Blended LLM in Corporate & Financial Law Case Study - Law Assignments Help

Assignment Task

1. In May 2021, a company called the Township Park Pvt. Ltd. (the “Company”) was set up to purchase 600 acres of land near Mumbai. The larger aim behind purchasing the said land was to develop it into a residential township. Ram, John and Nirav who were the directors of the Company (the “Directors”) purchased large parts of this land with the object of reselling it to the Company for a profit. This intent was, however, not disclosed in the prospectus that was issued in June 2021 to solicit investment in the Company. Sameer and Rohan were the 2 minority shareholders of the Company. They, along with certain other shareholders, filed a suit against the Directors of the Company. Sameer and Rohan alleged that the Directors of the Company had formed the Company with the object of making personal gains from the resale. This led to a severe depletion in the Company’s funds, which in turn resulted in the Directors mortgaging the underlying land. They also contended that the Directors did not pay up their calls but set it off against the sale price of the land, as a result of which, the Company had lesser funds than it ordinarily would have had. On the other hand, the Directors contended that the suit was not maintainable since Sameer, Rohan, and the other shareholders were not entitled to represent the Company for any injuries caused to it (if any).

(i) Sameer and Rohan have approached you for legal advice. Is the suit filed by Sameer and Rohan maintainable?

What if the facts looked a little different? Assume that the Company was to lay underground electricity cables in the abovementioned township that were to be purchased from Cable Manufacturers Pvt. Ltd. (“Cable Manufacturers”). When the Company issued its prospectus in June 2021, Cable Manufacturers’ largest shareholder and founding director, Ajit, bought majority shares in the Company. This, in turn, reduced the shareholding of Sameer and Rohan. Soon, Ajit found that Cable Manufacturers could make greater profits if it sold its cables to another company, Zee Pvt. Ltd. (“Zee”), which was also in the business of laying underground cables. The problem was that Zee could not buy 2 the said cables from Cable Manufacturers unless it obtained the relevant governmental permits for laying the said cables. Ajit knew that the Company had the relevant permits. Ajit not only managed to have the said permits transferred to Zee, he (along with the other Directors) also managed to initiate winding-up proceedings against the Company on the ground that it had suffered several losses due to the pandemic. Sameer and Rohan had assumed that the winding-up proceedings would have been initiated in their best interests. However, they were surprised to discover that the winding-up proceedings were primarily motivated by the desire to benefit Cable Manufacturers where the Directors also held significant shareholdings. Sameer and Rohan filed a suit on behalf of themselves and other shareholders against Cable Manufacturers and the Company.

(ii) Is this suit maintainable?

(iii) What is the underlying policy on which the Proper Plaintiff rule is based?

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