Dumy the 14th Surana and Surana National Corporate Law

THE 14th SURANA SURAN A AND SURANA NATIONAL CORPORATE LAW MOOT COURT COMPETITION 2016 12TH – 14TH FEBRUARY 2016

BEFORE THE HON’BLE HIGH COURT OF KARNATAKA WP N! 100000 !" 201# F$%&' ()'&* A*t 226 !" Th& C!)+t$t(t$!) !" I)'$,- 1.#0

HASSLETON IN/ESTMENT LIMITED- SINGAPORE 

PETITIONER

 THE AUTHORITY FOR AD/ANCE RULING INCOME TA3- NEW DELHI DIRECTOR OF INCOME – TA3 INTERNATIONAL TA3ATION- BENGALURU



ON THE SUBMISSION TO THE REGISTRY OF THE HON’BLE HIGH COURT OF KARNATAKA

MEMORIAL FOR RESPONDENTS

MMEMORIAL FOR RESPONDENT

RESPONDENTS

1 Table of Contents Table LIST OF ABBREVIATIONS..............................................................................3 ABBREVIATIONS..............................................................................3 INDEX OF AUTORITIES...............................................................................! AUTORITIES...............................................................................! I.

Cases..................................................................................................!

II. Stat"tes..............................................................................................! III.

Re#"lat$ons......................................................................................!

IV.

%"$&el$nes........................................................................................!

V. C$'("la's..............................................................................................! STATEMENT OF )URISDICTION......................................................................* )URISDICTION ......................................................................* STATEMENT OF FACTS................................ FACTS.................................................................... ..................................................+ ..............+ STA ST ATEMENT OF ISSUES ISSUE S................................................................................, SUMMAR- OF AR%UMENTS........................................................................1 AR%UMENTS........................................................................1 I.

TE

APPELLANTS

AVE

NOT

MADE

TRUE

AND

ADE/UATE

DISCLOSURE...........................................................................................1 DISCLOSURE. ..........................................................................................1 II. TE APPELLANTS APPELLANTS 0NOIN%L 0NOIN%L- SUPPRESSED SUPPRESSED MATERIA MATERIAL L INFORMATION INFORMATION AND FAILED TO DISCLOSE IN TIMEL- MANNER.......................................1 MANNER. ......................................1 III. II I.

TE T E APPE APPELLA LLANT NTS S ACTE ACTED D IN VIO VIOLA LATI TION ON OF OF SEBI SEBI ORD ORDER ERS S..............1

IV.. IV

TE T E APPE APPELLAN LLANTS TS ER ERE E INVO INVOL LVED IN INS INSIDE IDER R TR TRADI ADIN%. N%...............11 ..............11

AR%UMENTS ADVANCED...........................................................................12 ADVANCED...........................................................................12 I.

TE APPE APPELLAN LLANTS TS AVE AVE NOT MADE MADE TRUE TRUE  ADE/U ADE/UA ATE DISCL DISCLOSU OSURE RE 12 A.

A44ell lla ant 5as fa$le& to t'"l6 an& a&e7"atel6 &$s(lose abo"t

(o"nte'fe$t$n#......................................................................................12 (o"nte'fe$t$n# ......................................................................................12 B.

A44e A4 4ella llant nt 5as 5as fa$le fa$le& & to &$s(l &$s(los ose e 8ate' 8ate'$a $all $nfo' $nfo'8a 8at$ t$on on on fo' fo'e$ e$#n #n

$n9est8ents........................................................................................13 $n9est8ents. .......................................................................................13 II.

TE APPEL APPELLANT LANT 0NOI 0NOIN%L N%L- SUPPR SUPPRESSE ESSED D MA MATERIAL TERIAL INFOR INFORMA MATION TION

AND FAILED IN TIMEL- DISCLOSURE.......................................................1: DISCLOSURE.......................................................1: A.

Fa$l" a$l"'e 'e to $nf $nfo' o'8 8 NSE NSE 'e 'e#a' #a'&$n &$n# # a s"$ s"$tt ;$t5 ;$t5$n $n t$8 t$8ef' ef'a8e a8e............1: ............1:


2 B. III.

Fa$l"'e to &$s(lose le#al not$(e ;$t5 (la$8 of 4otent$al l$t$#at$on.1! TE APPELLANTS ACTED IN VIOLATION OF SEBI ORDER 

RE%ULATIONS.........................................................................................1* A.

T5e Co84an6 9$olate& t5e o'&e'.................................................1*

B.

M'. 0an;a' 9$olate& t5e o'&e'.....................................................1+

C.

NF 9$olate& SEBI
IV. APPELLANTS ERE INVOLVED IN INSIDER TRADIN%..........................1> A.

NF ;as $n9ol9e& $n Ins$&e' T'a&$n# of Se("'$t$es.......................1>

B.

M'. 0an;a' ;as $n9ol9e& $n Ins$&e T'a&$n#..................................1,

PRA-ER......................................................................................................21


3

LIST OF ABBREVIATIONS

??????????????????????????????????..An& @????????????????????????????????? Pa'a#'a45 ................................................................................................................... ..............Pe'(enta#e 9??????????????????????????????????.Ve's "s ADR..............................................................................................A8e'$(an De4os$ta'6 Re(e$4t AIR????????????????????????????..All

In&$a

Re4o'te' An'????????????????????????????????..Anot5 e' B2C??????????????????????????...B"s$ness

to

Cons"8e' Cas?????????????????????????????????..Cas es CIT...............................................................................................Co88$ss$o ne' of In(o8e Ta CMD????????????????????????.C5$ef

Mana#$n#

D$'e(to' Co84???????????????????????????????.Co84 an6


: C'$L)??????????????????????????C'$8$nal

La;

)o"'nal DIP......................................................................................D$s(los"'e

an&

In9esto's P'ote(t$on DIPP..................................................................De4a't8ent

of

In&"st'$al

Pol$(6 an& P'o8ot$on DRP.........................................................................................D'aft

Rea&

ea'$n# P'os4e(t"s ED.........................................................................................................Enfo' (e8ent D$'e(to'ate FDI.....................................................................................................Fo'e$#n D$'e(t In9est8ent FEMA.......................................................................Fo'e$#n

E(5an#e

Mana#e8ent A(t 1,,, FFSL?????????????????????F$nL$ne

F$nan($al

Se'9$(es

Lt&. FPO.........................................................................................................Foll o; on P"bl$( Oe' %o9t?........................................................................................................... ...........%o9e'n8ent NF?.........................................................................................................$ #5Net;o't5 F"n& INDEX OF AUTHORITIES

I.

Cases

C5a$'8an Seb$ 9. S5'$'a8 M"t"al F"n& an& An'. AIR 2* SC 22>+................................1, D$'e(to' of Enfo'(e8ent 9. MCTM Co'4o'at$on P9t. Lt&. an& O's. 1,,* C'$L) 1*23.... ......1, %l"(ste$n 9. Ba'nes <1,= AC 2: <L=.........................................................................12


! %"a'at T'an9an(o'e A#en(6 Co(5$n 9. CIT <1,>,= 1++ ITR :!! , Co84. Cas. 1:+1: SCI <1++= AP.......................................................................................................................13 R.S. )os5$ Sales Ta OJ(e' %"a'at  O's. 9. A$t M$lls Lt&.  An'. <1,+>= 1 SCR 33>.. ....1, SEBI 9. Cabot Inte'nat$onal Co'4o'at$on MANUM,2:................................... ..... 2 S5an8"#a8 S"n&a'a8 C5ett$a' 9. A.A. Ran#a'a8a Na$(e' <1,3:= : Co84. Cas. 3*+
II.

Statutes

SEBI A(t 1,,2 T5e Co84an$es A(t 213

III.

Regulations

SEBI
IV.

Guidelines

DIP #"$&el$nes 2

V.

Ci!ulas

Consol$&ate& FDI Pol$6 DIPP <1+:21:= SEBI C$'("la' No. MRD/DoP/SE/Cir- 19 /05, (02/09/2005) SEBI Maste' C$'("la' <3321=

STATE"ENT OF #URISDICTION

The Respondent most hum!" sumits this memor#ndum in response to the $rit Petition %i!ed e%ore this &on'!e &ih Court o% #rn#t#*#+ The rit petition h#s een %i!ed under rt+


* 22. o% The Constitution o% ndi#, 1950+ t sets %orth the %#ts, ontentions, #ruments #nd the !#s on hih the !#ims #re #sed+

STATE"ENT OF FACTS

1  teh entrepreneur, Mr+ Roin #n#r returned to ndi# in 2002 #nd setup #n on!ine

m#r*et p!#e " the n#me Tr#dE3 throuh his ne!" inorpor#ted omp#n", Tr#dEh#ne 4imited (herein#%ter the omp#n")+ Comp#n" #!so proided #ddition#!


+ series throuh its #%%i!i#tes+ The omp#n" did not ot#in tit!e oer the oods+ Customers en6o"ed the se#m!ess eperiene+ 2 The omp#n" #s !isted in 7SE #%ter P8 in 200.+ n 200, Tr#dEh#ne #rried out

# sponsored o%%erin o% DRs th#t ere then !isted in 7SD:+ Mr #n#r, he!d ;2< sh#res in the omp#n" throuh #n inestment omp#n"+ The Comp#n" #ppointed =in4ine =in#ni#! Series 4td (==S4) %or # =P8+ 8n pri! 15, 201> the Comp#n" %i!ed the DR&P ith SE?+ SE? ommuni#ted its omments #nd #s*ed %or dis!osure o% ounter%eit produts+ ddition#! ris* %#tor on ounter%eit !#ims #s #dded in DR&P+ 5 8n @u!" 1, 201>, Cr#nerr" =#shion n+ noti%ied on # suit e%ore the &on'!e De!hi

&ih Court #!!ein in%rinement o% inte!!etu#! propert" rihts+ The s#me #s dis!osed to 7SE on @u!" 2>, 201>+ t #!so omp!#ined to SE? on misst#tement in prospetus %or the =P8 #nd reAuested %or !#unh o% inesti#tions+ t #!!eed th#t it h#d sered !e#! notie on pri! 25, 201> #nd the s#me #s not dis!osed in the prospetus+ 4 SE? initi#ted inesti#tion #nd p#ssed #n interim order d#te uust 1., 201> #rrin

Tr#dEh#ne #nd Mr #n#r %rom #essin the #pit#! m#r*et or %rom otherise tr#din in seurities on # sto* eh#ne+ ==S4 #s de#rred %rom proidin #n" inestment #n*in series to its !ients, pendin inesti#tion+ ED h#d initi#ted proeedins ##inst the omp#n" %or =EM io!#tions re#d ith =D po!i" o% Boernment+ The prospetus did not ont#in #n" spei%i re%erene to omp!i#ne in %orein inestment po!iies, hih #s #sed on !e#! #die+ # SE? on%irmed the order on Deemer 21, 201> %or in#deAu#te dis!osure in DR&P,

ineus#!e de!#" in dis!osin Cr#nerr"'s !#suit to 7SE #nd imposed pen#!t" o% Rs+ 5 Crores #nd p#ssed #n order to disore i!!-otten #ins m#de on #ount o% nondis!osure+ 6 n M#rh 2015, &ih 7etorth =und, 4P (&7=), # PE #sed in Sin#pore #nted to

#Auire sini%i#nt st#*e in Tr#dEh#ne+ %ter some disussions, it #reed to susrie to 2+5< o% sh#res " Pre%erenti#! !!otment, #nd th#t it ou!d purh#se #nother 2+>< sh#res %rom Mr+ #n#r+ 8n pri! 12, 2015 neess#r" #ppro#!s ere ot#ined %rom sh#reho!ders+ &7= proeeded ith due di!iene #nd #s pri" to, m#n#ement #nd un#udited #ounts o% the omp#n" %or the %in#ni#! "e#r 201>-15+


>

 &7= disoered th#t on M#rh 15,2015 $#!tener, # sini%i#nt supp!ier o%

Tr#dEh#ne h#d issued notie o% termin#tion #nd on #nnounement o% !#st Au#rter resu!ts o% =in#ni#! e#r 201>-15 ith o#rd report, the omp#n"'s sh#res %e!! 2<+  non-indin M8 #s sined " the Comp#n" ith &i-S*eth, #!id unti! M#" ;1, 2015+ The M8's *e" terms ere red#ted #nd the s#me #s ree#!ed to &7='s top three o%%ii#! #s p#rt o% due di!iene+ M8 epired+ 7 &7= #s issued 2+5 < o% ne sh#res o% the Comp#n"+ Durin M#" 10 to M#" 20,

2015 seer#! !o* tr#des ere eeuted in 7SE eteen Mr+ #n#r #nd &7= hih resu!ted in 2+>< sh#res een tr#ns%erred to &7=+ &7= #Auired #nother 0+2< durin the s#me period+ There #s 5< inre#se in sh#re prie " end on M#" omp#red to pri!+ n @une 5, 2015 Mr #n#r so!d 2< o% his sh#res to s#tis%" dets o% Sh#rePrise 4td+ Mr #n#r, he!d sust#nti#! st#*e in Sh#rePrise 4td+ . SE? notied some #norm#!ities in the sh#re prie o% Tr#dEh#ne in pri! #nd

M#", 2015+ %ter issuin notie #nd ondutin he#rin, SE? p#ssed #n order %indin Tr#dEh#ne, Mr+ #n#r #nd &7= in io!#tion o% SE? t+ De#rred #!! the three persons %rom #essin #pit#! m#r*ets or u"in #nd se!!in sh#res o% # !isted omp#n" %or # period o% %ie "e#rs %rom the d#te o% order+ ddition#!!" ; Crore pen#!t" #s imposed " SE? on the p#rties+ 10 #inst oth SE? orders the p#rties h#e pre%erred #ppe#! e%ore ST #nd ST h#s

#reed to he#r the re!e#nt #ppe#!s toether+

STATE"ENT OF ISSUES

ISSUE I8

$hether MT proisions i!! e #pp!i#!e to the petitioner ein #

%orein omp#n"' #s per the de%inition under nome T# t, 19.1 #nd Comp#nies t, 201;+ ISSUE II8 $hether the petitioner h#d #n" t"pe o% perm#nent Est#!ishment / P!#e o%

?usiness / ?usiness Connetion either under nome T# t, Comp#nies t or re!e#nt t# tre#t"+


, ISSUE III8 $hether the petitioner is reAuired to prep#re %in#ni#!s #s per Comp#nies

t, 201; or hether it is oerned " SE? Reu!#tions+ ISSUE I/8 $hether the =in#ne t, 2015 #mendment on imposition o% MT on

%orein omp#n" is prospetie or retrospetie #s #rued " oth p#rties+ ISSUE /8

$hether #pit#! #ins eemption #s per ndi# F Sin#pore t# tre#t"

i!! e #pp!i#!e to the petitioner #nd hether imposition o% MT i!! e io!#tie o% the t# tre#t"+ ISSUE /I8

$hether the petitioner #n herr" pi* the proision o% nome T# t

#nd t# tre#t" %or the purpose o% de%inition o% PE under the t #nd #pit#! #ins eemption under the t# tre#t"+ ISSUE /II8

$hether 115@? is eAu#!!" #pp!i#!e to =s / =Ps #nd =orein Diret

nestors (=D) #nd the sope #nd n#ture o% %untionin o% =s / =Ps #nd =Ds to underst#nd the inestments into ndi#+

SU""AR$ OF ARGU"ENTS


1

ARGU"ENTS ADVANCED

I

THE A%%ELLANTS HAVE NOT "ADE TRUE & ADE'UATE DISCLOSURE

()*.+ T5e A44ellants 5a9e fa$le& to &o a&e7"ate an& t'"e &$s(los"'e $n

'e#a'& to (o"nte'fe$t 8ate'$al (A+ an& s4e($K( &$s(los"'es on fo'e$#n $n9est8ents ;5$(5 ;o"l& 5a9e 8ate'$al $84a(t on t5e o4e'at$ons an& Knan($al ;ellbe$n# of t5e K'8 (B+. A. A,,ellant -as ailed to tul/ and ade0uatel/ dis!lose a1out !ounteeiting

()2.+ A44ellants a'e an onl$ne 8a'et4la(e f"n(t$on$n# f'o8 22 an&

be(o8e a 4"bl$(l6 t'a&e& (o84an6 $n 2* 1. F"'t5e' t5e6 &e($&e& to #o fo' an FPO an& $t en&e& s"((essf"ll6 $n )"ne 21: 2. T5e Res4on&e& ;5$le $ss"$n# stat"to'6 (o88ents on t5e FPO $nfo'8e& t5e lea& $n9est8ent bane' to &$s(lose on (o"nte'fe$t 4'o&"(ts sol& $n t5e T'a&E 4latfo'8 on 'e(e$4t of a (o84la$nt b6 an E84lo6ee of T'a&E(5an#e &"'$n# t5e FPO 4'o(ess.

1 Moot P'oble8 @3. 2 Ib$&. @!.


11 ()3.+ It $s 4e't$nent t5at s"(5 (o"nte'fe$t 4'o&"(ts a'e l$el6 to 5a9e

8ate'$al $84a(t on t5e o4e'at$ons an& Knan($al ;ellbe$n# of t5e K'8 an& $t $s l$el6 to ae(t t5e $n9est8ents of $n9esto's. T5e (o84an6 s5o"l& &$s(lose $nfo'8at$on $n 'e#a'& to DRP as 4e' Se(t$ons 2* 2> 3 'ea& ;$t5 T5e Co84an$es
t5ese (o"nte'fe$t 4'o&"(ts ae(ts t5e Knan($al 4os$t$on an& o4e'at$on of t5e (o84an6 an& $t $s $n 9$olat$on of t5e abo9e 8ent$one& 'e#"lat$ons s$n(e t5e6 a'e 8ate'$al $nfo'8at$on. It $s $84o'tant to note t5at e9en $f e9e'6 ;o'& $n t5e 4'os4e(t"s $s t'"e s"44'ess$on of 8ate'$al fa(ts 8a6 'en&e' $t f'a"&"lent+ an& 5alf t5e t'"t5 $s no bette' t5an a &o;n'$#5t false5oo&>. M' 0an;a' $s l$able $n l$#5t of 8$sstate8ents $n t5e 4'os4e(t"s s$n(e 5e $s t5e Mana#$n# D$'e(to' of t5e (o84an6 ,. T5e A44ellants 5a& $ntent$on to &ef'a"& t5e 4"bl$( fo' 4e("n$a'6 #a$n 1 b6 not 3 T5e Co84an$es A(t 213. : SEBI %l"(ste$n 9. Ba'nes <1,= AC 2: <L=. , S5an8"#a8 S"n&a'a8 C5ett$a' 9. A.A. Ran#a'a8a Na$(e' <1,3:= : Co84. Cas. 3*+ , Co84. Cas. 1:+1: SCI <1++= AP.


12 f"ll6 &$s(los$n# t5e 9ol"8e of sales of (o"nte'fe$t 4'o&"(ts s$n(e $t ;$ll $n('ease t5e$' botto8 l$ne of Knan(e. B. A,,ellant -as ailed to dis!lose 5ateial ino5ation on oeign in6est5ents.

()7.+ A((o'&$n# to Re#"lat$on !+ <2=
&$s(lose $ts (a4$tal st'"(t"'e. T5e (a4$tal st'"(t"'e $n9ol9es bot5 assets l$ab$l$t$es an& (a4$tal of t5e (o84an6. D"'$n# s"(5 &$s(los"'e t5e (o84an6 s5o"l& &$s(lose fo'e$#n $n9esto's $n t5e (o84an6 s$n(e $t falls "n&e' b"s$ness to (ons"8e'
SEC U.S.A. So $t s5o"l& also be (o84l$ant ;$t5 all t5e la;s bot5 fo'e$#n an& &o8est$( 'e7"$'e& $n 'es4e(ts of ADRs. T5$s fa(t s5o"l& 5a9e been $nfo'8e& to t5e 4"bl$( to t5e6 (an tae an $nfo'8e& &e($s$on on t5e FPO. B"t t5e (o84an6 5as not 8a&e an6 s4e($K( 'efe'en(e to fo'e$#n $n9est8ents o' $ts $n9esto's ab'oa&. ()9.+ T5e lea& $n9est8ent bane' 5as fa$le& $n 5$s stat"to'6 &"t6 to

$n&e4en&entl6 9e'$f6 t5e (ontents of DRP as 4e' SEBI

13 of t5e FPO. T5e lea& $n9est8ent bane' $s an $n&e4en&ent e4e't bo&6 ;5o s5o"l& as fo' &$s(los"'e f'o8 t5e (o84an6 t5e &$'e(to' an& all ot5e' 'ele9ant to t5e 4'e4a'at$on of DRP an& also 8ae $n&e4en&ent $n9est$#at$ons as to t5e nat"'e of s"(5 &$s(los"'es. B"t t5e lea& $n9est8ent bane' 5as fa$le& $ts bo"n&en &"t6 b6 not loo$n# at all t5e 8ate'$al $nfo'8at$on of t5e (o84an6 b"t onl6 so8e. T5$s a(t b6 t5e lea& $n9est8ent bane' 5as $88ensel6 s5aen t5e bel$ef of $n9esto's $n (a4$tal 8a'et an& t5$s s5o"l& be a44'o4'$atel6 'e8e&$e& an& t5"s t5e 'es4on&ent 4asse& t5e o'&e' &ate& De(e8be' 21 21: &eba''$n# lea& $n9est8ent bane'. ():.+ T5e (o84an6 t$ll &ate 5as not &$s(lose& to t5e 4"bl$( on t5e

Enfo'(e8ent D$'e(to'ate $n9est$#at$on ;5$(5 $s a 4otent$al l$t$#at$on an& $s l$el6 to 5a9e a&9e'se ee(t on t5e Knan(es an& o4e'at$ons of t5e (o84an6. T5ese a(ts (annot be tole'ate& s$n(e $t ae(ts t5o"san&s of s5a'e5ol&e's ;5o a'e (o88on 8en an& t5e6 5a9e $n9este& t5e$' 5a'& ea'ne& 8one6 $n (onK&en(e ;$t5 t5e (a4$tal 8a'et of t5e (o84an6 an& $ts 'e#"lato'. () :.+ It $s no &efen(e t5at t5e SEBI 5as a44'o9e& t5e FPO s$n(e SEBI

&oesnt 9e'$f6 t5e 8ate'$al &$s(los"'es of t5e FPO s$n(e $t $s t5e &"t6 of lea& $n9est8ent bane'. 5en an6 non&$s(los"'e $s b'o"#5t to t5e attent$on of SEBI t5en $t a(ts "4on $t to "n'a9el t5e t'"t5. II. THE A%%ELLANT ;NO
()=.+ T5e A44ellants 5a9e been not$Ke& of a s"$t befo'e t5e onble Del5$

$#5 Co"'t 'e#a'&$n# (o"nte'fe$t (la$8s. T5e6 ;e'e not$Ke& on )"l6 1+ 21: an& t5e sa8e ;as &$s(lose& to NSE on )"l6 2: 21: afte' a lon# #a4 of a ;ee. T5$s $s fa$l"'e to &$s(lose s"$t ;5$(5 ae(ts t5e (o84an6 (A+. T5e (o84an6 5as fa$le& to &$s(lose t5e6 5a9e 'e(e$9e& a le#al not$(e f'o8 C'anbe''6 Fas5$on In(. on A4'$l 2! 21: t5$s $s a 4otent$al l$t$#at$on an& t5e sa8e 8"st 5a9e been &$s(lose& (B+.


1: A. Failue to ino5 NSE egading a suit >it-in ti5ea5e

()*?.+ T5$s 8$#5t be (ons$&e'e& an o'&$na'6 an& 'easonable &ela6 $n (ase

of ot5e' &$s(los"'es. B"t t5e s"$t 5as (la$8s ;5$(5 a'e et'ao'&$na'6 an& $t $s (la$8e& b6 one of t5e s5a'e5ol&e' of t5e (o84an6. ()**.+ As 4e' Cla"se 3* l$st$n# a#'ee8ent of NSE t5e (o84an6 $s bo"n&

to $88e&$atel6 &$s(lose $nfo'8at$on ;5$(5 $s 8ate'$al $n nat"'e an& $s l$el6 to ae(ts $ts o4e'at$ons an& Knan(es. T5e 8ate'$al $nfo'8at$on $s (lea'l6 s4e($Ke& "n&e' $t ;5$(5 $n(l"&es l$t$#at$on an& &$s4"te of 8ate'$al nat"'e. In t5$s (ase $88e&$ate $s (ons$&e'e& to be ;$t5$n 2: 5o"'s of t5e not$K(at$on s$n(e $t $s l$el6 to ae(t t5e s5a'e 4'$(es of t5e (o84an6 on s"(5 &e9elo48ents. ()*2.+ S"(5 9$olat$ons a'e $n('eas$n# $n n"8be' &"e to ;ea enfo'(e8ent

b6 sto( e(5an#es t5e'eb6 SEBI 5a& to ste4 $n "n&e' Se(t$on 11 11A 'ea& ;$t5 Se(t$on 1 of T5e Se("'$t$es Cont'a(ts it- !lai5 o ,otential litigation.

()*3.+ T5e A44ellants 5a9e fa$le& $n t5e$' &"t6 to &$s(lose le#al not$(e

;$t5 (la$8 of 4otent$al l$t$#at$on b6 C'anbe''6 In(. In #ene'al $t $n not ne(essa'6 to &$s(lose le#al not$(es of nat"'e ;5$(5 5a9e no 8ate'$al $84a(t to t5e (o84an6. B"t ;5en t5e'e a'e $nstan(es ;5e'e t5e'e $s a

1: Non Co84l$an(e of l$st$n# (on&$t$ons SEBI C$'("la' CIRMRDDSA31213 <3,213= a9a$lable at 5tt4;;;.nse$n&$a.(o8(ontente7"$t$esSEBIC$'(3,213.4&f.


1! 'e8ote (5an(e of 4otent$al l$t$#at$on t5en s"(5 $nfo'8at$on be &$s(lose $n DRP as 4e' C5a4te' V VI1! an& Re#"lat$on !+ <2=
on t5e (o84an6 be(a"se t5e le#al not$(e ;as se'9e& b6 one of t5e$' ea'l$e' (l$ents an& also a s5a'e5ol&e'. T5e (o"nte'fe$t (la$8s a'e se'$o"s $n nat"'e be(a"se of t5e (la$8s t5at ;e'e 8a&e. T5e A44ellants s5o"l& 5a9e &$s(lose t5e sa8e an& allo;e& t5e $n9esto' to tae a ;ell $nfo'8e& &e($s$on ;5$(5 s"bs('$b$n# to t5e (o84an6. ()*7.+ It $s also not a &efen(e t5at t5e (o84an6 ;as onl6 an onl$ne

8a'et 4la(e an& $s not 'es4ons$ble fo' t5$'& 4a't6 (o"nte'fe$t (la$8s. S$n(e t5e (o"nte'fe$t (la$8 5as t5e 4otent$al to 'e&"(e t5e 9ol"8e of $n9ento'6 sol& ;5$(5 $n t"'n ae(ts t5e 4'oKt of t5e (o84an6 s5o"l& be &$s(lose& as 4e' stat"tes 'efe''e& $n @13.T5e 4'$8a'6 obe(t of DRP $s t5at t5e $n9esto' $n9est$n# $n t5e (o84an6 8aes a ;ell $nfo'8e& &e($s$on befo'e s"bs('$4t$on of s5a'es b6 s"4'ess$n# 9$tal $nfo'8at$on $t $s l$el6 to ae(t t5e "&#e8ent of an6 4'"&ent $n9esto'. T5e fa$l"'e of lea& $n9est8ent bane' to &o $n&e4en&ent &"e &$l$#en(e abo"t t5e le#al not$(e $s "na((e4table an& t5e a44ellants a'e l$able fo' s"44'ess$n# t5e sa8e. ()*8.+ In l$#5t of t5e abo9e sa$& 9$olat$ons t5e o'&e' $n (5allen#e ;as

4asse& on De(e8be' 21 21: afte' #$9$n# f"ll o44o't"n$t6 to t5e A44ellants to e4la$n t5e (ase an& all 4'$n($4les of nat"'al "st$(e 1+ ;as follo;e& an& $n (o84l$an(e ;$t5 all '"les of SEBI. III. THE A%%ELLANTS ACTED IN VIOLATION OF SEBI ORDER & REGULATIONS

1! DIP #"$&el$nes 2. 1* SEBI

1* ()*9.+ SEBI 5as 4asse& t5e 4'esent (5allen#e& o'&e' &ate De(e8be' 21

21: ba''$n# t5e (o84an6 an& M'. 0an;a' f'o8 a((ess$n# t5e (a4$tal 8a'et o' f'o8 ot5e';$se t'a&$n# $n se("'$t$es on a sto( e(5an#e. T5e (o84an6 5as 9$olate& t5e o'&e' (A+ an& M' 0an;a' 5as fa$le& to (o84l6 (B+ ;$t5 t5e o'&e' of t5e Res4on&ent ;5$(5 ;as $ss"e& "n&e' 4o;e's

ens5'$ne& $n SEBI A(t 1,,2. NF 5as 9$olate& SEBI
()*:.+ T5e (o84an6 5as $ss"e& ne; s5a'es 9$a 4'efe'ent$al allot8ent to

NF LP on Ma6 ! 21!. T5$s ;as &one afte' t5e Knan($al 'es"lts an& a((o"nts ;e'e &$s(lose& to t5e 4"bl$( on A4'$l 3 21! an& t5e t'a&$n# ;$n&o; ;as o4ene& afte' t;o &a6s. ()*=.+ T'a&$n# $s &eKne& "n&e' Se(t$on 2
Ins$&e' T'a&$n#= Re#"lat$ons 21!. Se("'$t$es $s &eKne& "n&e' Se(t$on 2 <$= of t5e SEBI
ne; s5a'es a8o"nts to sell$n# $n se("'$t$es ;5$(5 falls s7"a'el6 "n&e' t5e 4'o9$s$on of t'a&$n# of se("'$t$es. T5$s ;as s4e($K(all6 4'e9ente& b6 t5e 4'esent (5allen#e& o'&e'. ()2*.+ Cont$n"o"s 9$olat$on of 9a'$o"s stat"tes an& t5e SEBI o'&e' 5as le&

t5e Res4on&ent to bel$e9e t5at t5e A44ellants 5a9e no &"e 'es4e(t to a"t5o'$t6 o' t5e la;s of t5e lan&. T5e a44ellants a'e 'e4eate& 9$olato's an& (a4$tal 8a'et $s t5e Knan($al bloo& l$ne of t5e (o"nt'6 SEBI 5as to a(t st'$n#entl6 ;5en ta$n# a(t$on a#a$nst s"(5 9$olato's. ()22.+ T5e 4enalt6 $84ose $s onl6 no8$nal (o84a'e& to t5e 9$olat$on b6

t5e A44ellants an& &oes not s"e' f'o8 an6 $nK'8$t6 an& $t s5all 4ass t5e Test "n&e' e&nesb"'6 '"le an& '"le of 4'o4o't$onal$t6. T5e 4enalt6 $s MEMORIAL FOR RESPONDENTS

1+ $84ose& ;$t5 &"e 'e#a'& to t5e 7"ant"8 of 9$olat$on (o88$tte& an& t5e Res4on&ent 5as &"l6 a44l$e& 5$s 8$n& $n&e4en&entl6 an& 'easonabl6 to $84ose s"(5 no8$nal 4enalt6. T5e onble t'$b"nal s5all tae not$(e of t5e #'a9$t6 of 9$olat$ons (o88$tte& b6 t5e A44ellants be$n# t5e la'#est 4"bl$(l6 t'a&e& onl$ne 8a'et4la(e 5a9$n# $nte'nat$onal e4os"'e s5o"l& 5a9e a(te& $n (o84l$an(e ;$t5 t5e la;s. B"t $t 5as fa$le& to a&5e'e to se9e'al stat"tes an& $s a (ont$n"o"s an& 'e4eat 9$olato'. B ". ;an>a 6iolated t-e ode.

()23.+ M' 0an;a' 5as (on&"(te& blo( t'a&es on NSE 4latfo'8 ;$t5 NF

bet;een Ma6 1 21! an& Ma6 2 21!. Blo( t'a&es a'e e4la$ne& "n&e' #"$&el$ne 31> an& Se(t$on 1 <1.1=1,. M' 0an;a' 5ol&s 32 s5a'es of t5e (o84an6 t5'o"#5 an $n9est8ent (o84an6. ()24.+ T5e'efo'e b6 ee("t$n# blo( t'a&es $s blatantl6 $n 9$olat$on of t5e

o'&e'. E9en t5o"#5 t5e $n9est8ent (o84an6 5a& sol& t5e s5a'es on be5alf of M'. 0an;a' $t 5as not a(te& $n&e4en&entl6 an& t5e &efen(e of se4a'ate ent$t6 s5all not be a44l$(able 5e'e. T5e l$ft$n# of (o'4o'ate 9e$l $s ne(essa'6 to loo $nto t5e st'"(t"'e an& (ont'ol of t5e $n9est8ent (o84an6. T5e $n9est8ent (o84an6 5as not a(te& $n&e4en&entl6 an& $t 5as a(te& $n (onsonan(e an& $nst'"(t$on of M'. 0an;a'. ()27.+ T5$s 5as se'$o"sl6 ae(te& t5e 9$e; abo"t SEBI a8on#st (o88on

8an. Be$n# t5e Ma'et Re#"lato' an& see$n# s"(5 ;$lf"l blatant 9$olat$on t5e se(on& $84"#ne& o'&e' ;as 4asse& a#a$nst t5e A44ellants an& s"$table no8$nal 4enalt6 $84ose $n 9$e; of t5e #'a9$t6 4'o4o't$onal$t6 an& t5e a&9e'se ee(ts $t 5a& on t5e sto( 8a'et. T5e 7"ant"8 of 1> Buide!ines %or eeution o% !o* de#!s on the sto* eh#nes  SEBI C$'("la' No. MRD/DoP/SE/Cir- 19 /05, (02/09/2005), ##i!#!e #t httpG//+sei+o+in/iru!#rs/2005/mrdir0192005+htm!+ 1, Mate' C$'("la' fo' Sto( E(5an#es on T'a&$n# Pa't1 SEBI Maste' C$'("la' <3321= a9a$lable at 5tt4;eb.seb$.#o9.$n($'("la's21ann($'1.4&f.


1> 4"n$s58ent $s ;ell ;$t5$n t5e 4a'a8ete' to 4ass t5e Test "n&e' e&nesb"'6 '"le to be (ons$&e'e& 'easonable. T5e Res4on&ent 5as 4'o4e'l6 $ss"e& not$(e 5ea'& t5e a44ellants an& 4asse& t5e se(on& $84"#ne& o'&e' afte' follo;$n# all stat"to'6 no'8s an& 4'$n($4les of nat"'al "st$(e. C HNF 6iolated SEBI (SAST+ Regulations 2?**.

()28.+ NF 4"'(5ase& 2.: s5a'es f'o8 M'. 0an;a' .2 s5a'es f'o8

o4en 8a'et bet;een Ma6 1 21: an& Ma6 2 21:. NF also a(7"$'e& 2.!  s5a'es f'o8 t5e (o84an6. As 4e' Re#"lat$on 2 <1=
falls "n&e' t5e a8b$t of s"bstant$al a(7"$s$t$on of s5a'es. S$n(e M'. 0an;a' an& NF to#et5e' 5ol& 8o'e t5an 2! of s5a'es an& an6 a(7"$s$t$on 5as to 5a9e 5a44ene& afte' 4"bl$( anno"n(e8ent of an o4en oe' fo' a(7"$'$n# s5a'es of t5e ta'#et (o84an6 an& &$s(los"'e to NSE ;$t5$n t;o &a6s. In l$#5t of t5e abo9e ($'("8stan(es NF $s l$able to be 4enal$se& "n&e' Re#"lat$on 32 23. T5e ee84t$ons so 4'o9$&e& "n&e' t5e Re#"lat$ons2: &oesnt (o9e' s"(5 t'ansa(t$ons.

IV. A%%ELLANTS
2 SEBI

1, ()2:.+ NF 5as bo"#5t 2.!  s5a'es f'o8 t5e (o84an6 b6 ;a6 of $ss"e of

s5a'es 2.: f'o8 t5e M'. 0an;a' an& .2 of s5a'es f'o8 o4en 8a'et. NF ;as $n9ol9e& $n $ns$&e' t'a&$n# (A+. M'. 0an;a' ;as $n9ol9e& $n $ns$&e' t'a&$n# (B+. A HNF >as in6ol6ed in Inside Tading o Se!uities.

()2=.+ NF ;as #$9en a((ess to MOU s$#ne& b6 t5e (o84an6 ;$t5

$Set(5. $Set(5 be$n# a ;o'l& fa8o"s l""'6 b'an& ;$ll b'$n# $n 8o'e 'e9en"e fo' t5e (o84an6. T5$s $nfo'8at$on falls "n&e' a8b$t of Se(t$on 2 <5a=2!. a9$n# s"(5 $nfo'8at$on ;$ll 8ae NF an $ns$&e' a((o'&$n# to Se(t$on 2
of Ins$&e' T'a&$n#= Re#"lat$ons 21! (o8es $nto fo'(e. It $s $84o'tant to note t5at t5e 9$olat$ons as 4e' Re#"lat$on 1,,2 (ont$n"e& an& (a''$e& fo';a'& $n t5e ne; 'e#"lat$ons as ;ell. T5e &efen(e t5at t5e t'ansa(t$on $s 4a't of o'&$na'6 (o"'se of b"s$ness 5ol&s no ;ate' $n t5e l$#5t of a((ess to "n4"bl$s5e& 4'$(e sens$t$9e $nfo'8at$on. D"'$n# &"e &$l$#en(e NF 5as a(7"$'e& t5ese $nfo'8at$on an& "se& $t to 8ae 7"$( 4'oKts. S$n(e t5e sa8e $nfo'8at$on $s not a9a$lable to (o88on 4"bl$( t5$s b'$n#s o"t t5e a(t of $ns$&e' t'a&$n#. ()3*.+ Mens 'ea $s not essent$al 2> $n t5$s (ase of $ns$&e' t'a&$n#. In (ase of

a ($9$l obl$#at$on att'a(t$n# 4enalt6 8ens 'ea nee& not be an essent$al to $84ose 4enalt62,. T5e o8$ss$on o' (o88$ss$on of t5e stat"to'6 b'ea(5 $s $tself t5e oen(e an& $n s"(5 st'$(t stat"to'6 oen(e 8ens 'ea $s not an 2! SEBI C5a$'8an Seb$ 9. S5'$'a8 M"t"al F"n& an& An'. AIR 2* SC22>+.


2 essent$al3. T5e (lass$(al 9$e; of no 8ens 'ea no ('$8eQ 5as lon# #one es4e($all6 $n e(ono8$( ('$8es an& &e4a't8ental 4enalt$es 5a9e ('eate& se9e'e 4"n$s58ents e9en ;5e'e t5e oen(e 5a9e been &eKne& to e(l"&e 8ens 'ea31. B ". ;an>a >as in6ol6ed in Inside Tading.

()32.+ M'. 0an;a' 5a& a((ess to 4'$(e sens$t$9e $nfo'8at$on al;a6s 5e

be$n# t5e C5a$'8an an& CMD of t5e (o84an6. In 'e#a'& to T5e SEBI
;$ll #o "4 $n Ma6 an& 5e 5a& 4lans to sell 5$s s5a'es $n )"ne to (as5 $n on t5e 4'oKts32. T5$s s5o;s 4'e8e&$tat$on an& 5a& 8ens 'ea to (o88$t $ns$&e' t'a&$n#. ()34.+ T5e sale of 2 of s5a'es $n )"ne att'a(ts Re#"lat$on + 33 an& M'.

0an;a' 5as not &$s(lose an6 t'a&$n# 4lans to t5e (o84an6 an& 5as also fa$le& to $nt$8ate t5e (o84an6 afte' sale of s5a'es. In (e'ta$n la;s t5e le#$slat"'e 5a& t5e $ntent$on to 4enal$se ;$t5o"t an6 8ens 'ea an& $t $s

2, D$'e(to' of Enfo'(e8ent 9. MCTM Co'4o'at$on P9t. Lt&. an& O's. 1,,* C'$L) 1*23. 3 ).0. In&"st'$es Lt&. an& O's. 9. C5$ef Ins4e(to' of Fa(to'$es an& Bo$le' an& O's. <1,,+= ILL) +22 SC. 31 R.S. )os5$ Sales Ta OJ(e' %"a'at  O's. 9. A$t M$lls Lt&.  An'. <1,+>= 1 SCR 33>. 32 Moot P'oble8 @1+. 33 T5e SEBI

21 s"J($ent to s5o; &efa"lt 3:. T5e Boa'& &oesnt 5a9e &$s('et$on $n (ase of 4enalt6 $84ose& fo' &efa"lt of 4'o9$s$ons of SEBI A(t 1,,2 3!. Mens 'ea $s an essent$al o' s$ne 7"a non fo' ('$8$nal oen(e an& $t (annot be a st'a$t a(et fo'8"la fo' all (ases3*. ()37.+ Base& on all t5e abo9e ($'("8stan(es M'. 0an;a' 5as a(te& $n

9$olat$on of T5e SEBI
3: %"a'at T'an9an(o'e A#en(6 Co(5$n 9. CIT <1,>,= 1++ ITR :!!

22

%RA$ER

In l$#5t of t5e $ss"es 'a$se& a'#"8ents a&9an(e& an& a"t5o'$t$es ($te& t5e (o"nsel fo' t5e Res4on&ent 5"8bl6 4'a6s t5at t5e onble T'$b"nal be 4lease& to a&"&#e 5ol& an& &e(la'e 1. T5at A44ellants 5a9e fa$le& to t'"l6 an& a&e7"atel6 &$s(lose abo"t 2. 3. :. !. *. +.

(o"nte'fe$t$n#. T5at A44ellants 5a9e fa$le& to &$s(lose a&e7"atel6 $n DRP. T5at A44ellants no;$n#l6 s"44'esse& 8ate'$al $nfo'8at$on. T5at A44ellants "n&"l6 &ela6e& $n &$s(los$n# 8ate'$al $nfo'8at$on. T5at A44ellants 9$olate& t5e o'&e's of SEBI. T5at A44ellants ;e'e $n9ol9e& $n Ins$&e' T'a&$n#. T5at bot5 t5e a44eals be &$s8$sse&.

An& 4ass an6 o'&e' t5at t5$s onble T'$b"nal 8a6 &ee8 Kt $n t5e $nte'est of e7"$t6 "st$(e an& #oo& (ons($en(e. An& fo' t5$s a(t of $n&ness t5e (o"nsel fo' t5e Res4on&ent s5all &"t6 bo"n& fo'e9e' 4'a6.

S&

Dumy the 14th Surana and Surana National Corporate Law

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