TEAM CODE- N-024
IN THE HON’BLE SUPREME COURT OF INDIA, AT NEW DELHI.
SPECIAL LEAVE PETITION NO.
Of 2013
MS. SUSHMA & MR . SANJAY BANSAL APPELLANTS VS. SECURITIES AND EXCHANGE BOARD OF INDIA R ESPONDENT ESPONDENT
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 –
MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . TABLE OF CONTENTS
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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . LIST OF ABBREVIATIONS
SEBI
Securities and Exchange Board of India.
SAT
Securities and appellate tribunal.
AIR
All India Reporter.
SC
Supreme Court.
CIT
Commissioner of Income Tax.
SEC
Securities Exchange Commission.
US
United States.
SCC
Supreme Court Cases.
Sec.
Section.
u/s
under section.
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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . INDEX OF AUTHORITY
S.NO.
1
PARTICULARS
STATUTORY COMPILATIONS
1. THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992. 2. PROHIBITION OF INSIDER TRADING REGULATIONS, 1992. 3. CONSTITUTION OF INDIA. 4.
2
COMPANIES ACT, 1956.
BOOKS REFERRED
1. Dr. J.N. Pandey, The Constitutional Law of India, Central Law Agency, 48 th 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. ii.
Oxford Dictionary, 6th Ed., Oxford University Press, London, 2003. GARNER, BRYAN A.: “ A Dictionary Of Modern Legal Usage”, Oxford University Press 2nd ed. Oxford (1995)
iii.
Greenberg, Daniel & Alexandra, Millbrook: “Stroud’s Judicial Dictionary Of Words & Phrases”, VOL. 2, 6 th ed., London: Sweet & Maxwell (2000).
4
WEBSITES REFERRED:
i. ii.
www.findlaw.com www.indiankanoon.com
iii.
www.indlawinfo.org
iv.
www.jstor.org.
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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . v. vi.
www.lawsofindia.org
vii.
www.manupatra.com
viii.
www.scconline.com
ix.
5
www.judis.nic.in
www.supremecourtcaselaw.com
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. SEC 463 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.
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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . STATEMENT OF JURISDICTION
The Hon’ble 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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 Bansal was 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 for the 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 Agarwal and Mr. Suresh Agarwal in 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 wife’s 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 driver’s club about Fortune’s 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 Delta’s shares after they got this scoop from their respective drivers.
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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 Sanjay Bansal, 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 justified and 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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 sensit ive 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 to acquire 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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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . DETAILED PLEADINGS ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?
It is most humbly submitted that, the present petition has been filed under Article 136 of the Constitution by way of a Special Leave Petition (hereinafter referred to as SLP), aggrieved by the order of the Appellate Security Tribunal. It is an outstanding feature of Article 136(1) 1 that it empowers the Supreme Court of India to hear appeals not only from courts but also from tribunals in any cause or matter 2, though at its discretion. 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 constitutional provision lays down no norms to regulate Court's discretion in the matter of hearing appeals, but acts as a check upon the unfettered powers of the Tribunals and Courts. That, one of the pre-requisites to entertain an appeal under Article 136(1) is that the order of the tribunal must be erroneous 3 or unjust 4. Generally 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 tribunals5. The Court would interfere with the finding of a fact if there are special circumstances, e.g. absence of consideration of important piece of legal evidence6 or when the findings are based on irrelevant considerations 7. Under the facts and circumstances of the instant case the Appellate Security Tribunal acted erroneously, which this Hon'ble Court may graciously be pleased to note are the following:
That Mr. Sanjay Bansal (Independent Director of Fortune India Ltd.), did not possess any unpublished price sensitive information 8 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. So he did not get any scoop from his driver. Furthermore, in the September 2012 meeting of Fortune India Ltd. there was no proposal of acquiring Delta Future Trading Co. Ltd. in particular.
1
Article 136(1): 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. 2 M.P. Jain, Indian Constitutional Law, 256, (LexisNexis Butterworths Wadhwa, Nagpur, 2010). 3 Bhikaji Keshao v. Brij Lal Nandlal, AIR 1955 SC 610; Siemens Eng. & Manufacturing Co. v. Union of India, AIR 1976 SC 1785. 4 Manoj Kumar Rai v. Union of India, AIR 1993 SC 882. 5 D.C. Mills v. CIT, AIR 1955 SC 65; 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 Regulation 2(ha) & 2(k) of the SEBI(Insiders Trading Prohibition Regulations) 1992. Page | 1
MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition .
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. SEC 10. 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. 10 463 U.S 646(1983). Page | 2
MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 t he 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 Sulphur 11 , 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.
11
SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968), cert, denied, 394 U.S 976 (1969). Page | 3
MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition .
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. SEBI 12. 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 Page | 4
MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 was merely 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 Doctri ne of Res 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 t o anybody.
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MEMORIAL ON BEHALF OF THE APPELLANTS 29th BCI Moot Court Competition . 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 Hon’ble Court may be pleased to grant in the interest of equity, justice and good conscience.
ALL OF WHICH IS RESPECTFULLY SUBMITTED
COUNSELS FOR APPELLANT
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