COMPANY LAW - I

CRE -1

PROBLEM

1. The Government of ‘Kondia’ (law of Kondia are pari materia to the law of India) announced
a policy of allotting houses to all the declared refugees so that this section of society can carry
forward a livable life. To execute the scheme, the Government float a tender. XYZ Ltd. is a
Public listed Company (herein referred to as ‘XYZ’) incorporated under the law of Kondia
who suffer drowning of market position for the past one year. Of all the many companies
responding to the tender, XYZ Ltd was selected by the Government to undertake the project
and administer the standardized building of houses to carry out and achieved the Government
scheme.
2. On June 01, 2018, the Government allotted the said project to XYZ and asked to build 1000
houses given a deadline of December 31, 2019.
3. The board of XYZ perceived this particular project as a chance to combat their drowning
market position. The board believed that their performance in this project will attract huge
market attention, thus it might be a good chance for them to use this project for earning back
the confidence in the market.
4. Keeping their long-term goal in mind, the board appointed Mr. Holmes as their independent
director in the company for the planning and completion of this project. Mr. Holmes is a
veteran in the construction business, earlier he has catered his services to the biggest
international organizations and all his projects are landmark case studies in the construction
fraternity. He is a global leader in construction business.
5. Under Mr. Holmes’s guidance, XYZ on the basis of its tender’s responses contracted with a
newly incorporated public company 'ABC & Co. (herein referred to as ‘ABC’) for the
implementation of project’s vision and hiring of the labour force. Both the parties signed the
contract. The agreement was drafted by XYZ under the surveillance of Mr. Holmes, not to
 mention the agreement was approved by the Board. The big opportunity never raised a thought
for negotiations on terms and conditions. ABC’s signed the agreement on July 05, 2018.
6. Between other terms and conditions, the contractual agreement’s Clause 9 comprised a few
sub-clauses:

9.2: XYZ Ltd. will not entertain any claim for idle labour or for damages to any cause
whatsoever. Claim for the delay, unavailability of resources or any other claim which directly
or indirectly affect the transfer of project’s possession to the XYZ Ltd. will be of no
consideration. Penalty twice the times of the total cost of the project for such losses and delay
can be imposed on the Contractor.

9.3: XYZ Ltd. reserves right to unilaterally end the agreements with ABC & Co. The same will
be a result of failure to abide by the terms and conditions by ABC & Co. Being the
consequences of such failure, no formal reason will be provided explaining the case of such
termination.

9.4: XYZ Ltd. will not entertain any claim of cost revision. Not to mention, reasons like ‘change
in market prices’ or ‘delay on the part of work’ will not be any ground for claiming such
revisions.

7. ABC commence the work on August 01, 2018. Everything was carried out smoothly. However,
on October 1, 2018, ABC sent the file (including details of the work progress and the incur
financial expenditure and further requirement) for regular clearances to the concerned
department of XYZ. Unlike every other time, XYZ delayed the approval as ABC fails to
forward the complete file. After a month, XYZ notified ABC about this error, to which ABC
complied in the next 15 days. Finally, the approval was granted on December 15, 2018
8. ABC felt delayed and ignored but they reported this delay on January 22, 2019, when the
alleged delay caused the rise in the market prices of the required raw material. XYZ referred
the clause 9.4 of the agreement. ABC continued the work but choose cost-cutting by
compromising on the raw material’s quality. To cover the delayed time, ABC increased the
working hours of its labourers.
9. In the course of this haphazard, on January 30, 2019, a group of 50 labourers suffered several
injuries as a result of wall collapse. XYZ denied entertaining the claim of ABC against above
mentioned loss. Representing XYZ, Mr. Holmes reminded ABC about clause 9.2 and in fact,
warned ABC about the upcoming deadline.
10. Aggrieved by the inhumane behaviour, ABC declared Clause 9 of the agreement as arbitrary
and irrational. On February 15, 2019, ABC called for a strike on its part. Concerned of its
reputation ABC asked Mr. Holmes to investigate the matter and on March 1, 2019, wrote to
ABC:

10.1 ABC has breached the contract by using the low-quality material. The wall collapse is a
result of ABC’s plan of cost-cutting.

10.2 ABC has mutually signed the agreement. Calling it arbitrary is again a breach of promise
against the agreed terms and conditions.
10.3 XYZ has no obligation to accommodate the claims of cost revision, damaged labour and
deadline extension as all the conditions were previously discussed under the agreement.
10.4 XYZ will give an extension of one month in deadline as a gesture of professionalism, and
to keep up the harmony and achieved the completion of an agreed project.
11. ABC denied continuing the project until the claims of cost revision, labour’s compensation
and proper extension are provided. ABC believes that all this happened because of the delay
in approval caused by the concerned department of XYZ. ABC also challenged to move against
Mr. Holmes on the ground of violating the ‘Duties of directors’ under the concerned law.
12. The ABC company approached the appropriate Tribunal. On September 1, 2019 the tribunal
held that:
12.1 XYZ Ltd. inserted the ‘Exclusion Clause’ in the agreement and the same shall not be used
to restrict the liability against the claims of damages suffered by the labourers.
12.2 ABC & Co. is not entitled to receive any claim against the revision of cost as to
compensate the same. XYZ Ltd. has agreed to extend the deadline by one month. Since the
date of XYZ Ltd.’s letter was March 1, 2019, ABC & Co. remained with 10 months to the
deadline. An additional time of one month is upheld making it a total period of 11 months.
The same shall be restored from the date of this order and the next deadline is August 1,
2020.
12.3 Discussing the merits on the breach of Duties of Directors, Mr. Holmes is found to be in
violation of Section 166 (2), 166(3) and 166(4) of The Companies Act, 2013 and hence,
this tribunal declares him removed from his designation.
Disagreed by the order of the Tribunal, XYZ filed an appeal before the appropriate appellate
Tribunal in Kondia and prayed for the dismissal of the Tribunal order. Hearing for the impugned
order of the Tribunal is scheduled to be held on 17th February, 2020.