Memorial for SEBI

8/10/2019 Memorial for SEBI

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TEAM CODE- N-024

IN THE HONBLE

SUPREME COURT OF INDIA,

AT NEW DELHI.

SPECIAL LEAVE PETITION NO. Of 2013

MS.SUSHMA &MR.SANJAY BANSALAPPELLANTS

VS.

SECURITIES AND EXCHANGE BOARD OF INDIA

RESPONDENT

29th

BAR COUNCIL OF INDIA TRUST INTER UNIVERSITY,

MOOT COURT COMPETITION

2013-2014

SUBMITTED IN THE REGISTRY OF THE COURT

ON BEHALF OF THE APPELLANTS

-MS. SUSHMA AND MR. SANJAY BANSAL


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MEMORIAL ON BEHALFOFTHE APPELLANTS

29thBCI Moot Court Competition.

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TABLEOFCONTENTS

LIST OF ABBREVIATIONS..... III

INDEX OF AUTHORITY.......................................................................................................IV

STATEMENT OF JURISDICTION........................................................................................VI

STATEMENT OF FACTS.....................................................................................................VII

STATEMENT OF ISSUES.....................................................................................................IX

SUMMARY OF ARGUMENTS..............................................................................................X

DETAILED PLEADING...1

ISSUE NO. 1: Whether the Petition is maintainable?...............................................................1

ISSUE NO.2 - Whether the telephonic conversation amounted to Inside Information?...........3

ISSUE NO.3 - Whether Suresh Agarwal acted on the said Information and made profit

Thereof?.....................................................................................................................................4

PRAYER....................................................................................................................................6


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INDEX OF AUTHORITY

S.NO. PARTICULARS

1 STATUTORYCOMPILATIONS

1. THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

2.

PROHIBITION OF INSIDER TRADING REGULATIONS, 1992.

3. CONSTITUTION OF INDIA.

4. COMPANIES ACT, 1956.

2 BOOKS REFERRED

1. Dr. J.N. Pandey, The Constitutional Law of India, Central Law Agency, 48th

Edition.

2.

M.P. Jain, Indian Constitutional Law, 256, (LexisNexis Butterworths

Wadhwa, Nagpur, 2010).

3. A K Majumdar, G K Kapoor, Company Law, Taxmann Publications Pvt.

Ltd., 15th Edition

4. H. Nejat Seyhun,Investment Intelligence from Insider Trading, The MIT

Press; First Edition edition

3 DICTIONARIES & LAW LEXICONS:

i. Oxford Dictionary, 6th Ed., Oxford University Press, London, 2003.

ii.

GARNER, BRYAN A.: A Dictionary Of Modern Legal Usage, Oxford

University Press 2nd ed. Oxford (1995)

iii.

Greenberg, Daniel & Alexandra, Millbrook: Strouds Judicial Dictionary Of

Words & Phrases, VOL. 2, 6thed., London: Sweet & Maxwell (2000).

4 WEBSITES REFERRED:

i. www.findlaw.com

ii.

www.indiankanoon.com

iii. www.indlawinfo.org

iv.

www.jstor.org.
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CC8QFjAB&url=http%3A%2F%2Fwww.mca.gov.in%2FMinistry%2Fcompanies_act.html&ei=LzwoUqSLGYKTrge3lIGoBA&usg=AFQjCNEEk8-VVOGR5IM2lvyAQak_r-7Pkw&bvm=bv.51773540,d.bmkhttp://www.flipkart.com/author/a-k-majumdarhttp://www.flipkart.com/author/g-k-kapoorhttp://www.amazon.com/s/ref=ntt_athr_dp_sr_1?ie=UTF8&field-author=H.+Nejat+Seyhun&search-alias=books&text=H.+Nejat+Seyhun&sort=relevancerankhttp://www.amazon.com/s/ref=ntt_athr_dp_sr_1?ie=UTF8&field-author=H.+Nejat+Seyhun&search-alias=books&text=H.+Nejat+Seyhun&sort=relevancerankhttp://www.flipkart.com/author/g-k-kapoorhttp://www.flipkart.com/author/a-k-majumdarhttps://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&ved=0CC8QFjAB&url=http%3A%2F%2Fwww.mca.gov.in%2FMinistry%2Fcompanies_act.html&ei=LzwoUqSLGYKTrge3lIGoBA&usg=AFQjCNEEk8-VVOGR5IM2lvyAQak_r-7Pkw&bvm=bv.51773540,d.bmk


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v. www.judis.nic.in

vi. www.lawsofindia.org

vii.

www.manupatra.com

viii.

www.scconline.com

ix. www.supremecourtcaselaw.com

5 CASES REFERRED

1. Bhikaji Keshao v.Brij Lal Nandlal, AIR 1955 SC 610.

2. Siemens Eng. & Manufacturing Co. v.Union of India, AIR 1976 SC 1785.

3. Manoj Kumar Rai v. Union of India, AIR 1993 SC 882.

4.

D.C. Mills v. CIT, AIR 1955 SC 65.5. Mohan Lal v.Management, Bharat Electronics Ltd. AIR 1981 SC 1253.

6.

Mehar Singh v. Shri Moni Gurudwara Prabandhak Committee, AIR 2000 SC

492.

7. Dhirajlal Girdharilal v.I.T. Commr., AIR 1955 SC 271.

8.

Dirks v. SEC463 U.S 646(1983).

9. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968), cert,

denied, 394 U.S 976 (1969).

10.

Rakesh Agarwal v. SEBI(2004) 1 CompLJ 193 SAT, 2004.
http://www.supremecourtcaselaw.com/http://www.supremecourtcaselaw.com/http://www.supremecourtcaselaw.com/


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STATEMENT OF JURISDICTION

The Honble Supreme Court has the jurisdiction to try and entertain the present appeal under

Article 136 of the Indian Constitution. Article 136 of the Indian Constitution reads as

hereunder:

Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant

special leave to appeal from any judgment, decree, determination, sentence or order in any

cause or matter passed or made by any court or tribunal in the territory of India.


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STATEMENT OF FACTS

Fortune India Ltd., is a Company incorporated under the Indian Companies Act, 1956,

having its registered office at No.5, Avenue road, Bazaar Street, Mumbai was engaged in the

business of Cotton yarn, manufacturing and trading. It was a listed Company, and its equity

was listed in the Bombay Stock Exchange. The Company has been declaring dividend from

the last ten years. One of the independent directors, Mr. Sanjay Bansalwas a nominee of a

Central Co-operative Bank.

DISCUSION OF THE BOARD OF DIRECTORS IN SEPTEMBER- 2012 MEETING.

Business proposal of either acquiring or merging with a Company engaged in the forward

trading to effectively control over the periodical supply of high quality long staple cotton forthe plant of the Company and to effectively meet demand for the garment industry engaged in

supply of quality product for US / EU market.

Delta Future Trading Co. Ltd., also a listed Company with NSE having its registered office

at No. 25, Avenue road, Bazaar Street, Mumbai was engaged in the business of forward

trading of cotton, wheat and maize. The company has Mr. Mahesh AgarwalandMr. Suresh

Agarwalin its Board of Directors.

DECISSION OF THE BOARD OF DIRECTORS IN SEPTEMBER- 2012 MEETING.

The Board decided to acquire shares of a company engaged in business of manufacturing

yarn.

The driver of the car overheard the proposal, while the two Agarwal brothers were discussing

the pros and cons of the proposal while driving the car back home. Thereafter, next day, Mr.

Suresh used his wifes cell to talk to one Mrs. Susma, a sharebroker asking for the price of

Fortune for the last about a month. There was no further discussion.

DRIVER ACQUAINTANCE

The driver of Agarwal brothers had acquaintance with the driver of Mrs. Susma. They in

between their discussion, in the drivers club about Fortunes idea of sale or buy were loud

enough to be heard by the driver of Mr. Bansal of Fortune. Mrs. Susma started acquiring

shares of those two companies and Bansal started buying Deltas shares after they got this

scoop from their respective drivers.


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ADVERTISEMNT FOR PUBLIC AUCTION

After about two months, Fortune went for giving an advertisement for public auction for

acquiring 60% shares of Delta. Mrs. Susma by the time held 30% shares and Bansal another

20%. Naturally, they made a fall through.

DECISSION OF SEBI TO AN ANONYMOUS COMPLAINT

SEBI, on an anonymous complaint issued notice to:-

1.

Fortune, its directors.

2. Delta, its directors.

3. Mrs. Susma.

SEBI after enquiry found that charge of insider trading was established against SanjayBansal, Agarwal brothers and Mrs. Susma and imposed penalty equal to double of the gains

made by the parties.

APPEALS TO APPELLATE SECURITY TRIBUNAL

Aggrieved, by the orders of SEBI, Agarwal brothers, Bansal and Susma in separate appeals

went to the Appellate Security Tribunal. The Tribunal found charges against Agarwal

brothers not justifiedand exonerated them but upheld the order of the SEBI against Bansal

and Susma.

Susma and Bansal submitted an SLP to the Supreme Court of India.

Hence the present dispute.


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STATEMENT OF ISSUES

ISSUE NO.1-WHETHER THE PETITION IS MAINTAINABLE?

ISSUE NO.2-WHETHER THE TELEPHONIC CONVERSATION AMOUNTED TO

INSIDE INFORMATION?

ISSUE NO.3-WHETHER SURESH AGARWAL ACTED ON THE SAID INFORMATION

AND MADE PROFIT THEREOF?


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SUMMARY OF ARGUMENTS

ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?

Article 136(1) empowers the Supreme Court to grant special leave to appeal in its discretion.

The provision is couched in very wide terms. The main consideration on which the Supreme

Court acts is that under Article 136, it is its duty to see that injustice is not perpetrated or

perpetuated by the tribunals. One of the pre-requisites to entertain an appeal under Article

136(1) is that the order of the tribunal must be erroneous or unjust. Under the facts and

circumstances of the instant case the Appellate Security Tribunal acted erroneously on the

following-

Mr. Sanjay Bansal did not possess any unpublished price sensitive information about

Delta, as the drivers in the Drivers Club were merely discussing about the Fortune's

idea of sale or buy, which he was already aware of because of his position. Mr. Sanjay

Bansal did not have any pecuniary relationship with the company. he could not have

influenced the decision of the Board of directors to acquire Delta Future Trading Ltd.

Exclusively.

During the conversation between Mrs. Sushma and Mr. Suresh Agarwal, there was no

exchange of insider information as he merely asked her for the prices of Fortune for

last about a month as this sole piece of information is not material enough to

commence insider trading in any practical possibility.

The conversation between the drivers in the Driver's Club is nothing but hearsay, on

which reliance cannot be placed for conviction. The legitimacy of information is

questionable hence not concrete in nature.

ISSUE NO.2 - WHETHER THE

TELEPHONIC

CONVERSATION

AMOUNTED TO

INSIDE

INFORMATION?

The telephonic conversation between Mr. Suresh Agarwal and Mrs. Sushma was general in

nature and no unpublished price sensitive information was disclosed or shared amongst the

two, as the discussion was merely restricted to price of the Fortune. Stock brokers often

render good tips, which is usually beneficial in the investment process and that is why Mr.

Suresh Agarwal had a conversation with Mrs. Sushma. The conversation between Mr. Suresh

Agarwal & Mrs. Sushma does not fall within the ambit of "price sensitive information"


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defined under S.2[(ha)] of the SEBI regulations on Prohibition of Insiders Trading Act, 1992.

The telephonic conversation was pertaining to "price of Fortune for the last about a month".

This information is not a non-public information, as it is generally available to the investing

public. For that matter, even the price sensitive information should be unpublished in order to

constitute insider trading as per Regulation 3 of SEBI (Prohibition of Insider Trading

Regulations) 1992. Merely asking the Price of Shares for about a month does not even in the

remotest of sense constitute unpublished price sensitive information.

ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED ON THE SAID INFORMATION AND

MADE PROFIT THEREOF?

Agarwal Brothers were merely two of the board of directors of a company who chose only toacquire another company, in their meeting. Being merely two of the board of directors of

Delta, Agarwal brothers were not solely in the position to change the company's idea of

acquiring, but the company ended up being acquired. This fact further clarifies that Agarwal

brothers and especially Suresh Agarwal restricted his conversation merely to official and

legal talk. There was no exchange of insider information whatsoever and Suresh Agarwal did

not make any profit.


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That Mr. Sanjay Bansal, being merely an independent director of Fortune India Ltd. does

not have any pecuniary relationship with the company, its promoters, senior management

or affiliate companies, therefore he could not have influenced the decision of the Board of

directors to acquire Delta Future Trading Ltd. exclusively, as Fortune was even intending

to merge. Furthermore, there was no breach of Regulation 3 of the SEBI regulations on

prohibition of Insider Trading.

That Mrs. Sushma is a professional analyst, who analyses the information available in the

market and advices the clients, therefore the proof of trading based on non public

information cannot be established under the given facts and circumstances. In the instant

case Mr. Suresh merely asked for the price for fortune for the last about a month and no

further discussion took place between them. This information cannot be called as insiders

information as this sole piece of information is not material enough to commence insider

trading in any practical possibility. Under similar circumstances it is merely the expertise

and efficiency of the analysts, not the materiality of the information 9.

Furthermore, the conversations between the drivers in the Driver's Club is nothing but

hearsay, on which reliance cannot be placed for conviction. The legitimacy of information is

questionable hence not concrete in nature. For instance, an individual who is sitting in a

restaurant or on an aircraft can overhear a conversation. It is at his disposal to believe the

information or to ignore it. This does not constitute insider's information. The same has been

iterated in Dirks v. SEC10. In this case Mr.Dirk was visited by former Equity Funding

employee, he did not know whether the information he received was authentic. Therefore, if

the authenticity of the information was never confirmed, he cannot be said to act on material

information.

Therefore, in light of the above proposition, it is most humbly prayed, that the Appellate

Security Tribunal committed grave injustice to the Appellants by misinterpreting the facts

and evidence available at their disposal. There was no exchange of any unpublished price

sensitive information which could be material enough to constitute insider trading. Mr.

Sanjay Bansal acted responsibly, fulfilling his fiduciary duty towards his company. Hence the

Hon'ble Court may graciously be pleased to allow the petition under Article 136, in order to

render justice to the Appellants.

9

Desari, Santhi, "Insider or Price Sensitive Information in Insider Trading of Securities: An analysis of English,U.S, And Indian Laws",Indian Social Legal Journal, 39(1&2), 2013.10463 U.S 646(1983).


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ISSUE NO.2 - WHETHER THE TELEPHONIC CONVERSATION AMOUNTED TO INSIDE

INFORMATION?

It is most humbly submitted that, the telephonic conversation between Mr. Suresh Agarwal

and Mrs. Sushma was general in nature and no unpublished price sensitive information was

disclosed or shared amongst the two, as the discussion was merely restricted to price of the

Fortune. In this regard it is pertinent to note that stock brokers are professionals who buy and

sell stocks as well as other securities in the stock market. They know the trend of the stock

market and keep a check on the financial developments of various companies. Stock brokers

often render good tips which is usually beneficial in the investment process.

That, the above mentioned conversation between Mr. Suresh Agarwal & Mrs. Sushma

does not fall within the ambit of "price sensitive information" defined under S.2[(ha)]

of the SEBI regulations on Prohibition of Insiders Trading Act, 1992, which include :-

(i) Periodical financial results of the company;

(ii) Intended declaration of dividends (both interim and final);

(iii) Issue of securities or buy-back of securities;

(iv) Any major expansion plans or execution of new projects.

(v) Amalgamation, mergers or takeovers;

(vi) Disposal of the whole or substantial part of the undertaking;

(vii) and significant changes in policies, plans or operations of the company;

Therefore, the conversation between the two could not have possibly amounted to disclosure

of price sensitive information, as no further discussion took place between the two after that

point of time.

That, To substantiate the above preposition, reference maybe made to the celebrated

case of Texas Gulf Sulphur11, where it was discussed that it is important to determine

(i) when the information in question became material as it is to determine (ii)whether

the information was material. With reference to Texas Gulf Sulphur, the answer to

both the tests is negative. Telephonic conversation as previously discussed was not

material or immaterial in nature as far as insiders trading is concerned.

11SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968), cert, denied, 394 U.S 976 (1969).


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That, the telephonic conversation was pertaining to "price of Fortune for the last

about a month". This information is not a non-public information, as it is generally

available to the investing public. For that matter, even the price sensitive information

should be unpublished in order to constitute insider trading as per Regulation 3 of

SEBI (Prohibition of Insider Trading Regulations) 1992. Merely asking the Price of

Shares for about a month does not even in the remotest of sense constitute

unpublished price sensitive information.

Therefore, in light of the above-mentioned proposition it is most humbly prayed the court to

consider the materiality of information which was discussed, which was nothing but a

professional communication between the two alleged accused.

ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED ON THE SAID INFORMATION AND

MADE PROFIT THEREOF?

It is most humbly submitted that, Mr. Suresh Agarwal did not act on the said information, as

previously discussed. Apart from the non-material telephonic conversation, no further

discussion was done about Fortune.

That in this regard it is pertinent to observe that in India an insider trader is made

criminally liable by the virtue of section 24 of the Securities and Exchange Board of

India Act, 1992 read with Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 2002 ('Insider Trading Regulations'). The insider

trading regulations in India prohibits dealing in securities of a listed public company

while in possession of unpublished price-sensitive information. Therefore if any

unpublished price sensitive information is leaked, the penetrator of such information

can be held liable. Therefore, the motive and intention should be established to

prosecute the alleged offenders as held by The Securities Appellate Tribunal in

Rakesh Agarwal v. SEBI12. It is pertinent to highlight the relevant ratio decidendi

which is read as "...looking from the gravity of the charge and penal consequences

that could visit the insider for indulging in insider trading, it is difficult to accept the

preposition that the intention or motive of the person indulging in insider trading is

irrelevant. It is true that regulation 3 and 4 perse are pure vanila sections without

specific mention of the requirement of motive or the intention but these regulations, if

12(2004) 1 CompLJ 193 SAT, 2004


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read with the objective of Prohibiting the insider trading makes clear that motive is

built in and the insider trading without establishing the motive factor is not

punishable...".

That, from the above extract it is unambiguous that motive and intention also attains

importance if the guilt it to be established. Furthermore, under the facts and

circumstances of the instant case Agarwal Brothers were merely 2 of the board of

directors of a company who chose ONLY to acquire another company, in their

meeting. Had there been any conclusive conversation with Sushma, or leak of any

material information about Delta's intention to merge with Fortune, Sushma would

have only purchased Delta's share as the price of the target company's stock generally

increases during the takeover, while the acquiring company stock reduces. It wasmerely the "guess work" on part of Sushma, as she was an expert.

Furthermore, being merely 2 of the board of directors of Delta, Agarwal brothers were not

solely in the position to change the company's idea of acquiring, but the company ended up

being acquired. This fact further clarifies that Agarwal brothers and especially Suresh

Agarwal restricted his conversation merely to official and legal talk.

That, Section 6 of the Indian Evidence Act which incorporates Doctrine ofRes Gestae

which talks about facts forming the part of same transaction lays down that there

should be a proximate nexus between the events to prove the guilt. In the instant case

the actions and reactions of Mr. Suresh Agarwal are nothing but prudent and natural

in nature and hence has made no profit at all. The discussions in the meetings of the

company and the subsequent events which are completely different very

unambiguously exhibit that no possible insider information was ever exchanged

between anyone.

Therefore, in light of the above mentioned proposition it is most humbly prayed that Mr.

Suresh Agarwal did not act on inside information hence no profit was made either. He acted

well within his fiduciary duty by not disclosing any material fact to anybody.


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PRAYER

Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is

most humbly prayed that this Honorable Court may be pleased to:

TO HOLD

That the present petition under Article 136 of the Indian Constitution is maintainable.

That the telephonic conversation did not amount to inside information.

That Mr. Suresh Agarwal acted on the said information and made profits thereof.

TO SET ASIDE

The order passed by the Security Appellate Tribunal against Mrs. Sushma and Mr.

Sanjay Bansal.

MISCELLANEOUS

Any other relief that this Honble Court may be pleased to grant in the interest ofequity, justice and good conscience.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

COUNSELS FOR APPELLANT

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Memorial for SEBI