TEAM CODE- K

IN THE HIGH COURT OF JUDICATURE

AT BOMBAY

CIVIL APPEAL NO. ____/2008

MINIBANK AG.APPELLANT
V.

ACERO STEELS LIMITED..RESPONDENT

AND
CIVIL APPEAL NO. ____/2011
MINIBANK AG.APPELLANT
V.

ACERO STEELS LIMITED..RESPONDENT

AND
CRIMINAL APPEAL NO. ____/2011
MINIBANK AG.APPELLANT
V.

ACERO STEELS LIMITED..RESPONDENT

WRITTEN

SUBMISSIONS ON BEHALF OF THE

APPELLANT

. PAGE 1
TABLE OF CONTENTS
TABLE OF CONTENTS..........................................................................................................i
INDEX OF AUTHORITIES..................................................................................................iii
LIST OF ABBREVIATIONS.................................................................................................vi
STATEMENT OF JURISDICTION.....................................................................................vii
QUESTIONS PRESENTED................................................................................................viii
STATEMENT OF FACTS......................................................................................................ix
SUMMARY OF PLEADINGS..............................................................................................xii
PLEADINGS............................................................................................................................1
I)

WHETHER MINIBANK BREACHED THE FACILITY AGREEMENT BY NOT

UNDERTAKING THE DISBURSEMENT OF THE SECOND TRANCHE OF THE LOAN.................1

A)

MINIBANK JUSTIFIABLY INVOKED THE MATERIAL ADVERSE CHANGE CLAUSE IN

THE

FACILITY AGREEMENT..................................................................................................1

1)

The test of materiality is satisfied........................................................................1

2)

The material adverse change was durationally significant...................................2

B)

ALTERNATIVELY, ACERO IS NOT ENTITLED TO SPECIFIC PERFORMANCE UNDER THE

FACILITY AGREEMENT.........................................................................................................2
1)

A loan agreement is rarely the subject of specific performance..........................3

2)

The subject matter cannot be regarded as unobtainable.......................................3

3)

Acero does not have the readiness and willingness to perform the terms of the

Facility Agreement.........................................................................................................4
4)

There exists standard for ascertaining actual damage..........................................4

5)

Specific performance will involve hardship on MiniBank, or give Acero an

unfair advantage or be inequitable to enforce specific performance.............................4

II)

WHETHER ACERO WRONGLY CONSTITUTED THE CLASSES UNDER THE DEBT

RESTRUCTURING SCHEME AND HAS FAILED TO COMPLY WITH ALL ITS OBLIGATIONS OF
DISCLOSURE..........................................................................................................................5

A)

MINIBANK IS A SECURED CREDITOR WITH A FIXED CHARGE.....................................5

1)

The Company Law Board rightly condoned the delay in registration of charge. 5

. PAGE 2
2)

The charge created by Acero crystallized on the occurrence of Event of Default

as notified by MiniBank.................................................................................................6
B)

ACERO HAS BREACHED ITS OBLIGATIONS UNDER THE FACILITY AGREEMENT..........7

1)

Acero has violated the Covenant in the Facility agreement.................................7

2)

Acero is precluded from taking the defence of Coronation Banks role as a

Facility Agent.................................................................................................................7
3)

Acero was under an obligation to disclose the pre-payment made to Coronation

Bank 8
(a)
4)
III)

All disclosures required statutorily have not been made by Acero..................8

The scheme of restructuring is unjust, unfair and unreasonable..........................9

WHETHER THE CRIMINAL PROCEEDINGS INITIATED AGAINST ACERO BY

MINIBANK SHOULD BE QUASHED......................................................................................10

A)

THE COMPLAINT AGAINST ACERO TAKEN AT ITS FACE VALUE AND ACCEPTED IN ITS

ENTIRETY, WITH REGARDS TO CRIMINAL BREACH OF TRUST DOES PRIMA FACIE

CONSTITUTE AN OFFENCE ALLEGED AGAINST ACERO........................................................10

1)

There was a transaction of hypothecation under the Facility Agreement..........11

2)

An element of entrustment exists.......................................................................12

3)

The ingredients of criminal breach of trust are fulfilled....................................14

B)

THE COMPLAINT AGAINST ACERO, WITH REGARDS TO CHEATING TAKEN AT ITS FACE

VALUE AND ACCEPTED IN ITS ENTIRETY, DOES MAKE OUT THE CASE ALLEGED AGAINST

ACERO................................................................................................................................14

C)

1)

The ingredient of mens rea has been fulfilled....................................................14

2)

ii) The other ingredients of cheating also have been fulfilled............................15

THE POWER TO QUASH THE PROCEEDINGS AGAINST ACERO SHOULD BE USED

SPARINGLY AND WITH ABUNDANT CAUTION, NOT PREJUDICING THE RIGHT OF THE
COMPLAINANT TO UNDERTAKE ALTERATION OF CHARGES.................................................16

PRAYER FOR RELIEF........................................................................................................18

MEMORIAL FOR THE APPELLANT

. PAGE 3

INDEX OF AUTHORITIES
STATUTES
Companies Act (1956)....................................................................................................5

Indian Penal Code (1860).......................................................................................14, 16

The Code of Criminal Procedure (1973)......................................................................16

The Specific Relief Act (1963)............................................................................3, 4, 5

INDIAN CASES
Ambica Quarry Works & Anr. v. State Of Gujarat & Ors. [1987] 1 SCR 562...............2

Bhavnagar University v. Palitana Sugar Mill (P) Ltd. [2003] 2 SCC 111.....................2

Bishambhar Nath Agarwal v. Kishan Chand [1998] AIR All 195.................................4

Chelloor Mankkal Narayan Ittiravi v. State of Travancore, Cochin,[1953] AIR SC 478

......................................................................................................................................11

Gomithinayagam Pillai v. Palaniswami Nadar [1967] 1 SCR 227................................4

Hitwardhak Cotton Mills Co. Ltd. v. Sorabji Dinshaw Karaka [1909] ILR 33 Bom 426
........................................................................................................................................3

Iridium India Telecom Ltd. v.Motorola Incorporated and Ors., [2011] AIR SC 20.....14

Jaswantrai Manilal Akhaney v. State of Bombay [1956] AIR SC 575........................14

Kailash Kumar Sanawatia v. State of Bihar [2003] 7 SCC 399...................................11

M/S Indian Oil Corporation v. M/S Nepc India Ltd., & Ors [2006] AIR SC 2780.....12

M/S Indian Oil Corporation v. M/S Nepc India Ltd., & Ors. [2006] AIR SC 2780....11

Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1996) 87 Comp. Cases 792 (SC)......10

Rajesh Bajaj v. State NCT of Delhi,[1999] 3 SCC 259................................................11

MEMORIAL FOR THE APPELLANT

. PAGE 4

Rupan Deol Bajaj v. Kanwar Pal Singh Gill [1995] 6 SCC 194..................................11

S.W. Palanitikar v. State of Bihar 2002 SCC (Cri) 129................................................11

Shaik Galim v. Sardarijan Bibi, (1916) 43 Cal 59.........................................................3

Standard Chartered Bank v. Directorate of Enforcement[2005] 4 SCC 405...............14

State of Haryana vs. Bhajanlal [1992 Supp (1) SCC 335]...........................................11

Velji Raghavji Patel vs. State of Maharashtra [1965] 2 SCR 429................................11

Yash Pal Mittal v State of Punjab [1977] AIR SC 243................................................16

FOREIGN CASES
Georges & Anor. v. Peter Wieland & Ors.[2009] NSWSC 733.....................................3

Grupo Hotelero Urvasco SA v Carey Value Added SL & Anor. [2013] EWHC 1039
(Comm)..........................................................................................................................1

Hexion Specialty Chemicals. v. Huntsman Corporation 965 A.2d 715, 738 (Del. Ch.
2008)..............................................................................................................................2

National Westminster Bank plc v. Spectrum Plus Limited & Ors. [2005] UKHL 41,..7,
13

Re Crompton & Co Ltd [1914] 1 Ch. 963.....................................................................6

Re Sussex Brick Co. Ltd., (1960) 1 ALL ER 772..........................................................9

Re, Kris Cruisers Ltd. [1948] 2 All ER 1105.................................................................6

Yorkshire Woolcombers Association Ltd., [1903] 2Ch 284...........................................6

BOOKS
A RAMAIYA, GUIDE TO COMPANIES ACT ( Part-III, 17th revised ed, 2010).........8

P. RAMANATHA AIYAR'S CONCISE LAW DICTIONARY (4th ed. 1911).............12

MEMORIAL FOR THE APPELLANT

. PAGE 5

POLLOCK AND MULLA, THE INDIAN CONTRACT ACT AND SPECIFIC

RELIEF ACTS, (14th ed. 2012).....................................................................................3

ARTICLES
David Cheng, Interpretation of Material Adverse Change Clauses in an Adverse
Economy, COLUMBIA BUSINESS LAW REVIEW 565............................................2
MISCELLANEOUS
Conflicts of Interest Policy Deutsche Bank Group, Deutsche Bank Compliance.......8

Dr.D.Amutha, Global Financial Crisis: Reflections On Its Impact On India,

Available at <<http:// www. ssrn.com>>.......................................................................3

ING Group Policy on Chinese Walls, Confidential & Inside Information, and
Conflicts of Interest, Available at <<http://www.ing.com/Our-Company/Aboutus/Compliance/Chinese-Walls>>...................................................................................7

Law Commission of India, Ninth Report (1958)..........................................................3

Master Circular on External Commercial Borrowings, RBI/2008-09/20, Master

circular no. /07/2008-09, July 1, 2008...........................................................................4

MEMORIAL FOR THE APPELLANT

. PAGE 6

LIST OF ABBREVIATIONS
AIR
All
ALL ER
ALL ER (D)
Anr.
Art.
Bom
Ch
Ed.
Jun
Ors.
p.
para.
RBI
S.
SC
SCC
SCJ
Supp
UKHL

All India Reporter

Allahabad
All England Reports
All England Reports Digest
Another
Article
Bombay
Chancery
Edition
June
Others
Page Number
paragraph
Reserve Bank of India
Section
Supreme Court
Supreme Court Cases
Supreme Court Journal
Supplementary
United Kingdom House of Lords

MEMORIAL FOR THE APPELLANT

PAGE 7

STATEMENT OF JURISDICTION
APPEAL I
The Counsels for the Appellant have the honour to submit before the Division Bench of
the Honble High Court of Judicature at Bombay, invoking its appellate jurisdiction under
Section-96 of the Civil Procedure Code, 1908 read together with Rule 1 of Chapter I of Part-I
of The Bombay High Court Appellate Side Rules, 1960.
APPEAL II
The Counsels for the Appellant have the honour to submit before the Division Bench of
the Honble High Court of Judicature at Bombay, invoking its appellate jurisdiction under
Section 96 of the Civil Procedure Code, 1908 read together with Rule 1 of Chapter I of Part-I
of The Bombay High Court Appellate Side Rules, 1960.
APPEAL III
The Counsels for the Appellant have the honour to submit before the Division Bench of
the Honble High Court of Judicature at Bombay, invoking its appellate jurisdiction under
Rule 1 of Chapter I of Part-I of The Bombay High Court Appellate Side Rules, 1960.
It is most respectfully submitted that the present Memorandum sets forth the facts,
contentions and arguments in the present case.
Counsels for the Appellant,
Place: Mumbai

MEMORIAL FOR THE APPELLANT

PAGE 8

QUESTIONS PRESENTED
1. Whether MiniBank breached the Facility Agreement by not undertaking
disbursement of the second tranche of the loan.
2. Whether Acero wrongly constituted the classes under the debt restructuring
scheme and has failed to comply with all its obligations of disclosure.
3. Whether the criminal proceedings initiated against Acero by MiniBank should be
quashed.

MEMORIAL FOR THE APPELLANT

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STATEMENT OF FACTS
Introduction
Acero Steels Limited (Acero) is a leading manufacturer and exporter of iron ore
pellets. 90% of its inventory is exported. Acero has been in this business for over 20 years,
and has enjoyed tremendous success. Mr. Manoj Asher, runs the business as the managing
director of the company. While the registered office and corporate office of Acero are in
Prabhadevi, Mumbai, its main plant is located in Panvel, on the outskirts of Mumbai. In 2006,
Acero drew up plans to undertake a significant expansion of its production capabilities and
sought to establish a new plant at Ranjangaon, near Pune, with a manufacturing capacity of
five million tonnes per year. In order to finance its expansion plans, Acero approached a
number of banks and financial institutions for financial support. It enlisted the services of
Brady Advisors Limited (Brady). Acero and Brady approached MiniBank AG
(MiniBank), a Swiss bank. MiniBank had a branch office in Mumbai from where it carried
out its lending operations, the key financing decisions were taken from its regional office in
Singapore. Mr. Pascal Berger, the Asia Operations Director of MiniBank visited Mumbai to
meet with Acero and Brady, and after some discussions it was agreed that MiniBank would
lend US$ 50 million to Acero in two instalments.
Material Adverse Change and Specific Performance
On December 22, 2006, Acero and MiniBank entered into a Facility Agreement setting
out the detailed terms and conditions of the loan and the security package. Coronation Bank,
an Indian banking company, was appointed as facility agent and security trustee under the
loan. Abovementioned loan was to be disbursed in two tranches of US$ 25 million each, the
repayment by Acero was to be made upon the expiry of four years from the date of each
disbursement. Interest was payable on a quarterly basis in arrears commencing the date of
disbursement. The first tranche of the loan was disbursed simultaneously with the execution
of the Facility Agreement. Within a period of two years from the date of this Facility
Agreement, Acero was entitled to draw down the second tranche of US$ 25 million by
providing at least 30 days written notice to MiniBank. However, this loan was to be
disbursed subject to the non-occurrence of a Material Adverse Change or any event or
circumstance that would reasonably be expected to result in a Material Adverse Change. In
mid-2008 the world began to be engulfed in the global financial crisis. Some of the large
orders of Acero from the US markets began getting cancelled. On October 17, 2008 when

MEMORIAL FOR THE APPELLANT

PAGE 10
Acero made a request to draw the second tranche of loan, MiniBank responded by saying
they were under no such obligation to do so. Due to a deadlock in the discussions between
Acero and MiniBank regarding the drawdown of the second tranche under the Facility
Agreement, Acero initiated legal proceedings before the Bombay High Court seeking specific
performance of MiniBanks legal obligations under the Facility Agreement. A single judge of
the Bombay High Court granted Aceros pleas, against which MiniBank filed an appeal
before the division bench of the High Court.- Appeal No. 1.
Corporate Debt Restructuring
The business of Acero was adversely affected due the crises, and it did not have
sufficient cash flow to service its debts, primarily due to default in payments by its customers
Acero was unable to meet its interest payment obligations from the 3rd quarter of 2009-2010,
and it also defaulted on repayment obligations. Approximately 10 weeks after the occurrence
of the Event of Default, MiniBank registered its charge pursuant to the Facility Agreement
with the RoC. MiniBank instructed Acero to deposit all amounts received from its customers
under the Nominated Account. Further, MiniBank issued standing instructions permitting
Acero to withdraw monies from the Nominated Account without any restrictions. These
standing instructions were revoked approximately 6 months later.
In early 2010, Acero opted out for Debt Restructuring Plan. Acero proposed a debt
restructuring package. It proposed that all unsecured creditors would receive 70 cents on the
dollar in full repayment of the amounts due to them and the secured creditors will receive
their full amounts in 2014.
Aceros debt restructuring plan was implemented through a scheme of arrangement
under the Companies Act, 1956. Acero drafted and proposed a scheme, and approached the
Bombay High Court to convene meetings of the different classes of creditors. These were (a)
Secured creditors with fixed charge; (b) Secured creditors with floating charge; (c) Unsecured
creditors; and (d) Preferential creditors. MiniBank was placed under the category of
unsecured creditors. Acero filed a petition before the Bombay High Court for sanction of the
scheme of arrangement and MiniBank filed strong objections stating that the classes were
wrongfully constituted and the majorities were wrongly obtained and hence the scheme
should not be sanctioned. MiniBanks objections included non-disclosure of information on
the part of Acero with regards to the prepayment of 25% of the debts due to it) to Coronation
Bank and the floating charge created in their favour in respect of the part of borrowings from
Coronation Bank. After prolonged hearings on the various objections placed by MiniBank,
the single judge of the Bombay High Court sanctioned the scheme of arrangement in

MEMORIAL FOR THE APPELLANT

PAGE 11
November 2011. Aggrieved by this decision, MiniBank has preferred an appeal before the
division bench of the Bombay High Court.- Appeal No. 2.
Criminal Proceedings against Acero
MiniBank initiated criminal proceedings before the Sessions Court in Mumbai against
Acero, its board, some of its officers as well as Coronation Bank and some of its officers, for
fraud and criminal breach of trust on account of Acero having made preferential payments to
Coronation Bank and created security in its favour, both in a manner that caused significant
detriment to the interests of the other creditors. Acero filed a petition before the Bombay
High Court under section 482 of the Criminal Procedure Code, 1973 seeking to quash the
criminal proceedings initiated against it. Acero contended that the entire transaction was
given effect to by the Finance Manager of Acero, Mr. Shiv Sheth, who was authorised to
undertake all interaction on behalf of Acero and was also responsible for spearheading the
corporate debt restructuring on behalf of Acero. After hearing the parties, in November 2011,
a single judge of the Bombay High Court exercised his jurisdiction under section 482 to
quash the criminal proceedings against Acero. Aggrieved by the judgment MiniBank has
preferred an appeal before a division bench of the Bombay High Court.- Appeal No. 3.
Conclusion
Mini bank received a proposal from Vulture Distressed Assets Fund LP (Vulture
Fund). Vulture Fund was willing to purchase 50% of the outstandings from Acero to
MiniBank at a discounted rate of 20%. Hence, for half of the outstandings, MiniBank would
be able to obtain 80% of the debt value from Vulture Fund as opposed to 70% from Acero
under the debt- restructuring scheme It has been decided to club the three appeals preferred
by MiniBank against Acero, and to hear them in a composite fashion. The matter is placed for
hearing before the appellate Court in March 2014.

MEMORIAL FOR THE APPELLANT

PAGE 12

SUMMARY OF PLEADINGS
1) Whether MiniBank breached the Facility Agreement by not undertaking the
disbursement of the second tranche of the loan.
It is submitted that MiniBank justifiably invoked the Material Adverse Change clause as
the change was material and durationally significant. Alternatively, it is argued that Acero is
not entitled to specific performance under the Facility agreement as loan agreements are
rarely a subject of specific enforcement. Also, the subject-matter, in the present case cannot
be said to be unobtainable to warrant specific performance. It is further submitted that Acero
does not have the readiness and willingness to perform its obligations under the Facility
Agreement. In addition to that, it is contended that there clearly exists a standard for
ascertaining damages. Lastly, it is submitted that the Court should not use its discretion to
grant specific performance to Acero because enforcing specific performance proves to be
inequitable and will involve substantial hardship on MiniBank.
2) Whether Acero wrongly constituted the classes under the debt restructuring
scheme and has failed to comply with all its obligations of disclosure.
It is submitted that MiniBank is a secured creditor with fixed charge by virtue of the
charge getting crystallized on the occurrence of the Event of Default. It is further contended
that the Company Law Board rightly condoned the delay in the registration of the charge,
hence making it a valid charge. Acero has breached its obligations under the Covenant in the
Facility Agreement. It has also not complied with all the obligations entailed on it under the
Companies Act regarding disclosure of material information. It is also argued that the scheme
of debt restructuring is not just, fair and reasonable. Therefore it is contended that the classes
for the scheme of debt restructuring have been wrongly constituted and hence the Court
should not sanction the same or grant permission for it to be implemented.
3) Whether the criminal proceedings initiated against Acero by MiniBank should
be quashed.
It is submitted that the complaint against Acero taken at its face value and accepted in its
entirety, with regards to criminal breach of trust and cheating does prima facie constitute an
offence alleged against Acero. With regards to criminal breach of trust, it is argued that there
is a transaction of Hypothecation undertaken between Acero and MiniBank, thereby giving
rise to entrustment. It is submitted that Acero, which held the property in trust for MiniBank,
by creating a charge in favour of Coronation Bank has committed criminal breach of trust.

MEMORIAL FOR THE APPELLANT

PAGE 13
Similarly it is contended that Acero by making a prepayment to Coronation Bank to the
extent of 25% of the debts due to it and by subsequently creating a floating charge in its
favour has committed the offence of cheating. This is substantiated by the arguing that there
was existence of mens rea and deception on the part of Acero. Lastly, it is submitted that the
Court should exercise its powers to quash the criminal proceedings with utmost caution,
without prejudicing MiniBanks rights to undertake addition of charges.

MEMORIAL FOR THE APPELLANT

PAGE
1
PLEADINGS

I) WHETHER

MINIBANK BREACHED THE FACILITY AGREEMENT BY NOT

UNDERTAKING THE DISBURSEMENT OF THE SECOND TRANCHE OF THE LOAN

A) MiniBank justifiably invoked the Material Adverse Change clause in the

Facility Agreement

The Facility Agreement entered by and between Acero and MiniBank provides for
MiniBanks entitlement to refuse the disbursement of second tranche of the loan subject to
the occurrence of a Material Adverse Change (MAC) or an event or circumstance that
would reasonably be expected to result in a MAC. 1 As a result on October 19, 2008,
MiniBank, pursuant to its entitlement denied Aceros request for drawdown of the second
tranche.2
1) The test of materiality is satisfied
The expression materiality in the context of material adverse change has been
characterized as a change which would have caused the bank not to lend at all or to lend on
significantly more onerous terms, example, as to margin, maturity or security 3 or as a change
that substantially affects the borrower's ability to repay4, or, more generally, significantly
increases the risks assumed by the lender.5 In other words, to be material, the adverse change
must be material in a substantial way to the borrower's ability to perform the transaction in
question.6 By mid-2008 when the world was beginning to get engulfed in the global financial
crisis, the impact was becoming visible on Aceros business.7 Its large orders from the United

1 MOOT PROBLEM, APPENDIX- TERM 2.

2 MOOT PROBLEM, 8.
3 GRUPO HOTELERO URVASCO SA V CAREY VALUE ADDED SL & ANOR. [2013] EWHC
1039 (COMM), 356.
4 ID. AT 353.
5 ID. AT 356.
6 ID.
7 MOOT PROBLEM, 7.

MEMORIAL FOR THE APPELLANT

PAGE
2
States got cancelled.8 In the light of these facts and the circumstances existing at that time, an
assessment of Aceros ability to meet its interest and principal payment obligations under the
Facility Agreement can be made and this can be said to substantially affect the Aceros ability
to perform the transaction in question. Hence, this proves the materiality of the change that
occurred.
2) The material adverse change was durationally significant
Acero had suffered tangible losses as on the date the lenders meeting was held for the
2nd quarter of 2008-2009.9 The said loan was structured for a term of approximately 6
years.10 The failure of a company to meet projected earnings for a quarter, is important to a
party with a short term interest.. 11 Hence, considering the short span of time at hand for
MiniBank, a short-term blip in its financial earnings is durationally significant in order to
determine whether or not a MAC has occurred. In cases where the Court has held that in
order for a Material Adverse change to be durationally significant, the company must have
suffered a material adverse effect in its business or results of operations that is consequential
to a companys earning power over a commercially reasonable period, which would be
measured in years rather than months.12 However, it is important to note that these were cases
decided in the light of facts where the parties involved were going concerns, therefore
making such cases inapplicable to the instant case. However, in the instant case, as pointed
out earlier, MiniBank is a short term interested party and hence even a short term blip can
justify their decision to invoke the MAC clause under the Facility Agreement.
Therefore it can be concluded that MiniBank rightly, invoked the Material Adverse
change clause and is thereby not in breach of its Facility Agreement.
B) Alternatively, Acero is not entitled to specific performance under the
Facility agreement

8 MOOT PROBLEM, 7.
9 CLARIFICATIONS TO THE MOOT PROBLEM, CLARIFICATION-8.
10 MOOT PROBLEM, 5.
11 DAVID CHENG, INTERPRETATION OF MATERIAL ADVERSE CHANGE CLAUSES IN AN
ADVERSE ECONOMY, COLUMBIA BUSINESS LAW REVIEW 565, 577.
12 HEXION SPECIALTY CHEMICALS. V. HUNTSMAN CORPORATION 965 A.2D 715, 738
(DEL. CH. 2008) AT 736.; AMBICA QUARRY WORKS & ANR. V. STATE OF GUJARAT &
ORS. [1987] 1 SCR 562; BHAVNAGAR UNIVERSITY V. PALITANA SUGAR MILL (P) LTD.
[2003] 2 SCC 111.

MEMORIAL FOR THE APPELLANT

PAGE
3
Assuming but however not accepting that MiniBank was in breach of the Facility
Agreement, it still cannot be specifically enforced.
1) A loan agreement is rarely the subject of specific performance
A contract to lend money is incapable of being enforced. 13 Loan agreements are rarely
the subject of decrees for specific performance, because damages are usually an adequate
remedy and those damages are usually the cost of obtaining a replacement loan on
commercial terms in the market.14 The Court will normally not compel an intended lender to
make a loan, irrespective of whether the loan is secured or unsecured.15 Hence, the
disbursement of the second tranche of the loan under the Facility Agreement cannot be
specifically enforced.

2) The subject matter cannot be regarded as unobtainable

Specific performance of any contract may, in the discretion of the Court, be enforced
when the act agreed to be done is such that the compensation in money for its nonperformance would not afford adequate relief.16 However, where the movable property is of
special value of interest to the plaintiff or consists of goods which are not easily available in
the market, then specific performance can be enforced. 17 Not easily available in the market
covers cases where the thing contracted for is not immediately available from other sources
and a breach of the contract would stop the operations of the plaintiffs establishment. 18
Indian banks and financial institutions did not experience the kind of losses and write-downs
that banks and financial institutions in the Western world have faced. 19 This shows that loans
13 HITWARDHAK COTTON MILLS CO. LTD. V. SORABJI DINSHAW KARAKA [1909] ILR 33
BOM 426; SHAIK GALIM V. SARDARIJAN BIBI, (1916) 43 CAL 59.
14 GEORGES & ANOR. V. PETER WIELAND & ORS.[2009] NSWSC 733, 37.
15 POLLOCK AND MULLA, THE INDIAN CONTRACT ACT AND SPECIFIC
RELIEF ACTS, 1931 (14TH ED. 2012).
16 THE SPECIFIC RELIEF ACT, 10(B) (1963) [HEREINAFTER SPECIFIC RELIEF
ACT] .
17 ID. AT 10.
18 LAW COMMISSION OF INDIA, NINTH REPORT 10 (1958) 10.
19 DR.D.AMUTHA, GLOBAL FINANCIAL CRISIS: REFLECTIONS ON ITS IMPACT ON INDIA,
AVAILABLE AT <<HTTP:// WWW. SSRN.COM>>, AT 7.

MEMORIAL FOR THE APPELLANT

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4
domestically from other sources were available as the condition of Indian Banks was
relatively insulated from the travails of their Western counterparts, hence not warranting
specific performance.20
3) Acero does not have the readiness and willingness to perform
the terms of the Facility Agreement

Specific performance of a contract cannot be enforced in favour of a person who fails to

aver and prove that he has performed or has always been ready and willing to perform the
essential terms of the contract which are to be performed by him. 21 While willingness is
merely a mental process, readiness is something to do with translating that will into action,
and is preceded by necessary preparation of being in a position to be ready. 22 Such readiness
and willingness to perform the contract must be shown upto the date of hearing. 23 Aceros
current financial condition viewed in the light of the debt restructuring programme
undertaken by it proves that Acero does not have the readiness to conform to its interest and
principal payment obligations.
4) There exists standard for ascertaining actual damage
Under Specific Relief Act, 1963, specific performance can be granted when there is no
standard to ascertain actual damages caused by non-performance of the act to be done. 24 The
damages can be ascertained as the difference between the rate of interest payable under the
said Facility Agreement in compliance with the Master Circular on External Commercial
Borrowings and Trade Credits.25 and the interest rates payable under the newly obtained
source of loan inclusive of the cost spent on obtaining the same.
5) Specific performance will involve hardship on MiniBank, or give
Acero an unfair advantage or be inequitable to enforce specific
performance

20 ID.
21 SPECIFIC RELIEF ACT, SUPRA NOTE 16, AT 16(C) (1963) .
22 BISHAMBHAR NATH AGARWAL V. KISHAN CHAND [1998] AIR ALL 195, -23.
23 GOMITHINAYAGAM PILLAI V. PALANISWAMI NADAR [1967] 1 SCR 227, -9.
24 SPECIFIC RELIEF ACT, SUPRA NOTE 16, AT 10(A) (1963) .
25 MASTER CIRCULAR ON EXTERNAL COMMERCIAL BORROWINGS, RBI/2008-09/20,
MASTER CIRCULAR NO. /07/2008-09, JULY 1, 2008.

MEMORIAL FOR THE APPELLANT

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5
The Court may exercise discretion not to exercise specific performance where the
specific performance will give Acero an unfair advantage over MiniBank, 26 or where the
performance will involve some hardship on the MiniBank 27 or where it is inequitable to
enforce specific performance of the contract.28 It is submitted that keeping in mind the current
position of Acero and the setback which MiniBank has had to suffer due to the scheme of
debt restructuring, and the defaults on interest payments, specifically enforcing the Facility
Agreement will be inequitable and will involve substantial hardship on MiniBank.
Therefore, Acero is not entitled to specific performance under the Facility Agreement.

II) WHETHER ACERO WRONGLY CONSTITUTED THE CLASSES UNDER THE DEBT
RESTRUCTURING SCHEME AND HAS FAILED TO COMPLY WITH ALL ITS
OBLIGATIONS OF DISCLOSURE

A) MiniBank is a secured creditor with a fixed charge

MiniBank was entitled to a charge over all the debts due to Acero from its customers,
which was deemed to be granted to it immediately on the occurrence of the Event of Default,
without need for any further consent, agreement, conduct or act on the part of either party.29
Under the debt restructuring plan of Acero, MiniBank was placed under the category of
unsecured creditors.30
1) The Company Law Board rightly condoned the delay in
registration of charge

The Company Law Board after being satisfied that the omission to file with the
Registrar the particulars of any charge was accidental or due to inadvertence or due to some
other sufficient cause or is not of a nature to prejudice the position of creditors or
shareholders of the company, accordingly may extend the time to complete the requisite

26 SPECIFIC RELIEF ACT, SUPRA NOTE 16, AT 20(2) (A) .

27 ID. AT 20(2) (B).
28 ID. AT 20(2) (C).
29 MOOT PROBLEM, APPENDIX A, TERM-15(A).
30 MOOT PROBLEM, 14.

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6
formalities.31 Some other sufficient cause under this section, would include wrong advice by
the solicitor or counsel to the company that registration need not be sought. 32 Upon the advice
of MiniBanks Indian solicitors, M/s. Legalistics & Partners, the charge when created under
the Facility Agreement was not registered with the Registrar of Companies but was registered
approximately 10 weeks after the occurrence of the Event of Default. 33 This shows that there
was sufficient cause as within the meaning of Sec-141(1)(a) justifying the delay in the
registration of the charge. Hence, the Company law Board rightly condoned the delay caused
in registration of the above charge.

2) The charge created by Acero crystallized on the occurrence of

Event of Default as notified by MiniBank

Crystallization is the attachment of specific assets of the Company hitherto constituting

a floating charge, upon the happening of a certain event recognized or prescribed by law. By
crystallization, the floating charge is converted into a fixed charge fastening on all charged
assets in which the company then has or subsequently acquires an interest. 34 Upon the first
default by Acero on its interest payments under the Facility Agreement, MiniBank informed
Acero in writing of the occurrence of an Event of Default. 35 The charge over all the debts due
to Acero from its customers was deemed to be granted to MiniBank immediately upon the
occurrence of the Event of Default.36 MiniBank was free to carry on its business in the
ordinary way as far as it concerned the charged class of assets, proving the nature of charge to
be floating.37 After declaring an Event of Default, MiniBank instructed Acero to deposit all
amounts received from its customers under the Nominated Account maintained with it in
accordance with the terms and conditions of the Facility Agreement. 38 The essential test of
whether a charge is a fixed charge relates to the chargor's power to continue to deal with the
31 COMPANIES ACT, 141(1)(A) (1956).
32 RE, KRIS CRUISERS LTD. [1948] 2 ALL ER 1105, 1107.
33 MOOT PROBLEM, 5, 10.
34 RE CROMPTON & CO LTD [1914] 1 CH. 963, 964.
35 MOOT PROBLEM, 10
36 MOOT PROBLEM, APPENDIX A, TERM-15(A)
37 YORKSHIRE WOOLCOMBERS ASSOCIATION LTD., [1903] 2CH 284, 295.
38 MOOT PROBLEM, 11

MEMORIAL FOR THE APPELLANT

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7
asset.39 In order to preserve the status of a charge as a fixed one, the bank must exercise actual
control over disposal of the assets.40 Although Acero immediately began making payments
into the Nominated Account, MiniBank issued standing instructions (which were revoked
only about six months after the occurrence of the Event of Default, as notified by MiniBank)
permitting Acero to withdraw monies from the Nominated Account without any restrictions. 41
The ultimate control to revoke the standing instructions, vested with MiniBank which is
inconsistent with the nature of a floating charge, hence making them fixed charge holders.

B) Acero has breached its obligations under the Facility Agreement

1) Acero has violated the Covenant in the Facility agreement

The Covenant in the Facility Agreement required Acero to seek MiniBanks written
consent before creating any mortgage, charge, pledge, lien, or other encumbrance on any of
its property to secure any indebtedness.42 No such written consent was obtained by Acero
from MiniBank, hence violating the Covenant in the Facility Agreement.

2) Acero is precluded from taking the defence of Coronation Banks

role as a Facility Agent

Coronation Bank was appointed as the Facility Agent under the loan. 43 Acero granted a
floating charge in respect of the part of the borrowings from Coronation Bank 44 Chinese
walls are the invisible "walls" between business units within a single company to prevent
conflicts of interest when employees of two or more business units serve the same client. 45
39 NATIONAL WESTMINSTER BANK PLC V. SPECTRUM PLUS LIMITED & ORS. [2005]
UKHL 41, 107 [HEREINAFTER NATIONAL WESTMINSTER BANK CASE] .
40 ID. AT 89.
41 ID.
42 MOOT PROBLEM, APPENDIX, TERM-16.
43 MOOT PROBLEM, 5
44 MOOT PROBLEM, 16
45 ING GROUP POLICY ON CHINESE WALLS, CONFIDENTIAL & INSIDE INFORMATION,
AND CONFLICTS OF INTEREST, PAGE-9, AVAILABLE AT <<HTTP://WWW.ING.COM/OURCOMPANY/ABOUT-US/COMPLIANCE/CHINESE-WALLS.>>

MEMORIAL FOR THE APPELLANT

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8
Chinese wall policies are designed to restrict information flows between different areas of the
Bank.46 Such measures enable the Bank and relevant persons to carry out business on behalf
of clients without being influenced by other information held within the Bank that may give
rise to a potential Conflict of Interest. 47 In the instant case, with respect to Coronation bank,
by virtue of the existence of such a mechanism it can be concluded that such walls existed
even between the lending and Facility Agent functions of Coronation Bank, thus restricting
the flow of any information between two such functioning departments. Hence, Acero is
precluded from taking the defence of their responsibility of obtaining MiniBanks written
consent being waived by the mere presence of a Facility Agent, under the Covenant of the
Facility Agreement.
3) Acero was under an obligation to disclose the pre-payment made
to Coronation Bank

(a) All disclosures required statutorily have not been made by

Acero

When a scheme is proposed, there are two stages at which disclosures have to be made:
Firstly, disclosure under Section 393(1) and secondly, disclosure under the proviso to
Section391(2).
The proviso to Section 391(2) provides that no order sanctioning any compromise or
arrangement shall be made unless the Court is satisfied that the company has disclosed to
the Court, by affidavit or otherwise, all material facts relating to the company, such as the
latest financial position of the company, the latest auditor's report on the accounts of the
company, the pendency of any investigation proceedings in relation to the company under
Sections 235 to 251, and the like.
The disclosure has to be such that the Court may not proceed to sanction an arrangement
or amalgamation with too little material on record and without information as to important
facts which if were present before the Court, would weigh heavily against the sanction of the
scheme.48 In the scheme of restructuring, being undertaken by Acero, all unsecured creditors

46 CONFLICTS OF INTEREST POLICY DEUTSCHE BANK GROUP, DEUTSCHE BANK

COMPLIANCE, 8.1.
47 ID.
48 A RAMAIYA, GUIDE TO COMPANIES ACT 4100 ( PART-III, 17TH REVISED ED,
2010).

MEMORIAL FOR THE APPELLANT

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9
were being made to forego 30% of the amount of facility provided by them to Acero, 49
interest payment obligations and principal repayments were being rescheduled. Acero struck
a deal with Coronation Bank, who happen to be one of Aceros largest lenders to make a
prepayment of upto 25% of the loan due to them and also created a floating charge in their
favour in respect of the borrowings representing Rs. 20 crore, which were hitherto
unsecured.50 Both the events of the creation of the charge as well as the preferential payment
were undertaken approximately two months prior to the committing of defaults by Acero on
its interest and principal payment obligations.51 By the time the aforesaid charge was created
and preferential payment was made, not only had big orders of Acero got cancelled 52 but
Acero had also experienced tangible losses 53.

This piece of information was of prime

importance as this succinctly puts forth that all unsecured creditors will lose 30% of the
amount due to Acero except for Coronation Bank which will forego an amount definitely
lesser than 30% i.e. although it is an unsecured creditor, it availed an advantage which the
other unsecured creditors did not. Similarly both principal and interest payments have been
rescheduled, to say the least these payment obligations have been delayed for every other
creditor, but for one creditor which is Coronation Bank as it has been provided with a
preferential payment of 25% of the amount. Therefore it is submitted that all mandatorily
required disclosures under the Companies Act which were material have not been made by
Acero.

4) The scheme of restructuring is unjust, unfair and unreasonable

Any scheme of debt restructuring which is fair and reasonable and made in good faith
will be sanctioned if it could reasonably be supported by sensible people to bear for the
benefit to each class of the members or creditors concerned. 54The facts presented before this
Court further merit an order for rejecting the scheme of arrangement of restructuring as the
49 MOOT PROBLEM, 12
50 MOOT PROBLEM, 16
51 ID.
52 MOOT PROBLEM, 7.
53 CLARIFICATIONS TO THE MOOT PROBLEM, CLARIFICATION 8.
54 RE SUSSEX BRICK CO. LTD., (1960) 1 ALL ER 772, 772-773.

MEMORIAL FOR THE APPELLANT

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10
scheme is Unjust, unfair, unreasonable. On a conjoint reading of the relevant provisions of
Sections 391 and 393 it becomes at once clear that the Company Court which is called upon
to sanction such a scheme has not merely to go by the ipse dixit of the majority of the
shareholders or creditors or their respective classes who might have voted in favour of the
scheme by requisite majority but the Court has to consider the pros and cons of the scheme
with a view to finding out whether the scheme is fair, just and reasonable and is not contrary
to any provisions of law and it does not violate any public policy. 55 No court of law would
ever countenance any scheme of compromise or arrangement arrived at between the parties
and which might be supported by the requisite majority if the Court finds that it is an
unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of
shareholders or creditors for whom it is meant. 56 Consequently it cannot be said that a
Company Court, has to act merely as rubber stamp and must almost automatically put its seal
of approval on such a scheme, when the requisite majority has been obtained. 57 In the present
case, it is contended that the debt restructuring scheme as proposed by Acero is not just, fair
and reasonable.
Therefore it is submitted that the scheme of debt restructuring initiated by Acero should
not be sanctioned or permitted to be implemented.
III) WHETHER THE CRIMINAL PROCEEDINGS INITIATED AGAINST ACERO BY
MINIBANK SHOULD BE QUASHED

On October 25, 2010, MiniBank initiated criminal proceedings before the Sessions
Court in Mumbai against Acero for fraud and criminal breach of trust on account of Acero
having made preferential payments to Coronation Bank and created security in its favour,
both in a manner that caused significant detriment to the interests of the other creditors58
A) The complaint against Acero taken at its face value and accepted in its
entirety, with regards to criminal breach of trust does prima facie
constitute an offence alleged against Acero

55 MIHEER H. MAFATLAL V. MAFATLAL INDUSTRIES LTD. (1996) 87 COMP. CASES 792,

812 (SC).
56 ID.
57 ID.
58 MOOT PROBLEM, 18.

MEMORIAL FOR THE APPELLANT

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11
While the Court is exercising jurisdiction under Section 482 of the Code of Criminal
Procedure 1973 (year), it examines the complaint as a whole but without examining the
merits of the allegations. Neither a detailed inquiry nor a meticulous analysis of the material
nor an assessment of the reliability or genuineness of the allegations in the complaint is
warranted while examining prayer for quashing of a complaint. 59 The complaint is not
required to verbatim reproduce the legal ingredients of the offence alleged. 60 If the necessary
factual foundation is laid in the complaint, merely on the ground that a few ingredients have
not been stated in detail, the proceedings should not be quashed 61 Also quashing of the
complaint is warranted only where the complaint is so bereft of even the basic facts which are
absolutely necessary for making out the offence.62
The offence of Criminal breach of trust involves the following ingredients (a) a person
should have been entrusted with property, or entrusted with dominion over property; (b) that
person should dishonestly misappropriate or convert to his own use that property, or
dishonestly use or dispose of that property or wilfully suffer any other person to do so; (c)
that such misappropriation, conversion, use or disposal should 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. 63 The sine qua non for an
offence of criminal breach of trust is that the person has to be entrusted with the property 64 or
entrusted with any dominion over property65. Further, it is necessary that the ownership or
beneficial interest in the ownership of the property entrusted in respect of which an offence is

59 STATE OF HARYANA VS. BHAJANLAL [1992 SUPP (1) SCC 335] 105; RUPAN DEOL
BAJAJ V. KANWAR PAL SINGH GILL [1995] 6 SCC 194, 8; ZANDU PHARMACEUTICAL
WORKS LTD. V. MOHD. SHARAFUL HAQUE [2005] 1 SCC 122 10.
60RAJESH BAJAJ V. STATE NCT OF DELHI,[1999] 3 SCC 259, 9..
61 ID.
62 ID.
63 S.W. PALANITIKAR V. STATE OF BIHAR 2002 SCC (CRI) 129, 10; KAILASH KUMAR
SANAWATIA V. STATE OF BIHAR [2003] 7 SCC 399, 8; M/S INDIAN OIL CORPORATION V.
M/S NEPC INDIA LTD., & ORS. [2006] AIR SC 2780, 17.
64 CHELLOOR MANKKAL NARAYAN ITTIRAVI V. STATE OF TRAVANCORE, COCHIN,[1953]
AIR SC 478, 21[HEREINAFTER CHELLOR MANKKAL].
65 VELJI RAGHAVJI PATEL VS. STATE OF MAHARASHTRA [1965] 2 SCR 429, 433.

MEMORIAL FOR THE APPELLANT

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12
alleged to have been committed must be in some person other than the accused and the latter
must hold it on account of some person or in some way for his benefit.66

1) There was a transaction of hypothecation under the Facility

Agreement

Hypothecation has been defined as the act of pledging an asset as security for
borrowing, without parting with its possession or ownership. The borrower enters into an
agreement with the lender to hand over the possession of the hypothecated asset whenever
called upon to do so. The charge of hypothecation is then converted into that of a pledge and
the lender enjoys the rights of a pledgee. 67
As per section 2(n) of) Securitisation and Reconstruction of Financial Assets &
Enforcement of Security Interest Act, 2002, a charge in or upon any movable property,
existing in future, created by a borrower in favour of a secured creditor, without delivery of
possession of the movable property to such creditor, as a security for financial assistance and
includes floating charge and crystallization of such charge into fixed charge on movable
property.
In the present case, MiniBank was entitled to have a charge over all the debts due to
Acero from its customers which was to take effect on the occurrence of the Event of
Default.68 This shows that there is a transaction of hypothecation which has been undertaken
by the parties.
2) An element of entrustment exists
When the Supreme Court considered the question of the presence of entrustment in a
transaction of hypothecation, the facts were such that neither the party complaining of
criminal breach of trust was the owner or had beneficial interest in the ownership of property
nor an event had taken place whereby the right to take possession in favour of the
hypothecatee had ensued. Even while deciding those cases Supreme Court had taken note of
the absence of the aforementioned rights. In the instant case, MiniBank had the right over all
the debts due to Acero from its customers and such amount was to be deposited in a
66 CHELLOR MANKKAL, SUPRA NOTE 64 .
67 P. RAMANATHA AIYAR'S CONCISE LAW DICTIONARY 591 (4TH ED. 1911); M/S
INDIAN OIL CORPORATION V. M/S NEPC INDIA LTD., & ORS [2006] AIR SC 2780, 19.
68 MOOT PROBLEM, APPENDIX, TERM 15(A).

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13
nominated and blocked bank account maintained by MiniBank 69 which had ensued due to the
occurrence of the Event of Default which occurred on October 17, 2008. The reasons for the
same are that by October 17, 2008 Acero was in a position where some of its large orders had
been cancelled.70 Also it had experienced tangible losses.71 Non disclosure of the above
circumstances in the draw down notice that was sent on October 17, 2008 requesting for the
second tranche of the loan72 would have amounted to an Event of Default as per clause 15(b)
(iii) of the Facility Agreement.73 The said Event of Default did occur in fact on account of non
disclosure of the aforementioned facts. This can be seen because even after the date of the
issuance of the drawdown notice, Acero did not deposit the amount received from its
customers into its nominated and blocked bank account maintained by MiniBank. The action
of depositing the amount received by Acero from its customers had to be done without
receiving any instructions from MiniBank as it was stated unequivocally in the Facility
Agreement that the charge on book debts created by Acero in favour of MiniBank shall be
deemed to be granted to MiniBank immediately upon the occurrence of Event of Default
without need for any further consent, agreement, conduct or act on the part of either party.74
What is being granted by clause 15(a) is a right which ensues from a fixed charge, the nature
of charge being fixed is depicted by clause 15 (c) of the Facility Agreement 75. Therefore the
possession which should have been provided to MiniBank was not provided in contravention
of the contractual obligation, thus the payments made by Aceros customers to Acero were
being held in trust by Acero for MiniBank upto the proportion of unpaid interest and principal
payments due to MiniBank. The charge created in favour of Coronation bank was created two
months prior to Acero defaulting on its interest and principal payment obligations which is
69 MOOT PROBLEM, APPENDIX, TERM- 15.
70 MOOT PROBLEM, 7
71 CLARIFICATIONS TO THE MOOT PROBLEM, CLARIFICATION-8.
72 MOOT PROBLEM, 8
73 THE FOLLOWING EVENTS SHALL CONSTITUTE EVENTS OF DEFAULT. ANY OTHER
DOCUMENT DELIVERED BY OR ON BEHALF OF ACERO UNDER OR IN CONNECTION WITH THIS
FACILITY AGREEMENT IS OR PROVES TO HAVE BEEN INCORRECT OR MISLEADING IN ANY
MATERIAL RESPECT WHEN MADE OR DEEMED TO BE MADE- MOOT PROBLEM, APPENDIX,
TERM-15(B);SUPRA NOTE 3,AT 366
74 MOOT PROBLEM, APPENDIX, TERM-15(A).
75 NATIONAL WESTMINSTER BANK CASE, SUPRA NOTE 39, AT 91 .

MEMORIAL FOR THE APPELLANT

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14
the Event of Default as notified by MiniBank76 i.e. approximately on November 1st, 2010.
This day clearly is much later than the day on which the entitlement was granted to
MiniBanks rights to have the payments received by Acero from its customers to be deposited
into Aceros nominated and blocked bank account maintained by MiniBank, came into
existence. This is undoubtedly a transaction of hypothecation and on the occurrence of the
Event of Default, MiniBanks right to have the dues deposited into the said account, which
are due to Acero from its customers has also came into operation. Therefore the act of not
depositing the payments received by Acero into the said nominated and blocked bank account
maintained by MiniBank, led to the situation of Acero holding the book debts in trust for
MiniBank. Therefore, the element of entrustment is present in the instant case.

3) The ingredients of criminal breach of trust are fulfilled

The criminal breach of trust speaks of a person being in any manner entrusted with
property; it does not contemplate the creation of a trust with all the technicalities of the law of
trust.77The fact that Acero held the debts due to MiniBank from its customers in trust, Aceros
act of creating a charge in favour of Coronation Bank, makes it a fit case for not being
quashed and for criminal proceedings to be allowed to be continued.78

B) The complaint against Acero, with regards to cheating taken at its face
value and accepted in its entirety, does make out the case alleged
against Acero

The ingredients of the offence of cheating are (i) deception of a person either by making
a false or misleading representation or by other action or omission (ii) fraudulent or dishonest
inducement of that person to either deliver any property or to consent to the retention thereof
by any person or to intentionally induce that person to do or omit to do anything which he
would not do or omit if he were not so deceived and which act or omission causes or is likely
to cause damage or harm to that person in body, mind, reputation or property.79

76 MOOT PROBLEM, 17.

77 JASWANTRAI MANILAL AKHANEY V. STATE OF BOMBAY [1956] AIR SC 575, 499.
78 MOOT PROBLEM, 16.
79 INDIAN PENAL CODE, 415 (1860) [HEREINAFTER INDIAN PENAL CODE]..

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15
1) The ingredient of mens rea has been fulfilled
Presence of mens rea is important to bring home the charge of cheating. A company is
capable of having mens rea and can thereby be prosecuted for offences involving mens rea80
and as a form of punishment be fined. 81 Therefore Acero cannot claim immunity from
criminal prosecution on the grounds that the company is incapable of having mens rea.

2) ii) The other ingredients of cheating also have been fulfilled

On February 9, 2010, Acero convened a meeting of its creditors where it proposed that
all unsecured creditors would receive 70 cents on the dollar in full repayment of the amounts
due to them.82 In other words, the unsecured creditors will be required to take a 30% hair
cut on their amounts.83 Coronation bank which also happened to be the biggest lender to
Acero was granted a floating charge in respect of part of the borrowings 84 in violation of a
Facility Agreement entered by and between MiniBank and Acero, and was subsequently
placed in the category of secured creditors with a floating charge with respect to the said part
of the borrowings, therefore ensuring that borrowings worth Rs 20 crore were repaid in full
by Acero. In addition to this a preferential payment up to 25 % of the debts due to Coronation
Bank was also made.85
The conspicuous timing of the transaction is such that just approximately two months
before both interest defaults and principal defaults began to happen on the part of Acero, it
not only took out Coronation Bank out of the category of unsecured creditors and put it in the
category of secured creditors for borrowings representing Rs. 20 crore but also incurred a
cash outflow of upto 25% which was utilized towards preferential repayment of one creditor.
Coronation Bank which was the biggest lender had both secured and unsecured loan amounts.
In order to ensure this arrangement is thrust upon other creditors, Coronation Bank did
80 IRIDIUM INDIA TELECOM LTD. V.MOTOROLA INCORPORATED AND ORS., [2011] AIR
SC 20, 38.
81 STANDARD CHARTERED BANK V. DIRECTORATE OF ENFORCEMENT[2005] 4 SCC 405,
30.
82 MOOT PROBLEM, 12.
83 ID.
84 MOOT PROBLEM, 16.
85 ID.

MEMORIAL FOR THE APPELLANT

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16
exercise its substantial voting powers as it was entitled to in the meetings of the class of
unsecured creditors because of which objections of MiniBank could have no bearing. Acero
by keeping other unsecured creditors in the dark with regards to preferential treatment being
catered to Coronation Bank, got benefitted in more ways than one, such as entitlement to not
pay unsecured creditors upto 30% of the loan amount, novating the facility agreements with
regards to interest payment and principal payment schedule in a manner beneficial to itself
and to the prejudice of the creditors. If the said arrangement between Acero and Coronation
bank. By omitting to disclose this arrangement, the unsecured creditors were induced to give
their consent to the scheme of restructuring, thereby causing them the harm of losing 30% of
the loan/facility amount provided by them to Acero.

C) The power to quash the proceedings against Acero should be used

sparingly and with abundant caution, not prejudicing the right of the
complainant to undertake alteration of charges

The material at hand suggests that not only have the offence of cheating and criminal
breach of trust been made out, but also the offence of criminal conspiracy has prima facie
been made out. Thereby MiniBank pleads that this is a fit case whereby the Sessions Court
may add fresh charges to the existing charges, 86thereby warranting the continuation of
criminal proceedings.
The offence of criminal conspiracy is committed when two or more people agree to do
or cause to be done (i) an illegal act or (ii) an act which is not illegal by illegal means,
provided that no agreement except an agreement to commit an offence shall amount to a
criminal conspiracy unless some act besides the agreement is done by one or more parties to
such agreement in pursuance thereof.87 It is explained by the defining section that whether the
illegal act is the ultimate object of such agreement or is merely incidental to that object, is
immaterial.88 An essential observation of the courts has been in order to hold the accused
guilty of the offence of criminal conspiracy, the only relevant factor is that all means adopted
and illegal acts done must be and purported to be done in furtherance of the object of
conspiracy even if some steps have been taken without the knowledge of the other co-

86 THE CODE OF CRIMINAL PROCEDURE, 120A (1973).

87 INDIAN PENAL CODE SUPRA NOTE 79, AT 120A (1860) .
88 ID.

MEMORIAL FOR THE APPELLANT

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17
conspirators, still the culpability of the co-conspirators will not be affected. 89Acero and
Coronation Bank struck a deal90 which for the reasons submitted hereinbefore amounts to the
offence of cheating and criminal breach of trust for which criminal proceedings before the
Sessions Court in Mumbai have been initiated against not only Acero, its board, some of its
officers but also Coronation Bank and some of its officers for fraud and criminal breach of
trust.91 In this case, all the acts undertaken by Acero, prior and post the proposal of the
scheme of restructuring can be said to have been done in furtherance of the object of
conspiracy, thereby amounting to criminal conspiracy. Hence, the quashing of the proceeding
must be done cautiously, without prejudicing the right of the complainant to undertake
alteration of charges.
Therefore it is submitted that, the criminal proceedings initiated by MiniBank against
Acero, should not be quashed.

89 YASH PAL MITTAL V STATE OF PUNJAB [1977] AIR SC 243, 9.

90 MOOT PROBLEM, 16.
91 MOOT PROBLEM, 18.

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PRAYER FOR RELIEF

In the light of the Issues raised, Arguments advanced and Authorities cited, it is humbly
prayed and implored before this Honble Bombay High Court toADJUDGE and DECLARE that Acero is not entitled to specific performance of the
disbursement of the second tranche of the loan under the Facility Agreement.
ADJUDGE and DECLARE that the scheme of arrangement for debt restructuring
initiated by Acero should not be sanctioned or permitted to be implemented.
ADJUDGE and DECLARE that the criminal proceedings initiated against Acero should
not be quashed.
Respectfully submitted,
X-------------------------------Counsel(s) on behalf of the Appellant

MEMORIAL FOR THE APPELLANT