Appellants Speaker Notes.docx

The first suit before this court deals with whether the non-compete agreement signed between Naruto and the promoters of GMK is valid. This agreement was entered into by the two parties following Naruto’s decision to invest 350$ million in GMK. A non-compete agreement is an agreement which prevents the one of the parties to it from establishing a competing business to that of the other party in the relevant geographical area for a reasonable period of time. Such agreements are prohibited by section 3(1) of the Competition Act, 2002 which talks about anti-competitive agreements. It provides that no person shall enter into an agreement which “likely to cause an appreciable adverse effect on competition within India.” Our submission with respect to this issue is that the agreement in question fulfils both the criteria required to hold such an agreement to be valid. I.The first of these conditions, laid down in the MasterCard case is that the agreement must be directly connected to and necessary for the main transaction to be carried out. In order to be directly related to the main agreement, the agreement must be subordinate to the main one and must have a clear link to the transaction.Métropole Télévision In the instant case, the agreement was clearly linked to the main agreement. If I may invite your lordships attention to Para 9 of the Factsheet, the noncompete was said to be an integral part of the deal. The subject matter of the agreement was also relevant to the agreement. With respect to necessity, it is enough to show that that the absence of the agreement would lead to a negative effect on the project itself.- Mastercard The promoters of GMK are undoubtedly in possession of the technical knowhow required to establishing a rival company.- Factsheet Para 5.

The absence of a non-compete agreement could cause apprehension to Naruto that its business interests could be harmed. In fact, the CEO of Naruto admitted that the agreement was essential for the agreement to proceed- Factsheet Para 9 Thus, the first condition for a valid non-compete agreement has been satisfied.

II. Moving on to the second condition, it must be shown that the agreement is reasonable in its scope. This implies that the geographical area to which the agreement is applicable and the duration for which it is applicable must be reasonable. In the Orchid Chemicals and Pharmaceuticals matter, the CCI ruled that the duration and extent must not cause any appreciable adverse effect on competition. DurationIn the Nutricia Decision, the European commission opined that in order to determine the appropriate duration factors such as, “time taken by the seller, in the absence of a restrictive clause, to make a successful comeback to the market and regain his old customers” and the time taken to build new clientele must be taken into consideration.” The original agreement between the parties stated that the duration applicable to this agreement was 6 years. In the relevant sector, airport building and management, it has been seen that the time taken to build a new airport has been on an average of 7-8 years. IGI T3 took 10 Thus, we submit that the time of 7-8 years stipulated in the agreement is reasonable and must be upheld.

Geographical ExtentThe reasonability of the geographical extent of a non-compete agreement will depend on the operational presence of the party prior to the agreement.Nutricia Decision GMK has been shown to have an operational presence in India as well as abroad which makes the restriction on South Asia reasonable as wellClarifications Though it may be argued that South Asia is an overly vague area, we would object to such contention. In the Telefonica case, references to the Iberian market were read as meaning Spain and Portugal as this was where the parties had operational presence. (Andorra, France and BOA, Gibralatar are also in Iberia) In this case, South Asia can be read to those countries in which GMK has an operational presence in the general south Asian region. Thus, the restriction on the geographical area is not excessive and is reasonable. Both conditions being met, we submit that the non-compete was valid II) Naruto is not required to make a mandatory takeover offer to the shareholders of GMK The SEBI in its ruling has opined that Naruto is required to make a mandatory takeover offer to the shareholders of GMK. It considers that the 24% share along with the affirmative rights acquired by Naruto confers de facto control on it. Regulation 4 of the takeover guidelines states Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations

We would submit that the requirements of control which is defined in regulation 2(1)(e) of the guidelines have not been met in the present case. Further, we would submit that the transfer of the rights has no bearing on this issue In any case, we would contend that it was never the intention of Naruto to acquire GMK I) control under 2(1)(e) has not been fulfilled On this submission, we would raise two major contentions 1) Naruto does not have the right to appoint a majority of directors 2) Transfer of rights in SHA does not amount to transfer of control

1) Regulation 4 states the power to appoint the majority of directors as one of the markers for control. However, Naruto only has the power to appoint 2 out of 12 directors in the present case.

2) Transfer of rights will not amount to transfer of control In the Subhkam Ventures case, control under 2(1)(e) was read to be pro-active as opposed to reactive- Subhkam ventures v SEBI Such an interpretation means that merely veto rights cannot be considered as conferring control.

II) The rights transferred are merely protective and not participative The Subhkam case further stipulated that the rights being transferred must relate to the day-to-do functioning of the company. This implies that the standard of control is set at gaining participatory rights. The distinction between these two has been set out in the Generally Accepted Accounting Standards in USA and approved in India- Vodafone Interntional Holdings Here, the rights are merely of a protective nature While in Rhodia SA v SEBI, this requirement was not considered, the facts are distinguishable from the present case. - Second acquisition was subsidiary of first one. III) There was no intention on Naruto’s part to acquire GMK Intention of the acquirer in acquiring the target company must be gleaned from the actions of both the parties This standard has been used in cases such Sandip Save v SEBI as well as the Jet Etihad Case We submit that it is clear from the facts that there was no intention on the part of Naruto to acquire control over GMK - Statement of CEO Ishikawa - Promoters of GMK continue to have 5 directors on the board of 12 versus Narutos 2 With this, we submit that it is not necessary for Naruto to make the mandatory takeover offer under the guidelines

III) The tendering process was valid In the third suit being heard before the court today, Mr Baniwal a key leader of the Banana Crusaders Party challenged the tendering process for the Coimbatore airport project as being biased and arbitrary. The basis for this claim has been a video allegedly showing an officer of GMK boasting to his wife about arranging for trips for CABI officials. We would raise 3 contentions to rebut this allegation First, Mr Baniwal does not have the locus standi to challenge the process. This is due to the delay in filing the petition and the political motive behind filing it. - Delay The petition challenging the tender allotment was raised in March 2013, whereas the tender process itself had been completed in July 2012. In RD Shetty v International Airports Authority the Supreme Court stated that delay creates some the presumption of some ulterior motive against the petitioner Delay in challenging projects such as this could have the effect of stalling a project at the halfway stage which is not advisable. Raunaq International - Political interest The Supreme Court in the case of Janata Dal v H S Chowdhury held that PILs can only be granted when the petitioner approaches the court purely in the interests of justice. The main objective of the petitioner must not be political gain Mr Baniwal’s political party is based on the idea of anti-corruption. He has also been trying to prevent the airport project from proceeding since the very beginning, as is evident from the facts. Thus, such allegations must be read as being purely politically motivated.

Our second contention in this issue is that there was no arbitrariness present in the allotment process. - First, the present decision to change the process of allotment cannot be challenged as it was a policy decision In the Tata Cellular case, the Supreme Court clarified that in cases of arbitrariness in awarding of projects, it will only study the process applied. It will not discuss the comparative merits of various processes. Thus, the decision to change the allotment process itself cannot be challenged - There are certain Commercial considerations beyond price considered while allotting the contract In this case, considerations such as ability to deliver on time and delivery in satisfactory condition could be some of the consideration apart from costs- In re natural resources, Meerut Development Authority If I may invite your lordships attention to Para of the moot problem, GMK is one of the most experienced firms in the country. Thus, arbitrariness cannot simply be alleged because they were chosen over the highest bidder in this case. - Finally, it is also accepted practice that the highest bidder need not be chosen in award of tenders. Following from the previous submission, it is natural that the government be allowed to not select the highest bidder in a tender process This principle has been upheld by the Supreme Court in the Tata cellular case as well as the Trilochan Mishra case Here, it is clear from the facts that an objective criterion was used in order to decide the winning bid. On the basis of the aforementioned contentions, we would submit that there was no arbitrariness present in the allotment process.

NO COLLUSION OR CORRUPTION The final submission with respect to the writ petition is that there was no collusion or corruption in the tendering process In this case, Mr Baniwal has alleged that the video allegedly showing an official from GMK claiming to have paid for vacations for some CABI officials demonstrates the presence of corruption in the allotment process However, we submit that these allegations are baseless First of all, the standard of proof required to show corruption in government contracts is higher than mere suspicion- E P Royappa v State of Tamil Nadu It is necessary to have some clear evidence of the fact If I may invite the attention of your lordship to Para 14 In this case, the authenticity of the video has been confirmed to be inconclusive by CBI and independent probes Further, the video was not even tendered as evidence before the High Court. Therefore, in light of the above contentions, we submit that the tender to allot the Coimbatore project was not violated by arbitrariness or corruption

IV) The ad-interim injunction granted by the Coimbatore District Court was invalid. This issue arises out of the lawsuit filed by Mr Baniwal and Mr Palanisamy before the district court of Coimbatore against the board of directors of GMK alleging a breach of director’s duties in signing the agreement. They seek a permanent injunction on the project. The court granted them interim relief which is being appealed before this court today. Mulla defines an ad interim injunction as a temporary relief granted while the final ruling on another injunction is pending- Mulla on CPC The power to grant such an injunction is under Order XXIX CPC Before the validity of the injunction is raised, we submit that the petitioners did not have the locus standi required to approach the court on behalf of the company In order to bring an action on behalf of the company, it is necessary to show that the petitioners fall under one of the exceptions carved out in the case of Foss v Harbottle We would submit that the actions of the directors cannot be classified as such because the impugned act was not illegal or ultra vires and second there was no fraud on the minority. We would also contend that the petitioners did not approach the court with clean hands. The act was not ultra vires or illegal In order to challenge an allegation of ultra vires, it is necessary to show that the action is capable of being performed by the directors. The fact that the act may include a purpose different from the one laid out in the memorandum of association does not mean such an act is ultra vires. Section 291 of the company’s act 1956 clearly allows for directors to enter into contracts on behalf of the company Thus, the impugned act was not ultra vires the directors

There was no breach of duty under the company’s act 2013 It may be argued that the directors have breached their duty under 166(2) of the company’s act 2013 Section 166(2) reads A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. In the instant case, the director’s cannot be penalised for the fact that there was an alternative transaction available to them. We submit that the director’s took the decision in the best interest of the company as they saw fit. – In re Smith and Fawcett In cases such as this, the business judgement rule would apply and the decision of the directors ought to be deferred to- BCE Inc v 1976 Debentureholders The Act is not a fraud on the minority The case of Pavlides v Jenson has laid out the conditions required to show a fraud on the minority They are 1) The act must be fraudulent 2) The wrongdoers must be in control of the company We contend that neither of the conditions is met in the instant case 1) The Act must be fraudulent For an act to be fraudulent, it must lead to the benefit of the directors at the cost of the shareholders In this case it cannot be shown that there was any benefit accruing to the directors at the cost of the shareholders. Further, it cannot be shown that the wrongdoers in this case, the directors must be in de jure control of the company.

In this case, it has not been shown that the directors held a majority of the shares in the company. The respondents did not approach with clean hands In the case of Barrett v Duckett, it was held that for a valid derivative action the shareholder must approach the court in good faith and for the benefit for the company Here, we submit that there was no good faith nor do Mr Palanisamy and Mr Baniwal have in their minds the best interest of the company Mr Baniwal has brought the action to stall the actions of GMK for his own political purposes. In fact, in the previous suit, Mr Baniwal has filed to quash the agreement between GMK and the government. Thus, he had an interest in the project being scrapped and not for the benefit of this company. - Factsheet Thus, we submit that the petitioners did not have the requisite locus to approach the court. Further, The conditions to grant an ad-interim injunction were not met in the instant case. The conditions for the grant of an injunction were laid out in the case of Gujarat Bottling Co v Coca Cola Company 1) prima facie case 2) Balance of Convenience in favour of the project 3) No irreparable damage Further we will would submit that the public interest demands the injunction be lifted

1) There is no prima facie case of breach To determine whether a prima facie breach exists the court should be satisfied that a “serious question exists which deserves to be tried at law and that the facts show that the plaintiff may be entitles to relief- Babu Rameshwar Prasad Singh v Md Ayub In order to be entitled to relief, the petitioner must have the locus standi to bring that action. From the previous submission, it is clear that there was no locus on the petitioner’s part to bring action against the directors. Thus, we submit that there can be no prima facie case made out against the directors. 2) The balance of convenience is in favour of the injunction being lifted When determining the balance of conveniences it is important to see the effect of the injunction on the interests of the two parties. In this case, the interests of the company will be compared where an injunction is granted as opposed when an injunction is not. The grant of an injunction prevents the company from increasing profits and shareholder wealth which are its prime objectives- Dodge v Ford On the other hand, it is contended by the respondents that if the injunction is lifted, the potential damage caused to the environment around the project and its residents will lead to an irreparable loss of reputation to the company. However, there is no guarantee that the damage indicated will even take place. Further, in Victor Fernandez v Raghav Bahl the Bombay High court dismissed a petition for an injunction as the proof of the damages was not sufficient. Courts require a clear loss to the grant the injunction in question.

There is no irreparable damage In this case, the respondents cannot prove that the damage they allege is going to occur. Thus, the quantification of damages does not arise in this case.

Thus, we submit that the elements required to grant an ad-interim injunction have not been met in the present case.