Professional Documents
Culture Documents
AT CALCUTTA
Letters Patent Appeal No. ____/2013
(Under Clause 15 of Letters Patent for the High Court of Calcutta, 1865)
Celltone plc. ...Appellant
v.
IndMobile Telecoms Limited,
5G Star Networks Limited...Respondents
Clubbed with
Letters Patent Appeal No. ____/2013
(Under Clause 15 of Letters Patent for the High Court of Calcutta, 1865)
Celltone plc . ...Appellant
v.
Band Bank.....Respondent
Clubbed with
Letters Patent Appeal No. ____/2013
(Under Clause 15 of Letters Patent for the High Court of Calcutta, 1865)
Celltone plc .... .Appellant
v.
M/s Darsh Legal Associates....Respondent
Written submissions on behalf of,
Team Code: HS15F
Counsel for the Appellant.
TABLE OF CONTENTS
List of Abbreviations..................................................................................................................3
Index of Authorities....................................................................................................................5
Statement of Jurisdiction..........................................................................................................10
Questions Presented.................................................................................................................11
Statement of Facts....................................................................................................................12
Summary of Pleadings.............................................................................................................16
Pleadings..................................................................................................................................20
I.
The Incidents Surrounding the LoI Amounted to a Fraudulent Breach of the SAA........20
[A]. The LoI was Enforceable and Legally Valid................................................................21
[C]. 5G Stars Disclosure was Ineffective and Celltones knowledge did not Restrict a
Claim for Breach of Warranty..............................................................................................23
[D]. The Representation in the SAA amounted to Fraudulent Misrepresentation..............24
II.
LIST OF ABBREVIATIONS
Paragraph
AC
Appeal Cases
AIR
All ER
AoA
Articles of Association
ARPU
BCLC
BIT
BomLR
Ch
Chancery
Ch.D.
Chancery Division
Cir.
Circuit
CLC
Colo.
CTR
CVC
Del. Ch.
Del. SC.
DLA
E.D. Pa.
Edn.
Edition
EWCA
EWHC
HL
House of Lords
ICSID
Lloyds Rep
LoI
Letter of Intent
LT
N.C.
N.D.Ga.
N.Y.
PC
Privy Council
POCA
QB
Queen's Bench
S.D.N.Y
SAA
SC
Supreme Court
SCC
SCLR
SEBI
Supp.
Supplement
TLR
UKHL
UK House of Lords
WLR
INDEX OF AUTHORITIES
Indian Cases
1. Centre for Public Interest Litigation v. Union of India, AIR 2012 SCC 11727
2. Dresser Rand S.A. v. M/s. Bindal Agro Chemical Ltd. & Another, AIR
2006 SC 8357..22
3. Gajanan Moreshwar Parelkar v. Moreshwar Madan, AIR 1942 BOM 44..34
4. Iridium India Telecom Ltd. v. Motorola Incorporated and Ors.,
AIR 2011 SCC 74...................................................................................................26,29
5. Jet Airways (India) Limited v. Sahara Airlines Limited & Ors,
AIR 2011 BOM 73434
6. Kamal Kant Paliwal v. Smt Prakash Devi Paliwal, AIR 1976 Raj 79.24
7. M.S.Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd., (2004) 9 SCC 204...44
8. RC Thakkar v. Gujarat HSG Board, AIR 1973 Guj 3431
UK Cases
1. Aaron Reefs ltd v. Twiss, [1986] AC 27332
2. Aveling Barford v. Perion, [1989] 5 BCLC 626..26
3. Bottin International Investments Ltd v. Venson Group PLC,
2006 EWHC 3112..30, 32
4. Bristol & West Building Society v. Mothew, [1997] 2 WLR 436...33
5. Brown Jenkinson & Co v. Percy Dalton, [1957] 2 All ER 844...32
6. Casamo LLP v. Viscount Reidhavens Trustees, [2014] SCLR 484...30
7. Courtney v Fairbairn Ltd v Tolaini Bros Ltd, [1975] 1 All ER 71621
8. Daniel Reeds Ltd v EM ESS Chemists Ltd, [1995] C.L.C. 140523
9. Derry v. Peek, [1889] 14 A.C.33724
10. Downs v. Chappell, [1997] 1 WLR 426...33
11. Edwards v Skyways Ltd, [1964] 1 WLR 349..21
12. Gencor ACP Ltd v. Dalby, [2000] 2 BCLC 734..26
13. Gilford Motor Co v. Horne, [1933] Ch 935.27
14. Invertec v. De Mol Holding BP, [2009] EWHC 2471.33
15. Jones v. Lipman, [1962] 1 WLR 832.26
16. Loftus v. Roberts, [1902] 18 T.L.R. 532.....................................................................21
17. Malik and Mahmud v. Bank of Credit, [1997] UKHL 23. ...34
18. Meridium Global Funds Management Ltd v. Securities Commission,
[1995] 2 AC 500.29
19. Myers v. Elman, [1940] A.C. 282...37
MEMORIAL FOR THE APPELLANTPAGE 6
20. New Hearts Ltd v Cosmopolitan Investments Ltd, [1997] 2 BCLC 249..................35
21. Pagnan Spa v Feed Products Ltd, [1987] 2 Lloyds Rep 60123
22. Pitt v PHH Asset Management Ltd, [1993] 4 All ER 961.22
23. Prentice v Scottish Power Plc., [1997] 2 BCLC 264..24
24. Redgrave v. Hurd, [1881] 20 Ch. D. 1...30
25. Russell v Northern Bank Development Corporation, [1992] 1 WLR 588.21
26. Smith New Court Securities Ltd v. Citibank NA, [1997] AC 25433
27. Standard Chartered bank v Pakistan Shipping co, [2003] 1 All ER 173...25
28. Tesco Supermarkets Ltd v. Nattrass, [1971] 2 WLR 116626
29. Trustor AB v. Smallbone, [2001] 1 WLR 1177.26
30. Vahey v. Kenyon,[2013] EWCA Civ 658..31
31. Von Hatzfeldt-Wildenburg v. Alexmder, [1912] 1 Ch 284...23
32. Walford And Others v. Miles, [1992] 2 AC 128 (HL)...22
US Cases
1. Banco popular North America v. Suresh Gandhi, 876 A.2d 253 (2005)38
2. Blackburn v. McCoy, 1 CA2d 648, 656 (1934)..35
3. Cariboo Redi-Mix& Contracting Ltd v. Barcelo, 1991 881 (BC SC 1991)...28
4. CBS Inc. v. Ziff-Davis Publishing Co., 553 N.E.2d 997 (N.Y. 1990). .....................24
5. Continental Heller v. Amtech Mechanical Services, 53 Cal.App.4th 500, (1997).35
6. Greycas v Proud, 826 F.2d 1560 (7th Cir. 1987)..36,38
7. Horizon Financial v. Hansen, 791F.Supp. 1561 (N.D.Ga.1992)38
8. Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. SC. 2005).......24
9. Isler v Brown, 196 N.C. 685 (N.C. 1929)...................................................................25
10. Itek Corp v. Chicago Aerial Industries, Inc., 248 A.2d 625 (Del. SC 1968)..............22
11. Kline v. First Western Government Securities, 24 F.3d 480 (3d Cir. 1994).........36
12. LLMD v. Marine Midland Realty Credit Corp., 789F.Supp.
657, 660 (E.D. Pa. 1992)............................................................................................22
13. Mehaffy, Rider, Windholz & Wilson v. Central Bank Denver, 892 P.2d 230
(Colo. 1995).. 36, 38
14. National Bank of Canada v. Hale & Dorr, WL 1049072 (Mass. Super. 2004). .37
15. Slotkin v. Citizens casualty Co, 614 F.2d 301 (2nd Cir. 1979)..............................37,39
16. Teachers Insurance and Annuity Association of America v. Tribune Co.,
670F.Supp. 491 (S.D.N.Y.987)....................................................................................22
17. Teamster Local Pension Trust Fund v. Angelos, 762 F.2d 522 (7th Cir, 1985)...38
18. Zimmerman v. Kent, 31 Mass. App. Ct. 72, 82 (1991)37
Arbitral Awards
1. Compania del Desarrollo de Santa Elena, SA v Costa Rica, ICSID Case no ARB/96/1,
Award of February 17, 2000........................................................................................40
2. TecnicasMedioambientalesTecmed S.A. v. The United Mexican States, Award,
May 29, 2003, 43 ILM 133 (2004)...............................................................................40
3. Chevron Corp v. Donzinger, No. 11 Civ. 0691(LAK), 2011 WL 778052
(S.D.N.Y. Mar.7, 2011)...41
Statutes
1. Companies Act, 1956...17
2. Companies Act, 2013...17
3. Indian Penal Code, 1860..26
Miscellaneous
1. Agreement between The Government and Republic of India and The Government of
the United Kingdom of Great Britain and Northern Ireland for the promotion and
protection of investments (Adopted on March 14 1994)........................................39,40
2. CVC Order no. 71/12/05, dated 9/12/2005..27
3. SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011...26
4. UNIDROIT Principles, 2010.......................................................................................23
Books
1. Beatson et al, ANSONS LAW OF CONTRACT, (29th edn., 2010)..................................25
2. D. Baker, R. Jillson, DUE DILIGENCE, DISCLOSURES
AND
WARRANTIES
IN THE
OPINION LETTERS
PRACTICE
edn,
2003)
....36
5. M.P. Jain & S.N. Jain, PRINCIPLES OF ADMINISTRATIVE LAW, (17th edn., 2003)..27
6. Mulla, INDIAN CONTRACT AND SPECIFIC RELIEF ACTS (19th edn., 2012)...21
Articles
OF
INTERNATIONAL LAW
(1976)...........................................................................................................................40
3. Compaia del Desarrollo de Santa Elena, S.A. v. Costa Rica, 15 ICSID REVIEW
-FOREIGN
INVESTMENT
LAW
JOURNAL
(2000)..............................................................40
4. Edward P. Welch, Andrew J. Turezyn & Robert S. Saunders, Folk on the Delaware
General Corporation Law, 5th edn. (New York: Aspen Publishers, 2006).................21
5. Newcombe, The Boundaries of Regulatory Expropriation in International Law,
ICSID REVIEW-FILJ (2005)....................................................................................... 40
6. S. Malhotra, Cancellation of telecom licenses in the 2G Case: Claim for indirect
expropriation, 6(2) NUJS LAW REVIEW (2013)..........................................................40
7. UNCTAD, Series on Issues in International Investment Agreements, Takings of
Property 11, available at http://unctad.org/en/docs/psiteiitd15.en.pdf. (Last visited on
January 12th, 2015)......................................................................................................40
8. V. Umakant & M. Naniwadekar, Corporate Criminal Liability and Securities
Offerings: Rationalizing the Iridium-Motorola Case, 23(1) NATIONAL LAW SCHOOL
OF INDIA
REVIEW (2011).29
STATEMENT OF JURISDICTION
APPEAL I
The appellant has approached this Honourable Court under Clause 15 of Letters Patent for the
High Court of Calcutta, 1865.
APPEAL II
The appellant has approached this Honourable Court under Clause 15 of Letters Patent for the
MEMORIAL FOR THE APPELLANTPAGE 9
APPEAL III
The appellant has approached this Honourable Court under Clause 15 of Letters Patent for the
High Court of Calcutta, 1865.
QUESTIONS PRESENTED
I.
WHETHER
LETTER
OF INTENT AMOUNT TO A
SAA?
II.
III.
IV.
V.
VI.
VII.
STATEMENT OF FACTS
THE BACKGROUND
IndMobile Telecoms Limited [IndMobile], a company incorporated in India and a member
of Nifty 50, is a successful telecom equipment company. The chairman and managing director
of the company is Mr Sardar, who along with his family, is also the promoter of the IndMobile
and holds 35% of the shares in the company with them.
In order to enter the telecom services business, IndMobile decided to bid for the licenses for
5G mobile networks to be granted by the Government of India [GoI]. For housing this
telecom service business, a wholly owned subsidiary named 5G Star Networks Limited [5G
Star] had been set up by IndMobile.
THE AWARD OF LICENSES
MEMORIAL FOR THE APPELLANTPAGE 11
In the bidding process conducted by the GoI in 2013, bids were placed by 5G star for Kolkata,
Chennai and Hyderabad circles. 5G star satisfied both the technical and financial criteria and
was successful in bagging the license for Kolkata and Hyderabad. The actual license
agreements were executed between 5G Star and the GoI on November 1, 2013. In order to
source the expertise required to run this new business, IndMobile invited Celltone plc, a UK
based leading telecom services company who agreed to invest US $490 million for a stake of
49% in 5G star.
THE DUE DILIGENCE PROCESS
Celltone had a zero tolerance policy for corruption and hence adopted a cautious approach
before finalizing the deal. It decided to conduct a full blown due diligence and for this
purpose, appointed M/s Lexman Associates, a leading Indian law firm and DBAB Partners, a
leading accounting firm. During a meeting in Kolkata, Mr Gangston, the project manager of
Celltone, was assured by 5G Stars representatives that the process of award of licenses was
transparent and entirely above board. Celltone and their lawyers and accountants were
provided full access to all the relevant books and records of 5G Star and to the extent
necessary, those of IndMobile.
During further investigation, Mr Gangston came across a former employee of IndMobile who
revealed that in the past the company entertained government employees and showered them
with gifts. Although concerned about this, Mr Gangston decided not to escalate this issue to
the senior management of Celltone since the deal was too important to be scuttled.
THE SHARE ACQUISITION AGREEMENT
Under the terms of the SAA, Celltone was to subscribe for 49% shares of 5G Star for a
consideration of US$ 490 million. 40% of these shares were to be subscribed to Celltone out
of a new issue of shares undertaken by the company for a consideration of US$ 400 and the
remaining 9% representing 125,998 shares were to be acquired from IndMobile for a
consideration of US$ 90 million paid to IndMobile [Sale shares]. The SAA was executed on
October 3, 3013.
THE LEGAL OPINION
A condition precedent to the SAA was the issue of a closing legal opinion by M/S Darsh Legal
Associates [DLA], the legal counsel representing IndMobile and 5G star which was issued
MEMORIAL FOR THE APPELLANTPAGE 12
on 25th November, 2013. DLA gave various opinions based on the assumption that it had not
come across any event or circumstances that would render the SAA void or voidable by
reason of fraud, misrepresentation, default or lack of consideration. DLA also obtained
professional liability insurance worth at least US $100 from ProInsure for this purpose. On
satisfaction of the conditions precedent, Celltone completed the acquisition under SAA on
November 25, 2013.
THE ESCROW AGREEMENT
Celltone, IndMobile and 5G star entered into an escrow agreement dated November 25, 2013
with Band Bank [Bank], the escrow agent. Based on the terms of this agreement, Band Bank
was to hold 10% of the consideration payable by Celltone to IndMobile and 5G Star for a
period of 3 years from the closing date which was to be applied towards satisfaction of any
indemnification obligations of IndMobile and 5G Star that may arise under the SAA. The
indemnification clause (10.1) under the SAA provided inter alia, that in the event of damages
caused due to the breach of any representation, warranty, covenant or agreement made by the
IndMobile and 5G Star, they would undertake to indemnify and hold harmless the purchaser
to the extent of any and all damages suffered. In the absence of such claim, the escrow agent
was to the pay the escrow amount to IndMobile and 5G Star at the end of the said three-year
period.
THE CANCELLATION OF KOLKATA METRO LICENSE
After the business had commenced and huge financial investments had been made, it came to
light that the award of license to 5G star in the Kolkata Metro, was challenged under a writ
petition filed by Navro Telecom Limited in December 2013. It was alleged that Mr. Bantha
Ranga, a project manager at IndMobile, paid Rs 2, 50,000 to a company owned by Mr.
Debraya, a member of the committee deciding upon the bids. This sum was paid from 5G star
and was shown as consulting fees in its books. Mr Sardar claimed to be unaware of any such
actions by Mr Bantha Ranga and was quite shocked. The Calcutta High Court after weighing
the seriousness of the allegations and following the law laid down by the Supreme Court,
cancelled the license awarded to 5G Star for Kolkata. A special leave petition to Supreme
Court made by 5G star was dismissed at the admission stage itself.
INCIDENTS SURROUNDING CALCULATION OF ARPU
While Celltone was still assessing its situation, more new discoveries were made. Celltone
had been operating on the assumption that the projected ARPU for the Hyderabad metro area
was Rs 250. On being advised by DBAB partners to clarify the components that went into
calculation of ARPU, Mr Beanman, the Vice President (Finance) of Celltone, raised this issue
during a telephone conference call with the finance personnel of 5G Star. During the call, 5G
Star personnel clarified that the projected ARPU was without regards to discounts and rebates.
5G Star remained under the assumption that the information had been disclosed, however due
to poor connectivity and continuous disruptions in the conference call, the information was
not received properly by Celltone. Celltone did not find an opportunity to clarify the same.
Only after closing of Celltones investment in 5G Star it was discovered that the net figure of
ARPU without taking into account the discounts and rebates was only Rs 175 implying that
Celltone had considerably overpaid for its stake in 5G Star.
THE LETTER OF INTENT
After the incidents surrounding ARPU, Celltone got another shock on receiving a legal notice
from Grovera Inc, [Grovera] a telecom consultancy company based in Greenwich,
Connecticut which claimed that the sale of 125,998 shares to Celltone was illegal since
IndMobile had signed an LoI with Grovera to sell it those shares.
THE SUITS
Celltone decided to take remedial actions and filed three civil suits before the Calcutta High
Court. It sued IndMobile and 5G stars to refund the purchase consideration or pay equivalent
damages. (First suit) It sued Band Bank seeking release the Escrow amount in favour of
Celltone pursuant to the Escrow Agreement. (Second suit). It sued DLA seeking damages to
the tune of $490 million for rendering an incorrect legal opinion. (Third suit). In parallel,
Celltone also initiated an arbitration claim under the India-UK Bilateral Investment Treaty
against the Government of India, on the ground that the action of cancellation of the licence
for the Kolkata metro area amounted to an expropriation of its investment in 5G Star.
All three suits were dismissed on their merits by the Calcutta High Court. Celltone has
preferred an appeal against all the orders to a division bench of the Calcutta High Court. It has
decided to club all the appeals and hear them in a composite fashion.
SUMMARY OF PLEADINGS
I.
It is submitted that the sale of shares to Celltone amounted to a fraudulent breach of the SAA.
First, the LoI entered into between IndMobile and Grovera in respect of sale of the 9% shares
is an enforceable and legally binding contract. It is recognized under the Companies Act and
is binding on the parties as well. The lock-in agreement and the exclusivity provision were
binding provisions. This acceptance was an indication of the intent to create legal relations
and the LoI is therefore, binding. Second, the disclosure of the LoI as was made available to
the professionals engaged by Celltone did not amount to a fair and true disclosure. Mere
reference to a source of document does not meet the standards for a fair disclosure. Further,
the warranties and representations of the Seller are not affected by the opportunity of due
diligence provided to the purchaser. Third, this was fraudulent misrepresentation. The
information about encumbrances on the shares was suppressed, which amounted to a
suggestion of falsehood in relation to free transferability of shares. Celltone operated on good
faith on the representations of 5G Star, and a claim for breach of the same can be sustained in
the current circumstances. Hence, the incidents surrounding the LoI constitute a fraudulent
breach of the SAA.s
II.
SAA
It is submitted that the incidents surrounding the Calcutta license constitute a breach of
Clause 6.7 of the SAA. The actions of 5G Star amount to bribery under the Prevention of
Corruption Act 1988. First, gratification was paid to a public servant. Although the payment
was made to a consultancy firm, the receipt of money by the firm should be treated as the
receipt of money by the individual. This is because he was the sole beneficiary in control of
the firm, and the firm was used to mask receipt of this money. Second, this gratification was
illegal remuneration. Mr. Debaraya was a member of the tender committee, and did not
disclose receipt of this amount from an interested party. This is clearly in violation of tender
guidelines and indicative of the intent of Mr. Debaraya. Third, this illegal gratification was in
respect of an official act. Therefore, 5G Star was involved in bribery. The receipt of money
by Mr. Debaraya places him in a conflict of interest with regards to the pecuniary interests of
the Government. These actions of the firm invited the decision of the Calcutta High Court
which quashed the licenses. The ability of the business to conduct itself as contemplated to be
conducted was severely hampered by this sanction. Hence, it is submitted that the actions of
the respondents in this matter amount to a breach of the SAA.
III.
It is submitted that the 5G Star supplied Celltone with an incorrect profit projection to induce
them into entering the contract. First, the initial figure of Rs.250 was provided by 5G Star,
knowing it to be false. The clarification offered by them during due diligence was
incomplete, speculative and failed to provide the complete picture. Therefore, this
clarification fails to meet the standard of disclosure and should not be considered. Second,
this was fraudulent misrepresentation. The initial projection was supplied recklessly by the
5G Star in order to present a false image about the profitability of the business. There were no
reasonable grounds for believing this projection to be true. Celltone had relied on this
projection and it influenced its decision to enter into the contract. Therefore, the reckless
suggestion of the untrue fact induced them to enter the agreement, and it is submitted that the
false projection amounts to fraudulent misrepresentation.
IV. THE DAMAGES CLAIMED SHOULD BE AWARDED
MEMORIAL FOR THE APPELLANTPAGE 16
It is submitted that the damages claimed by Celltone should be awarded in full. In the
absence of these fraudulent misrepresentations, Celltone would not have entered into the
contract at all. The damages should be calculated on a no transaction basis, and it should be
entitled to be put into the position it would have been had these representations not been
made. Hence, it is submitted that the damages claimed should be awarded in full.
V. BAND BANK IS OBLIGATED TO RELEASE THE ESCROW AMOUNT.
It is submitted that the Bank is bound to release the escrow amount as the indemnification
obligation has been triggered. First, there was a breach of warranty which triggered the
indemnification obligation. Second, damages have been caused due to the breach. The
indemnification obligations covered any and all damages suffered. This includes the fall in
valuation, goodwill, attorney fees and other expenses. Third, the escrow agent is bound to
follow the instructions of the escrow agreement. The agreement clearly stipulated that
indemnification obligations would be triggered in the event of any breach of warranty by
IndMobile or 5G Star. Since the breach has occurred, and damages have been suffered
following from the breach, the escrow agent is bound to release the amount. Hence, Band
Bank is obligated to release the escrow amount.
VI. DLA IS LIABLE TO PAY DAMAGES FOR RENDERING AN INCORRECT OPINION.
It is submitted that DLA is liable to pay damages as claimed by Celltone. First, the opinion
rendered was incorrect and amounts to negligent misrepresentation. DLA incorrectly stated
that the execution, delivery and performance of the SAA would not breach the terms and
conditions of a contract. This amounts to negligent misrepresentation since DLA had
knowledge of the LoI and the enforceable lock-in clause therein. Further, its opinion was
based on erroneous assumptions. DLA had a duty to investigate the circumstances before
rendering an opinion and therefore a passive failure to know the facts does not excuse its
liability. Second, Celltone has a right to sue DLA for rendering an incorrect opinion since it
had superior knowledge of facts which shaped its opinion. Further, DLA knew that Celltone
would place reliance on its opinion, which in turn created a duty of care towards Celltone.
Third, Celltones due diligence does not preclude its claim against DLA as its own
investigation does not imply non-reliance on the opinion letter. Celltone placed reliance on
the negligent misrepresentation of DLA and suffered damages due to such reliance. These
damages must therefore put Celltone in the same position as it would have been had there
MEMORIAL FOR THE APPELLANTPAGE 17
PLEADINGS
I.
THE
FRAUDULENT BREACH
LOI AMOUNTED
OF THE
TO A
SAA
1. It is submitted that the sale of 9% shares by the Vendor Company IndMobile to Celltone is
patently illegal. First, the LoI was enforceable and legally valid [A]. Second, 5G Stars
disclosure was ineffective and Celltones knowledge did not restrict a claim for breach of
warranty [B]. In any event, the representation in the SAA amounted to fraudulent
misrepresentation [C].
[A]. THE LOI WAS ENFORCEABLE AND LEGALLY VALID
2. It is submitted that the clause in the LoI that restricted transfer of Sale Shares to any third
party is valid and legally enforceable. 1 Restrictions on transferability of shares of a public
company in private agreements are permissible contractual arrangements between
shareholders, even if the claim is unenforceable against the Company. 2
3. It is further submitted that the LoI was enforceable and legally binding on both parties. It is
settled law that an LoI may be construed as a letter of acceptance depending on factors such
as intention of the parties, the nature of the transaction and the language employed in the
agreement.3 The onus of demonstrating a lack of intention to create legal relations lies on
the party asserting it and is a heavy burden to discharge.4
4. The LoI in this case left no essential terms uncertain or undetermined.5 One of the prerequisites for a contract to be binding is an agreed price 6 without which an agreement can
be rendered vague. In this case, the parties were unequivocally in agreement on the
purchase consideration as well as the number of shares sought to be purchased. 7 The AoA of
the Company too, was to be amended to reflect the same agreement which indicates the
clear intention of the parties to be legally bound. It is therefore submitted that the LoI is an
enforceable preliminary contract whereby the parties simply desired a more elaborate
formalization of the agreement.8
1 Section 58(2), Companies Act, 2013.
2Russell v. Northern Bank Development Corporation, [1992] 1 WLR 588; Section 202, DELAWARE GENERAL
CORPORATION LAW; Edward P. Welch, Andrew J. Turezyn & Robert S. Saunders, Folk on the Delaware General
Corporation Law (5th edn., New York: Aspen Publishers, 2006)
3 Mulla, INDIAN CONTRACT AND SPECIFIC RELIEF ACTS, 317-318 (13th edn., 2012).
4 Edwards v. Skyways Ltd., [1964] 1 WLR 349.
5 Loftus v. Roberts, 18 T.L.R. 532.
6 Courtney & Fairbairn Ltd. v Tolaini Bros (Hotels) Ltd [1975] 1 All ER 716.
7 Dresser Rand S.A. v. M/s. Bindal Agro Chemical Ltd. & Another, AIR 2006 SC 871.
8 Teachers Insurance and Annuity Association of America v. Tribune Co., 670 F. Supp. 491 (S.D.N.Y. 1987)
[Teachers].
5. Furthermore, the condition restricting the sale or transfer of the shares to any third party 9 is
an integral part of the whole understanding, based on which the Grovera had signed the
agreement. Even the clause that The parties shall negotiate in good faith is a fundamental
part of the whole agreement and forms part of the consideration for Grovera assenting to the
agreement. Since the lock-out period was only for a specified period for which the
restriction lasted, there was no hindrance to its enforceability. 10 This exclusivity or no-shop
provision in itself constitutes a separate binding provision. 11 Even the lock-in agreement
having been for a specified period of 3 months was therefore enforceable, as it rendered
certainty as to the period within which negotiations were to be concluded. 12 The provisions
in the agreement, therefore, obligated the parties to attempt in good faith to reach a final and
formal agreement13. The LoI is enforceable as a mutually binding obligation to negotiate in
good faith.14 This obligation, in turn, implied that the agreed shares could not be transferred
to anyone within the specified lock-in period.
6. It is further submitted that the mere fact that the parties contemplated that the LoI would be
superseded by a more formal agreement and by future negotiations, 15 does not prevent it
from taking effect as a contract16 It is for the parties to decide at what stage they wish to be
9 Appendix C, Factsheet.
10 Walford And Others v. Miles, [1992] 2 AC 128 (HL) [Walford]; Pitt v. PHH Asset Management Ltd,
[1993] 4 All ER 961.
11 Jeffrey W. Berkman, DUE DILIGENCE AND THE BUSINESS TRANSACTION: GETTING A DEAL
DONE, 170 (2013).
12 Walford, [1992] 2 AC 128.
13 Itek Corp v. Chicago Aerial Industries, Inc., 248 A.2d 625 (Del. 1968)
14 Channel Home Centers v. Grossman, 795 F.2d 291 (3d Cir. 1986); LLMD v. Marine Midland Realty Credit
Corp., 789 F.Supp. 657, 660 (E.D. Pa. 1992).
contractually bound.17 In the present case, the LoI carried no clause making the conclusion
of the contract incumbent upon the formally drawn document. All the basic and essential
terms had been given an unqualified acceptance, with the intention to treat the same as a
concluded contract.18 Therefore, definitive documentation was a mere extension to the
already decided contractual agreement and the lack of formality does not invalidate the
LoI.19 It simply represented the desire of the parties as to the manner in which the
previously agreed transaction will in fact proceed.20
7. Hence, it is submitted that the LoI was legal and binding.
[C]. 5G STARS DISCLOSURE WAS INEFFECTIVE AND CELLTONES KNOWLEDGE DID NOT
RESTRICT A CLAIM FOR BREACH OF WARRANTY
8. It is well established that in the absence of a contractual stipulation any disclosure to be
effective for the purpose of qualifying warranties, would require to be fair and sufficiently
detailed to effectively bring the potential breach of warranty to the purchasers attention 21
and mere reference to a source information will not satisfy the requirements of a fair
disclosure.22 Therefore, it is submitted that merely providing the LoI without actually
pointing out its binding nature was not specific enough and does not amount to a fair and
effective disclosure so as to qualify the warranties made in the SAA.
9. Furthermore, in the absence of an express sand-bagging provision, Courts have held that in
cases where the agreement of sale is silent, the sellers representations and warranties are
unaffected by the purchasers due diligence.23 The seller having owned and operated the
business was in a better position than the purchaser to know about critical facts relating to
17 Pagnan Spa v. Feed Products Limited, [1987] 2 Lloyds Rep 601.
18 Currimbhoy and Co. Ltd. v. Creet, (AIR 1933 PC 29.)
19 Shankarlal Narayandas Mundade v. The New Mofussil Co. Ltd. & Ors., AIR 1946 PC 97.
20 Von Hatzfeldt-Wildenburg v. Alexmder, (1912) 1 Ch 284.
21 Prentice v. Scottish Power plc., [1997] 2 BCLC 264.
22 Levison v. Farin [1978] 2 All E.R. 1149 and Daniel Reeds Ltd. v. EM ESS Chemists Ltd. [1995] C.L.C.
1405).
the business. The period to conduct due diligence was limited in duration within which there
were numerous factors that Celltone had to investigate and verify. As a consequence, it was
not unusual that Celltone would fail to fully appreciate the significance of the facts
uncovered during due diligence.24 This being Celltones first foray into the Indian market, it
can be presumed that it relied on the sellers representations and warranties to provide an
extra layer of protection in the transaction, in addition to the layer of protection provided by
its own due diligence. It is therefore submitted that Celltones constructive knowledge of the
LoI should not affect its ability to subsequently bring suit for breach.
[D]. THE REPRESENTATION IN THE SAA AMOUNTED TO FRAUDULENT MISREPRESENTATION
10. It is submitted that the representation in the SAA constitutes fraudulent misrepresentation.
Fraudulent misrepresentation arises when there is a suggestion of an untrue fact, either
negligently or recklessly, intended to induce the other party to enter into the contract and
this leads to damages.25 It is submitted that the representation was false since the respondent
was not absolutely entitled to sell and transfer the shares due to the terms of the LoI, and
reliance was placed on this for two reasons.
i.
Suppression of truth amounts to suggestion of falsehood.
11. It is submitted that the respondents cannot take the defense that mere silence does not
amount to misrepresentation.26 It is a rule of equity, as well as of law, that a suppressio
veri is equivalent to a suggestio falsi.27 The respondents were clearly aware of the binding
nature of the LoI and thus had knowledge of the falsity of their representation. Therefore,
when a statement of clear title was made but the fact that there was an existing encumbrance
23 Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. Ct. 2005).
24 CBS Inc. v. Ziff-Davis Publishing Co., 553 N.E.2d 997 (N.Y. 1990).
25 Derry v. Peek, [1889] 14 A.C.337 .
26 Kamal Kant Paliwal v. Smt Prakash Devi Paliwal, AIR 1976 Raj 79 [Kamal]
27 Kamal, AIR 1976 Raj 79.
MEMORIAL FOR THE APPELLANTPAGE 23
had rather been suppressed, it was a suppression of truth with a suggestion of falsehood and
hence, amounted to fraudulent misrepresentation.28
ii.
Intention of the Party is immaterial
12. It is further submitted that the intention of the respondents is immaterial. 29 The mere fact
that they made a representation claiming to have title over the shares knowing it was untrue
is sufficient to prove fraudulent misrepresentation. Furthermore, merely because the misled
party had the opportunity to investigate it is not deprived of the right to claim deception and
therefore a breach of warranty.30 There is an obligation upon the party upon whom
confidence has been reposed to disclose information relevant to the contract 31 IndMobile,
having special knowledge which was not accessible to Celltone, had a duty to disclose
everything that may have affected the latters judgment.32
13. Therefore, even though Celltone conducted due diligence, it relied on the representations
made in the SAA on the basis of which it was induced to enter into the transaction with
IndMobile and 5G Star. Additionally, as a result of the breach of the warranties, it suffered
damages in the form of loss of goodwill, overpayment of purchase consideration etc. Hence,
it is submitted that the representation amounted to fraudulent misrepresentation.
II.
THE
OF THE
TO A
SAA
14. It is submitted that during the process of obtaining the Calcutta licenses, 5G Star was in
violation of an applicable law and regulation which resulted in an administrative sanction of
a material nature [A]. This in turn had a material adverse effect on the ability of the
Company to conduct its business [B]. This act is attributable to 5G Star, and is a breach of
representations made in the SAA [C].
[A]. THE CONDUCT OF INDMOBILE AND 5G STAR WAS IN VIOLATION OF LAW
15. It is submitted that 5G Star committed bribery under the POCA. This is because the
payments to Mr. Debarayas Company were gratification to a public servant [i], other than
legal remuneration [ii] and this was in respect of an official act [iii].
i. The payment amounted to a gratification to a public servant
16. It is submitted that the payment made to Mr. Debarayas company, should be construed as
having been to Mr. Debaraya. Mr. Debaraya was a public servant under Section 21 of the
Indian Penal Code, as he was an officer entitled to make assessments on pecuniary matters
relating to the Government.33 Although the consultancy company is a separate legal entity,
the corporate veil can be pierced in cases where the company serves as a faade to
obfuscate identity.34 In the instant case, the threefold test for this as set out in Trustor AB35
has been met. First, the individual was in control. Second, the company was used to conceal
receipt or avoid liability. Third, it is in the interests of justice.
17. First, the individual was in control of the company. Mr. Debaraya along with his wife fully
owned the consulting company36, and was the sole beneficial shareholder.37 Thus, he had
both de facto and de jure control of the company.38 In any case, he was the directing mind
and will of his company, and the actions of his company can be attributed to him. 39 In light
of this attribution, his transactions indicate knowing receipt of the money.
33 Sec. 21, INDIAN PENAL CODE, 1860.
34 Jones v. Lipman, 1962 1 WLR 832; Gencor ACP Ltd v. Dalby, 2000 2 BCLC 734.
35 Trustor AB v. Smallbone (no 2), 2001 1 WLR 1177.
36 10, Factsheet.
37 Aveling Barford v. Perion, 1989 5 BCC 677 [Perion].
38 Reg 2(1)(e), SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011.
MEMORIAL FOR THE APPELLANTPAGE 25
18. Second, the company was used to conceal receipt from the principal. It is submitted that Mr.
Debaraya used the company as a vehicle to hide receipt. As per the CVC Guidelines on
Tenders,40 Mr. Debaraya should have disclosed this conflict of interest to the Government,
which would have led to his removal from the tender committee. Failure to do so is an
improper use of the corporate structure.41
19. Third, piercing the veil is in the interests of justice. Mr. Debaraya was engaged in the abuse
of a corporate structure to the detriment of the Government. In this case, Mr. Debarayas
dealings with 5G Star raise a presumption of bias 42 in the tender dealings, which was
confirmed by the decision of the Calcutta High Court. 43 In light of this bias in public
dealings, the corporate veil must be pierced to establish the identity of Mr. Debaraya as the
recipient of money.44
ii. The payment did not amount to a legal remuneration
20. Mr. Debaraya was a member of the tender committee 45 which was responsible for awarding
licenses for the 5G mobile networks. Members of tender committees owe a fiduciary duty to
the Government46, and any possible conflict that may lead to sub-optimal allocation of
resources is a betrayal of such duty. Therefore, any remuneration received by a public
39 Iridium India Telecom Ltd. v. Motorola Incorporated and Ors., 2011 1 SCC 74; Tesco Supermarkets Ltd v.
Nattrass, 1971 2 WLR 1166.
servant from an interested party in the tender proceedings, without disclosure of the same to
the Government, is illegal.
iii.
21. Finally, it is submitted that the receipt of this money places Mr. Debaraya in a situation
where there is a possible conflict of interest. The defence of the consultancy services
provided being legitimate is excluded by the decision of the Calcutta High Court. This
assumption of bias indicates a potential conflict of interest.47
22. The question of whether Mr. Debaraya actually influenced tender proceedings or had the
intention to do so in 5G Stars favour is irrelevant as if the intention or object with which
money is offered to a public servant is to induce him to perform an official act to show favor
in the exercise of his official function, the offence would be complete.48 In the instant case,
the finding of presumption of bias by the Calcutta High Court as well as the concealment of
this amount by Mr. Debaraya sufficiently establishes the required intention.
[B] THE VIOLATION OF THE LAW LED TO AN ADMINISTRATIVE SANCTION WHICH HAD A
MATERIAL IMPACT.
23. The Calcutta license was cancelled after a revelation of the nexus between Mr. Debaraya
and 5G Star by a decision of the Calcutta High Court. It is submitted that the cancellation of
a license amounts to administrative action,49 and this is likely to lead to a material adverse
effect.
24. The clause in the SAA reads likely to result in an administrative sanction of a material
nature.50Therefore, it is adequate to prove that on the balance of probabilities, the
LAW
administrative sanction is likely to lead to a material adverse effect on the ability of the
company in a reasonable mans position to continue its business.
25. It is submitted that the cancellation of the license means the loss of a significant source of
revenue, which is material and permanent, and therefore, a material adverse effect to the
functioning of the company as envisaged at the time of the agreement. It has been stated that
in commercial agreements, the loss of a significant source of revenue is sufficient to signify
a material adverse effect.51 Hence, it is submitted that there is a loss of the ability to conduct
business in Calcutta and hence the material adverse impact is a direct result of the
administrative sanction.
[C] THIS IS ATTRIBUTABLE TO THE COMPANY AND THEY CAN BE HELD LIABLE FOR THE
SAME.
26. It is submitted that the actions and mens rea of Mr. Bantha Ranga, in addition to the
payment of the money to Mr. Debaraya can be attributed to 5G Star. Such actions constitute
a breach of warranty in the SAA and render them abettors of bribery under Section 109 of
the Indian Penal Code.
27. The money paid to Mr. Debaraya was paid out of the accounts of 5G Star, and therefore, can
be easily attributed to 5G Star.
28. On the issue of the intent of Mr. Bantha Ranga, the Courts have held that the mens rea of an
employee can be attributed to the Parent Company.52 In the instant case, Mr. Bantha Ranga
was a part of the core team handling the licensing process and was authorized by the
Company to deal in the licensing process. 53 The test laid down in Meridian54 therefore, is
satisfied, which stated that irrespective of the person being the directing will and mind of
the company, if the person was authorized by the Company for a particular purpose, then
his knowledge shall be attributed to the Company. The same principle was affirmed in
51 Cariboo Redi-Mix& Contracting Ltd v. Barcelo, 1991 881 BC SC.
52 V. Umakant & M. Naniwadekar, Corporate Criminal Liability and Securities Offerings: Rationalizing the
Iridium-Motorola case, 23(1) NATIONAL LAW SCHOOL OF INDIA REVIEW 109 (2011).
53 Q.9, Clarifications.
54 Meridium Global Funds Management Ltd v. Securities Commission, 1995 2 AC 500.
MEMORIAL FOR THE APPELLANTPAGE 28
Iridium55, which stated that the mens rea of persons entrusted with the exercise of powers
of the Company could be attributed to the company. Hence, the mens rea of Mr. Ranga can
be attributed to 5G Star. It is therefore submitted that 5G Star committed a breach of
warranty.
III.
AMOUNT TO
FRAUDULENT
MISREPRESENTATION
29. It is submitted that the communication of the incorrect ARPU figure to Celltone amounts to
fraudulent misrepresentation by 5G Star and IndMobile for three reasons. First, the
clarification was vague and insufficient and should not be considered [A]. Second, the initial
projection amounts to fraudulent misrepresentation[B].
[A]. THE CLARIFICATION FROM 5G STAR WAS VAGUE AND INSUFFICIENT
30. It is submitted that once the figure of Rs.250 had been provided to Celltone plc,56 a
continuing responsibility for those representations can be imputed to 5G Star.57 The burden
to rectify this projection lies on 5G Star. The fact that no further documents rectifying the
ARPU figure were sent out, even after the frustrated phone call is indicative of 5G Stars
failure to fulfil this responsibility. The fact that the phone call kept getting frustrated implies
that it was foreseeable that Celltone did not obtain the correct information, and the
continuing responsibility for the original representation is sustained.58 Further, the response
was a conjecture and not reflected in any internal documents. The Court in Bottlin
International Investments held that such a conveyance does not satisfy the standard of
55 Iridium India Telecom Ltd v. Motorola Incorporated and Ors., 2011 1 SCC 74.
56 12, Factsheet.
57 Casamo LLP v. Viscount Reidhavens Trustees, 2014 SCLR 484 [Viscount].
58 Viscount, 2014 SCLR 484.
disclosure59. In light of this responsibility, a finding on the basis of the clarification offered
during the phone call cannot be sustained.
31. Further, it is submitted that it is not enough if the claimants could have discovered the
truth, but whether they in fact discovered the truth.60 In the current scenario, Celltone had
not discovered the actual figure of Rs.175 until after the completion of the deal. 61 Mere
opportunity of due diligence with the other party does not exclude the duty on 5G Star to
disclose material facts. In keeping with this standard of disclosure and general corporate
practice, a disclosure letter should have been sent out by 5G Star. 62 A disclosure that is
neither specific nor express does not meet the standard for disclosure in share sale
agreements.63
32. In any case, it is submitted that the response given by 5G Star officials during the phone call
failed to provide an accurate picture. This engages the rule laid down in Vahey64, which
states that if a reply, though accurate, fails to provide a complete picture, it may be treated
as deceit. It is submitted that in the instant case, the reply to the enquiry raised in the
course of due diligence was vague and insufficient for two reasons. First, the accurate
figure was not provided to Celltone, as only a vague statement that this was without regard
to discounts and rebates that may be offered65 was made. Not only is this statement
speculative in nature, owing to the construction of the word may, but also does not reflect
59 Bottin International Investments Ltd v. Venson Group PLC, 2006 EWHC 3112. [Bottin]
60 Redgrave v. Hurd, 1881 20 Ch. D.; Levison v. Farin, 1978 2 ALL ER 1149.
61 12, Factsheet.
THE
CORPORATE ACQUISITIONS
the amount of reduction in profitability. Second, in a corporate deal involving large amounts
of money, no attempt was made to rectify the original document which was sent out. The
warranted representation, therefore, remains the initial representation of Rs. 250 which
was provided by 5G Star and the conveyance by 5G Star officials failed to provide the
complete picture, and is squarely insufficient.
[B]. THE INITIAL PROJECTIONS AMOUNT TO FRAUDULENT MISREPRESENTATION.
33. It is submitted that the projections were fraudulent misrepresentations as they satisfy the test
laid down in RC Thakkar66. First, there was a reckless suggestion of an untrue fact. Second,
it was made with the intent to deceive or to induce the other party to enter into the contract.
Third, reliance was placed on it.
34. First, it is submitted that the initial ARPU projection was supplied recklessly without belief
in its truth. The initial projection simply served to provide Celltone with a false
reassurances about the profitability of the business, and therefore constitute false
statements as general impression created by the statement is false, even though
components of the statement may be true.67
35. It is submitted that 5G Star had no reasonable ground to believe this statement to be true.
The projection was made with the knowledge that discounts would be offered. 68 Nondisclosure of the existence of discounts is equivalent to an assertion that the discounts do
not exist, especially when 5G Star knew that disclosure of this fact would correct a
mistake of the other party as to a basic assumption on which they are making the
contract.69
36. Second, it is submitted that the intent to make this initial representation was to provide a
false image about the profitability of the business. The escalated projection paints a better
picture about the profitability of 5G Star than it actually is. This would serve only to entice
Celltone to invest in the deal. In any case, it is no justification that this representation was
made without a bad motive,70 or that there was no intention to cheat or cause loss.71
37. Third, Celltone proceeded on the initial projection72 until they knew of the real figure, which
was after completion of the deal. The false account of the profitability of the business
therefore, was in the minds of Celltone plc when they entered the deal. 73 Hence it is
submitted that there exists a causal link between the profitability of the company and the
decision to invest in it, which is adequate to meet the standard for reliance. 74 Therefore, it is
submitted that the actions of the respondents amount to fraudulent misrepresentation.
IV.
SHOULD BE
AWARDED
38. It is submitted that the damages claimed by the appellants in respect of the breach of
warranty should be awarded in full. In Downs,75 it was held that in cases involving fraud,
damages should be calculated on a no transaction basis. In the instant case, if the
fraudulent misrepresentations had not been made, the appellants would not have gone
through with the transaction. This is clear from their reliance on the statements made by the
respondents, as submitted above. The appellants made the entire investment with the belief
that the process was above board76, the shares were transferable77 and that they were not
considerably overpaying for their stock78. The rule laid down in Smith New Court
70 United Motor finance Co v. Addison & Co., AIR 1937 PC 21.
71 Brown Jenkinson & Co v. Percy Dalton, [1957] 2 All ER 844.
72 12, Factsheet.
73 Bottin, PLC, [2006] EWHC 3112.
74 Bristol & West Building Society v. Mothew, 1997 2 WLR 436.
75 Downs v. Chappell, [1997] 1 WLR 426.
76 5, Factsheet.
77 Appendix A, Factsheet.
MEMORIAL FOR THE APPELLANTPAGE 32
Securities79 should be followed, and the entire purchase consideration should be awarded as
damages.
39. It is submitted that the appellants are entitled to be put into the position they would have
been had those representations not been made. 80 In the instant case, the entire investment of
$490 million would not have been made in the absence of fraud. Therefore, the damages
claimed by the appellants are correct and should be awarded to them.
V.
BAND BANK
IS
OBLIGATED
TO
RELEASE
THE
ESCROW AMOUNT
40. It is submitted that Band Bank must release the escrow amount because the indemnification
obligation has arisen due to breach of warranty, misrepresentation etc [A]. Damage has been
caused due to such a breach [B]; and consequently, the escrow agent is bound to follow the
instructions in the escrow agreement [C].
41. The escrow amount was to be applied towards satisfaction of any indemnification
obligations of IndMobile and 5G Star that may arise under the SAA.81 As submitted above,
there has been a breach of warranty and thus the indemnification obligation of respondents
has been triggered.
78 12, Factsheet.
79 Smith New Court Securities Ltd v. Citibank NA, [1997] AC 254.
81 9, Factsheet.
MEMORIAL FOR THE APPELLANTPAGE 33
[C]. THE ESCROW AGENT IS BOUND TO FOLLOW THE INSTRUCTIONS IN THE ESCROW
AGREEMENT
45. It is submitted that the escrow agreement creates a limited agency in Band Bank wherein the
escrow holder is obligated to act strictly in accordance with the escrow instructions given by
that party.87 Thus, it is submitted that since there has been a breach of warranty which has
resulted in damages to the appellants, the bank is bound to release the escrow amount.
82 Gajanan Moreshwar Parelkar v. Moreshwar Madan, AIR 1942 BOM 44.
83Jet Airways (India) Ltd v. Sahara Airlines Ltd & Ors, AIR 2011 BOM 734.
84 Cl. 10.1, Appendix A, Factsheet.
85 Malik and Mahmud v. Bank of Credit , [1997] UKHL 23.
86 Continental Heller v. Amtech Mechanical Services, [1997] 53 Cal.App.4th 500, 504.
MEMORIAL FOR THE APPELLANTPAGE 34
VI.
DLA
IS
LIABLE
TO
PAY DAMAGES
FOR
RENDERING
AN INCORRECT
OPINION
46. It is submitted that DLA is liable to pay damages to the tune of $490 million since it has
rendered an incorrect opinion to Celltone. This is owing to three reasons; first the opinion
was incorrect as it amounts to negligent misrepresentation [A]. Second, Celltone has a right
to sue DLA for it [B], and third, Celltones due diligence does not preclude its claim against
DLA [C].
DLA incorrectly stated that the execution, delivery and performance of SAA
would not breach the terms and conditions of a contract
48. It is submitted that at the time of rendering the opinion, DLA was aware of the LoI 88 in
which it had clearly been stipulated that Grovera and Indmobile were locked in for a period
of 3 months to negotiate in good faith. As submitted above, the LoI had the characteristics
of an enforceable contract. Despite having knowledge of the fact that the 3 months of lockin period had not ended, DLA in its opinion, stated that the execution and performance of
the SAA will not breach the terms of any contract.89 It is, therefore, submitted that this
amounts to negligent misrepresentation since DLA misrepresented a material fact to
Celltone for the guidance of their business transaction.90
87 Blackburn v. McCoy, [1934] 1 CA2d 648, 656.
88 Q.4, Clarifications.
89 3(b), Appendix B, Factsheet.
90 Mehaffy, Rider, Windholz & Wilson v. Central Bank Denver, 892 P.2d 230 (Colo. 1995). [Mehaffy Rider]
MEMORIAL FOR THE APPELLANTPAGE 35
49. It is further submitted that notwithstanding the disclaimer of assumptions, the opinion giver
can be held responsible for an incorrect opinion if he either knew of or had reason to believe
there existed, facts contrary to those contained in the documents reviewed.91 Hence, it is
submitted that notwithstanding the assumptions, DLA can be held liable for an incorrect
opinion since it was aware that the execution and performance of the LoI before the expiry
of the 3 month lock-in period would amount to a breach of the terms and conditions of the
LoI.
ii. DLA merely assumed the facts without investigating them properly
50. It is submitted that DLA should have investigated the circumstances surrounding the
transaction before giving the opinion. A lawyer cannot escape liability merely by pointing
out that he has relied on the facts provided by the client. 92 The solicitor has an overall
responsibility of careful investigation and supervision in the disclosure process and he
cannot simply leave this task to his client.93 Thus, a passive failure to know cannot be
claimed as a defense by the attorney.94
51. In the instant case, the clients employees were alleged to have been indulged in corrupt
activities, which was common knowledge even among outsiders like Navro. 95 In light of
such circumstances, the counsel cannot merely assume that there existed no facts that could
render the SAA void. Hence, the opinion amounted to negligent misrepresentation.
[B]. CELLTONE HAS A RIGHT TO SUE DLA
92 Kline, 24 F.3d 480 (3d Cir. 1994) ; Greycas v Proud, 826 F.2d 1560 (7th Cir. 1987).
[Greycas]
93 Myers v. Elman [1940] A.C. 282.
94 Slotkin v Citizens Casualty Co., 614 F.2d 301 (2nd Cir.1979).
95 10, Factsheet.
MEMORIAL FOR THE APPELLANTPAGE 36
52. It is submitted that the Celltone has a right to sue DLA owing to two reasons. First, because
statements of opinion are actionable [i]. Further, DLA can be held liable even if it does not
share an attorney-client relationship with the Celltone [ii].
i.
Statements of opinion are actionable and hence DLA can be held liable for an
incorrect opinion.
53. Admittedly, a statement on which liability for misrepresentation may be based must be one
of fact and not of expectation, estimate, opinion or judgment. 96 However, a statement of
opinion may be actionable where the speaker possesses superior knowledge concerning the
subject matter to which the misrepresentations relate, or where the opinion is reasonably
interpreted by the recipient to imply that the speaker knows facts that justify the opinion.97
54. The fact that DLA had perused the document and that they were the 5G Stars legal
advisors indicates that they possessed superior knowledge concerning the subject matter of
the opinion and made the statements with certainty.98 Hence, it was reasonable for Celltone
to believe that DLA knew facts that justified the opinion and thus, the statement of
opinion is actionable.99 Thus, DLA can be held liable for an incorrect legal opinion, due to
their superior knowledge of facts which shaped their opinion.
ii.
Appellant can hold the firm liable even though they do not share an attorneyclient relationship
55. An attorney owes a duty to the third parties that the attorney knows or can reasonably
foresee reliance being placed on the information supplied by him. 100 It is submitted that to
sustain a claim of negligent misrepresentation an attorney-client relationship is not
96 Zimmerman v. Kent, 31 Mass. App. Ct. 72, 82 (1991).
97 Stolzoff v. Waste Sys. Int'l, Inc., 58 Mass.App.Ct. (2003).
98 National Bank of Canada v. Hale & Dorr, WL 1049072 (Mass. Super. 2004)
[Hale&Dorr]
99 Hale&Dorr, WL 1049072 (Mass. Super. 2004).
100 Horizon Financial v. Hansen, 791 F.Supp. 1561 (N.D.Ga.1992).
MEMORIAL FOR THE APPELLANTPAGE 37
57. It is submitted that the opinion giver is liable to pay damages which arise as a direct
consequence of the misrepresentation in the opinion letter.105 In the case of
misrepresentation, the damages awarded must be equivalent to the amount had there been
no misrepresentation.106 As submitted above, Celltone has indeed relied on the opinion letter
101 Greycas, 826 F.2d 1560 (7th Cir. 1987).
102 Banco Popular North America v. Suresh Gandhi, 876 A.2d 253 (2005).
103 Mehaffy, 892 P.2d 230 (Colo.1995).
104 Teamster Local Pension Trust Fund v. Angelos 762 F.2d 522 (7th Cir, 1985).
105 Dean Foods, 2004 WL 3019442 (Mass.Super.)
106 Slotkin, 614 F.2d 301.
MEMORIAL FOR THE APPELLANTPAGE 38
that induced it to enter into the contract on the basis of the representations. Had there been
no misrepresentation, Celltone would not have gone through the transaction. Thus, the
damages must be awarded in full and an amount equivalent to the purchase consideration
must be paid to Celltone.
VII.
58. It is submitted that there is a prima facie case for indirect expropriation of the assets of
Celltone and therefore, no anti-arbitration injunction should be entertained. The ingredients
for expropriation under the India-UK BIT have been met in this case because Celltone can
be termed an investor [A], the High Court judgment amounts to expropriation, or action
equivalent to indirect expropriation [B] therefore since a prima facie case exists, no antiarbitration injunction should be entertained [C].
[A] CELLTONE IS AN INVESTOR
59. Celltone is an investor for the purposes of the BIT. Article 1(a) of the BIT describes a
company to be a corporation, firms or association incorporated or constituted under the
law in force in any part of the United Kingdom.107 In the current scenario, Celltone is a
company as mentioned in the factsheet, to be a leading telecom services company in the
UK108. Therefore, the first threshold is satisfied by Celltone. Article 1(b) of the BIT, inter
alia, includes shares in and stock and debentures of a company and any other similar forms
of interest in a company.109 In the current scenario, Celltone acquired 49% of the shares in
5G Star.110 Consequently, this equity holding squarely falls within the definition of
investment provided under the BIT.
107 Art.1(a), Agreement between The Government and Republic of India and The Government of the United
Kingdom of Great Britain and Northern Ireland for the promotion and protection of investments (Adopted on
March 14 1994). [BIT].
108 4, Factsheet.
109 Art.1(b), BIT.
110 7, Factsheet.
MEMORIAL FOR THE APPELLANTPAGE 39
111 Art. 4, Articles on Responsibility of States for internationally wrongful acts, INTERNATIONAL LAW
COMMISSION, (November, 2001).
112 S. Malhotra, Cancellation of telecom licenses in the 2G Case: Claim for indirect expropriation, 6(2), NUJS
LAW REVIEW, 335 (2013).
113 B.H. Weston, Constructive Takings under International Law: A modest foray into the problem of creeping
expropriation, 16, VIRGINIA JOURNAL OF INTERNATIONAL LAW, 103 (1976).
114 UNCTAD, Series on Issues in International Investment Agreements, Takings of Property 11, available at
http://unctad.org/en/docs/psiteiitd15.en.pdf. (Last visited on January 12 th, 2015); Compaia del Desarrollo de
Santa Elena, S.A. v. Costa Rica, 15 ICSID REVIEW -FOREIGN INVESTMENT LAW JOURNAL (2000), 169, 76.
115 TecnicasMedioambientalesTecmed S.A. v. The United Mexican States, Award, May 29, 2003, 43 ILM 133
(2004), 114.
116 Tippets v. Tams Affa Consulting Engineers, 1984 6 Iran-US CTR 219, 225-6.
117 7, Factsheet.
118 Chevron Corp v. Donzinger, No. 11 Civ. 0691(LAK), 2011 WL 778052 (S.D.N.Y. Mar.7,
2011).
MEMORIAL FOR THE APPELLANTPAGE 41
APPENDIX I
TO
Without prejudice to sub-section (1), the securities or other interest of any member in a public
company shall be freely transferable:
Provided that any contract or arrangement between two or more persons in respect of transfer
of securities shall be enforceable as a contract.
2. Section 111A(2), Companies Act, 1956:
Subject to the provisions of this section, the shares or debentures and any interest therein of a
company shall be freely transferable.
[Provided that if a company without sufficient cause refuses to register transfer of shares
within two months from the date on which the instrument of transfer or the intimation of
transfer, as the case may be, is delivered to the company, the transferee may appeal to the 3
[Tribunal] and it shall direct such company to register the transfer of shares].
3. Art. 2.14., UNIDROIT Principles.
MEMORIAL FOR THE APPELLANTPAGE 42
(a) A offers a bribe to B, a public servant, as a reward for showing A some favour in the
exercise of Bs official functions. B accepts the bribe. A has abetted the offence
defined in section 161.
In this case, the borrower sought a loan under terms which it believed would permit it to
employ offset accounting, by which certain assets and liabilities would not appear directly on
its balance sheets. The lender sent a letter which set forth the basic economic terms of the
proposed loan but which made no reference to offset accounting. It invited the borrower to
send a counterpart of the letter, upon which time the agreement would become binding upon
the parties. When advisers to the borrower expressed doubt that the Securities and Exchange
Commission would accept the offset accounting, the borrower refused to conclude the loan.
In response to the lenders complaint, the borrower argued that the lender had understood the
loan to be contingent upon the borrowers ability to employ offset accounting.
The court held that the agreement became binding when the borrower responded to the
lenders letter with an acceptance letter that made no mention of offset accounting. While
there were still open terms, they were not basic terms of prime importance and were subject
only to good-faith negotiation. It established that a binding preliminary commitment obligates
both sides to negotiate in good faith towards the conclusion of a final judgment.
preliminary contract with binding force occurs when the parties have reached complete
agreement, including the agreement to be bound, on all the issues perceived to require
negotiation. Such an agreement is preliminary only in form only in the sense that the
parties desire a more elaborate formalization of the agreement. The second stage is not
necessary; it is merely considered desirable. The mere fact that the parties contemplate
memorializing their agreement in a formal document does not prevent their informal
agreement from taking effect prior to that event. The parties can bind themselves to a
incomplete agreement in the sense that they accept a mutual commitment to negotiate
together in good faith in an effort to reach final agreement within the scope that has been
settled in the preliminary agreement.
3. Kollipara Sriramulu v. T. Aswathanarayana & Ors.121
In this case the Supreme Court was called upon to decide whether an oral agreement for sale
of certain shares in a partnership was effective because the parties contemplated the execution
of a formal document. The Court held as follow: It is well-established that a mere reference
to a future formal contract will not prevent a binding bargain between the parties. The fact
that the parties refer to the preparation of an agreement by which the terms agreed upon are to
121 Kollipara Sriramulu v. T. Aswathanarayana & Ors , AIR 1968 SC 1028
MEMORIAL FOR THE APPELLANTPAGE 45
be put in a more formal shape does not prevent the existence of a binding contract. The
evidence adduced on behalf of the Respondent No.1 does not show that the drawing up of a
written agreement was a prerequisite to the coming into the effect of the oral agreement. It is,
therefore, not possible to accept the contention of the Appellant that the oral agreement was
ineffective in law because there is no execution of any formal written document.
4. Trustor AB v. Smallbone (no. 2)122
In this case, the plaintiffs applied to pierce the corporate veil and treat the receipt of money
by the defendants company as the receipt of money by the defendant himself. This was on the
grounds that (1) the company had been a sham and no unconnected third party had been
involved; (2) the company was being used to participate in improper acts, and (3) in the
interests of justice.
It was held, granting the application, that it was appropriate to pierce the corporate veil in the
circumstances of the instant case since (1) the defendant was the only beneficiary and in
control of the Company; (2) The acts of the defendant were linked to the use of the company
structure as a device to conceal the facts so as to seek to evade any personal liability on the
part of individuals, and (3) it was clearly in the interests of justice to do so since the company
had been used solely as a vehicle of the receipt of monies.
5. Iridium India Telecom v. Motorola Incorporated123
The plaintiffs filed a criminal complaint against the defendants alleging offences of cheating
and conspiracy under the Indian Penal Code. The complaint alleged that the defendants had
floated a private placement memorandum (PPM) to obtain funds/investments to finance the
'Iridium project'. The information provided in the memorandum was false and caused a huge
loss to the plaintiffs.
The Supreme Court was concerned with the question of corporate criminal liability, and
attribution of mens rea. It was held that a company can be held liable for criminal offences
requiring mens rea. The Court stated that the mens rea of persons entrusted with the exercise
of powers of the Company could be attributed to the company.
122 Trustor AB v. Smallbone (no 2), 2001 1 WLR 1177.
123 Iridium India Telecom v. Motorola Incorporated, 2011 1 SCC 74.
MEMORIAL FOR THE APPELLANTPAGE 46
plaintiffs brought the instant proceedings on grounds that they had been deceived into making
the
investment
by
inaccurate
financial
information.
Held, giving judgment for the plaintiff, that in providing B with the December forecast and
Budget 4, the defendants had deliberately set out to provide a false sense of reassurance about
their profitability. The inclusion of the budget figures alongside the actual figures was
intended to give the impression that they were operating significantly better than they had
been budgeted to. Accordingly, B's claims succeeded.
8. Levison v. Farin126
The plaintiffs were the shareholders of a fashion company. The company began running at a
loss, and the plaintiffs negotiated to sell the company to the defendants. During due diligence,
they disclosed that no new collection had been designed, that the company was running at a
loss and in a down state, but they did not know how much money was being lost. After the
purchase, the defendants realized the true quantum of the loss and sued.
It was held that on the reduction of a company's assets between balance sheet date and
completion, disclosure generally of the causes of probable future losses, as opposed to
disclosure of a quantified reduction in the net asset value or the actual rate of continuing
losses, will not protect the vendors of the company from being in breach of a warranty.
9. Downs v. Chappell127
The plaintiffs brought a case against the defendants for fraudulent misrepresentation which
caused them to purchase a shop, and claimed the entire purchase consideration as damages.
In this case, it was held that in cases of fraud and deceit, the damages should be assessed on a
no transaction basis, because if the plaintiff had been aware of the true figures there would
have been no transaction. The plaintiff should be entitled to recover all the losses he had
suffered which included the entire purchase consideration.
10. Dean Foods Co. v. Pappathanasi128
This case involved an opinion by the seller's counsel to the purchaser of a business that the
seller was not the subject of any litigation or investigation not disclosed in a schedule to the
purchase and sale agreement. The opinion did not disclose a tax fraud investigation by the
U.S. Attorney of a customer of the seller. The transactional lawyer who prepared the opinion
spoke to the litigator representing the client in the tax fraud investigation about the matter but
did not attempt to obtain a full picture of what the litigator knew. Instead, he relied on the
"guesstimate" of the litigator that the investigation had ended. The litigator's judgment proved
to be wrong: the purchaser received a "target letter" from the U.S. Attorney three months
after the opinion was given and eventually paid a $7.2 million fine for aiding a tax fraud. The
purchaser then sued the law firm that delivered the opinion, alleging that its failure to disclose
the investigation constituted negligent misrepresentation. The judge agreed, finding that
under the circumstances the transactional lawyer, in preparing the opinion, had a duty to
conduct an appropriate investigation (or withhold the opinion) and that his investigation
had fallen short of what was required by customary practice. Asking the litigator, who
had not even been advised that the firm was giving an opinion, for his assessment of the
matter and relying on his "guesstimate" was, in the judge's view, insufficient. Thus, the
firm was held liable for negligent misrepresentation.
11. Greycas v Proud.129
In this case, money was to be lent on the security of farm equipment owned by the borrower.
The lender required the borrower to provide a lawyer's attestation as to the state of Article 9
filings against the equipment. That is, before making the loan, the lender wanted an opinion
that the farm equipment was not previously encumbered by security interests in favor of
others. The lawyer rendered an opinion that there were no such prior encumbrances.
However, the lawyer actually was ignorant on this subject. He made no search himself,
simply taking the client's word that the equipment was free and clear. When the client later
defaulted on the loan, and the lender discovered that the farm equipment was previously
encumbered, the lender sued the lawyer. The court held that the lawyer was liable for having
128 Dean Foods Co. v. Pappathanasi, 18 Mass. L. Rptr. 598, 2004 WL 3019442 (Mass. Super. Dec. 3,
2004).
129 Greycas v Proud, 826 F.2d 1560 (7th Cir. 1987)
130 Kline v. First Western Government Securities, Inc., 24 F. 3d 480 (3d Cir. 1994).
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