTION IS VALID WHEN WRITING OFF OF
LOAN WAS NOT DISCLOSED TO SHAREHOLDERS?

Section 185 of the Companies Act states that no company shall, directly or indirectly, advance any loan,
including any loan represented by a book debt, to any of its directors or to any other person in whom the
director is interested or give any guarantee or provide any security in connection with any loan taken by him
or such other person. Thus, Mr. Kapoor had interest in sanctioning this loan and also did not disclose it with
any of the other Board of Directors.

IV. ANY OTHER ISSUES AT THE DISCREATION OF THE HON’BLE COURT?

There was reasonable ground of Coercion and Defamation that was alleged against the Company
and its Directors in general.

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 Memorial for Petitioners

ARGUMENTS ADVANCED

1. WHETHER THE PETITON FILED UNDER SECTION 241 OF THE COMPANIES ACT, 2013
BY A MINORITY SHAREHOLDER OF GADGETPAY PRIVATE LIMITED MAINTAINABLE?

[¶1.] It is humbly submitted before this Hon’ble Court that the petition filed by Mr. Ashish
Kapoor [Hereinafter referred to as “the Respondent”] is not maintainable under Section 241
of the Companies Act, 2013 as it states that 10% of the shareholding is the maintainable criteria
whereas Mr. Kapoor was having only 2.5% of the overall shareholding.

1.1. THAT THE JURISDICTION OF SECTION 244 OF THE COMPANIES ACT, 2013
IS RESTRICTIVE
[¶2.] The Right of a shareholder to apply for relief under Section 241 (1) The following
members of a company shall have the right to apply under section 241, namely:— (a) in the
case of a company having a share capital, not less than one hundred members of the company
or not less than one-tenth of the total number of its members, whichever is less, or any member
or members holding not less than one-tenth of the issued share capital of the company, subject
to the condition that the applicant or applicants has or have paid all calls and other sums due
on his or their shares; (b) in the case of a company not having a share capital, not less than one-
fifth of the total number of its members.
[¶3.] The above test for the NCLT’s interference is high and stray/lone acts though wrongful
may not amount to oppression/mismanagement nor will commercial misjudgment/unwise
investment decisions, unless such decision lacks fairness/probity. The acts complained of must
be recurring, burdensome, harsh, and wrongful. The Supreme Court in Needle Industries (I)
Ltd. v. Needle Industries Newey (I) Holding Ltd1., clarified that “an unwise, inefficient or
careless conduct of a Director in the performance of his duties cannot give rise to a claim for
relief under that section.” The complainant must demonstrate that the conduct is unfair, lacking
probity and prejudices the exercise of his legal/proprietary rights as a shareholder. Mr. Kapoor
was very inefficient in managing and running the company and at the same time it is due to his
own lack of ability he lost substantial stake of shares.

1
(1981) 3 SCC 333.
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 Memorial for Petitioners

Therefore, it is humbly submitted before the Hon’ble Court that this petition is not
maintainable as Mr. Kapoor is not fulfilling the maintainability criteria of shareholding.

II. HOW FAR THE REMOVAL OF MR. ASHISH KAPOOR VALID AS PER COMPANIES
ACT, 2013?

[¶4.] It is humbly submitted before this Hon’ble Court that the removal of Mr. Ashish Kapoor
is strongly valid because of the severe mismanagement of the individual as Chairman and the
CEO of the company. Along with the justification, Mr. Ashish Kapoor was ousted as the
Chairman and CEO after the collective votes of the company.

2.1 Mr. Kapoor lacks performing the duties of a director

[¶5.] Duties of directors. — (1) Subject to the provisions of this Act, a director of a company shall act
in accordance with the articles of the company.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence
and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect
interest that conflicts, or possibly may conflict, with the interest of the company.
[¶6.] As said earlier, sub-section (3) of Section 166 of the Companies Act which spelled out that director
shall exercise his duties with due and reasonable care and based upon which the Supreme Court in case of
N. Narayanan v. Adjudicating Officer, SEBI2, reported in (2013) has held that, failure of a corporate
governance on the part of directors if they failed to exercised due care and diligence and thereby, allowing
fabrication of figures and false disclosure, they would be liable for such omissions and commissions.
Hereby states that Mr. Kapoor was not performing the duties that a director of a company should perform
and as a matter of fact it goes against the best interest of the company.

ALTERATION IN ARTICLE OF ASSOCIATION

A company has a statutory right to alter its articles of association. But the power to alter is subject to the
provisions of the Act and to the conditions contained in the memorandum. Section 14(1) provides that

2
12 SCC 152: AIR 2013 SC 3191
11
 Memorial for Petitioners
subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company
may, by a special resolution, alter its articles including alterations having the effect of conversion of a
private company into a public company; or a public company into a private company. First proviso to
section 14(1) lays down that where a company being a private company alters its articles in such a manner
that they no longer include the restrictions and limitations which are required to be included in the articles of
a private company under this Act, the company shall, as from the date of such alteration, cease to be a
private company.

The Bhullar v Bhullar3 is one of the important cases in which two brothers M and S were having company
which was later on divided between their wives and sons. The family relations broke down and
discussed to split the company. On the next door one of the properties was on sale and it was
purchased on the name of a company controlled by them. The family brought an action on the basis of the
breach of a fiduciary duty. The court held that it was a breach of the fiduciary duty and that the
property held is on trust for the company and orders them to return the property to the company at cost and
to be accountable for any profit. The same decision was upheld by the court of appeal. The rule of the
corporate opportunity in Bhullar is neither based on the property misuse nor on the breach of the
confidential information. The decision is based on the ordinary rule of the conflict of interest, because if the
opportunity would have not used by the director for his personal gain, it would have been in the greater
interest of the company. This decision also shows the general duty of the director to be loyal enough to the
company to pass on the information he/she have, because it may be in the interest of the company to know.

[¶7.] In this issue, Mr. Kapoor was not willing to perform the duties which a director should be
performing and at the same time he has had undue influence in sanctioning a loan agreement to his
other company and then did not even disclose the matter to the other directors.

[¶8.] Section 149(6) of the Companies Act, 2013 states that - An independent director in relation to a
company, means a director other than a managing director or a whole-time director or a nominee director,
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant Expertise and
Experience.
Therefore, it was clear that Mr. Kapoor shows no integrity, and at the same time did not disclose about a
loan agreement even though it is not permitted as per the article of association. Mr. Kapoor was fully aware
of the fact that if they are unable to repay the loan by way of issuing 25%, 5-year convertible equity shares
that they have taken from Bank Earth. In the first place, this was not at all done at the best interest of the
company.

3
Bhullar v Bhullar [2003] EWCA Civ 424, 2 BCLC 241
12
 Memorial for Petitioners
[¶9.] Section 166(3) says that- A director of a company shall exercise his duties with due and
reasonable care, skill and diligence and shall exercise independent judgment. So, if Mr. Kapoor was
truly dedicated to his job and integral to his character then a better solution would have been passed,
according to a person with the stated expertise and experience to issue debentures instead of giving
them equity shares putting the company at stake. Not only that, he knew that they had to repay and
them being majority shareholders did not lead the board of directors and the company, to repay the
issue at hand – that is the repayment of the loan, showing the Kapoor founded the company on the
grounds of mismanagement and thereby establishing that his relevant expertise and experience
counted to be irrelevant. Writing of the loan without consent or knowledge of any other board of
director was a violation of the fiduciary relationship between the board directors.

[¶10.] Section 166(5) states - A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives , partners, or associates and if such
director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that
gain to the company and Section 166(7) says - If a director of the company contravenes the
provisions of this section such director shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to five lakh rupees. Here, Mr. Kapoor should not only be
removed but rather should be liable for fine under this provision.

[¶11.] In MRS VIBHA MEHTA V MS HOTEL MARINA AND ORS, the plaintiff alleged that
defendant was not acting in the interest of the firm. Also alleged that there was misappropriation of
funds and copies if accounts which were concealed from the plaintiff who lost faith and confidence
in the working of the partners of the firm.

Therefore, it is humbly submitted before the Hon’ble Court that removal of Mr, Ashish
Kapoor from the board of Director is valid and reasonable.

III. HOW FAR RELATED PARTY TRANSACTION IS VALID WHEN WRITING OFF OF
LOAN WAS NOT DISCLOSED TO SHAREHOLDERS?

[¶12.] Section 185 of the Companies Act states that no company shall, directly or indirectly,
13
 Memorial for Petitioners
advance any loan, including any loan represented by a book debt, to any of its directors or to any
other person in whom the director is interested or give any guarantee or provide any security in
connection with any loan taken by him or such other person. Thus, Mr. Kapoor had interest in
sanctioning this loan and did not disclose it with any of the other Board of Directors.

[¶13.] In any case where Section 185 is not complied with: - – The Lending Company will be punishable
with a fine not less than Rs. 5 lakh which can be extended to Rs 25 lakh (maximum).

– Any officer in default will be punishable with imprisonment for a term which may extend to 6 months or
fine which shall not be less than Rs.5 lakh but which may extend to Rs.25 lakh.

– The recipient of the loan will be punishable with imprisonment which may extend to 6 months or with fine
which shall not be less than Rs.5 lakhs but which may extend to Rs.25 lakhs or with both.

So here, Mr. Kapoor being the one under whose influence the Loan got sanctioned will be punishable and
the transaction is not at all valid when the loan which was wrote off was not disclosed to the shareholders,
exceeding the specified limit mention in the provision of Section 186 of companies Act, 2013.

[¶14.] The board of directors is entitled to exercise all such powers, and do all such acts and things, as the
company is authorized to do and exercise. The residuary powers of a company reside in the general meeting
of shareholders. Shareholders intervention is permissible only in exceptional circumstances such as (i) mala
fide behaviour of the directors (ii) incompetency of the board of directors.4 (iii) deadlock in the
management5 etc. The board cannot exercise any power or do any act which is to be exercised or done by
the company in general meeting.6 The directors may be liable to outsiders, to the company, or for breach of
statutory duties. Directors are not personally liable on contracts entered into as agents on behalf of the
company. They will be liable only where ordinary agents will be liable under those circumstances.
[¶15.] A shareholder is entitled to bring an action against the company in respect of matters which are ultra
vires the company and which no majority of shareholders can sanction. The conduct of a majority of
shareholders can also be impeached if it constitutes a "fraud on the minority." The court will interfere to
protect the minority where most of the company propose to benefit themselves at the expense of the
minority. Here, in this case Mr. Kapoor was the Majority shareholder in the year 2019 when the loan was
sanctioned, and as a matter of fact when the writing off of the loan was not disclosed to the shareholders, it
is a violation of the rights of the shareholders.
[¶16.] In the case of YOGESH CHANDRA GOYAL V KK GOEL AND SONS, It was clearly held by the

4
Glucoseries (P)Ltd. v. DebKanta Ray (2000) 38 CLA 39 Ca
5
Barron v.Pottter (1914) 1 Ch 895.
6
ibid
14
 Memorial for Petitioners
court stated that it was prohibited for the extension of loans directly or indirectly to any of the directors or
any other person in whom the director is being interested in or giving security in connection with any loan
shall be punished.

Therefore, it is humbly submitted before the Hon’ble Court that the related party transaction
is valid when writing off of loan was not disclosed to shareholders.

IV. ANY OTHER ISSUES AT THE DISCRETION OF THE HON’BLE COURT

[¶17.] It is humbly submitted before this Hon’ble Court that the petition filed by Gadgetpay Private
Limited, has other issues at the discretion of the Hon’ble Court in the likes of Coercion and Defamation.

4.1. Coercion –

[¶18.] Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code
(45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an agreement.7 In this case, Mr, Ashish
Kapoor has used coercion in the way by which he sanctioned the loan of Jubilee Pvt. Ltd. And wrote off the
loan without disclosing it to the other shareholders of the firm.

[¶19.] There was a conflict of interest between the directors and by mean of coercion, forcefully Mr.
Kapoor with the power of his influence entered into the loan agreement, that to which he wrote off without
letting other BOD know about it. Therefore, there was no such resolution for this agreement was passed.

4.2 Defamation -

[¶20.] Mr. Kapoor, in the press release stated that the 2 directors of the GadgetPay Company, Mr. Rohan
Mehra and Mrs. Fatima Poonawala threatened Mr. Kapoor and also stated that they both were investing in a
risky project. Mrs. Fatima Poonawala acted in good faith in the best interests of the company, to be fully
informed of the material issues, and to protect the interests of the shareholders. Once appointed, the director
is investing his time and expertise, and has 100% of his reputation riding on his performance as a director
and the success of the company. Mr. Kapoor, not only alleging against a single director but the entire
company at large states that there was a defamation against the company. The arguments for and against

7
Askari Mirza v. Bibi Jai Kishori, 1912 16 IC 344
15
 Memorial for Petitioners
Director investment are not clear cut. However, the arguments in favor of requiring Directors to invest are
stronger. Directors invest in a risky venture with the thought of more revenue generation and that is what
exactly the Board of Directors wanted. Shares and options are issued for contribution to the growth of the
company, subject to the wisdom and approval of the Board. Here, in this case there was nothing mentioned
about the fact that the shareholders had no idea about this investment, thus it can be taken into consideration
that there was a resolution which was passed among the BOD and by majority voting the agreement took
effect.

Also, pass any other relief that the Hon’ble Court may be pleased to grant in favor of the
Petitioner in the interest of justice, equity and good conscience, all of which is respectfully
submitted

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 Memorial for Petitioners

PRAYER

Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is
humbly prayed that this Honorable Court may be pleased to:
1. Declare, that the petition is maintainable before the Hon’ble High Court at Delhi.
2. Hold, that Mr. Ashish Kapoor should not be reinstated as the Director of GadgetPay
Private Limited and should be fined.
And/Or

-Pass any other order that it deems fit in the interests of Justice, Equity and Good
Conscience-
S/d-
Counsels for Petitioners

XVI