9TH NLIU NATIONAL CORPORATE LAW

MOOT COURT COMPETITION

MOOT PROPOSITION
22 JANUARY – 24 JANUARY 2021

ORGANISED BY:

National Law Institute University, Bhopal

In association with

The Indian Insolvency and Bankruptcy Law Post

And

Taxmann Publications
 ACKNOWLEDGMENT
THE DRAFTING COMMITTEE

This Case Record has been authored by Ms. Jomol Joy, an alumnus of NLIU, Bhopal (Batch 2014)
and an Advocate practising in Bangalore.
Mr. Ankur Khandelwal, an alumnus of NLIU, Bhopal (Batch 2011) and is a Partner at Kochhar &
Co., New Delhi also reviewed the case and provided his valuable input.
Lastly, we also thank Dr. Sanjay Yadav for his constant support and guidance.

Note: Teams are prohibited from contacting the aforementioned persons in relation to this Competition directly or
indirectly. The Administrators reserve the right to take any appropriate action, including disqualification and/or
blacklisting the participating institution and/or the members found engaging in such conduct.

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 1. Parlance Infrastructure Ltd. is a public listed company incorporated under the provisions of
the Companies Act, 1956 in January 2005 bearing CIN no. M15110MH2783LC013676
having its registered office at Mumbai, India (“PIL”). One of the companies of the Parlance
Group, PIL is one of the largest infrastructure companies, developing projects with expertise
in operating & developing roads, metro rail, airport & real estate. PIL also provides
integrated engineering, foundation engineering, procurement, and construction services for
civil construction and infrastructure sector projects.

2. Mukeshbhai Infrastructure Trustees Limited is a public unlisted company incorporated

under the provisions of the Companies Act, 1956 bearing CIN No.
U234590MH2078PLC1999, also having its registered office at Mumbai set up with the
object of facilitating investment in the infrastructure sector (“MITL”). MITL is the sole
trustee of Mukeshbhai Infrastructure Investment Fund (“MIIF”) which is a scheme of
Mukesh Infrastructure Venture Capital Fund (“MIVCF”).

3. In order to capitalise on the promising expertise of PIL to develop revenue generating

infrastructure projects, MITL proposed forming a joint venture for undertaking
infrastructure projects across South India. In this regard, MITL entered into the following
agreements with PIL:
(a) Joint Venture Agreement dated April 4, 2003 (“JVA”) setting out the broad terms
and business arrangement between the parties for incorporating the JV company,
Parlance Mukeshbhai Infrastructure Pvt. Ltd under the provisions of the Companies
Act, 1956 with its registered office at Bangalore (“PMIPL”).

(b) A share subscription and purchase agreement dated February 2, 2004 (“SSPA”)
entered between PIL and MITL to govern the relationship inter se PIL and MITL in
respect of PMIPL. Pursuant to the SSPA, MITL and PIL came to hold 51% and 49%
of the paid-up share capital of PMIPL, respectively. As per the SSPA and the JVA,
PIL was to provide the necessary expertise and resources to undertake various
infrastructure projects in India in line with the object of the JV. On the other hand,
MITL committed to infuse funds and arranging finance from time to time (interest
chargeable at market rates) for execution of the projects undertaken by the PMIPL.

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 (c) Pursuant to the SSPA and the JVA, MITL also subscribed to optionally fully
convertible debentures (“OFCDs”) issued by PMIPL by way of a debenture
subscription agreement dated November 8, 2011 (“DSA”). Pursuant to the DSA,
OFCDs were issued to MITL in four tranches over a period between 2011-2015 for
debentures of aggregate nominal value of INR 2,00,00,00,000/- (Indian National
Rupees Two Hundred Crores, only) (“Nominal Value”). MITL was granted the
option under the DSA to convert the debentures into common stock of PMIPL by
exercising its right to conversion after Twelve (12) months from the date of the DSA,
the right of which would survive until the maturity date set out in the DSA. The
maturity date as per the DSA was initially May 1, 2016 which was revised to
September 18, 2017 (“Maturity Date”) in view of the slowdown experienced by the
infrastructure and real estate market. It was agreed that if the OFCDs holder were to
exercise its right to conversion, PMIPL would issue its common stock at a rate of
Fifty (50) percent of the fair market value on the date of conversion of the number of
shares necessary to satisfy the debentures and the remainder by way of cash. In the
alternative, PMIPL would redeem the debentures on maturity. While the DSA did not
specify any interest rate or redemption premium, it only provided for a penalty interest
of 18% per annum on the Nominal Value of debentures from the Maturity Date to the
repayment (“Penal Interest”).

4. Sometime in 2015, the relationship between MITL and PIL started to strain and around
January 2017, MITL began to contemplate its exit from PMIPL. Due to the ongoing tussle
between the two shareholders and their representatives on the board, the affairs of the
company came to a stand-still. Since both parties were unable to reach a consensus with
respect to the exit valuation of MITL, the deadlock in the company persisted.

5. On February 11, 2019, MITL issued a letter to PMIPL requesting to redeem the OFCDs and
make payment towards the Nominal Value alongwith interest at the rate of 18% per annum
on the Nominal Value from the date of issue of debentures and Penal Interest from the
Maturity Date till the date of repayment as per the terms of the DSA (“Outstanding Dues”).
MITL issued a reminder letter on June 2019 to PMIPL seeking payment of the Outstanding
Dues. However, there was no response from PIL to both the letters.
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 6. On September 1, 2019 an application under Section 7 of the Insolvency and Bankruptcy
Code, 2016 (“IBC”) [CP(IB) 544/2019/BAN/KAR] was filed by MITL (“Financial
Creditor”) against PMIPL (“Corporate Debtor”) before the Bangalore Bench of the
Hon’ble National Company Law Tribunal (“NCLT Bangalore”) to initiate Corporate
Insolvency Resolution Process (“CIRP”) against MITL (“Company Petition”) on the
ground of default in repayment of the Outstanding Dues. The total Outstanding Dues
claimed as on the date of filing of the Company Petition was INR 6,25,00,00,000 (approx.)
(Indian National Rupees Six Hundred Twenty-Five Crores only).
7. The NCLT Bangalore issued notice to the Corporate Debtor who entered appearance on
September 10, 2019 and filed an application under section 8 of the Arbitration and
Conciliation Act, 1996 [I.A.No.56/2019] seeking reference of the dispute to arbitration in
view of the dispute resolution clause 10.1 under the DSA, clause 18 of the JVA and clause
20 of the SSPA. The Corporate Debtor also argued that in view of the dispute between the
parties inter alia regarding existence of “financial debt”, the Company Petition was not
maintainable. The relevant dispute resolution clauses of the three agreements are extracted
for ease of reference in a document annexed to the Moot Proposition as Schedule-I.

8. The Adjudicating Authority dismissed the IA No.56/2019 in CP(IB) 544/2019/BLR/KAR

by the Corporate Debtor and admitted the Company Petition by a common order dated
December 2, 2019 and concluded as under:

“In view of the law discussed herein above and the facts placed before this Tribunal, we are
of the considered view that the Application I.A.No.56/2019 in CP(IB) 544/2019/BLR/KAR
is without merits and liable to be dismissed.

On perusal of the Application filed and the documents in support thereof, we are satisfied
that there is a financial debt as per section 5 (8) of the Code and a “default” as defined
under section 3 (1) of the Code is also established on the part of the Corporate Debtor. It
has also been noted that the Corporate Debtor has not denied the existence or validity of
the Debenture Subscription Agreement. In consideration of the facts and circumstances as
well as the position of law discussed hereinabove, we are of the view that this Application
by the Financial Creditor is required to be admitted under section 7(5) of the I&B Code,
2016.

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 As a consequence of the Application being admitted, moratorium as envisaged under
provisions of Section 14(1) of the Code, shall follow in relation to the Corporate Debtor and
shall come into effect as of this date.

The IRP proposed by the Financial Creditor, Ms. Seema Taparia, having registration No.
IBBI/IPA-002/IP-N00309/2017-18/10898 is hereby appointed as Interim Resolution
Professional to conduct the Insolvency Resolution Process.

That as prescribed under Section 13 of the Code on declaration of moratorium the next step
of public announcement of the initiation of Corporate Insolvency Resolution Process shall
be carried out by the IRP immediately on appointment, as per the provisions of the Code.

That the Interim Resolution Professional shall perform the duties as assigned under Section
18 and Section 15 of the Code and inform the progress of the Resolution Plan and the
compliance of the directions of this Order within 30 days to this Bench.”

The Corporate Debtor filed a writ petition on before the High Court of Bangalore against
the said order on January 12, 2020 [W.P. (C) No. 123/2020] and also sought an interim stay
on the CIRP pending the disposal of the writ petition.
9. During the pendency of the corporate insolvency resolution process (“CIRP”) in the
Company Petition against PMITL, while the resolution professional, Ms. Seema Taparia
(“Resolution Professional”) was in the process of considering various resolution plans that
were submitted for her consideration, it came to her knowledge that Central Bureau of
Investigation, Bank Security and Fraud Cell, Mumbai has registered an FIR no.
RC0352020A0014/2016 dated March 21, 2016 under sections 120-B, 420, 467, 468 and 471
of the Indian Penal Code, 1860 against one of the Parlance Group company, Parlance Capital
Ltd. and its promoter/directors including Mr. Mihir Virani. Charge sheet dated December 4,
2017 was filed against Mr. Mihir Virani, Parlance Capital and its other promoter/directors
wherein it was alleged that they had cheated the consortium of banks led by Aatmanirbhar
Bank of India and committed the offences as alleged in the FIR. An order No. 08/2018 dated
January 1, 2018 for provisional attachment of certain assets which included some of the
assets of the Corporate Debtor was issued by the Directorate of Enforcement, Mumbai
(“ED”), wherein the assets owned by the Corporate Debtor were attached allegedly as
proceeds of crime under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002,
considering that the Corporate Debtor was also one of the group companies of Parlance
Capital. In this regard, Ms. Taparia filed an application [IA No. 567/2019] on December 16,
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 2019 before the Adjudicating Authority seeking a direction for de-attachment of the assets
of the Corporate Debtor attached by the ED. This Application was allowed by the
Adjudicating Authority by order dated February 12, 2020. Aggrieved by this order of the
Adjudicating Authority, the ED preferred an appeal under section 61 of the IBC before the
Hon’ble National Company Law Appellate Tribunal (“NCLAT”) on February 25, 2020
[Company Appeal (AT) (Insolvency) No. 493 of 2020] which is pending for final disposal
by the NCLAT.

10. On March 11, 2020, an Application under section 30(6) and 31(1) of the IBC [IA No.
144/2020] for seeking approval of the resolution plan submitted by Obayashi Chang
Constructions Pte Ltd., a Singapore based infrastructure company and approved by the
Committee of Creditors (“CoC”) was filed before the NCLT Bangalore which inter alia,
stated the following:

(a) The total claim admitted against the Corporate Debtor was INR 12,58,05,80,961/-
(Rupees One Thousand Two Hundred Fifty-eight Crores Five Lakhs Eighty
Thousand Nine Hundred Sixty-one, only) which included claims from financial as
well operational creditors.

(b) The Resolution Professional received three resolution plans which were placed
before the CoC for their consideration and the resolution plan submitted by
Obayashi Chang Constructions Pte Ltd. (“Resolution Plan”) have been approved
by a voting share of 97.8%.

(c) The contents of the Resolution Plan have been verified by the Resolution
Professional and are found to be in compliance with the Code and Regulations
thereunder.

The NCLT Bangalore accepted and approved the Resolution Plan by order dated June 7,
2020.
11. Corporate Debtor had also availed financial assistance from one of the largest scheduled
banks of the country, Safe Bank of India (“SBI”) under the Corporate Rupee Loan Facility
Agreement dated April 5, 2012 for a business term loan upto the tune of INR 550,00,00,000/-
(Indian National Rupee Five Hundred Fifty Crore) (“Loan Agreement”). It may be noted

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 that SBI was also one of the financial creditors constituting the CoC in the Company
Petition. The Chairman of the Parlance Group, Mr. Mihir Virani along with other securities,
provided personal guarantee under a Personal Guarantee Deed dated April 21, 2012 (“Deed
of Guarantee”) in respect of the business term loan under the Loan Agreement. Corporate
Debtor committed defaults in repayment in and around 2017 due to the prolonged spell of
low demand and credit crunch that had has slowed the real estate sector. The accounts of the
Corporate Debtor were retrospectively declared as Non-Performing Account (NPA) with
effect from July 13, 2017. Despite several rounds of communication exchanged between
SBI and Mr. Virani, no repayment was made on behalf of Mr. Virani.

12. In the wake of sharp spike in bad loans in the recent past which had undermined the recovery
process and economic health of the country, the Ministry of Finance issued a circular on
August 26, 2020 to all public sector banks to invoke personal guarantees of promoters and
directors of big corporate loan defaulters.

13. Soon thereafter, on August 28, 2020 SBI invoked the Personal Guarantee and issued an
invocation notice of the even date upon Mr. Mihir Virani. On September 11, 2020 an
application under section 95 read with section 97 of the IBC for invocation of insolvency
resolution process against Mr. Virani (“Personal Guarantor”) under Part III of the IBC
was filed before the NCLT Bangalore in respect of the Deed of Guarantee (“Guarantee
Petition”). Mr. Virani in his counter admitted his obligation under the Deed of Guarantee.
He also submitted that as per the understanding between SBI and him, at the time of
execution of the Deed of Guarantee, it was agreed that the corporate guarantees provided by
the sister concerns of the Corporate Debtor would be invoked before invoking the Personal
Guarantee. The Personal Guarantee would be invoked only upon there being any shortfall
in the recovery of amounts under the Loan Agreement.

14. Both sides advanced detailed arguments in respect of the Guarantee Petition. NCLT
Bangalore heard the parties and allowed the Guarantee Petition and appointed Ms. Maya
Sarabhai as the resolution professional under section 97 (4) of the Code by order dated
September 14, 2020.

15. Also, in the year 2013, Corporate Debtor had decided to expand their business and tap into
the potential infrastructure market in the Republic of Wuhan. Resultantly, Corporate Debtor
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 had set up a special purpose vehicle, Parlance Mukeshbhai Obayashi Constructions Pte Ltd.
(“Wuhan JV”) with a Wuhan based infrastructure company, Obayashi Chang
Constructions Pte Ltd. The Wuhan JV was incorporated under the laws of the Republic of
Wuhan as a private company under the Companies Act1. It may be noted that the Corporate
Debtor held a shareholding of 41% and Obayashi Chang Construction Pte Ltd. held 59%
shareholding of the Wuhan JV.

16. Sometime in the month of December 2019, a deadly virus SARS-CoV-2, also known as
COVID-19 virus, which has over a year infected more than 3.6 crore people and killed over
1 lakh across the globe was first reported in the country of Wuhan (according to several
reports). World Health Organization announced COVID-19 outbreak as a pandemic on 11
March 2020. While some reports claim that the deadly virus emerged from a bio-laboratory
in Wuhan, some others seem to suggest that the virus emerged from a wet market from bats
or pangolin. Though various theories have been floated, researchers and scientists are still
scrambling to identify and hunt for the pandemic’s true “patient zero” and its cure. In an
unprecedented move, over 100 countries worldwide instituted either a full or partial
lockdown and other travel and health restrictions by the end of March 2020 to control the
spread of the pandemic.

17. Wuhan also has a long-standing border dispute with India, root cause of which is a 3,440
km long border namely, Phungsuk Wangdu separating the two neighbouring nations. The
history of the dispute can be traced back to 1962 when both countries fought against each
other in this regard. A 1996 agreement prohibited the use of guns and explosives near the
border - to restore the peace between the nations. Since May 2020, the tension between the
two neighbouring countries once again flared up and the military troops of both nations have
been engaged in aggressive face-offs at locations along the Phungsuk Wangdu Border. India
has imposed several trade embargoes and banned around 150 apps from Wuhan citing
security reasons. The nation has also witnessed a countrywide boycott of goods from one
of the biggest sources of import for India.

1
For purposes of this Moot Proposition, it may be assumed that the laws of Wuhan are in pari materia with laws and legal developments of
Singapore.
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 18. In February 2014, Wuhan JV had subscribed to working capital advanced by the Industrial
and Commercial Bank of Wuhan for the projects undertaken by it. However, Wuhan JV
defaulted on its loan repayment schedule during 2018-19. In addition to the Loan
Agreement, Mr. Virani also stood guarantee to the working capital advanced by the
Industrial and Commercial Bank of Wuhan to the Wuhan JV.

19. On November 15, 2019 Industrial and Commercial Bank of Wuhan, instituted insolvency
proceedings before the High Court of Wuhan [Suit No 867 of 2019] under the Bankruptcy
Act (of Wuhan) against Mr. Virani amongst other guarantors.

20. The High Court of Wuhan declared Mr. Virani bankrupt by order dated September 3, 2020
and appointed an Official Assignee to administer and seize all assets of the Wuhan JV and
the Personal Guarantor. The Official Assignee, Ms. Natasha Romanoff filed an application
under Section 60(5) of the IBC read with Rule 11 of the National Company Law Tribunal
Rules, 2016 (“Intervention Application”) before the Adjudicating Authority in the
Guarantee Petition seeking recognition of the insolvency proceedings of the High Court of
Wuhan in Suit No 867 of 2019 to avoid multiplicity of proceedings and in the interest of
smooth functioning of the insolvency resolution of the Personal Guarantor.

21. Please note for purposes of this Moot Proposition, it will be assumed that India has adopted
the Model Law on Cross-Border Insolvency of the United Nations Commission with effect
from June 30, 2020.

22. The Adjudicating Authority by order dated September 15, 2020 allowed the Intervention
Application. The order inter alia, noted as under:

“…The Official Assignee and the resolution professional appointed under section 97 of the
IBC, shall enter into a Cross-Border Insolvency Pact so as to have joint corporate
insolvency resolution process of the Company in line with the objectives of the Model Law
on Cross-Border Insolvency of the United Nations Commission without contravening the
respective domestic legislative framework.

Keeping pace with the rapidly changing landscape of foreign investments in India and
increasing frequency of Indian businesses in multiple jurisdictions, it is imperative to put in
place adequate cross border insolvency laws to provide assurance to these foreign investors
that their investments are safe in India.

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 The Parties shall cooperate in all aspects of the insolvency proceedings in Wuhan and the
present proceedings (“Proceedings”) in terms of the Pact.

The Parties shall have the right to appear, either in person or duly represented, in the
Proceedings.

The Parties also agree to make reasonable endeavour to implement the terms of the
moratorium imposed by this Tribunal and the High Court of Wuhan in respect of the assets
of the Personal Guarantor in Wuhan and India, as the case may be and to take reasonable
action under applicable laws to ensure that the order is complied with in this respect.

The Official Assignee is equivalent to the “resolution professional” of India and therefore,
the Official Assignee will have a right to participate in all meetings of the Committee of
Creditors.

The Parties will coordinate to arrive at consistent repayment plan or repayment scheme and
shall facilitate its submission for implementation in the respective jurisdictions.

The Parties shall seek inputs, notify and consult the other counterpart prior to any material
decision being taken in the Proceedings, which may, inter alia, include:

(a) matters relating to any proposal or approval of a plan of reorganization or a resolution

plan or plan of compromise or any other similar arrangement in the Proceedings;
(b) matters relating to assuming, ratifying, rejecting, repudiating, modifying or assigning
executory contracts having a material impact on the assets, operations, obligations,
rights, property or business of the Personal Guarantor; and
(c) matters which are otherwise prohibited under the respective domestic legislations.

Creditors and their claims, irrespective of their jurisdiction and citizenship/domicile will be
treated at par under the respective repayment plan or repayment scheme...”

23. The Personal Guarantor immediately preferred a writ petition against the order dated
September 14, 2020 before the Hon’ble High Court of Delhi [WP(C)No.76/2020]
challenging the Notification No. S.O. 4126(E) passed by the Central Government by which
certain provisions of Part III came into force. On the other hand, SBI filed another writ
petition [WP(C)No.78/2020] before the High Court of Bangalore against order dated
September 15, 2020 allowing the Intervention Application filed by the Official Assignee
appointed by the High Court of Wuhan.

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 24. While the High Courts were seized of the matters, the Insolvency and Bankruptcy Board of
India (“IBBI”) filed Transfer Petition (Civil) No. 23 of 2020 before the Hon’ble Supreme
Court of India seeking transfer of the writ petition by the Personal Guarantor WP(C)No.
76/2020 before the Hon’ble High Court of Delhi. This plea of the IBBI was based on the
ground that the matter involved determination of substantial questions of law under Part III
of the IBC. The Hon’ble Supreme Court of India while allowing the transfer petition suo
moto tagged WP(C)No.78/2020, WP(C)No.123/2020 and Company Appeal (AT)
(Insolvency) No. 493 of 2020 alongwith WP(C)No.76/2020. All matters are now listed for
hearing before the Full Bench of the Hon’ble Supreme Court of India.

25. The following broad issues arise in the matters being transferred for consideration before
the Hon’ble Supreme Court of India:

In WP(C) No. 123/2020:

(a) Whether NCLT Bangalore was justified in dismissing the application under Section 8
of the Arbitration and Conciliation Act, 1996 given the dispute resolution clauses in the
JVA, SSPA and DSA?
(b) Whether NCLT Bangalore erred in admitting the Company Petition?

In Company Appeal (AT) (Insolvency) No. 493 of 2020:

(a) Whether the order dated February 12, 2020 by the NCLT Bangalore directing the ED
to de-attach the assets of the Corporate Debtor is without jurisdiction and illegal?

In WP(C)No.76/2020:

(a) Whether the provisions of Part III of the IBC in respect of personal guarantors brought
into effect by the Notification No. S.O. 4126(E) are unconstitutional?

(b) Whether NCLT Bangalore has erred in passing the order dated September 14, 2020?

In WP(C)No.78/2020:

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 (a) Whether the order dated September 15, 2020 allowing the Intervention Application
filed by the Official Assignee appointed by the High Court of Wuhan is without
jurisdiction and contrary to the provisions of IBC?

26. Participants are at liberty to identify and advance arguments on issues other than those
delineated above, including any arguments on maintainability and jurisdiction.

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 SCHEDULE- I

10.1 Dispute Resolution and Governing Law

10.1.1 This Debenture Subscription Agreement and any dispute or claim arising out of or in
connection with it or its subject matter, existence, negotiation, validity, termination, or
enforceability shall be governed by, and construed in accordance with the laws of India.

10.1.2 All disputes arising out of or in connection with this Debenture Subscription Agreement
including but not limited to any dispute with respect to its existence, validity, termination or
performance (“Dispute”), shall be determined by binding arbitration in accordance with the
Arbitration and Conciliation Act, 1996, in force at the commencement of the arbitration to
be held in Mumbai. The language of the arbitration shall be English. The arbitral tribunal
will comprise of a single arbitrator to be appointed by mutual consent of the parties within
fifteen (15) days of the request of the notice to initiate arbitration proceedings.

18. Dispute Resolution and Governing Law

(a) This Joint Venture Agreement and any dispute or claim arising out of or in connection with it
or its subject matter, existence, negotiation, validity, termination, or enforceability shall be
governed by, and construed in accordance with the laws of India.

(b) All disputes arising out of or in connection with this Joint Venture Agreement including but
not limited to any dispute with respect to its existence, validity, termination or performance
(“Dispute”), shall be determined by binding arbitration in accordance with the Arbitration and
Conciliation Act, 1996, in force at the commencement of the arbitration to be held in Mumbai.
The language of the arbitration shall be English. The arbitral tribunal will comprise of a single
arbitrator to be appointed by mutual consent of the parties within fifteen (15) days of the request
of the notice to initiate arbitration proceedings.

20. Dispute Resolution and Governing Law

(a) This Share Subscription and Purchase Agreement and any dispute or claim arising out of or in
connection with it or its subject matter, existence, negotiation, validity, termination, or
enforceability shall be governed by, and construed in accordance with the laws of India.

(b) All disputes arising out of or in connection with this Share Subscription and Purchase
Agreement including but not limited to any dispute with respect to its existence, validity,
termination or performance (“Dispute”), shall be determined by binding arbitration in

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 accordance with the Arbitration and Conciliation Act, 1996, in force at the commencement of
the arbitration to be held in Mumbai. The language of the arbitration shall be English. The
arbitral tribunal will comprise of a single arbitrator to be appointed by mutual consent of the
parties within fifteen (15) days of the request of the notice to initiate arbitration proceedings.

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