IN THE HIGH COURT OF BOMBAY

AT MUMBAI

Civil Appeal No. ____/2008

(Under S.96, Civil Procedure Code, 1908 r/w Rule 1, Bombay High Court Appellate Side
Rules, 1960)
MiniBank AG. ...Appellant
v.
Acero Steels Limited...Respondent
Clubbed with
Civil Appeal No. ____/2011
(Under S.96, Civil Procedure Code, 1908 r/w Rule 1, Bombay High Court Appellate Side
Rules, 1960)
MiniBank AG. ...Appellant
v.
Acero Steels Limited...Respondent
Clubbed With
Criminal No. ____/2011
(Under Art. 227, Constitution of India, 1950 r/w Rule 2, Bombay High Court Appellate Side
Rules,1960)
MiniBank AG. .Appellant
v.
Acero Steels Limited....Respondent
Written submissions on behalf of,
Team Code _______,
Counsel for the Appellant.
TABLE OF CONTENT

Index of Authorities..............................................................................................................iii
Statement of Jurisdiction......................................................................................................vii
Statement of Facts...............................................................................................................viii
Questions Presented..............................................................................................................xi
Summary of Pleadings.........................................................................................................xii
Pleadings................................................................................................................................1
I. An Event has Occurred which is Likely to Lead to a MAC................................................1
[A] THE CHANGE IN QUESTION IS MATERIAL TO THE TRANSACTION....................................1
[B] THE EVENT PERSISTED OVER SIGNIFICANT PERIOD OF TIME.............................................2
[C] THE EVENT COULD NOT HAVE BEEN ANTICIPATED BY EXERCISING DUE DILIGENCE.........3
II. In Any Event, the Appropriate Remedy is Awarding Damages...........................................4
III. The Scheme of Restructuring is Unfair, Unjust and Invalid................................................6
[A] THE CLASSIFICATION IS WRONGFUL..................................................................................6
[B] MATERIAL FACTS WERE NOT DISCLOSED...........................................................................9
[C] MINIBANKS OBJECTIONS TO THE SCHEME WERE NOT CONSIDERED...............................10
IV. Criminal Proceedings Against Acero are Not to be Quashed ...........................................10
[A] CREATION OF FLOATING CHARGE AMOUNTS TO BREACH OF TRUST................................11
[B] THE CREATION OF SECURITY IN FAVOUR OF CORONATION BANK CONSTITUTES A PRIMA
FACIE OFFENCE UNDER SEC

421 OF THE INDIAN PENAL CODE..............................................13

V. Mr Sheths Actions are Attributable to Acero....................................................................16

Prayer...................................................................................................................................19

INDEX OF AUTHORITIES
Indian Cases
Arvind Mills and Ors v. State of Gujarat and Ors, AIR 2003 SC 636.....................................19
Bhajan Lal v. State of Haryana, AIR 1992 SC 604..................................................................13
Bharati Central Bank Ltd, In re, (1949) ILR 127.....................................................................13
Bhuban Mohan Rana v. Surendra Mohan Das, ILR (1952) 2 Cal 23......................................16
C.S Aggarwal v. State, 2011 Indlaw DEL 2625.......................................................................18
Chatterjee Petrochem (India) Pvt Ltd v. Haldia Petrochemicals Ltd and Ors, (2008) 143
Comp Cases 726...................................................................................................................12
Duncan Agro v. CBI, 227 1996 SCALE (5) 99........................................................................15
Harakrishna Mahtab v. Emperor, AIR 1930 Pat. 209..............................................................19
Iridium v. Mororola, AIR 2011 SC 20.....................................................................................20
Jaikrishnadas Manohardas Desai and Ors v. State of Bombay; AIR (1960) SC 889...............16
Khandu Sonu v. State of Maharashtra, AIR 1972 SC 958.......................................................16
Krishan Kumar v. Union of India, AIR 1959 SC 1390............................................................16
Krishna H Bajaj v. Sesa Industries Ltd, (2009) 152 Com Cases 43.........................................11
Kurukshetra University v. State of Haryana, (1977) 4 SCC 451.............................................14
Miheer H Mafatlal v. Mafatlal Industries Ltd, (1996) 87 Com Cases 792................................7
NEPC v. Indian Oil, AIR 2006 SC 2780..................................................................................19
Pratibha Rani v. Suraj Kumar, 1985 (2) SCC 370....................................................................19
R. Raghavan v. Samarias Housing Finance Ltd., (1991) 1 CompLJ 155 (Mad)......................13
Ramautar Choukhany v. Hari Ram Todi, 1982 CriLJ 2266....................................................17
Shivnarayan Laxminarayan v. State of Maharashtra, AIR 1980 SC 439.................................17
SK Alagh v. State of Uttar Pradesh, (2008) 5 SCC 662...........................................................14
State of Gujarat v. Jaswantlal Nathalal, AIR 1978 SC 700......................................................14
State of Maharastra v. Syndicate Transport Pvt Ltd, AIR 1964 Bom 195...............................21
SW Palanattkar & Ors v. State of Bihar, 2002 (44) ACC 168..................................................13
Tara Singh v. Emperor, AIR 1938 All 449...............................................................................18
UP Government v. Manmohan Das and Ors, AIR 1941 All 345..............................................17
Velji Raghavji Patel v. State of Maharashtra, (1965) 2 SCR 492............................................16

English Cases
Anglo-Continental Supply Co Ltd, Re, (1922) 2 Ch 723, 736 (Ch D)......................................7
BNP Paribas SA v. Yukos Oil Company, (2005) EWHC 1321 (Ch)..........................................2
Braemar Investments Ltd, Re, (1988) 4 BCC 366.................................................................8, 9
Bristol Airport v. Powdrill, (1990) Ch. 744, 767 D-E................................................................6
Brumark Investments Ltd, Re, sub. nom. Agnew v. Commissioner for Inland Revenue,
(2001) 2 AC 710.........................................................................................................9, 10, 11
Cariboo Redi-Mix & Contracting Ltd. v. Barcelo, 1991 881 (BC SC)......................................2
Concord Trust v. Law Debenture Trust Corporation plc, (2005) UKHL 27..............................5
Dorman, Long & Co, Re, (1935) 5 Com Cases 30..................................................................12
English, Scottish and Australian Chartered Bank Ltd, Re, (1893) 3 Ch 385...........................11
Eximenco Handels AG v. Partrederiet Oro Chief and Levantes Maritime Corporation, (1983)
Lloyds Rep 509, 521.............................................................................................................6
Grupo Hotelero Urvasco SA v. Carey Value Added SL, (2013) EWHC 1039......................2, 5
Harmony Care Homes, Re, (2010) BCC 358...........................................................................11
Hill v. Spread Trustee Company, (2007) 1 WLR 2404............................................................12
Lewinson v. Farin, (1978) 2 ALL ER 1149................................................................................3
Locabail Intl Finance Ltd. v. Agroexport (The Sea Hawk), (1986) 1 ALL ER 901..................6
Medchl. Chemicals and Pharma Ltd v. Biological E Ltd. and Ors, 2000 3 SCC 269..............19
Moore v. Bresler, (1944) 2 All ER 515.....................................................................................21
New Bullas Trading Ltd, Re, (1993) BCLC 1389....................................................................11
Nordik Industries Ltd v. Regional Controller of Inland Revenue, (1976) 1 NZLR 194..............21
Rainy Sky SA v. Kookmin Bank, (2011) 1 WLR 2900.............................................................1
Re Ashpurton Estates Ltd, (1983) Ch. 110................................................................................9
Re Keenan Bros Ltd, (1986) BCLC 242..................................................................................11
Re, Kris Cruisers Ltd, (1948) 2 All ER 1105.............................................................................8
Re, Patrick & Lyon, (1933) 3 Com Cases 449.........................................................................12
Somji v. Cadbury Schweppes plc, (2001) BPIR 172...............................................................12
Sovereign Assurance v. Dodd, (1892) 2 QB 573.......................................................................7
Spectrum Plus Ltd, Re, (2005) UKHL 41........................................................................6, 9, 10
Tesco Supermarkets Ltd v. Nattrass, (1971) 2 WLR 1166.................................................20, 21
Wigan v English and Scottish Law Life Insurance, (1909) 1 Ch 291......................................18
WPP v. Tempus, Panel Statement 2001/15, 6 November 2001..................................................4

US Cases
Genesco, Inc. v. The Finish Line Inc., Case No. 07-2137-II (III) (Tenn. Ch. 2007)..................3
Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 2008 WL 4457544 (Del.Ch. 2008)......3
Hughes v. Lawson, 122 F 3d 1237, 1240 (9th Cir 1997)..........................................................17
IBP v. Tyson Foods, 2001 Del. Ch. LEXIS 81 (2001)...................................................1, 3, 4, 6
Osram Sylvania v. Townsend Ventures LLC, C.A. No. 8123-VCP (Del, 2013)........................3
Rubin v. Manufacturers Hanover Trust Co., 661 F 2d 979, 991 (2nd Cir 1981).......................18
Canadian Cases
Canadian Dredge & Dock Co v. The Queen, (1985) 1 SCR 662.............................................21
R v. Columbia Enterprises Co, 20 ACWS (2d) 228................................................................20
R v. St Lawrence Corporation, (1969) 2 OR 305.....................................................................22
R v. Waterloo Mercury Sales, (1974) 4 WWR 516..................................................................20
Re Canadian General Electric Company, (1956) 4 DLR (2d) 243...........................................20
Statutes
Companies Act, 1956........................................................................................................passim
The Indian Contract Act, 1872.................................................................................................12
The Transfer of Property Act, 1882..........................................................................................17

Books
A. Ramaiya, GUIDE TO THE COMPANIES ACT, Part III (17th edn. 2010)..................................13
COMPANY CHARGES: SPECTRUM AND BEYOND (J. Getzler, and J. Payne eds., 2006)..............9
POLLOCK AND MULLA THE INDIAN CONTRACT ACT AND SPECIFIC RELIEFS ACT, Vol. II
(N.Bhadbhade ed., 14th edn., 2012.............................................................................................5
R. Hooley, COMMERCIAL LAW AND COMMERCIAL PRACTICE (S.Worthington ed., 2003)........4
R. Olivares-Caminal et al, DEBT RESTRUCTURING (2011)......................................................12

Journals
A. Kapadia, and A. Jeydev, The Credit Crisis: Where It Came from, What Happened, and
How It Might End, 43(49) ECONOMIC AND POLITICAL WEEKLY (2004)...............................2
D.Gottschalk, Weaseling Out Of The Deal: Why Buyers Should Be Able To Invoke Material
Adverse Change Clauses In The Wake Of A Credit Crunch, 47(4) HOUSTON LAW REVIEW
(2010).....................................................................................................................................3
D. Cheng, Interpretation of Material Adverse Change Clauses in an Adverse Economy, 2
(564) COLUMBIA BUSINESS LAW REVIEW (2009)..................................................................4
K. Adams, A Legal Usage Analysis of Material Adverse Change Provision 10(1) FORDHAM
JOURNAL OF CORPORATE AND FINANCIAL LAW (2004).........................................................1
S. Worthington, An Unsatisfactory Area of Law Fixed and Floating Charges Yet Again,
7 INTERNATIONAL CORPORATE RESCUE (2010)...................................................................10

Miscellaneous
Practice Statement (Companies: Schemes of Arrangement), (2002) 1 WLR 1345.................13

STATEMENT OF JURISDICTION
APPEAL I
The appellant has approached this Honble Court under S. 96, Civil Procedure Code, 1908
r/w. Rule 1, Bombay High Court Appellate Side Rules, 1960.

APPEAL II
The appellant has approached this Honble Court under S. 96, Civil Procedure Code, 1908
r/w. Rule 1, Bombay High Court Appellate Side Rules, 1960.

APPEAL III
The appellant has approached this Honble Court under Art. 227, Constitution of India,1950
r/w. Rule 2, Bombay High Court Appellate Side Rules,1960.

STATEMENT OF FACTS
The Company and the Bank
Acero Steels Limited is a leading manufacturer and exporter of iron ore pellets. Most of its
business is with companies in the United States and continental Europe and a small
percentage of its exports are to China and other ASEAN countries. It had been in business
for more than twenty years and has achieved tremendous success.
In 2006, Acero decided to undertake expansion to meet the growing demand and approached
various banks for financing their proposal. Among others, they approached MiniBank AG, a
Swiss bank with their proposal and the bank agreed to provide them a loan of US $ 50
million.

The Facility Agreement

The loan was structured as a medium term loan facility. It was to be disbursed in two
tranches of US $ 25 million and to be repaid after 4 years of each installment. Interest was
payable on a quarterly basis. The parties entered the Facility Agreement on December 22,
2006 and Coronation bank, an Indian bank and also Aceros largest lender was appointed as
the facility agent and security trustee. A charge on book debts was created in favour of
MiniBank against the loan but wasnt registered as per the advice of their Indian solicitors,
Lex Legalistics. The first tranche was released on the date of the agreement itself. The
construction had started by December 2007. Acero had already started receiving orders from
around the world.

The Economic Meltdown

By mid-2008, the global financial crisis had begun to take its course. The impact of the crisis
was felt by Acero when some of its large orders from the US were cancelled. Matters
became worse with the fall of the Lehman Brothers in September 2008. Acero decided to
continue with its expansion plans in the meeting held in October 2008. On October 17 2008,
Acero issued a notice to MiniBank for releasing the second tranche of the loan. MiniBank
responded that they were under no obligation to release the installment according to the
terms of the Facility Agreement. MiniBank had imposed a lending freeze considering the

market downturn. Due to the deadlock in talks, Acero initiated legal proceedings in the
Bombay High Court for specific performance of MiniBanks obligations under the Facility
Agreement. [Suit 1]. The single judge of the High Court granted the remedy in favour of
Acero. MiniBank has preferred an appeal against the decision before this Honble Court
(Appeal 1).

The Default
The impact of the crisis on Aceros business became more profound in 2009. Acero defaulted
on the interest payment obligations towards MiniBank from the 3 rd quarter of 2009-10. It
also defaulted on two other principal amounts in the same period. MiniBank informed about
the Event of Default in writing. Ten weeks after this Event of Default, Mini Bank registered
its charge with the Registrar of Companies under the Companies Act, 1956 on the advice of
Lex Legalistics. MiniBank also instructed Acero to deposit its book debts into the Nominated
Account with MiniBank. However, Acero was allowed to withdraw money from the
Nominated Account.

The Restructuring
Due to its poor financial condition, Acero had no option but to go for debt restructuring
under the Companies Act, 1956. Acero convened a meeting of creditors on February 9, 2009
and proposed a debt restructuring package. Under the terms of the proposal, unsecured
lenders were to take a 30% hair cut on the amounts due to them and secured creditors were
required to grant a moratorium on the principal till 2017. MiniBank was against the proposal.
Acero drafted the scheme and approached the Bombay High Court to hold class meetings.
Meetings of four classes, namely secured creditors with fixed charge, secured creditors with
floating charge, unsecured creditors and preferential creditors was held on June 23, 2010.
MiniBank was placed under the category of unsecured creditor. Requisite majority from all
classes of creditors was achieved. Acero approached the Bombay High Court for sanction of
the scheme. MiniBank filed strong objections to the scheme on the grounds that meetings
were convened wrongly and the requisite majority wasnt obtained in a fair manner. [Suit 2]
MiniBank also gave standing instructions on June 30, 2010, prohibiting Acero from making
further withdrawals from the Nominated Account.

The Discovery
In August 2010, when the scheme was pending, MiniBank received facts about the deal
between Coronation Bank and Acero. Acero had prepaid 25% of the debts due to Coronation
Bank and created a charge on part of its borrowings (Rs. 20 crores) just two months before
the interest payment default towards MiniBank and principal default towards other two
lenders. This converted Coronation Bank to the status of secured creditors to the extent of
Rs. 20 crores. MiniBank added the ground of concealment of such material facts to its
objections in Suit 2. The single judge of the High Court sanctioned the scheme in November
2011. MiniBank has preferred an appeal against this decision before the Honble High Court
(Appeal 2).

The Criminal Proceeding

MiniBank decided to take an aggressive stance against the concealment of the transaction of
prepayment and creation of charge in favour of Coronation Bank. It initiated criminal
proceedings in the Sessions Court, Mumbai against Acero for criminal breach of trust and
fraud. Acero filed for quashing of the criminal proceedings under S. 482 of the Criminal
procedure Code [Suit 3]. After hearing the parties, the single judge of the High Court
exercised his jurisdiction under S.482 of the Criminal Procedure Code, 1973, and quashed
the proceedings. MiniBank has preferred an appeal against the same before the Honble High
Court (Appeal 3). While the appeals were pending, MiniBank assigned part of Aceros
outstanding debt to Vulture Distressed Fund LP, a firm specializing in distressed debts,
whereby Vulture Fund was willing to purchase 50% of the outstanding from Acero to
MiniBank at a discounted rate of 20%. It has been decided to club the three appeals
preferred by MiniBank against Acero, and to hear them in a composite fashion.

10

QUESTIONS PRESENTED
I.

WHETHER THE ECONOMIC DOWNTURN OF

2008

CAN BE CONSIDERED A MATERIAL

ADVERSE CHANGE?

II.

III.

WHETHER THE LOAN FACILITY AGREEMENT BE SPECIFICALLY ENFORCED?

WHETHER THE SCHEME OF RESTRUCTURING IS JUST, VALID, AND LIABLE TO BE

SANCTIONED?

IV.

V.

WHETHER THE CRIMINAL PROCEEDINGS AGAINST ACERO ARE TO BE QUASHED?

WHETHER ACERO CAN BE HELD CRIMINALLY LIABLE FOR THE ACTIONS OF MR. SHIV
SHETH?

VI.

WHETHER THE ASSIGNMENT OF DEBTS IN FAVOUR OF VULTURE DISTRESSED FUNDS LP

VALID?

11

SUMMARY OF PLEADINGS
I. AN EVENT HAS OCCURRED WHICH IS LIKELY TO LEAD TO AN MAC
It is submitted that an event has occurred which is likely to lead to an MAC. First, the
collapse of the global economy was precipitated by the events of the sub-prime lending crisis
of 2008, which adversely affected the profit earning capacity of Acero. Since 90% of Aceros
clients were in the US, the impact of the crisis could seriously undermine the companys
performance. These fears were vindicated when large orders from their clients got cancelled.
Second, the loan facility was granted on a medium-term basis and its repayment would be
due two years after the release of the second tranche. In an environment of financial
volatility, the Aceros performance for three consecutive quarters prior to default was dismal.
These events are sufficient to cast a serious doubt about the repayment abilities of the
borrower. Hence, it is submitted that the events of global economic crisis of 2008 and the
volatility in the market because of the failure of the Lehman Brothers Bank can be
considered events which is likely to lead to an MAC.
II. IN ANY EVENT, THE APPROPRIATE REMEDY IS DAMAGES
It is submitted that specific performance cannot be granted in this case and damages is the
appropriate remedy. First, a mere difficulty in computing damages cannot be a ground for
specifically enforcing the contract. An agreement to lend money is always quantifiable and is
never specifically enforced. The instant case is a commercial transaction involving a contract
with commensurate consideration. The volatility of economic conditions and complexity of
the agreement might make it difficult to compute the quantum of damages but it is not
impossible. Second, although subsequent to the global economic crisis, credit did become
harder to access in the market, mere difficulty in accessing alternative sources of credit
cannot be considered a ground for specifically enforcing the contract. Hence, it is submitted
the right remedy in this situation is awarding damages and not specific performance.
III. THE SCHEME OF RESTRUCTURING SHOULD NOT BE SANCTIONED
It is submitted that first, MiniBank is a secured creditor and has wrongly been classified as
unsecured creditor, which adversely affects its interests. The omission to register their charge
was caused by a breach of duty owed by their solicitors, and condonation of the delay does

12

not prejudice the interests of the other creditors in any way. Second, MiniBank is a secured
creditor with fixed charge over book debts after the Event of Default, since it possessed a
sufficient degree of control over the charged assets. Third, material information required to
be disclosed under S. 391 was not disclosed to the creditors before their approval for the
scheme was obtained. The transaction of prepayment and creation of floating charge in
favour of Coronation Bank was such a material fact and concealment of the transaction
vitiated the consent of the creditors. Fourth, even while wrongfully classified, MiniBank was
not allowed to voice its objections to the scheme. Thus, it is submitted that the scheme
should not be sanctioned.
IV. CRIMINAL PROCEEDINGS AGAINST ACERO ARE NOT TO BE QUASHED
The criminal complaint against Acero should not be quashed as there is a prima facie case of
breach of trust and fraud against Acero under SS. 405 and 421 respectively of the Indian
Penal Code, 1860. All ingredients of breach of trust are present in the said complaint. Acero
was entrusted with the book debts when it created a charge in favour of Coronation Bank. It
is submitted that such a transaction constituted an Event of Default under the agreement. On
an Event of Default, the Facility Agreement required Acero to start depositing the book debts
into MiniBanks Nominated Account but this was not done, thereby constituting breach of
trust. The charge creation also constitutes a fraud under S. 421 as there is an attempt to
defraud MiniBank by reducing the security cover available in case of liquidation. This is
clear from the act of granting a floating charge on the entire undertaking to Coronation Bank
without obtaining any adequate consideration in return. Thus, it is submitted that the
criminal complaint against Acero should not be quashed.
V. ACERO CAN BE MADE CRIMINALLY LIABLE FOR THE ACTIONS OF MR. SHETH
It is submitted that Acero is criminally liable for the acts of Mr. Sheth. First, the actions of
an employee can be attributed to that of the company if the Board of Directors have
delegated the officer with full discretion to act independently. In the instant case, Mr. Sheth
was given complete authority to spearhead the entire CDR process and to undertake all
interactions with the lenders. Although he was reporting to Mr. Shah he was not under
regular supervision and control. Since Mr. Sheth was given sufficient autonomy in this
particular transaction, his mens rea with respect to this transaction can be attributed to the
company. Second, Mr. Sheth was the most vital organ of the entire CDR process. He was

13

entrusted with the primary responsibility to represent the company in the CDR process.
Therefore with respect to this transaction Mr. Sheth can be considered the directing mind and
will and hence his actions can be attributed to the company.
VI. THE ASSIGNMENT OF DEBT IN FAVOUR VULTURE DISTRESSED FUNDS IS VALID
It is submitted that the assignment of debts by the appellant to Vulture Distressed Assets
Fund LP is valid. First, partial assignment of outstanding debts is a valid transfer as per
S.130 of the Transfer of Property Act, 1882. Second, Vulture Distressed Fund is not a lender
on record as defined by the RBI and hence there is no violation of RBI Master Circular on
External Commercial Borrowings.

14

PLEADINGS
I.

AN EVENT HAS OCCURRED WHICH IS LIKELY TO LEAD TO A MAC

1. To successfully trigger a claim of MAC three tests need to be satisfied. 1 First, the change so
occurred should be material to the transaction [A]. Second, the change should not be
temporary and should be likely to persist over a significant period of time [B]. Third, the
change could not have been foreseen by the person seeking to invoke the MAC clause even
by exercising due diligence [C]. It is submitted that in the instant case, all three conditions are
satisfied.
[A] THE CHANGE IN QUESTION IS MATERIAL TO THE TRANSACTION
2. In contracts involving MAC clauses Courts have given strict interpretation to the black letter
of the contractual provisions.2 It should be noted here that the MAC clause uses the term is
likely to lead to a material adverse change, 3 which makes it a forward looking MAC clause.4
In such situations, the person who is invoking the MAC clause has the burden to prove on the
balance of probabilities that the event so occurred is likely to lead to an MAC in the minds of
the reasonable man in the lenders position. On this issue, it is submitted that loss of profits for
three consecutive quarters could create apprehensions about the repayment abilities of the
borrower and that in agreements which include forward looking clauses like in the instant
case, the loss of a significant source of revenue could be considered sufficient to trigger an
MAC clause.

1 IBP v. Tyson Foods, 2001 Del. Ch. LEXIS 81 (2001) [IBP].

2 Rainy Sky SA v. Kookmin Bank, (2011) 1 WLR 2900.
3 See 3, Appendix A.
4 K. Adams, A Legal Usage Analysis of Material Adverse Change Provision 10(1)
FORDHAM JOURNAL OF CORPORATE AND FINANCIAL LAW 9, 16 (2004).

3. First, it has been laid down in Grupo Hotelero5 that in a facility agreement, a change can be
considered materially adverse if it is likely to affect the repayment abilities of the borrower.
Courts have also held that a serious loss in profits could cast significant doubts in the minds
of a lender on the repayment abilities of the borrower and hence can be considered a MAC. 6
In the instant case, the global economic crisis affected the economic position of Acero due to
the cancellation of the large orders from its customers in the USA. A number of major
corporations including AIG and Citigroup were seriously affected by the crisis, while others
including Lehman Brothers went bankrupt altogether. 7 Thus, it is submitted that the sudden
plummeting of economic stability, the tangible affect and its impact on Aceros profit earning
capacity for three consecutive quarters8 is sufficient for any reasonable man in the lenders
position to feel apprehensive of the borrowers repayment abilities.
4. Second, it has been stated that in agreements which include forward looking clauses, the loss
of a significant source of revenue could be considered sufficient to trigger an MAC clause. 9
In the instant case, the orders from the USA made up 90% of its exports. 10 The severe
economic downturn in the USA led to tangible losses for Acero as some of its large orders got
cancelled as a result of the macro-economic situation in 2008. Since these orders were the
major source of Aceros revenue, their cancellation is likely to cast serious doubts on the
repayment abilities of the borrower.

5 Grupo Hotelero Urvasco SA v. Carey Value Added SL, (2013) EWHC 1039 [Grupo
Hotelero].
6 BNP Paribas SA v. Yukos Oil Company, (2005) EWHC 1321 (Ch).
7 A. Kapadia, and A. Jeydev, The Credit Crisis: Where It Came from, What Happened, and
How It Might End, 43(49) ECONOMIC AND POLITICAL WEEKLY 33, 36 (2004).
8 See 7, Factsheet.
9 Cariboo Redi-Mix & Contracting Ltd. v. Barcelo, 1991 881 (BC SC) [Cariboo].
10 See 1, Factsheet.

[B] THE EVENT PERSISTED OVER SIGNIFICANT PERIOD OF TIME

5. To successfully invoke the MAC clause it should be proved that the changes should persist
for a significant time.11 In Osram,12 it was held that the significance of the duration should be
decided considering the intention of the parties and the nature of the transaction.
6. Acero may contend that a poor financial showing in three quarters is only a minor blip and
is not significantly long enough to constitute a MAC. However, the purpose of the Facility
Agreement was to provide a medium-term loan to Acero, the repayment of which was to be
made in four years after the disbursement of the each tranche. 13 In agreements involving
medium term loans, a consistently poor performance in a couple of quarters can be
considered significant enough for the lender to invoke an MAC provision.14
7. Post the 2007 sub-prime lending crisis, the credit crunch became so severe that it resulted in
prolonged recession, plagued with an exceptional increase in the bankruptcies filed by
hitherto healthy companies. In the beginning of 2007 itself, financial experts had opined that
the domino effect of this crisis would prolong significantly into the future. 15 Allied with
Aceros poor performance over three consecutive quarters immediately prior to the date of
repayment, any reasonable person in the position of a lender would feel apprehensive about
the repayment abilities of the borrower.
[C] THE EVENT COULD NOT HAVE BEEN ANTICIPATED BY EXERCISING DUE DILIGENCE
8. In IBP,16 it was held that a person seeking to invoke the MAC clause should not have known
or reasonably foreseen the event constituting the MAC while signing the MAC clause. It is
11 Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 2008 WL 4457544 (Del.Ch. 2008).
12 Osram Sylvania v. Townsend Ventures LLC, C.A. No. 8123-VCP (Del. Ch. Nov. 19, 2013)
(Parsons, V.C.) [Osram].
13 See 3, Appendix A, Factsheet.
14 Genesco, Inc. v. The Finish Line Inc., Case No. 07-2137-II (III) (Tenn. Ch. 2007).
15D.Gottschalk, Weaseling Out Of The Deal: Why Buyers Should Be Able To Invoke Material
Adverse Change Clauses In The Wake Of A Credit Crunch, 47(4) HOUSTON LAW REVIEW
1052, 1074 (2010).

submitted that the sudden downturn in the economy caused by the sub-prime lending crisis,
cancellation of large orders from the US and the general volatility of the economy were not
reasonably foreseeable to the appellant at the time of entering into the Facility Agreement.
9. Admittedly, it was opined in WPP17 that general macro-economic fluctuations are to be
anticipated by the person invoking the MAC clause. However, a MAC clause can still be
invoked if the gravity of the event is so high that it could not be anticipated by a reasonable
man in the lenders position.18
10. The global economy was reasonably strong until the property bubble burst in 2008. A marked
departure from the stable economic conditions of 2006, this sudden collapse had a domino
effect all around the world.19 The sub-prime lending crisis and the sudden collapse of Lehman
Brothers were not events that could have been anticipated by a reasonable person in the
lenders position. This is evident from the tremendous optimism displayed by Mr. Manoj
Asher during Aceros quarterly meetings in late 2007. Hence, the economic collapse cannot
be considered reasonably foreseeable. It is submitted that such an unanticipated change can
be considered an event which is reasonably likely to lead to a MAC and therefore the
appellant is not under an obligation to disburse the second tranche of the loan.
II.

IN ANY EVENT, THE APPROPRIATE REMEDY IS DAMAGES

11. In the event a person does not fulfill his/her contractual obligation and fails to prove an
MAC, then he has committed a breach of contract. 20. It is submitted that Acero is not entitled
to specific performance for three reasons. First, compensation in the form of damages is
ascertainable [A]. Second, monetary compensation is adequate relief [B]. Third, credit did not
become a scarce commodity [C].
16 IBP, 2001 Del. Ch. LEXIS 81 (2001).
17 WPP v. Tempus, Panel Statement 2001/15, 6 November 2001 [WPP].
18 R. Hooley, COMMERCIAL LAW

AND

COMMERCIAL PRACTICE 326 (S. Worthington ed.,

2003).
19 D. Cheng, Interpretation of Material Adverse Change Clauses in an Adverse Economy,
2(564) COLUMBIA BUSINESS LAW REVIEW 565, 580 (2009).
20 Concord Trust v. Law Debenture Trust Corporation plc, (2005) UKHL 27.

[A] COMPENSATION IN THE FORM OF DAMAGES ARE MONETARILY ASCERTAINABLE

12. Specific performance is an equitable remedy which is awarded in cases where monetary
damages are not ascertainable.21 These include transactions where the subject matter is
unique, and is of special importance to the either of the parties and not merely a commercial
transaction.22 In the instant case, the transaction between MiniBank and Acero was a purely
commercial transaction which included an agreement with a commensurate consideration.
Thus, there is a proper standard for ascertaining damages.
13. Moreover, the Courts have held that if a contract to lend money is breached then monetary
damages are easily ascertainable and hence specific performance cannot be granted. 23 Grupo
Hotelero,24 which dealt with a breach of contract involving a verbatim MAC clause in the
context of the 2008 global economic crisis, held that the mere volatility of the global
economic conditions cannot be a ground to contend that damages are not monetarily
ascertainable. Similarly, in IBP, it was opined that monetary assessment of the quantum of
damages in volatile macro-economic conditions is not impossible. Hence, it is submitted that
the contract need not be specifically enforced.25
[B] MONETARY COMPENSATION IS ADEQUATE RELIEF
14. The relief of specific performance cannot be granted for the non-performance of a contract
for which compensation is an adequate relief.26 These include contracts where the
consideration agreed upon during the formation of the contract itself was inadequate

21 S. 10(a), Specific Performance Act, 1967.

22 POLLOCK

AND

MULLA THE INDIAN CONTRACT ACT

1931 (N. Bhadbhade ed., 14th edn., 2012).

23Khunni Lal v. Bankey Lal, AIR 1934; ALL 449.
24 Grupo Hotelero, (2013) EWHC 1039.
25 IBP, 2001 Del. Ch. LEXIS 81 (2001), at 47.
26 S. 14(a), The Specific Relief Act, 1963.

AND

SPECIFIC RELIEFS ACT, Vol. II,

considering the market value of the property,27 and cases where damages in monetary value
cannot be recovered as the party concerned is not good for the money. 28 It is submitted that
the instant case does not fall into either alternative. The contract entered into was a
commercial contract with commensurate consideration. Moreover, MiniBank is in a financial
position to award damages in the form of monetary compensation. Hence, damages are the
adequate relief in this case.
[C] CREDIT DID NOT BECOME A SCARCE COMMODITY
15. It cannot be contended that it would be against the interests of justice to deny Acero a rightful
source of credit, which it otherwise would not have access to in a credit-scarce environment.
However, it was laid down in Powdrill29 that this ground can be considered to award specific
performance only in situations where it is impossible or extremely difficult to access credit.
The global economic crisis indeed makes credit scarce. The terms and conditions for
acquiring credit facilities became more expensive but they did not become so scarce that it
became impossible to access credit facilities. 30 The threshold of impossibility has not been
reached in this case and hence, this cannot be considered a valid ground for granting specific
performance.

27 Eximenco Handels A.G v. Partrederiet Oro Chief and Levantes Maritime Corporation,
(1983) Lloyds Rep 509, 521.
28 Locabail Intl Finance Ltd. v. Agroexport (The Sea Hawk), (1986) 1 ALL ER 901.
29 Bristol Airport v. Powdrill, (1990) Ch. 744, 767 D-E [Powdrill].
30 D. Murphy, A Preliminary Enquiry Into The Causes Of The Credit Crunch, 8(5)
QUANTITATIVE FINANCE, 435, 441 (2008).

III.

THE SCHEME OF RESTRUCTURING IS UNFAIR, UNJUST AND INVALID

16. The scope and ambit of the jurisdiction of the Court in sanctioning a scheme under S. 391 of
the Companies Act, 1956 was laid down in Mafatlal.31 First, the classification of MiniBank as
an unsecured creditor is wrongful and unjust [A]. Second, material facts relating to the
financial affairs of Acero were not disclosed to creditors including MiniBank [B]. Third,
MiniBanks objections to the scheme were not considered [C].
[A] THE CLASSIFICATION IS WRONGFUL
17. It is submitted MiniBank has been willfully and wrongfully classified as an unsecured
creditor. Two reasons are stated in support of this assertion. First, the delay in registration of
the charge is to be condoned [i]. Second, the ratio in Spectrum32 is inapplicable to the facts of
the present case, since MiniBank holds a fixed charge. Therefore MiniBank has been
wrongfully classified as an unsecured creditor.
i

The delay in registration of the charge is to be condoned

18. Under Indian law, a charge on the book-debts of the company needs to be compulsorily
registered and the particulars of the same have to be filed with the Registrar of Companies
within 30 days, or in case of a delay, 30 days thereafter, from the date of its creation. 33 Any
further delay however, has to be condoned by filing a petition before the Company Law
Board.34 A petition for condonation of delay must fully explain the circumstances which led
to the omission to register and must not merely plead inadvertence. 35 Hence, the underlying

31 Miheer H Mafatlal v. Mafatlal Industries Ltd, (1996) 87 Com Cases 792 [Mafatlal].
32 Spectrum Plus Ltd, Re, (2005) UKHL 41 [Spectrum].
33 S. 125(4)(d), Companies Act, 1956.
34 S. 141, Companies Act, 1956.
35 Re, Kris Cruisers Ltd, (1948) 2 All ER 1105.

guide to the exercise of the Courts discretion under this section is whether it would be just
and equitable to grant relief under the circumstances.36
19. It is submitted that while MiniBank did delay in registering the particulars of the charge
within the statutorily prescribed time period, there is sufficient cause to condone such delay.
The failure to register was on account of incorrect legal advice from MiniBanks solicitors,
M/s. Lex Legalistics & Partners. It was on the basis of such advice that MiniBank refrained
from registering the charge created by the Facility Agreement. 37.There is precedent to show
that where the omission to register is due to a breach of duty owed by the solicitors to the
bank, it is just and equitable that the charge be registered.38 Hence, it would be unjust and
unfair to preclude registration on the basis of a third party omission.
20. It is also submitted that condonation of delay will not prejudice the interests of other creditors
in the event of an insolvent liquidation. While the imminence of liquidation is a relevant
factor in considering condonation under this section,39 the overriding question must be
whether it would be just and equitable to grant the leave. 40 Post-insolvency rights of other
creditors would not be affected since condonation would merely place MiniBank in the same
position it would have been in, had it not been for its solicitors breach of duty. Hence where
registration is being effected not in lieu of the prospect of a forthcoming liquidation, but in
furtherance of a bona fide claim on the charged book-debts,41 it is submitted that the delay be
condoned, registration be effected, and MiniBank be declared a secured creditor, with a valid
charge on the book-debts of Acero.

36 Braemar Investments Ltd, Re, (1988) 4 BCC 366 [Braemar].

37 See 5, Factsheet.
38 Per Hoffmann J, Braemar, (1988) 4 BCC 366, 371.
39 Re Ashpurton Estates Ltd, (1983) Ch. 110.
40 Per Hoffmann J, Braemar, (1988) 4 BCC 366, 371.
41 Distinguishing Denning MRs ruling in Resinoid and Mica Products Ltd, In re, (1982) 3
All ER 677 (Court of Appeal).

i.

The ratio in Spectrum does not apply

21. After Spectrum,42 the essential difference between a fixed and a floating charge turns upon
the ability of the chargor to deal with the charged assets, removing them from the ambit of
the security without the consent of the chargee. In particular, the charge is floating if the
chargor is free to remove the charged assets from the scope of the security, and use them for
its own benefit in the course of business.43
22. Distinguishing Spectrum, it is submitted that in the present case, Acero does not have
sufficient control over the charged assets to render the charge floating. Unlike Spectrum, first,
the proceeds from the book debts were to be paid into a Blocked Account maintained with
MiniBank.44 Second, the Facility Agreement provided for express contractual restriction
prohibiting Acero from withdrawing any sum whatsoever from the charged proceeds in the
Blocked Account without written consent from MiniBank. 45 Third, Acero was permitted to
utilize the funds in the Blocked Account only for the exclusive benefit of MiniBank. Even
though Acero was permitted to withdraw funds without restrictions following the Event of
Default, it is to be noted that such free withdrawal (and not free utilization) could only be for
paying the sums owed by Acero to MiniBank under this Agreement. 46 A fortiori, it is
evident that the charge was to be necessarily preserved for MiniBanks benefit and therefore
Acero had no proprietary interest in the charged assets following crystallization. 47 Hence, the
ratio of Spectrum is inapplicable in the instant case.

42 Spectrum, (2005) UKHL 41.

43 S. Worthington, Floating Charges: Use and Abuse of Doctrinal Analysis in COMPANY
CHARGES: SPECTRUM AND BEYOND 29 (J. Getzler, and J. Payne eds., 2006).
44 See 15(c), Appendix A, Factsheet.
45 See 15(c), Appendix A, Factsheet.
46 See 15(c), Appendix A, Factsheet.
47 S. Worthington, An Unsatisfactory Area of Law Fixed and Floating Charges Yet
Again, 7 INTERNATIONAL CORPORATE RESCUE 6 (2010).

23. It is further submitted that the premise used by the Court of Appeal in New Bullas48 is most
appropriate in this fact situation that it is possible for a company to give a fixed charge over
present and future book debts and yet for the company to continue to use the proceeds for the
purpose of carrying on its business. This premise is best illustrated in the decision of the Irish
Supreme Court in Keenan.49 Here, a company was required to pay all book debt realizations
into a blocked account with the chargee bank, from which the company was expressly
prohibited from making drawings without the banks prior consent a restriction which
ultimately defined the charge as fixed. More recently, in Harmony Care,50 security granted in
respect of book debt realizations was held to be fixed. Since the chargor did not have the
requisite control required by the Spectrum test to describe a charge as floating. In light of the
facts, and the nature of Aceros control over the charged assets, it is henceforth submitted that
MiniBank has sufficient control over the charged assets to render its claim fixed. MiniBanks
classification as an unsecured creditor is therefore unfair, unjust and wrongful in law.
[B] MATERIAL FACTS WERE NOT DISCLOSED
24. The term material is taken to mean all relevant facts pertaining to the financial position of
the company51 and as such, it is prima facie evident that concealment of the fact of
prepayment and charge creation is sufficient to constitute a non-disclosure of material facts. 52
Hence, the scheme of restructuring is invalid under S. 14 of the Indian Contract Act, 1872.
Since creditors unaware of material affairs, they could not have given free consent as defined
by the Act,53 and any consent so given would be vitiated by fraud. 54 A scheme of compromise
between the creditors is looked on as something akin to a contract of uberrima fides and
48 New Bullas Trading Ltd, Re, (1993) BCLC 1389 [New Bullas].
49 Re Keenan Bros Ltd, (1986) BCLC 242 [Keenan].
50 Harmony Care Homes, Re, (2010) BCC 358 [Harmony Care].
51 Krishna H Bajaj v. Sesa Industries Ltd, (2009) 152 Com Cases 43.
52 Dorman, Long & Co, Re, (1935) 5 Com Cases 30.
53 S. 14, Indian Contract Act, 1872.

positive disclosure of material matters is required.55 Where consent is obtained through

concealment of material facts, there can be no legal consent. An allotment made pursuant to
such fraudulently obtained consent is invalid, and is liable to be cancelled.56
25. The transaction itself is invalid under a number of different provisions of the Companies Act,
1956. First, since Acero received no consideration in respect of the charge created in favour
of Coronation Bank, it is liable to be avoided as a transaction at an undervalue. 57 Second,
since Acero was unable to pay its debts following the creation of the floating charge over all
of its undertaking, the charge so created would be invalid in light of S. 534 of the Companies
Act, 1956.58 Third, the prepayment and charge creation amount to a fraudulent preference
under the Companies Act, 195659 since in the event of failure of restructuring and
commencement of liquidation proceedings, Coronation Bank would be in a better off position
due to such transaction, and would be deriving a benefit hitherto unavailable to similarly
situated creditors.60
[C] MINIBANKS OBJECTIONS TO THE SCHEME WERE NOT CONSIDERED
26. It is asserted that MiniBank has followed each procedural guideline in raising objections to
the proposed scheme. It attempted to voice its objections to the scheme as soon as notice of
the meeting showing classification was received, 61 but was overshadowed by the brute
54 S. 17(2), Indian Contract Act, 1872.
55 Somji v. Cadbury Schweppes plc, (2001) BPIR 172, at 24, 40-44 (Court of Appeal).
56 Chatterjee Petrochem (India) Pvt Ltd v. Haldia Petrochemicals Ltd. and Ors, (2008) 143
Comp Cases 726, 736.
57 S. 531A, Companies Act, 1956.
58 Re, Patrick & Lyon, (1933) 3 Com Cases 449.
59 S. 531, Companies Act, 1956.
60 R. Olivares-Caminal et al, DEBT RESTRUCTURING, 29 (2011).
61 Practice Statement (Companies: Schemes of Arrangement), (2002) 1 WLR 1345.

majority possessed by other unsecured creditors.62 It is a fundamental axiom of governance

that where heterogeneous interests are combined in a class, naturally, the majority having
common interest may ride roughshod over the minority representing a different interest. 63 Not
only did Acero fail to classify MiniBank rightfully, it also declined to provide due regard to
MiniBanks opposition to the scheme.
IV.

CRIMINAL PROCEEDINGS AGAINST ACERO ARE NOT TO BE QUASHED

27. It is submitted that the criminal complaint should not be quashed under S. 482 of the
Criminal Procedure Code, 1973. Jurisdiction under S. 482 is the inherent power of the High
Court and the section envisages three circumstances in which it can be used. First, to give
effect to an order under the Code; second, to prevent abuse of the process of the Court; third,
to otherwise secure the ends of justice. 64 This criminal petition raises none of these three
grounds.
28. In various cases, guidelines have been given by Courts as to the circumstances under which
the power of quashing criminal proceedings can be used under S. 482. 65 The underlying guide
to the exercise of the Courts discretion under this section is whether the FIR even if taken at
face value, constitutes a prima facie offence. Aceros transaction with Coronation Bank does
not meet any of these conditions. It is submitted that first, creation of charge prima facie
amounts to breach of trust [A]. Second, the creation of charge prima facie amounts to
cheating under S. 421 of the IPC [B].

62 See 14, Factsheet.

63 A. Ramaiya, GUIDE TO THE COMPANIES ACT, Part III, 4023 (17th edn. 2010).
64 SW Palanattkar & Ors v. State of Bihar, 2002(44) ACC 168.
65 Bhajan Lal v. State of Haryana, AIR 1992 SC 604.

[A] CREATION OF FLOATING CHARGE AMOUNTS TO BREACH OF TRUST

29. For any act to constitute a breach of trust, three ingredients are to be met: 66 First, there must
be an entrustment of property [i]. Second, there must be a dishonest misappropriation or
conversion of the property [ii]. Third, such misappropriation, must be in violation of any
direction of law prescribing the mode in which such trust is to be discharged, or of any legal
contract which the person has made, touching the discharge of such trust [iii].
i

There was an entrustment of property

30. Entrustment is the first ingredient for proving breach of trust. It means that there has to be a
property belonging to someone which is entrusted to the person accused of the offence under
S. 405 of the Indian Penal Code, 1860. 67 Blacks Law Dictionary defines entrustment as to
deliver to another something in trust or to commit something to another with a certain
confidence regarding his care, use or disposal of it.68 It has also been held that the
expression has wide and different implications in different contexts and the expression trust
has been used to denote various kinds of relationships like trustee and beneficiary, bailor and
bailee, master and servant, pledger and pledgee. 69
31. Following the above interpretation, it can clearly be stated that Acero was entrusted with the
book debts as soon as it created a floating charge in favour of Coronation Bank. 70 The Facility
Agreement between the parties had specifically declared that failure of Acero to comply with
any material provision of this Agreement that does not relate to any payment obligation
would constitute an Event of Default and on an Event of Default, Acero unconditionally and
irrevocably agreed that a charge on book debts shall be deemed to be granted to Mini
Bank immediately upon the occurrence of the Event of Default, without the need for any

66 SK Alagh v. State of Uttar Pradesh, (2008) 5 SCC 662.

67 State of Gujarat v. Jaswantlal Nathalal, AIR 1978 SC 700.
68 BLACKS LAW DICTIONARY, 533 (6th edn. 1990).
69 Duncan Agro v. CBI, 227 1996 SCALE (5) 99 [Duncan Agro].
70 See 16, Factsheet.

further consent, agreement, conduct or act on the part of either party.71 It is asserted
therefore that the Event of Default happened two months prior to the purported default i.e.
on creation of a charge in violation of an express negative covenant. After the Event of
Default, Acero was supposed to act as the trustee of the book debts for MiniBank and was not
supposed to deal or dispose of it within the normal course of its business.
ii.

The property has been willfully and dishonestly misappropriated

32. The second ingredient requires the entrusted property to be used or disposed of dishonestly.
In the instant case, as soon as the Event of Default happened, Acero was obligated to make
payments into the Nominated Account.72 Aceros failure to do so provides conclusive
evidence of failure to account for the property entrusted from the moment of the Event of
Default. It is a settled provision of law that it is not necessary to prove the specific mode of
misappropriation or disposal to constitute breach. It is sufficient to prove that there was
entrustment of property and failure, in breach of an obligation, to account for the property
entrusted. The offence is proved if it is established that the accused received the property and
that he was under a duty to account to the owner/beneficial interest holder and he had not
done so. This is sufficient in the light of the circumstances to prove breach of trust.73
33. Dishonesty as defined under S. 24 of the Indian Penal Code, 1860 means causing wrongful
loss or causing wrongful gain to someone. It is not a matter of direct proof but has to be
gathered from the facts and circumstances of the case. To prove the existence of a dishonest
intention, it is sufficient to show that the accused dealt with the property in a manner different
from the one what was enjoined as a part of his official duty.74
34. In this case, dishonesty can be seen from the fact that despite being aware about the negative
pledge clause and its violation being breach of contract, the company created a subsequent
security and actively concealed the fact of breach. It was only through a third party that this
fact came to the knowledge of MiniBank. This concealment caused loss to MiniBank as they
could not claim the charged assets. Further, it cannot be contended that the failure to account
71 See 15(c), Appendix A, Factsheet.
72 See 15(c), Appendix A, Factsheet.
73 Jaikrishnadas Manohardas Desai and Ors v. State of Bombay, AIR (1960) SC 889.
74 Krishan Kumar v. Union of India, AIR 1959 SC 1390.

for book debts was only temporary and that an Event of Default was anyway declared in
December. Even temporary misappropriation of property is covered under misappropriation.75
iii.

Such use was in violation of any legal contract which the person has made,
touching the discharge of such trust

35. It has been held in Velji Raghavji Patel76 that a special agreement regarding entrustment is
necessary to constitute a breach of trust. Only on violation of such agreement does breach of
trust occur.77 The creation of charge in favour of Coronation Bank was in violation of the
Facility Agreement between MiniBank and Acero which prohibited Acero from creating any
encumbrance without their written permission.78 Failure to account for entrusted book debts
was also in violation of the Facility Agreement.79
[B] CREATION OF FLOATING CHARGE CONSTITUTES A PRIMA FACIE OFFENCE OF CHEATING
36. To prove an offence under S. 421 of the Indian Penal Code, 1860, it must be shown that 80
first, the accused removed, concealed or delivered the property or that he transferred it or
caused it to be transferred to someone [i]. Second, such transfer was without adequate
consideration (ii). Third, the accused thereby intended to prevent, or knew that he was
thereby likely to prevent the distribution of that property according to law among his
creditors or creditors of another person [iii]. Fourth, the accused acted dishonestly and
fraudulently [iv].

75 Khandu Sonu v. State of Maharashtra, AIR 1972 SC 958.

76 Velji Raghavji Patel v. State of Maharashtra, (1965) 2 SCR 492 [Velji Raghavji Patel].
77 Bhuban Mohan Rana v. Surendra Mohan Das, ILR (1952) 2 Cal 23 (FB).
78 See 16, Appendix A, Factsheet.
79 See 15(c), Appendix A, Factsheet.
80 Ramautar Choukhany v. Hari Ram Todi, 1982 CriLJ 2266.

Creation of charge constituted a transfer

37. Transfer of property has been defined as an act by which a person conveys property, in
present or in future, to another living person.81 The latter part about conveyance in the future
includes a charge, as charge takes effect in case of a default. Transfer is a wide term and has
been interpreted to include direct or indirect, absolute or conditional, voluntary or involuntary
disposing of property.82
38. A charge on the whole of the undertaking of a company includes a charge on its book-debts.
A charge on a property can only be claimed by some action on that property besides
possession. Hence, a charge is a chose in action, or a right on property which can only be
claimed by some action in law, and not mere possession. 83 Since a chose in action is
considered property,84 a fortiori the creation of a charge (or a chose-in-action in respect of
the charge) constitutes a transfer of property.85 Therefore creation of a charge in favour of
Coronation Bank amounts to a transfer.
iv.

Such transfer was without adequate consideration

39. The charge was created without any adequate consideration being received in return. It
cannot be contended that the consideration was adequate merely because the charge was on
an antecedent debt. For antecedent debt to be considered adequate consideration, the value of
the debt and the property charge granted in lieu of it should be comparable in value. 86
Alternatively, there has to be evidence that the creation of charge led to the party agreeing to
forbear from suing for the debt.87 In this case, as the charge on the whole of the undertaking
was given on a debt of just 20 crores, it cannot count as proportional or reasonable. Nor is
81 S. 5, Transfer of Property Act, 1882.
82 Hughes v. Lawson, 122 F 3d 1237, 1240 (9th Cir 1997).
83 BLACKS LAW DICTIONARY, 301 (6th edn., 1991).
84 Shivnarayan Laxminarayan v. State of Maharashtra, AIR 1980 SC 439.
85 UP Government v. Manmohan Das and Ors, AIR 1941 All 345.
86 Rubin v. Manufacturers Hanover Trust Co, 661 F 2d 979, 991 (2nd Cir 1981).

there any proof of forbearance. Therefore, it is submitted that the transfer was without
adequate consideration.
v.

Transfer was done with requisite knowledge of legal implications

40. Acero was aware of its poor financial condition at the time this transaction was made. The
transaction happened 2 months before the interest payment default and 4 months before the
starting of debt restructuring. By end of 2009, the business of the company had been
adversely affected by the economic crisis of 2008. The charge was created in October 2009
and Acero was unable to meet interest payment obligation and principal obligations falling
due between October-December, 2009.88 The possibility of going into liquidation would not
have seemed far-fetched in such a situation.89 Hence, when Acero created a floating charge on
the entire undertaking in favour of Coronation Bank, it would have known that it was likely
to prevent the security to be made available exclusively to MiniBank in case of liquidation.
vi.

Acero has acted dishonestly and fraudulently

41. S. 421 is a subset of the general offence of cheating under S. 415 of the Indian Penal Code,
1860.90 It is difficult to get direct proof of dishonesty and hence, is to be garnered from the
circumstances.91 S. 24 of the Indian Penal Code, 1860 defines dishonesty as causing wrongful
loss or wrongful gain. Dishonesty is made clear by the fact that the Facility Agreement
contained a negative pledge clause. Despite having knowledge of this fact, a floating charge
was granted on the undertaking. This was unlawful as not only did it breach the contract, but
also changed the position of MiniBank from having an exclusive charge on book debts to
being one among the charge holders. In Arvind Mills92, disclosure of a similar kind of a

87 Wigan v English and Scottish Law Life Insurance, (1909) 1 Ch. 291, 297.
88 See 16, Factsheet.
89 Tara Singh v. Emperor, AIR 1938 All 449.
90 C.S Aggarwal v. State, 2011 Indlaw DEL 2625.
91 Harakrishna Mahtab v. Emperor, AIR 1930 Pat. 209.

transaction was considered fraudulent. A fortiori, non-disclosure is submitted to be all the

more fraudulent.
42. It is also not necessary that all the ingredients of the offence should be presented in the
complaint verbatim. What is necessary is that the factual foundation should be laid down in
the complaint. Hence, even if its assumed that some ingredients have not been explained in
detail, the complaint cannot be quashed. Jurisdiction under S. 482 should not be used to stifle
legitimate prosecution.93
43. Furthermore, it cannot be contended that the dispute is of civil nature requiring no criminal
prosecution as a transaction can give rise to both civil and criminal cause of action. 94 In the
instant case, the transaction is not just a bona fide breach of contract, but constitutes a
criminal offence due to the involvement of dishonesty in granting subsequent security. The
complaint satisfies the test of criminal profile outweighing the civil profile.95
V.

MR. SHETHS ACTIONS ARE ATTRIBUTABLE TO ACERO

44. It is submitted that although Mr. Sheth was not on the Board of Directors, his actions can be
attributed to the act of the company since for three reasons. First, it is submitted that Mr.
Sheths actions are within the scope of his delegated authority [A]. Second, Mr. Sheth was
the single most vital person in executing the whole process [B]. Third, Mr. Sheth was duly
authorized to represent the company [C].
[A] MR. SHETHS ACTIONS ARE WITHIN THE SCOPE OF HIS

DELEGATED AUTHORITY

45. A company can be held criminally liable for a wrongful act if the directing mind and will of
the company has the requisite mens rea for that particular act.96 An officer who is not on the
Board of Directors can still be considered the directing mind and will of the company if the
Board of Directors have delegated a part of their function to the officer, giving him full
92 Arvind Mills and ors. v. State of Gujarat and ors., AIR 2003 SC 636 [Arvind Mills].
93 NEPC v. Indian Oil, AIR 2006 SC 2780.
94 Pratibha Rani v. Suraj Kumar, 1985 (2) SCC 370.
95 Medchl. Chemicals and Pharma Ltd v. Biological E Ltd. and Ors, 2000 3 SCC 269.
96 Iridium v. Motorola Incorporated, AIR 2011 SC 20.

discretion to act independently.97 In cases where there has been delegation of authority, the
delegate is deemed to have complete operational autonomy unless it is shown that the Board
or the senior officials of the company exercised due diligence and constantly supervised the
work of the delegate.98 Moreover, if an officer has been given sufficient authority to plan and
lay out the method of work, then he can be considered the directing mind and will of the
company.99 In the instant case, Mr. Sheth was given authority to spearhead all the
transactions dealing with corporate debt restructuring and undertake all the interactions on
behalf of Acero with its lenders. This clearly suggests that he had the authority to plan and
layout the method of operation. Although he was reporting to Mr. Pramath Shah, 100 there is
nothing to suggest that he was constantly being supervised by his superior officers. Thus, it is
submitted that Mr. Sheths actions are within the scope of his delegated authority.
[B] MR. SHETH WAS THE SINGLE MOST VITAL PERSON IN EXECUTING CDR
46. Courts always take into consideration the degree of concentration of authority and the
importance of the person to the company to decide if a person has sufficient authority to
constitute the directing mind and will of the company. If a single person is vested with
sufficient authority to act on behalf of the company, then that individual is considered a vital
person for running the enterprise and is deemed to be the directing mind and will of the
company.101 In the Nordik Industries,102 a shareholder holding eighty percent of the shares was
considered the directing mind and will of the company because he was the single largest

97 Tesco Supermarkets Ltd v. Nattrass, (1971) 2 WLR 1166.

98 R v. Columbia Enterprises Co, 20 ACWS (2d) 228.
99 Re Canadian General Electric Company, (1956) 4 DLR (2d) 243.
100 See 9, Factsheet.
101 Canadian Dredge & Dock Co v. The Queen, (1985) 1 SCR 662.
102 Nordik Industries Ltd. v. Regional Controller of Inland Revenue, (1976) 1 NZLR 194
[Nordik Industries].

shareholder and is in a position of wielding considerable authority. In Moore,103 a single

company secretary having sufficient authority to act on behalf of the business as an important
officer of the company was considered to the companys directing mind and will. From the
facts of the instant case, it is evident that Mr. Sheth possesses such authority, and is therefore
submitted to be the single most vital person in executing debt restructuring.
[C] MR. SHETH WAS DULY AUTHORIZED TO REPRESENT THE COMPANY
47. If an employee of the company has been authorized as the primary representative of the
interests of the company with outsiders then he is said to be the officer through whom the
company thinks and acts.104 In the instant case, Mr. Sheth was made the primary
representative who had complete authority to represent the company in interactions with the
lenders and who also spearheaded the entire CDR process. Therefore with respect to this
transaction, Mr. Sheth can be considered the directing mind and will of the company. On the
basis of the above analysis, it is submitted that the actions of Mr. Sheth can be attributed to
the appellants.
VI.THE ASSIGNMENT OF DEBT IN FAVOUR OF VULTURE DISTRESSED FUNDS IS VALID
48. It is submitted that the assignment of debts by the appellant to Vulture Distressed Assets Fund
LP105 is lawful. The RBI Master Circular on External Commercial Borrowings have specified
an exhaustive list of entities which are eligible to become lenders.106 The term lender applies
only to those lenders who have been vested with effective control over the loans i.e, a lender
on record.107 Not only was the assignment of debt partial, MiniBank also had complete
authority to collect the dues from Acero and carry out actions which were necessary to give
103 Moore v. Bresler, (1944) 2 All ER 515 [Moore].
104 R v. St Lawrence Corporation, (1969) 2 OR 305.
105 Hereinafter VDF.
106 Part I, S. 1(A)(ii), Master Circular on External Commercial Borrowings and Trade
Credits,

Reserve

Bank

of

India

(2010),

available

at

http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8101 (Last accessed on

March 8, 2014). Hereinafter ECB guidelines.

full effect to the agreement.108 VDF does not satisfy the definition of lender on record as per
the ECB guidelines, and therefore, there is no violation of the same. Hence it is submitted
that the assignment is valid in law.

107 Richard White et al, THE LSTAS COMPLETE CREDIT AGREEMENT GUIDE, 507 (2009).
108 See 20, Factsheet.

PRAYER
Wherefore in light of the issues raised, arguments advanced and authorities cited, it is humbly
prayed that this Court may be pleased to hold, adjudge and declare that
1.
2.
3.
4.
5.
6.

The appeals filed by the Appellant are allowed.

There is no contractual obligation to provide specific performance of the loan.
The scheme of restructuring is rejected.
The decision of the High Court quashing the criminal proceedings stands reversed.
The Appellant is held criminally liable for the actions of its Finance Officer.
The assignment of debt is valid and lawful.

And pass any other order it may deem fit in the interest of justice, equity and good
conscience.
All of which is humbly prayed,
Team Code ______,
Counsel for the Appellant