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TEAM CODE: VNMC427

4th VITSOL NATIONAL MOOT COURT COMPETETION ON CORPORATE LAW,

2022

BEFORE THE HON’BLE SUPREME COURT OF INDIA

UNDER SECTION 423 OF COMPANIES ACT, 2013 IN THE MATTER OF

APPEAL NO. OF 2022

Vaani Ltd, Karta Trust & Karta Group Private Ltd

V.

Seol Investment Private Ltd. & Anil Seol

MEMORANDUM ON BEHALF OF THE APPELLANT

UPON SUBMISSION TO THE HON’BLE CHIEF JUSTICE AND OTHER HON’BLE

JUSTICES OF THE SUPREME COURT OF INDIA

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TABLE OF CONENTS

I. LIST OF ABBREVIATIONS ………………………………………. 3

II. INDEX OF AUTHORITIES ………………………………………. 5
III. STATEMENT OF JURISDITION …………………………………. 7
IV. STATEMENT OF FACTS …………………………………………. 8
V. STATEMENT OF ISSUES …………………………………………. 11
VI. SUMMARY OF ARGUMENTS ……………………………………. 12
VII. ARGUMENTS ADVANCED ………………………………………. 13
1.1 WHETHER THE REMOVAL OF ANIL SEOL FROM THE POSITION OF
CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VAANI LTD. IS
ILLEGAL?..........................13
1.2 WHETHER THE MATERIAL CHANGES CAUSED TO THE COMPANY
THROUGH THE REMOVAL OF MR. ANIL SEOL FROM THE POSITION OF
CHAIRMAN-CUM-CHIEF EXECUTIVE OFFICER OF THE VAANI LTD. IS
OPRESSIVE AND MISMANAGEMENT WHICH IS PREJUDICIAL TO THE
INTEREST OF THE COMPANY AS WELL AS OTHER MEMBERS?........13

2. WHETHER THE ARTICLES 45, 86, 98 AND 106 OF THE ARTICLES OF

ASSOCISTION OF VAANI LTD. ARE OPRESSIVE, UNREASONABLE AND IN
VIOLATION OF COMPANIES ACT, 2013, IT’S RULES AND ALLIED LAWS?
..........15

3. WHETHER KARTA TRUST IS THE PROMOTER OF VAANI LTD. AND THE

UNSCRUPULOUS POWER GIVEN TO THE KARTA TRUST BY THE
PROVISIONS OF ARTICLES OF ASSOCIATION OF VAANI LTD. SHOULD BE
DECLARED ILLEGAL? ........16

4. WHETHER THE RAISING OF FINANCE THROUGH ISSUE OF

COMPULSORILY CONVERTIBLE DEBENTURES AND THE PROPOSED
ISSUE OF SWEAT EQUITY SHARES ARE OPRESSIVE AND IN VIOLATION
OF THE COMPANIES ACT, RULES AND SEBI REGULATIONS AND ALLIED
LAWS? .........19
VII. PRAYER ……………………………………………………………… 24

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LIST OF ABBREVIATIONS

& And
AIR All India Reports

Anr. Another

Art. Article

CEO Chief Executive Officer

Co. Company

Corpn. Corporation

CLB Company Law Board

Govt. Government
UPC Unlisted Public Company
PPP Public Private Partnership
BOD Board Of Directors
IPO Initial Public Offering
CCD Compulsory Convertible Debenture
OFCD Optionally Fully Convertible Debenture
CR Companies Rules
MNC Multinational Corporation
SEBI Securities and Exchange Board of India
NCLT National Company Law Tribunal
NCLAT National Company Law Appellate Tribunal
CA Companies Act
ROC Registrars of Company
Pvt. Private
M.D Managing Director
Ltd. Limited
SC Supreme Court
SCC Supreme Court Cases
i.e. That is

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Hon’ble Honorable
KMP Key Managerial Personnel
ICDR International centre for dispute resolution

INDEX OF AUTHORITIES

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CASE REFERRED & CITED:

 Tata Consultancy Services Ltd. v. Cyrus Investment Private Ltd; on 26 March, 2021
by Hon’ble the Justice Bench: Hon'ble The Justice, A.S. Bopanna, V.
Ramasubramanian.
 BOSHER et al. v. RICHMOND & H. L. CO. et al., 16 S.E. 360 89 Va. 455; Supreme
Court of Appeals of Virginia.
 Twycross v. Grant; 1872, CA2 C.P.D, 469 case
 Weavers Mills Ltd v Balkis; AIR 1969 Mad 462, (1969) 2 MLJ 509.
 Whaley Bridge Calico Printing co v. Green; (1879) 5 QBD 109, UKLawRpKQB 4.
 Lagunas Nitrate Co. v. Lagunas Syndicate; (1889) 2 Ch. 392.
 Erlanger v New Sombrero Phosphate co., 3 APP case, 1218
 Omnium Electric palaces Ltd V. Baines, [1914] 1 Ch 332 (CA) 346.
 Sahara India Real Estate V. SEBI, 2014 CP412(Ind.)

BOOKS REFERRED:

 Bhandari M.C., Guide to Company Law Procedures, (21 st ed., 2009), Lexis Nexis
Butterworths Wadhwa, Nagpur.
 Ghosh K.M. & Chandratre K.R., Company Law with Secretarial Practices, (13 th ed.,
2007), Bharat Law House, New Delhi.
 Majumdar A.K. & Kapoor G.K., Company Law & Practice, (17 th ed., 2012),
Taxmann.
 Ramaiya A., Guide to the Companies Act, (17th ed., 2010), Lexis Nexis Butterworths
Wadhwa, Nagpur.
 Soni A., Supreme Court on Service Laws, (1st ed., 2009), Lexis Nexis Butterworths
Wadhwa.

WEBSITES REFERRED:

 http://www.lexisnexis.com/ (last visited on5th July, 2022)

 http://www.judis.nic.in/ (last visited on5th July, 2022)
 http://www.manupatra.com/ (last visited on5th July, 2022)
 http://www.scconline.com/ (last visited on5th July, 2022)
 http://www.rbi.org.in/ (last visited on5th July, 2022)

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 http://www.cci.gov.in/ (last visited on5th July, 2022)

 http://www.fipb.in/ (last visited on5th July, 2022)
 http://www.dipp.nic.in/ (last visited on5th July, 2022)
 http://www.sebi.gov.in/ (last visited on5th July, 2022)

LEGAL DICTIONARIES:

 Aiyer P.R. Advanced Law Lexicon, (3rd ed., 2005).

 Garner B.A., Black’s Law Dictionary, (9th ed., 2009).
 Greenberg Daniel, Stroud’s Judicial Dictionary of Words and Phrases, (4th ed.),
Sweet and Maxwell, Vol. 4.
 Mish F.C., Merriam-Webster's Collegiate Dictionary, (11th ed. 2003).
 Oxford Advanced Learners Dictionary, (7th ed., 2008).

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STATEMENT OF JURISDICTION

The Hon’ble Supreme Court of India has the jurisdiction in this matter under Section 423 of
Companies Act, 2013 of India which reads as follows:

Section 423 of Companies Act, 2013: Appeal to Supreme Court.—

Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the
Supreme Court within sixty days from the date of receipt of the order of the Appellate
Tribunal to him on any question of law arising out of such order:
Provided that the Supreme Court may, if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within the said period, allow it to be filed
within a further period not exceeding sixty days.

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STATEMENT OF FACTS

1. Vaani Ltd is an unlisted public company engaged in infrastructural projects in PPP model
in the state of Arcadia. The company is maintaining net worth of 13000 crores and net
tangible assets of 5200 crores excluding the monetary assets for last three years with an
average operating profit of 330 crores.
2. Karta Group Private Ltd is the holding company of Vaani Ltd. Karta Group Private Ltd is
holding 66% of shares and voting rights in Vaani Ltd. Karta Group Private Ltd is
promoted by Karta Trust, which is holding 99% of equity shares and voting rights in
Karta Group Private Ltd. Mr. Avesh Karta and his brother Mr. Arjun Karta are the
trustees of Karta Trust and they are the board of directors of Karta Group Private Ltd.
3. Vaani Ltd was incorporated by the Karta Group Private Ltd in the year 2010 as decided
by the Karta Trust. At the time of incorporation, Karta Group Pvt Ltd was holding 99% of
the shares and voting rights of Vaani Ltd. Remaining 1% shareholders were the selected
employees of Vaani Ltd. Mr. Avesh Karta was appointed as a chairman-cum-CEO of the
Vaani Ltd.
4. Later, there was a marriage alliance made between the youngest daughter Ms. Meena
Karta of the Karta family and youngest son Mr. Anil Seol of the Seol family, a known
budding successful businessman in Arcadia holding 99% of shares in Seol Investment Pvt
Ltd remaining 1% is held by his father Vikram Seol.
5. Karta family transferred 17% of its shares and voting rights of Vaani Ltd to Seol
Investment Pvt Ltd for a price equivalent to the face value of shares on 05-12-2015.
Later, during the course of time, Vaani Ltd also issued shares in favour of its employees.
Thereafter, Seol investment Pvt Ltd increased its shareholding and voting rights from
17% to 21% till today by purchasing shares from the employees of Vaani Ltd. As of
today, the shareholding and voting rights of Karta Group Pvt Ltd in Vaani Ltd comes
down to 66%.
6. A Resolution was passed on 10.05.2017 by the Board of Directors of Vaani Ltd and
appointed Anil Seol as its Chairman-cum-Chief Executive Officer with effect from
26.05.2017. Anil Seol decided to shift main focus of the business from its flagship
highway, bridge development projects and other PPP projects to Multi-storeyed building
projects for multi-national companies. The decision has created disappointments in Karta.
However, the Company was successful in achieving 8% more growth during the tenure of
Anil Seol, than its earlier 7 years growth rate.
7. Mr. Anil Seol noticed that 64% of the net tangible assets of the company are in monetary
assets and wanted to utilize these to the ongoing three projects of the company, which
was opposed by the Karta Trust nominated directors in the Board without giving their
affirmative voting in favour in the board meeting stating that this will affect the financial
stability of the company.
8. Anil Seol dissatisfied by these incidents, and openly criticized in the media on 05-12-
2018 about the existence of control of Karta Trust over the management of Vaani Ltd and
requested the remaining shareholders of the company to stand against the provisions of
Articles of Association of Vaani Ltd which is providing significant power to Karta Trust

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over the management of Vaani Ltd. He also criticized before the media that such
provisions of Articles of Association are contrary to the existing law and practice.
9. Meanwhile, Meena Karta on 15-12-2018 filed a police complaint against her husband
Anil Seol alleging domestic violence followed by a petition for Divorce which is pending.
10. On January 12, 2019 Karta Trust decided to remove Anil Seol from the position of Board
chairman of the Vaani Ltd. Accordingly, the nominated directors initiated and passed a
resolution to remove Mr. Anil Seol from the position of Chairman of the Board on
January 25, 2019.
11. The selection committee appointed Mr. Arjun karta as the new Chairman of the board of
directors of Vaani Ltd on February 5, 2019. As a result of the initiatives and efforts of
Arjun Karta, Vaani Ltd on November 18, 2019 successfully secured the State of
Sourashtra’s tender for developing Kolhapur – Sikola State High Way to be completed by
the year 2026. It is expected that the company could achieve 20% more revenue than now
in the upcoming years.
12. The board of directors consists of nominated directors decided to raise 49% of this project
cost estimated around 6500 crores rupees through initial public offering of compulsorily
convertible debentures in the year 2020 with a reservation of 15% of the issue in favour
of the Chief Executive Officer and employees on a competitive basis upon the same issue
price. The Board also decided to issue sweat equity shares equivalent to fifteen percent of
the then existing paid up equity share capital of Vaani Ltd at the price equivalent to face
value to Mr. Arjun Karta in the year 2021 after the completion of the IPO.
13. The project, the proposed IPO and the issue of sweat equity shares are opposed by the
Anil Seol and tweeted against this PPP project as the company already secured enough
building projects with his efforts from the Multi-national Companies for completion. Anil
Seol also started influencing the remaining directors to vote against the project and issue
of securities.
14. The Karta Trust directed the board of Vaani Ltd to proceed with the issue of compulsorily
convertible debentures. Board of directors consists of nominated directors removed Mr.
Anil Seol from the position of Chief Executive Officer of Vaani Ltd on December 11,
2019 and appointed Mr. Anand karta, Son of Avesh karta as the new Chief Executive
Officer of Vaani Ltd. The Board passed a resolution in this regard.
15. The reason stated for the removal is that, Mr. Anil Seol is acting against the interest of the
Vaani Ltd and Anil Seol is a promoter of Seol Engineering Ltd which was prohibited by
SEBI from accessing the capital market for 2 years from January 02, 2019. Later, Vaani
Ltd issued compulsorily convertible debentures worth of rupees 6500 crores through
initial public offer in December 28, 2020, convertible after 5 years from the date of issue.
16. Now, Seol Investment Private Ltd and Anil Seol together filed a petition before National
Company Law Tribunal alleging that-
17. The removal of Anil Seol from the position of Chairman and Chief Executive Officer of
Vaani Ltd was illegal.
18. The material changes caused to the company through the removal of Mr. Anil Seol from
the position of Chairman-cum-Chief Executive Officer of the Vaani Ltd is oppressive and
mismanagement which is prejudicial to the interest of the company as well as other
members.

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19. They also alleged that Articles 45, 86, 98 and 106 of the Articles of Association of Vaani
Ltd are oppressive, unreasonable and in violation of Companies Act, 2013, it’s Rules and
allied laws.
20. Further alleged that the Karta Trust is not a promoter of Vaani Ltd, hence, the provisions
of Articles of Association of Vaani Ltd giving unscrupulous power to the Karta Trust
shall be declared as illegal.
21. Petitioners also alleged that the raising of finance through issue of compulsorily
convertible debentures and the proposed issue of sweat equity shares are oppressive and
in violation of the Companies Act, Rules and SEBI Regulations and allied laws. After
hearing both sides of arguments, the NCLT decided in favour of Vaani Ltd, Karta Trust
and Karta Group Private Ltd.
22. Being aggrieved by the decision of NCLT, Seol Investment Private Ltd and Anil Seol
filed an appeal before the NCLAT. NCLAT reversed the decision of NCLT. Now Vaani
Ltd, Karta Trust and Karta Group Private Ltd filed an appeal before the Supreme Court of
India.

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STATEMENT OF ISSUES

ISSUE 1

WHETHER THE REMOVAL OF ANIL SEOL FROM THE POSITION OF

CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF VAANI LTD. IS ILLEGAL?

SUBISSUE UNDER ISSUE 1

WHETHER THE MATERIAL CHANGES CAUSED TO THE COMPANY

THROUGH THE REMOVAL OF MR. ANIL SEOL FROM THE POSITION OF
CHAIRMAN-CUM-CHIEF EXECUTIVE OFFICER OF THE VAANI LTD. IS
OPRESSIVE AND MISMANAGEMENT WHICH IS PREJUDICIAL TO THE
INTEREST OF THE COMPANY AS WELL AS OTHER MEMBERS?

ISSUE 2

WHETHER THE ARTICLES 45, 86, 98 AND 106 OF THE ARTICLES OF

ASSOCISTION OF VAANI LTD. ARE OPRESSIVE, UNREASONABLE AND IN
VIOLATION OF COMPANIES ACT, 2013, IT’S RULES AND ALLIED LAWS?

ISSUE 3

WHETHER KARTA TRUST IS THE PROMOTER OF VAANI LTD. AND THE

UNSCRUPULOUS POWER GIVEN TO THE KARTA TRUST BY THE
PROVISIONS OF ARTICLES OF ASSOCIATION OF VAANI LTD. SHOLD BE
DECLARED ILLEGAL?

ISSUE 4

WHETHER THE RAISING OF FINANCE THROUGH ISSUE OF COMPULSORILY

CONVERTIBLE DEBENTURES AND THE PROPOSED ISSUE OF SWEAT
EQUITY SHARES ARE OPRESSIVE AND IN VIOLATION OF THE COMPANIES
ACT, RULES AND SEBI REGULATIONS AND ALLIED LAWS?

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SUMMARY OF ARGUMENTS

Issue 1: Whether the removal of Mr. Anil Seol from chairman and CEO of Vaani Ltd.
Is illegal?

Sub-issue under issue 1: Whether material changes of the company through the
removal of the Vaani ltd. are oppressive & mismanagement?

Removal of Anil Seol from the position of Chairman and CEO was legal. Anil Seol started
criticising the Articles of association of the company and the hefty control of the Karta Trust
over the management of the company in front of the media which was unreasonable and also
hampered the reputation of the company publicly. Anil Seol was the promoter of Seol
Engineering Ltd which was prohibited by the SEBI for accessing the capital market for 2
years, and thus the Board of Directors were not wrong in removing Anil Seol from the
highest position of the company.

Issue 2: Whether Art 45, 86, 98 & 106 of Article of Association of Vaani Ltd. are
oppressive, unreasonable and in violation with Companies Act, 2013; it’s rules and
allied laws?

The Articles 45, 86, 98 and 106 of the Articles of Association of the Vaani Ltd. are
oppressive, unreasonable and in violation with Companies Act, 2013, its rules and allied
laws.

Issue 3: Whether the Karta Trust is promoter of Vaani Ltd. & the unscrupulous power
given to the karta trust by the provisions of articles of association of Vaani Ltd. should
be declared illegal ?

The petition filed by Vaani ltd. that is karta trust, Karta group Pvt. Ltd. which claims that
karta group is the promoter as per the sec 2(69) of companies act, 2013; Regulation 2(1) sub-
clause (za) & (zb) of SEBI (issue of capital & disclosure requirements) Regulation, 2009 and
the authority bestowed in him should not be considered illegal.

Issue 4: Whether raising of finance through issues of Compulsory Convertible

Debenture (CCD) and the proposed issue of sweat equity shares are oppressive & in
violation with companies act, rules and allied laws?

Vaani ltd acts of generating finance through the issuance of Compulsorily Convertible
Debentures is permissible under as per the Section 55A of the Companies Act 1956, Rule 3

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and 8 Companies (Share capital And Debentures) Rules, 2014, Unlisted Companies (Issue of
Sweat Equity Shares) Rules, 2003 and also the issued compulsorily convertible debentures in
compliance with Section 23 of the Companies Act, 2013

ARGUMENTS ADVANCED

Issue 1: Whether the removal of Mr. Anil Seol from chairman and CEO of Vaani Ltd.
Is illegal?

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Sub-issue under issue 1: Whether material changes of the company through the
removal of the Vaani ltd. are oppressive & mismanagement?

Arguments Advanced:

Removal of Anil Seol from the position of Chairman was legal

1. The appointment of Anil Seol as the Chairman of the Board was affected from 26-01-
2017 whereby a resolution was passed regarding the same. As soon as he came to the
position, he totally changed the main focus of the business from highway, bridge
developmental projects and other PPP projects to Multi-storeyed building projects for
multi-national companies. Though the growth rate was high, still the Karta Trust was
disappointed by its changing direction of the already well-established business area.
Moreover, the reputation recognition of the company was also at stake at different
government level.
2. The Vaani Ltd which specifically deals with the PPP projects is basically a funding model
for public infrastructure projects and initiatives which requires a significant cash outlay.
Anil Seol was proposing to utilise 64% of the net tangible assets of the company which
are in the monetary assets for the ongoing three projects. This step was not supported by
the Karta Trust and which was reasonable too to not support as this would have created an
imbalance to the financial stability to the company.
3. Anil Seol started criticising the Articles of association of the company and the hefty
control of the Karta Trust over the management of the company in front of the media
which was unreasonable and also hampered the reputation of the company publicly.

4. Removal of Anil Seol from the position of Chief Executive Officer was legal - Anil Seol
was still at the position of CEO after his removal from the position of Chairman. While
the company wanted to raise finance for the project that the company got under the efforts
of the new Chairman under the shed of PPP model which was their area of business, Anil
Seol vehemently opposed the proposed IPO and the issuance of sweat equity and started
influencing other directors to vote against the resolution. This was creating a chaos and
imbalance in the company and can be considered oppressive to the members as well as to
the company.

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5. Furthermore, since Anil Seol was the promoter of Seol Engineering Ltd which was
prohibited by the SEBI for accessing the capital market for 2 years, the Board of
Directors were not wrong in removing Anil Seol from the highest position of the
company. The SEBI has the power to prohibit any company from accessing the capital
market under Sec 11 of the SEBI Act, 1992 if any kind of unscrupulous or malpractices
are done by the company.
6. The famous case of Tata Consultancy Services Ltd. v. Cyrus Investment Private Ltd. 1
popularly known as the Tata-Mistry dispute gave the verdict in favour of Tata whereby
the question of the sudden removal of Cyrus Mistry as Executive Chairman was settled
down and was declared legal by the Supreme Court. In this case, Mistry was removed
from the position of Chairman on account of trust deficit and not due to the legacy issues.
The position of Directorship was still with Mistry but his subsequent actions made the
company remove him from directorship. In the similar manner in the present case, Seol
was removed from Chairman due to major trust deficit and the Trustees were
disappointed from his activities. Later his certain activities towards the company made
the decision of removing him from the position of CEO.

7. Material changes caused to the company through the removal of Mr. Anil Seol from the
position of Chairman-cum-Chief Executive Officer was beneficial for the company as well
as its members –
7.1. The projects which the company got through the efforts of the then Chairman
was again based on their old model of PPP where they got the infrastructural
project of state of Sourashtra. There was nothing prima facie oppressive or
mismanagement on the part of the company on taking up the project.
7.2. The above stated facts conclude that the removal of Anil Seol from the position
of Chairman-cum-CEO which was done by passing of the resolution by the
Board was not illegal and the material changes that were caused to the company
through his removal was not oppressive and mismanagement on the part of the
company.

1
On 26 March, 2021 by Hon’ble The Justice Bench: Hon'ble The Justice, A.S. Bopanna, V. Ramasubramanian.

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Issue 2: Whether Art 45, 86, 98 & 106 of Article of Association of Vaani Ltd. are
oppressive, unreasonable and in violation with Companies Act, 2013; it’s rules and
allied laws?

Arguments Advanced:

8. The Articles of Association comply with the Companies Act, 2013, rules and allied laws

8.1. Sec103 of the Companies Act, 2013 provides for the number of members to be
present at the meeting of the Board to from a quorum giving that the Articles of
Association if provide for larger number then the AOA to be followed. Article
45 of AOA provides for not less than 7 members to be required to from a
quorum.

8.2. The majority shareholding of Vaani Ltd. is with the Karta Group Pvt Ltd which
is promoted by the Karta Trust. Article 86 of the AOA has given considerate
power to nominate 2/3rd of the directors by the Karta Trust. Generally, directors
are the representatives of the shareholders who take care of the interest of them.
Since the majority shareholding is with Karta Trust indirectly, giving them the
power to nominate the directors is reasonable. Furthermore, the article is
flexible which can be understood by the line saying that “so long as the Karta
Trust remain as the promoter with substantial control of the company”.

9. Similarly, Article 98 of the AOA provides that only on that matter which require
the decision of the majority directors shall be decided by the affirmative vote of
those directors. It can be noted that since the majority shareholding is not scattered
but concentrated to only the holding company and indirectly to the Karta Trust, it is
fair to let the majority shareholders decide the matters which require more careful
and diligence decision. They will be more in a position to better understand the
business transactions and act to the best interest of the company. Adding to this,
AOA have the provision of having the casting vote of the Chairman in case of
equality of votes.

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9. Article 106 has upheld the principle of fair play by keeping two steps for the appointment
of Chairman and CEO. Generally, a chairman is generally selected from amongst the
Directors and similarly, CEO is appointed by passing a resolution in the Board. The AOA
has provided for setting up of a Selection Committee which would give a fairer
opportunity to the nominated person as the Committee will nominate and further among
the nominated once the Board will appoint the person by the affirmative voting by the
Directors. This will reduce the abuse of powers of the majority shareholders as the
appointment will only be from the person nominated by the selection committee. The
selection committee will better scrutinise the persons capable of holding the higher
positions of the company.

Issue 3: Whether the Karta Trust is promoter of Vaani Ltd. & the unscrupulous power
given to the karta trust by the provisions of articles of association of Vaani Ltd. should
be declared illegal?

Arguments Advanced:

10. The petition filed by Vaani Ltd, Karta Trust, and Karta Group Private Ltd, which claims
that Karta Trust is a promoter of Vaani Ltd, is respectfully presented before the Hon’ble
Supreme Court of India. Therefore, the authority granted to him should not be ruled
unlawful.
11. A promoter is a person who brings about the incorporation and organization as a
corporation. He brings together the persons who become interested in the enterprise, aids
in procuring subscriptions, and sets in motion the machinery which leads to the formation
itself.2 In this case, Vaani Ltd. was incorporated by Karta Group Pvt. Ltd. but on the
counsel of Karta Trust. The karta trust will thereafter be a promoter of Vaani ltd.

12. A promoter is a one who can undertake to form a company with reference to a given
project and to set it going, and who takes the necessary steps to accomplish that purpose. 3
And the same definition of Promoter was also incorporated by Madras High court in the

2
Bosher v Richmond Land Co., 89 Va. 455 (1892)
3
Twycross v. Grant, 1872 2 C.P.D. 469 case.

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case of Weavers Mills Ltd v Balkis4. However, at Vaani Ltd., all important decisions,
such as the issuance of Compulsorily Convertible Debentures and sweat equity shares, as
well as the removal of Anil Seol from the role of Chairman-cum-CEO, were made on the
advice of the Karta Trust. All future obligations were undertaken by the Karta Trust, and
all essential actions were made solely on his advice, therefore the Karta Trust is a
promoter of Vaani ltd.
13. Even though the term "Promoter" is established in the Company Act of 2013, its meaning
continues to evolve through law and the courts. Furthermore, it is believed that the
definition supplied by the Act is just exhaustive in nature, rather than absolute. However,
the term promoter is not a term of art, nor a term of law, but of business.5
13.1. Promoter as per companies Act, 2013
According to Section 2(69) of the companies act 2013,
Promoter means a person—
(b) Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board of Directors of
the company is accustomed to act:

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity6.

14. In this situation, the Karta Trust has been given direct or indirect control of the Vaani
Ltd.’s business. Vaani Ltd. has made all important decisions based solely on the advice of
the Karta Trust. As a result, it is reasonable to assume that Karta Trust is a promoter of
Vaani Ltd. Furthermore, it has been mentioned in the fact that Karta Trust has directed
the board of Vaani ltd. to proceed with the issuing of compulsorily convertible
debentures, which is a very important component of a corporation. Now, because the
actions taken by the Karta Trust are in accordance with the statute, we may establish that
Karta Trust is a promoter of Vaani Ltd.
14.1. Promoter as per SEBI Regulations - Regulations 2(1) (za) and (zb) of SEBI
(Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter
referred to as ‘ICDR Regulations’) define promoter and promoter group as
under:
4
AIR 1969 Mad 462, (1969) 2 MLJ 509.
5
Whaley Bridge Calico Printing co v. Green, (1879) 5 QBD 109, UKLawRpKQB4
6
Companies Act, NO. 18, 2013, (Ind.)

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1. (za) “promoter” includes:

(i) the person or persons who are in control of the issuer;
(ii) the person or persons who are instrumental in the formulation of a plan or
programme pursuant to which specified securities are offered to public;
Provided that a director or officer of the issuer or a person, if acting as
such merely in his professional capacity, shall not be deemed as a
promoter.7

15. On the suggestion of Karta Trust, the Board of Directors of Vaani Ltd. issued 49 percent
of the shares. This demonstrates that Karta Trust is in command of the situation. Indeed,
the IPO was issued on the recommendation of Karta Trust, therefore Karta Trust
performed virtually all of the instrumental tasks, and it is thus recognised as a promoter of
Vaani Ltd.
16. In Lagunas Nitrate Co. v. Lagunas Syndicate8 it was stated that “to be a promoter one
need not necessarily be associated with the initial formation of the company; one who
subsequently helps to arrange floating of its capital will equally be regarded as a
promoter.9
16.1. Karta Trust's authority not to be deemed unlawful - The position of a
promoter in relation to the company was explained by Lord Cairns in Erlanger
v New Sombrero Phosphate co10 in the following words-
16.2. "The promoters of a company stand undoubtedly in a fiduciary position. They
have in their hands the creation and moulding of the company. They have the
power of defining how and when and in what shape and under what supervision,
it shall start into existence and begin to act as a trading corporation". And the
same definition was accepted by Madras High Court in the case of Weavers
Mills ltd V Balkis Ammal11 and stated that the basic element in the duty of the
promoter is something that needs no saying, namely, their duty is to promote the
interest of the company.
Taking Karta Trust as an instance –, as a promoter in Vaani ltd, whatever choice made
by them favoured Vaani ltd. keeping in mind the company's financial stability as well
7
https://www.sebi.gov.in/sebi_data/attachdocs/1419934886654.pdf
8
Lagunas Nitrate Co. V Lagunas Syndicate, [1889] 2 Ch. 392 (p. 428, C.A.),
9
Legal Service India - http://www.legalservicesindia.com/article/1775/Position-of-a-promoter-in-establishing-a-
Company.html
10
Erlanger v New Sombrero Phosphate co; 3 APP case, 1218
11
Weavers Mills ltd V Balkis Ammal, AIR 1969 Mad 462, (1969) 2 MLJ 509

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as the company's well-established business field. Furthermore, Anil Seol's removal as

Chairman-cum-CEO was not the outcome of Karta Trust's extensive influence over
Vaani ltd. Instead, it was done to save the company's reputation after Anil Seol openly
criticised in the media on 05-12-2018 the existence of Karta Trust's hefty control over
the management of Vaani Ltd and requested the remaining shareholders of the
company to stand against the provisions of Vaani Ltd's Articles of Association
17. As a result, based on legislation and judicial interpretation, we may determine that Karta
Trust is a promoter of Vaani Ltd., and the authority bestowed in him should not be
considered illegal.

Issue 4: Whether raising of finance through issues of Compulsorily Convertible

Debentures and the Proposed issue of sweat equity Shares are oppressive and in
violation of Companies Act, Companies Rules and SEBI Regulation and allied laws?

Arguments advanced:
18. Vaani ltd acts of generating finance through the issuance of Compulsorily Convertible
Debentures is permissible under as per the statute, and the planned issuance of sweat
equity shares is neither oppressive nor in a violation of the Companies Act, Companies
Rules, SEBI Regulation, or any other associated laws.
18.1. Neither oppressive nor the mismanagement as per SEBI Regulation
Section 55A of the Companies Act 1956, states that -It is hereby declared that
all powers relating to all other matters including the matters relating to
prospectus, statement in lieu of prospectus, return of allotment, issue of shares
and redemption of irredeemable preference shares shall be exercised by the
Central Government, [Tribunal] or the Registrar of Companies, as the case
may be12. In the current case, it was argued that the issuance of Compulsory
Convertible Debentures and sweat equity shares violated SEBI Regulations.
As an unlisted company, Vaani ltd cannot be adjudicated by the SEBI. As a
result, Vaani cannot be held liable for violations of SEBI laws since SEBI
lacks jurisdiction.

12
Companies Act, NO.1 of 1956 (Ind.)

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18.2. In the case of Sahara vs. SEBI13 the Supreme Court has ruled that SEBI lacks
the authority to investigate and adjudicate in such dispute. But, if the investor's
interests are threatened, SEBI has the authority to adjudicate the problem;
however, in the current situation, there is no harm to the investor's interests,
hence there can be no breach of SEBI regulations.
18.3. Sweat equity share issuance is in accordance with the COMPANIES
(SHARE CAPITAL AND DEBENTURES) RULES, 2014. - Rule 3 and 8 of
the stated provision affirm the legality of Vaani Ltd.’s Sweat Equity shares. And
demonstrates that it is not in violation of the law. Rule 3 confirms the
application of this Statute in the current situation, whereas Rule 8 specifies the
procedure for issuing sweat equity shares in an unlisted company. And as far as
Vaani Ltd.’s operations are concerned, it has not infringed it and is completely
compliant with it.
18.3.1. Rule 3-
The provisions of these rules shall apply to —
(a) all unlisted public companies14

18.3.2. Rule 8(1)

A company other than a listed company, which is not required to comply with
the Securities and Exchange Board of India Regulations on sweat equity, shall
not issue sweat equity shares to its directors or employees at a discount or for
consideration other than cash, for their providing know-how or making
available rights in the nature of intellectual property rights or value additions,
by whatever name called, unless the issue is authorized by a special resolution
passed by the company in general meeting.15

18.3.3. Rule 8(2)

Rule 8(2) of the COMPANIES (SHARE CAPITAL AND DEBENTURES)
RULES, 2014, established the requirements must be met for the issuing of
sweat equity shares Vaani Ltd. has also kept those basics when issuing the
sweat equity shares, such as the future date, i.e. on the completion of the IPO,
13
Sahara India Real Estate V. SEBI, 2014 CP412(Ind.)
14
Company (Share capital and debentures) Rules, 2014, Form no. SH-4
15
Company (Share capital and debentures) Rules, 2014, Form no. SH-4

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resolution passed by the board of directors, and the requirement of 15 percent

of the share. As a result, there is no infringement of the stated Statute in the
issuance of sweat equity shares.

19. Sweat equity share issuance is in accordance with the Unlisted Companies (Issue of
Sweat Equity Shares) Rules, 2003
The legitimacy of Vaani Ltd.’s Sweat Equity shares is confirmed by rules 3, 5, 8, and 10
of the stated provision. And it indicates that it is not against the law. Rule 3 confirms the
application of this Statute in an unlisted company, i.e. Vaani ltd. Rule 5 specifies the
Register of Shares, which states that the company shall keep a Register of Sweat Equity
Shares issued for issuing sweat equity shares, and Rule 8 discusses Sweat Equity Share
Pricing. And, as far as Vaani Ltd.’s actions are concerned, they have not violated any of
the stated provisions because they keep a registry of their sweat equity shares.
Furthermore, the price of sweat equity shares to be granted to employees and directors
should be at a reasonable price, which Vaani ltd has also met. Vaani ltd. has no longer
violated the abovementioned clause since it has complied with the laws.

20. Vaani Ltd issued compulsorily convertible debentures in compliance with

Companies Act, 2013.
20.1. Powers of Board. — (1) The Board of Directors of a company shall be
entitled to exercise all such powers, and to do all such acts and things, as the
company is authorised to exercise.16
(c) to issue securities, including debentures, whether in or outside India;17

20.2. Section 179(3) of the Companies Act empowers the Board of Directors to
utilize whatever powers necessary to further the company's interests. Vaani ltd.
exercised one of these powers under the aforementioned provision and issued
the compulsory Convertible Debentures while adhering to the basics outlined in
Section 23 of the Act. They enacted a resolution on December 28, 2020, that is
convertible after 5 years from the date of issue. Furthermore, Section 23

16
Companies Act, NO.1 of 1956 (Ind.)

17
Companies Act, NO.1 of 1956 (Ind.)

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requires it to be stated in a prospectus or a public offering, which was followed

in this case as well; therefore, it did not violate the abovementioned condition.

21. As a result, we may establish that obtaining funds through the issuance of Compulsorily
Convertible Debentures and the proposed issuance of sweat equity shares is not
oppressive nor in contravention of the Companies Act, the Companies Rules, the SEBI
Regulation, or any other related legislation.

PRAYER

Wherefore, in the light of the facts presented, arguments advanced and authorities cited, the
Petitioners humbly submit that the Hon’ble Company Law Board be pleased to adjudge and
declare that:

1. Declare that the removal of Anil Seol from the position of Chairman-cum-CEO was legal
and the material changes caused to the company through his removal is not oppressive and
mismanagement.

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2. That the Article 45, 86, 98 and 106 of the Articles of Association of Vaani Ltd are not
oppressive, unreasonable and in violation of the Companies Act, 2013, its rules and allied
laws.

3. Karta Trust should be considered as a promoter of the Vaani Ltd. and the powers vested on
him are not illegal.

4. The raising of finance through the issue of Compulsorily Convertible Debentures and the
proposed issue of sweat equity shares are not oppressive and in violation of Companies Act,
2013 and SEBI

And pass any other relief, that this Hon’ble Company Law Board may deem fit and proper in
the interest of justice, equity and good conscience.

For this act of kindness, the Petitioners shall duty bound forever pray.

Sd. /-

(Counsel for the Appellant)

MEMORANDUM ON BEHALF OF APPELLANT