Team Code:

Year of Competition 2016

Before the Honble Supreme Court of India
Name of the Case: Dreamsellers v. SEBI
Case No.
Memorandum on the Side of the Appellants

TABLE OF CONTENTS

LIST OF ABBREVIATIONS
Abbreviation
&
%
AIR
All ER
Aug.
Bom.
BomCR
BomLR
Cal.
Co.
CompCas
C.W.P. No.
ed.
FAQ
GLH
Guj.
Honble
HL
i.e.
In re.
ILR
KB
Ltd.
NSE
NUS
Nov.
No.
Ors.
Pg.
Para
Pvt.
Rs.
SAT
SEBI
SC
SCC
SCL
u/s
v.
Vol.
w/o
W.A.

Full Form
And
Percent
All India Report
All England Reporter
August
Bombay
Bombay Cases Reporter
Bombay Law Reporter
Calcutta
Company
Company Cases
Civil Writ Petition Number
Edition
Frequently Asked Questions
Gujarat Law Herald
Gujarat
Honorable
House of Lords
that is
In reference
Indian Law Reports
Kings Bench
Limited
National Stock Exchange
National University of Singapore
November
Number
Others
Page
Paragraph
Private
Rupees
Securities Appellate Tribunal
Securities and Exchange Board of India
Supreme Court
Supreme Court Cases
SEBI and Corporate Laws
Under section
Versus
Volume
Wife of
Writ Appeal

W.P.(MD)

Writ Petition (Madurai)

INDEX OF AUTHORITIES

STATEMENT OF JURISDICTION
The present appeal has been filed by the Appellant before the Honble Supreme Court of India
under Section 15Z of the Securities and Exchange Board of India Act, 1992.
Section 15Z: Appeal to Supreme Court- Any person aggrieved by any decision or order of the
Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the
date of communication of the decision or order of the Securities Appellate Tribunal to him on
any question of law arising out of such order:
Provided that the Supreme Court may, if it is satisfied that the applicant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be filed within a further
period not exceeding sixty days.

STATEMENT OF FACTS
Loan Given By Dreamsellers to Artemis & Invocation of Pledge
The Promoters of Artemis Ltd., which is a listed company has borrowed a loan of Rs. 100 crore
from Dreamsellers on 30th January, 2009.
As a security for the said loan, Artemis Ltd. has pledged its equity shares to Dreamsellers, in
pursuance of a pledge agreement.
Dreamsellers calls upon Artemis to repay the loan by issuing a letter on 10 th June, 2010 within 30
days from the date of issuance of such letter.
Artemis fails to repay the loan within the prescribed time. Hence, Dreamsellers invokes the
pledge on 22nd July, 2010 and is now entitled to 12.5% equity shares in Artemis.
Decision to make a voluntary open offer by Dreamsellers
Even after the pledge has been invoked, Dreamsellers is not sure whether or not the pledged
shares will pay off the debt, until they have control in the running of Artemis.
Thus, besides invoking the pledge, Dreamsellers decides to make an open offer voluntarily to
acquire another 37.6% shares of Artemis.
Public Announcement made by Dreamsellers
Dreamsellers makes a public announcement on 1 st October, 2010 that is published in the
Financial Express, Mumbai Edition.
Dreamsellers also files a draft letter of offer with the Securities and Exchange Board of India
(hereinafter referred to as SEBI) within 14 days from the date of public announcement.
Special Investigative Audit into the financial accounts of Artemis
Lenders to Artemis pressurize the Board of Directors to review Artemis operations.
The internal audit reveals irregularities and discrepancies in the financial accounts of Artemis
between 2005 and 2008.
The independent directors pressurize the Board of Directors to direct a Special Investigative
Audit to look into the financial operations of Artemis in the last 10 years.
A report of such investigation carried out by an independent firm has been submitted, dated 30 th
September, 2011. The report reveals embezzlement and siphoning of funds worth Rs. 300 crore
via fraudulent transactions.

Deliberations are conducted by the Board of Directors of Artemis on 25th October, 2011 due to
which the reports are brought to the public domain.
Application requesting withdrawal of open offer

Dreamsellers through its merchant banker seeks withdrawal of open offer voluntarily made, in

light of the emergence of extraordinary facts.

Dreamsellers alternatively seeks re-pricing of the open offer, in light of the extraordinary facts
that have led to a fall in the market price of the shares of Artemis.
Observations issued by SEBI on the draft letter of offer

SEBI issues its observations on the draft letter of offer on 1 st November, 2011 and thereby
rejects the application for withdrawal.
SEBI has also been silent about the re-pricing of the offer.
Appeal by Dreamsellers to Securities Appellate Tribunal
Dreamsellers is aggrieved by the order of SEBI and appeals before the Securities Appellate
Tribunal (hereinafter referred to as SAT) u/s 15 of the SEBI Act, 1992.
SAT dismisses the appeal filed by Dreamsellers.
Appeal by Dreamsellers to the Honble Supreme Court
Dreamsellers is aggrieved by the order of SAT and has filed an appeal before the Honble
Supreme Court u/s 15Z of the SEBI Act, 1992.
Matter pending before a larger bench
Both the parties have filed their submissions. The pleadings are now complete and the Chief
Justice of India has created a larger bench that will look into the case in detail and may
reconsider the ratios of earlier decided cases, if necessary.

ISSUES RAISED

1. Whether the provisions of Regulation 23 of the New Takeover Regulations relating to

withdrawal of open offer could be applied to an open offer made under the 1997 Takeover
Regulations?
2. Whether it can be said that Dreamsellers had failed to exercise due diligence and the facts
relating to the fraud were known or could have been known by Dreamsellers, if
Dreamsellers had exercised proper due diligence?
3. Whether SEBI had violated the principles of natural justice in the present case while passing its
order rejecting the application to withdraw the open offer without hearing Dreamsellers?
4. Whether Regulation 27 (1) (d) of the 1997 Takeover Regulations is to be given an interpretation
whereby, the words such circumstances as in the opinion of the Board merit withdrawal are to
be read ejusdem generis with the other provisions of Regulation 27 (1) of the said code i.e. as
circumstances where it is impossible to perform the open offer?

SUMMARY OF ARGUMENTS
1. Whether the provisions of Regulation 23 of the New Takeover Regulations relating to
withdrawal of open offer could be applied to an open offer made under the 1997 Takeover
Regulations?

Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, (hereinafter referred to as SEBI (SAST) Regulations) 1997, have been repealed by
SEBI (SAST) Regulations, 2011. After repeal, a proceeding cannot be commenced under the
repealed law. Hence, SEBI (SAST) Regulations, 2011 govern the process of withdrawal.

Also, the Appellant has made the open offer voluntarily and has therefore not incurred any
obligation. Thus, Regulation 35(2)(b) of the SEBI (SAST) Regulations, 2011 will not be
applicable to the open offer made by the Appellant.

Further, withdrawal of an open offer is distinct from its continuation and completion. Hence, the
Appellant is not required to withdraw the open offer under the repealed regulation and will be
governed by Regulation 23 of SEBI (SAST) Regulations, 2011.

2. Whether it can be said that Dreamsellers had failed to exercise due diligence and the facts
relating to the fraud were known or could have been known by Dreamsellers, if
Dreamsellers had exercised proper due diligence?

Due Diligence refers to a standard of reasonable care. A merchant banker cannot unearth
information intentionally concealed, even with his best efforts. Hence, the Appellant could not
have known about the fraudulent siphoning of funds in Artemis.

An insider who has access to unpublished price sensitive information and subsequently deals in
securities becomes liable under insider trading. Here, any decision made by the Appellant on the
basis of unpublished price sensitive information would result in dealing in securities.

Mens rea is not a criterion for imposing a penalty under the SEBI Act and its Regulations. Here,
the Appellants lack of mens rea provides no immunity to the Appellant from being guilty under
the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992
(hereinafter referred to as SEBI (PIT) Regulations, 1992).

Further, when fraud takes place in a transaction it vitiates such transactions, howsoever solemn
they are. Hence, fraud committed by Artemis has vitiated the transaction of acquisition of shares
by the Appellant.

3. Whether SEBI had violated the principles of natural justice in the present case while
passing its order rejecting the application to withdraw the open offer without hearing
Dreamsellers?

A legal body that is empowered to act wisely and judicially through enquiries and thereby affects
the rights of parties is said to be acting in a quasi-judicially. Quasi-judicial actions are bound by
principles of natural justice. Thus, the Respondent here must abide by the rules of natural justice.

Natural justice requires hearing to be provided, either written or oral. Here, the Appellant has
neither been provided with any opportunity to make a written representation, nor has been
granted an oral hearing.

Further, when a decision is not reasoned, it indicates that there might be no good reasons. Hence,
the Respondents order citing no reasons raises doubt.

4. Whether Regulation 27(1)(d) of the 1997 Takeover Regulations is to be given an

interpretation whereby, the words such circumstances as in the opinion of the Board merit
withdrawal are to be read ejusdem generis with the other provisions of Regulation 27 (1)

of the said code i.e. as circumstances where it is impossible to perform the open offer?
In order to apply ejusdem generis, the preceding specific terms must constitute a common

category. Here, Regulation 27(1)(b) and (c) do not constitute a class of impossibility.
Also, Regulation 27(1)(a) is not a case of impossibility. This indicates that the legislative

intention has never been to constitute a class of impossibility.

Ejusdem generis must not be applied if it defeats the purpose of the law. The Takeover Code
aims at balancing the rights of investors and shareholders. Here, ejusdem generis would

adversely affect the rights of innocent investors and thereby defeat such purpose.
Further, the rule of ejusdem generis cannot be applied, when it makes the provision redundant in
itself. Confining the interpretation of Regulation 27 to grounds of impossibility only will make
the provision for withdrawal meaningless. Hence, ejusdem generis must not be applied to
interpret Regulation 27(1)(d) of SEBI (SAST) Regulations, 1997.

ARGUMENTS ADVANCED

1. Whether the provisions of Regulation 23 of the New Takeover Regulations relating to

withdrawal of open offer could be applied to an open offer made under the 1997 Takeover
Regulations?
It is respectfully submitted before the Honble Court that the SEBI (SAST) Regulations, 1997
stand repealed by the SEBI (SAST) Regulations, 2011. [A] Also, the application for withdrawal
of open offer does not fall under the Repeal and Savings clause of the SEBI (SAST) Regulations,
2011. [B]
[A].

The SEBI (SAST) Regulations, 1997 have been repealed by the SEBI (SAST)

Regulations, 2011.
It is submitted that repeal refers to the abrogation of a law that exists by an express act of
legislature.1 Once a law is repealed, it must be considered to have never existed except for such
actions which had begun or concluded when the law was in existence.2 A proceeding cannot be
continued or commenced under the repealed law after the repeal has taken place. 3 Here, the
SEBI (SAST) Regulations, 1997, have been repealed by the SEBI (SAST) Regulations, 2011.
The application for withdrawal of the open offer has been made by the Appellant on October 30,
2011,4 when the new regulations have already come into force. The application for withdrawal
has been made by the Appellant after the repeal of the SEBI (SAST) Regulations, 1997. Hence,
the process for withdrawal cannot be construed to have commenced under the SEBI (SAST)
Regulations, 1997 and must be governed by the SEBI (SAST) Regulations, 2011.
[B].

The application made by Dreamsellers for withdrawal of open offer does not fall

under the Repeal and Savings clause of the SEBI (SAST) Regulations, 2011.
It is submitted that no obligation has been incurred by the Appellants as required by the repeal
and savings clause of the SEBI (SAST) Regulations, 2011. [B.1] Also, the application for

1 Blacks Law Dictionary 1490 (10th ed. 2014).

2 Lakshmanrao Krishnaji v. Balkrishna Rangnath, (1912) ILR 36 Bom 617, 617.
3 Keshavan v. State of Bombay, AIR 1951 SC 128, 128; See also State of Rajasthan v. Mangilal Pindwal,
AIR 1996 SC 2181, 2181.
4 Moot Proposition Pg. 2 Para 10.

withdrawal of open offer does not fall under the ambit of continuation and completion of the
open offer process. [B.2]
[B.1] No obligation has been incurred by the Appellant.
It is submitted that any liability or obligation that has been incurred under the repealed
regulations must remain unaffected as though such repeal has never taken place.5 If an acquirer
acquires a minimum of 15% of shares in the target company, the acquirer is under an obligation
to make a public announcement6 offering to acquire at least 26% of the shares of the target
company.7

However, when the 15% threshold is not met, an open offer is not triggered

mandatorily. When an offer is made under such a condition it is said to have been made
voluntarily without triggering the obligations of a mandatory open offer.8 Here, the Appellant has
become entitled to 12.5% of the equity shares of Artemis by virtue of the pledge agreement
between them.9 The Appellant has been under no obligation to make an open offer and has
voluntarily made the open offer to acquire 37.6% of equity shares of Artemis. Hence, Regulation
35(2)(b) of the SEBI (SAST) Regulations, 2011 is not applicable to the open offer made by the
Appellant.
[B.2] Withdrawal of open offer does not fall under the ambit of continuation and completion of
an open offer.
It is submitted that an open offer, the public announcement of which has been made under the
SEBI (SAST) Regulations, 1997, must be continued and completed under the SEBI (SAST)
Regulations, 1997 itself.10 The typical steps involved in the open offer process indicate a
5 SEBI (SAST) REGULATIONS, 2011, REGULATION 35(2)(b).
6 SEBI (SAST) REGULATIONS, 1997, REGULATION 10.
7 SEBI (SAST) REGULATIONS, 1997, REGULATION 21(1).
8 Public M&As in India: Takeover Code Dissected, NISHITH DESAI ASSOCIATES, (July 24, 2016, 10:04
AM), http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Ma%20Lab/Takeover%20Code
%20Dissected.pdf.
9 Moot Proposition Pg. 1 Para 5.
10 SEBI (SAST) REGULATIONS, 2011, REGULATION 35(2)(c).

completion of the process and does not include the withdrawal of the same. 11 Withdrawal of open
offer is allowed in circumstances where the completion of the open offer cannot take place. 12
Also, withdrawal requires a public announcement stating the reasons for the withdrawal, separate
from the public announcement of the open offer.13 Here, the public announcement for the open
offer by the Appellant has been made under the SEBI (SAST) Regulations, 1997 on October 1,
2010.14 However, the application for withdrawal cannot be said to fall under continuation and
completion of the open offer. Hence, the Appellant is not required to withdraw the offer under
the repealed regulations, withdrawal being a situation different from continuation and completion
of the open offer.
It is equally well settled, that a little difference in facts or additional facts may lead to a different
conclusion."(Union of-India v. Chajju Ram). one addittional or a different fact can make a world
of a difference between conclusions in 2 cases even when the same principles are applied in each
case to similar facts(regional manager v. pawan kumar dubey)
2. Whether it can be said that Dreamsellers had failed to exercise due diligence and the facts
relating to the fraud were known or could have been known by Dreamsellers, if
Dreamsellers had exercised proper due diligence?
It is respectfully submitted that the Appellant has conducted proper due diligence. [A] However,
on probing deep into the affairs of Artemis, the Appellant would have risked being involved in
insider trading. [B] Further, the fraud committed by the promoters of Artemis has vitiated every
transaction between Artemis and the Appellant. [C]

11 Frequently Asked Questions on SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011, SEBI, (July 22, 2016, 4:30 PM),
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1399625542441.pdf.
12 Report of the Takeover Regulations Advisory Committee Under the Chairmanship Of Mr. C.
Achuthan, (July 19, 2010), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf. (6.2)
13 SEBI (SAST) REGULATIONS, 2011, REGULATION 23(2)(a).
14 Moot Proposition Pg. 1 Para 6.

[A]. The Appellant Has Conducted Proper Due Diligence.

It is submitted that due diligence refers to a standard of taking due care, that is, reasonable
care and does not depend on any level of certainty.15 Due diligence indicates such level of
diligence that any prudent man is likely to exercise while conducting his own affairs. 16 There
exists no straightjacket rule or method that can be followed with respect to due diligence
principles.17 Due diligence involves conducting inquiries that are reasonable, and not everything
that is possible.18 Due diligence is therefore a form of reasonable investigation. 19 In spite of
conducting due diligence, it is completely impossible for the buyer to obtain as much knowledge
about what is being acquired as the seller has. 20 In most cases the true real value of the target
company becomes difficult to be assessed and remains doubtful even after proper and careful due
diligence has been conducted.21 Despite the best efforts put by the merchant banker on something
that has been intentionally concealed, the merchant banker cannot detect the same. 22 Here, the
special investigative audit report has come into public domain after deliberations held by the

15 Bill Maurer, Due Diligence and Reasonable Man Offshore, 20 CULTURAL ANTHROPOLOGY 474,
485 (2005).
16 Chandra Kanta Bansal v. Rajinder Singh Anand, (2008) 5 SCC 117, 117.
17 J.M. Mutual Fund & J.M. Capital Management Pvt. Ltd. v. SEBI, SAT Appeal No. 39-39A/2004,
(Nov. 22, 2004), available at http://www.sebi.gov.in/satorders/jmmutual.html, .
18 Lilyben v. Ramilaben w/o Mohanbhai Govindbhai Patel, 2012 GLH (2) 308, 308.
19 J. Samuel v. Gattu Mahesh, (2012) 2 SCC 300, 300.
20 JOHN FRED WESTON, MARK L. MITCHELL & J. HAROLD MULHERIN, TAKEOVERS RESTRUCTURING
AND CORPORATE GOVERNANCE, 177 (Pearson Education India, 4th ed. 2004).
21 Sanjay Sehgal, Siddhartha Banerjee (use &) Florent Deisting, The Impact of M&A Announcement
and Financing Strategy on Stock Returns: Evidence from BRICKS Markets, 4 International Journal of
Economics and Finance (abbreviate and small caps), 76, 84 (2012).
22 SEBI Order In the Matter of Chartered Capital and Investment Limited, WTM/RKA/EFD-DRAII/37/2015, available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1431514225075.pdf, .

Board of Directors of Artemis on October 25, 2011.23 Thus, the facts regarding embezzlement of
funds have come to the knowledge of the Appellant at a stage much later to the making of the
open offer. As a part of its due diligence, the Appellant has relied on the balance sheet and profit
and loss account of Artemis.24 However, the Appellant being a third party cannot be reasonably
expected to have had known of such information as revealed by the audit report.
Moreover, a target company is bound by strict norms of disclosure imposed on it by securities
regulation so that the acquirer can make the decision of acquisition based on such publicly
available information.25 Here, the Appellant relied on the publicly available information of
Artemis that is a listed company. Hence, the Appellant can be said to have conducted proper and
reasonable due diligence.
[B]. The Appellant Would Have Risked Being Involved In Insider Trading.
It is submitted that probing deep into the internal affairs of Artemis would have made the
Appellant an insider [B.1] and hence, liable for dealing in securities. [B.2] Further, the lack of
mens rea on the part of the Appellant will not reduce the risk of insider trading. [B.3]
[B.1]. Probing Deep Into The Internal Affairs Of Artemis Would Make The Appellant An
Insider.
It is submitted that a person who has had access to or has received certain unpublished price
sensitive information is termed as an insider.26 It is important to note that price-sensitive
information refers to any such information relating indirectly or directly to a company that if
published, is likely to impact the price of the securities of such company materially. 27 Such
information is termed as unpublished price sensitive information when it is not published by
23 Moot Proposition Pg. 2 Para 9.
24 Clarifications, Question 02.
25 Umakanth Varottil, Due Diligence in Share Acquisitions: Navigating The Insider Trading Regime,
NATIONAL UNIVERSITY OF SINGAPORE , (Aug. 2, 2016, 4:00 PM), available at
http://law.nus.edu.sg/wps/pdfs/004_2016_Umakanth.pdf.
26 SEBI (PIT) REGULATIONS, 1992, REGULATION 2(e)(ii).
27 SEBI (PIT) REGULATIONS, 1992, REGULATION 2(ha).

such company or the agents of such company.28 Here, the information regarding the
embezzlement of funds by the promoters of Artemis has had the potential of materially affecting
the securities of the company. Such information is hence unpublished price sensitive
information till the time it has been brought into public domain by the Board of Directors of
Artemis. The Appellant on being privy to such information through a process of due diligence
becomes an insider as per Regulation 2(e)(ii) of the SEBI (PIT) Regulations, 1992.
[B.2] The Appellant Would Be Liable For Dealing In Securities
It is submitted that an insider shall not deal in securities of a listed company while possessing
any unpublished price sensitive information.29 Also, a company, when in possession of
unpublished price sensitive information is not allowed to deal in the securities of another
company.30 Dealing in securities refers to any act of selling, buying or agreeing to buy or sell or
deal in the securities of a company.31 The word dealing is wide and includes anything being
done with the securities.32 The word deal includes any kind of transaction that the parties
conduct in the normal course of trade. 33 Here, the pledge invoked by the Appellant could amount
to dealing in securities of Artemis. Also, any decision taken by the Appellant on the basis of
unpublished price sensitive information would fall under the ambit of dealing in securities.
If one makes certain gains from trade conducted on the basis of relevant inside information,
thereby converting an informational advantage over others into a pecuniary advantage is a
28 SEBI (PIT) REGULATIONS, 1992, REGULATION 2(k).
29 SEBI (PIT) REGULATIONS, 1992, REGULATION 3(1).
30 SEBI (PIT) REGULATIONS, 1992, REGULATION 3A.
31 SEBI (PIT) REGULATIONS, 1992, REGULATION 2(d).
32 Report of the High Level Committee to Review the SEBI (Prohibition of Insider Trading)
Regulations, 1992, (December 7, 2013), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.
33 Vinod Kothari, Abhirup Ghosh, Pledges in the Context of Insider Trading Regulations Part 1,
INDIACORPLAW (Aug. 2, 2016, 4:00 PM), http://indiacorplaw.blogspot.in/2015/09/pledges-in-context-ofinsider-trading.html.

violation of the proprietary right of the owner of such information. 34 A potential investor who
gains access to unpublished price sensitive information and subsequently deals in securities
becomes liable under insider trading.35 If an investor obtains certain unpublished price sensitive
information, he would be barred from buying or selling securities of such listed company while
possessing such information.36 Here, had the Appellant obtained the aforementioned unpublished
price sensitive information, it would consequently make a decision about acquiring the securities
of the target company. Hence, any decision made by the Appellant on the basis of such
unpublished price sensitive information would make it liable for insider trading.
[B.3] Lack Of Mens Rea On The Part Of The Appellant Will Not Reduce The Risk Of Insider
Trading.
It is submitted that element of mens rea is not a deciding criteria for imposing punishment and
penalty under the SEBI Act and its Regulations. 37 Further, once contravention of the statutory
obligations under the SEBI Regulations takes place, penalty is to be imposed without regard to
intention of the parties.38 An insider dealing in securities of a company violating Regulation 3 of
the Insider Trading Regulations becomes guilty of the offence of insider trading.39 A presumption
may be made that if an insider has traded and dealt in the securities of a listed company, he or
she has traded on the basis of unpublished price sensitive information that he or she is in
34Insider Trading Regulations- A Primer, NISHITH DESAI ASSOCIATES , (July 31, 2016, 10:04 AM),
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research
%20Papers/Insider_Trading_Regulations_-_A_Primer.pdf.
35 Shruti Rajan,(use &, if journal) Rishabh Shroff , Insider Trading: Are Reforms Shrinking?, INDIAN
FINANCIAL LAW REVIEW, (July 24, 2016, 8:00 PM), available at
http://www.iflr.com/Article/2006895/Are-the-reforms-shrinking.html. (can be cited as a journal article)
36 Tarun M. Stewart & Cyril S. Shroff, Investing in Indian PIPEs, 10 THE JOURNAL OF PRIVATE EQUITY
87, 89 (2007).
37 SEBI v. Cabot International Capital Corporation, 2004 (4) BomCR 700, 700.
38 SEBI v. Shriram Mutual Fund, AIR 2006 SC 2287, 2287.
39 SEBI (PIT) REGULATIONS, 1992, REGULATION 4.

possession of.40 Thus, due diligence although a process essential to enable acquisitions, it leads to
a potential infringement of the insider trading regulations.41 Here, the Appellant does not have
the motive or mens rea of committing the offence of insider trading. However, the requirement of
mens rea being irrelevant for the purpose of insider trading does not provide any immunity to the
Appellant from being guilty under the Insider Trading Regulations, 1992.
[C]. Fraud Committed By The Promoters Of Artemis Has Vitiated Any Kind Of
Transaction Between Artemis And The Appellant.
It is submitted that in the context of securities law, fraud refers to an act of concealment
committed by a person in order to induce another into dealing in securities. 42 When a fraud takes
place in a transaction it vitiates such transactions.43 Fraud nullifies all solemn actions howsoever
high is the degree of solemnity.44 Also the legal effects that flow from consent given under fraud
would be destroyed once such fraud is discovered.45 Here, the facts of embezzlement and
siphoning of funds have been concealed by Artemis from the Appellant. Hence, such fraud
committed by Artemis has vitiated the transaction of acquisition of shares by the Appellant.
3. Whether SEBI had violated the principles of natural justice in the present case while
passing its order rejecting the application to withdraw the open offer without hearing
Dreamsellers?
40 Gandhi v. SEBI, (2008) 84 SCL 192 SAT, 192.
41 Umakanth Varotill, The Long and Short of Insider Trading Regulation in India, NSE CENTRE FOR
EXCELLENCE IN CORPORATE GOVERNANCE, (July 14, 2016, 6:20 PM), available at
https://www1.nseindia.com/research/content/ res_QB13.pdf.
42 SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO
SECURITIES MARKET) REGULATIONS, 2003, REGULATION 2(1)(C).
43 Ganpatbhai Mahijibhai Solanki v. State of Gujarat, (2008) 12 SCC 353, 353.
44 Badami (deceased) by her Lrs. v. Bhali, AIR 2012 SC 2858, 2858.
45 G.E.M. Anscombe, Sidney Morgenbesser, The Two Kinds Of Error In Action, 60 The Journal Of
Philosophy, 393, 393 (1963).

It is respectfully submitted before the Honble Court that the Respondent is bound to follow the
principles of natural justice while passing an order. [A]. The Appellant has not been granted any
form of hearing by the Respondent SEBI, thereby violating the principles of natural justice. [B]
Also, the non-speaking decision given by the Respondent is violative of the principles of natural
justice. [C]
[A]. The Respondent is bound to follow the Principles of Natural Justice.
It is humbly submitted that the Respondent has exercised a quasi-judicial power [A.1] and the
observations made by it are in the form of an order. [A.2] Hence, the Respondent is bound to act
in accordance with the principles of natural justice. [A.3]
[A.1] The Respondent Has Exercised A Quasi-Judicial Power
It is submitted that, a quasi-judicial act refers to an action performed by public bodies which are
empowered to ascertain facts, conduct hearings and draw conclusions on the basis of evidence. 46
Further, if an authority is empowered by the statute to determine a matter brought before it such
that it prejudicially affects the subject, such power conferred on the authority is a quasi-judicial
power.47 When a legal body is empowered to impact the rights of parties and is under an
obligation to act judicially and wisely through enquiries, such legal body is said to be performing
a quasi-judicial act.48 Further, it has been observed in the case of Price Waterhouse and Co.
v. Securities and Exchange Board of India49 that SEBI has quasi-judicial functions and has its
own adjudication tribunals.50 The quasi-judicial functions of SEBI have also been recognized in

46 Blacks Law Dictionary 1440 (10th ed. 2014).

47 Province of Bombay v. Khushaldas S. Advani, AIR 1950 SC 222, 222.
48 R v. Electricity Commissioners, [1924] 1 KB 171, 171.
49 Price Waterhouse and Co. v. Securities and Exchange Board of India, 2010 (112) BomLR 3871, 3871.
50 Pranshu Paul, Multi-Regulatory Approach: A Boom?, INDIA LAW JOURNAL, (July 29, 2016, 5:45 PM),
available at http://indialawjournal.com/volume7/issue-2/article6.html.

the SEBI annual report 2014-15.51 Here, the Respondent is statutorily empowered 52 to issue the
observations after a thorough fact finding which has prejudicially affected the rights of the
Appellant. Hence, the Respondent, in making observations and rejecting the application for
withdrawal of open offer has acted in a quasi-judicial manner.
[A.2] The Observations Made By The Respondent Are In The Form Of An Order.
It is submitted that when a communication is conveyed to someone such that it has an impact on
such person rights, it is construed as an order.53 Any comment or observation given in the form of
an advice may be treated as an order under the SEBI Regulations. 54 Here, the observations made
by the Respondent, rejecting the application for withdrawal, have affected the right of the
Appellant to withdraw the open offer in the presence of extra-ordinary circumstances. Hence, the
observations made by the Respondent can be construed as an order passed by it.
[A.3] The Respondent Is Bound To Act In Accordance With The Principles Of Natural Justice.
It is submitted that principles of natural justice denotes set of rules that an ordinary man would
find reasonable and fair.55 It indicates that any decision making process must be fair and
reasonable.56 Principles of natural justice or fairness operate in both procedure of making the
decision and materials on which the decision is based.57 Quasijudicial actions have always been

51 Securities and Exchange Board of India Annual Report 2014-15, available at

http://www.sebi.gov.in/cms/sebi_da ta/attachdocs/1450427865050.pdf.
52 SEBI (SAST), 2011, REGULATION 16(4).
53 Rajesh Toshniwal v. SEBI, SAT Appeal No. 139 of 2011, (June 01, 2012), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1338545180321.pdf, .
54 Akshya Infrastructure v. SEBI, SAT Appeal No. 3 of 2013, (June 19, 2013), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1371641812647.pdf, .
55 I.T.C. Ltd. v. Union of India, (1996) ILR 2 Cal 459, 459.
56 PETER CURZON, JURISPRUDENCE LECTURE NOTES 262 (Cavendish Publishing, 6th ed. 1998).
57 David J. Mullan, Natural Justice and Fairness- Substantive as well as Procedural Standards for the
Review of Administrative Decision making?, 27 McGill Law Journal, 250, 268 (1982).

subject to the principles of natural justice.58 Further, tribunals performing quasi-judicial functions
must abide by the principles of openness and fairness. 59 A quasi-judicial order cannot be passed
without giving the other party an opportunity of hearing. 60 Here, the observations made by the
Respondent, being of the nature of a quasi-judicial order must abide by the principles of natural
justice.
It is further submitted that principles of natural justice have to be followed irrespective of the
power granted to a statutory body is quasi-judicial or administrative. 61 The object of both quasijudicial actions and administrative actions is to give a just decision. 62 Natural justice principles
intend to limit miscarriage of justice and must be applied to inquiries that are of administrative in
nature.63 An administrative order that brings with it civil consequences must follow the rules of
natural justice.64 It is further submitted that, an order given by a quasi-judicial body is said to
cause civil consequences when it affects a person in the continuance of a civil life. 65 Here, the
order passed by the Respondent has caused civil consequences to the Appellant. Hence, the
Respondent in making such an order is bound by the principles of natural justice.
[B]. The Appellant Has Not Been Granted Any Form Of Hearing.

58 N.K. JAYAKUMAR, ADMINISTRATIVE LAW 60 (PHI Learning Pvt. Ltd., 1st ed. 2005).
59 14th Law Commission of India Report, Reforms of the Judicial Administration, 694 (2002), available
at http://lawcommissionofindia.nic.in/1-50/Report14Vol1.pdf.
60 N. SINGH, SERVICES AND DISCIPLINARY ACTIONS: IN CIVIL SERVICES, PSUS AND OTHER SERVICES,
197 (Deep and Deep Publications, 1st ed. 2003).
61 Automotive Tyre Manufacturers Association v. Designated Authorities, 2011 2 SCC 258, 258.
62 D.A. Gadgil v. SEBI, SAT Appeal No. 3 of 2000, (August 11, 2000), available at
http://www.sebi.gov.i n/satorders/Gadgil.html, .
63 A.K. Kraipak v. Union of India, AIR 1970 SC 150, 150.
64 State of Orissa v. Binapani Devi, AIR 1967 SC 1269, 1269.
65 Mohinder Singh Gill v. The Chief Election Commissioner, New Delhi, AIR 1978 SC 851, 851.

It is submitted that the principles of natural justice must be read into the takeover regulations
even though there is no explicit mention of providing the Appellant with an opportunity of being
heard.66 It is a primary need to read the natural justice principles into statutory provisions so as to
prevent miscarriage of justice in quasi-judicial or administrative decisions.67 The principles of
natural justice must be considered as inherent to the statutory provisions. 68 Here, the provisions
of SEBI (SAST) Regulations, 1997 do not contain any explicit provision mandating the
principles of natural justice. However, the principles of natural justice are to be read into the
provisions of the Regulations.
It is further submitted that the two principal forms of hearing that must be provided to a person
are by means of a written representation or an oral hearing. 69 The party affected, must be
provided with all the facts and evidence that the adjudicator is basing its judgment on. 70 When
natural justice has been violated at a preliminary stage, any right of appeal does not remain as a
true right because, the procedure becomes equivalent to an unfair trial followed by a fair trial. 71 It
is important to note that any process of decision making is more effective when the parties are
provided with an oral hearing.72 In situations wherein the party is likely to be affected very
seriously, courts insist on an oral hearing. 73 In the absence of any form of evidence that indicates
that the party has waived the right to personal hearing an appeal against an order passed without
66 The General Manager Canara Bank v. L.M.V. Devakumar, Senior Manager Canara Bank, (Look at
diary)
67 Ram Niwas Bansal v. State Bank of Patiala, (1998) 119 PLR 768, 768.
68 Alka Synthetics v. SEBI, [1995] 95 CompCas 663 (Guj), 663.
69 Sadasiva Sekhar v. District Collector, 2003 (3) ALT 68, 68.
70 Surinder Singh Kanda v. The Government of Malaya 1962 PC 322, 322; See Also, Dharmishta Raval,
Improving the Legal Process in Enforcement at SEBI, INDIRA GANDHI INSTITUTE OF DEVELOPMENT
RESEARCH, (July 12, 2016, 3:00 PM), available at http://www.igidr.ac.in/pdf/publication/WP-2011008.pdf.
71 Ram Chandran v. Union of India, AIR 1986 SC 1173, 1173.
72 Kashmir Singh v.State of Himachal Pradesh and Ors. C.W.P.No.8015/2014

granting personal hearing was allowed.74 Also, refusal to give an opportunity of hearing to the
affected party cannot be made simply on the ground that even a hearing could cause no
difference to the decision made without providing such hearing. 75 Here, the Appellant has not
been granted any opportunity of personal hearing. The application requesting withdrawal has
been rejected summarily by the Respondent without providing the Appellant a chance of
justifying the withdrawal. The Appellant has been provided with no form of hearing, written or
oral. Hence, the Respondent has violated the principles of natural justice.
[C]. The Non-Speaking Decision Given By The Respondent Is Violative Of The Principles
Of Natural Justice.
It is submitted that a reasoned decision has the color of justice and fairness. 76 Citing reasons for a
particular decision is a fundamental principle of good administration.

77

A refusal to mention the

reasons behind a decision may lead to suspicion that there are no proper reasons behind such
decision.78 A reasoned decision not only serves the purpose of ensuring to the party that justice
has been done, but also is a valid discipline for the adjudicating body. 79 The Honble Supreme
Court has been consistent in upholding the necessity of reasoned decisions. 80 Here, the decision
73 J. Markandey Katju, Administrative Law and Judicial Review of Administrative Action, EASTERN
BOOK COMPANY, (July 22, 2016, 9:00 AM), available at http://www.ebcindia.com/lawyer/articles/2005_8_25.htm.
74 JKHPMC Ltd. v. Collector of Customs, 1995 (56) ECR 469, 469.
75 M.M. SULPHEY, AZ-HAR BASHEER, LAWS FOR BUSINESS 219 (PHI Learning Pvt. Ltd, 1st ed., 2011).
76 M.P. Industries v. Union of India, AIR 1966 SC 671, 671.
77 M.P.JAIN, PRINCIPLES OF ADMINISTRATIVE LAW 470 (Wadhwa & Co. Nagpur, 6th ed., 2007).
78 C.P. Goyal, Principles of Natural Justice, (July 16, 2016, 7:00 PM), available at
http://www.nacenkanpur.gov.i n/admin/media_images/Principles%20of%20natural%20justice.pdf.
79 State of West Bengal v. Krishna Shaw, AIR 1990 SC 2205, 2205.
80 Bombay Oil Industries Pvt. Ltd. v. Union of India, AIR 1984 SC 160, 160.

given by the Respondent rejecting the application for withdrawal has cited no reasons for the
same. Also, the Respondent has not considered re-pricing of the open offer as alternatively
requested by the Appellant. Hence, by passing an un-reasoned order, the Respondent has violated
the principles of natural justice.
4. Whether Regulation 27(1)(d) of the 1997 Takeover Regulations is to be given an
interpretation whereby, the words such circumstances as in the opinion of the Board merit
withdrawal are to be read ejusdem generis with the other provisions of Regulation 27(1) of
the said code i.e. as circumstances where it is impossible to perform the open offer?
It is humbly submitted that Regulation 27(1)(d) of the SEBI (SAST) Regulations, 1997 cannot be
given a narrow interpretation by applying ejusdem generis. [A] Further, the rule of ejusdem
generis must be used with caution. [B]
[A.] Regulation 27(1)(d) Of The SEBI (SAST) Regulations, 1997 Cannot Be Given A
Narrow Interpretation By Applying Ejusdem Generis.
It is submitted that the words ejusdem generis means of the same kind or nature.81 This rule
enunciates that when specific words pertain to a particular class or category and are followed by
general words such general words are to be understood in a sense restricted by such class or
category.82 In order to apply the principle of ejusdem generis there must be a distinct category or
genus.83 This distinct category makes one focus on the matters included in such category,84 such
that the general term can be construed to include similar matters. 85 If the specific items that
81 Blacks Law Dictionary 631 (10th ed. 2014).
82 JUSTICE G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 475 (Wadhwa Nagpur, 11th ed.,
2008).
83 State of Bombay v. Ali Gulshan, AIR 1955 SC 810, 810.
84 LENNE EDISON ESPENSCHIED, CONTRACT DRAFTING: POWERFUL PROSE IN TRANSACTIONAL
PRACTICE 102 (American Bar Association, 2nd ed., 2010).
85 Geoffrey P. Miller, Pragmatics and the Maxims of Interpretation, HeinOnline, (July 30, 2016, 8:00
PM), available at http://heinonline.org/HOL/Page?
handle=hein.journals/wlr1990&div=49&id=&page=&collection=journals.

precede the general term do not constitute one particular class, the rule of ejusdem generis shall
not apply.86 In such a case, the meaning of the general term does not remain restricted to any
particular category.87 Here, withdrawal of open offer is allowed when statutory approvals that are
required are refused88 or the sole acquirer, who is a natural person, is dead. 89 With respect to
Regulation 27(1)(c) there remains a possibility for the legal heirs of the deceased who make an
open offer. This indicates that Regulation 27(1)(b) and Regulation 27(1)(c) discuss varied
situations and do not form any particular class or genus. Thus, Regulation 27(1)(d) confers a
wide discretionary power to SEBI to allow withdrawal of open offer, not merely in cases of
impossibility, but also in situations of genuine difficulty.90 Here, the fraud and embezzlement of
funds by the promoters of Artemis have posed a genuine difficulty to the Appellant in completion
of the open offer. Hence, the Respondent, in pursuance of its wide power under Regulation 27(1)
(d) must allow the Appellant to withdraw the open offer, instead of narrowing down its
interpretation by applying the rule of ejusdem generis.
Also, prior to SEBI (SAST) (Second Amendment) Regulations, 2002 under Regulation 27(1)(a),
withdrawal of an open offer could be allowed when such withdrawal was a consequence of a
competitive bid. This provision existed so as to allow the first acquirer to withdraw the open
offer. However, it was removed so that the target companys shareholders get a double exit
option and have an option so as to decide as to which offer must succeed. 91 Taking this into
consideration, it is clear that the legislative intention has never been such as to create a common
86 National Association of Local Government Officers v. Bolton Corporation, (1942) 2 All ER 425 (HL),
425.
87 JOSEPH CHITTY, CHITTY ON CONTRACTS: GENERAL PRINCIPLES 957 (Sweet & Maxwell, 31st ed.,
2012)
88 SEBI (SAST), 1997, REGULATION 27(1)(B).
89 SEBI (SAST), 1997, REGULATION 27(1)(C).
90 Luxottica Group SPA Ray Ban v. SEBI, (2004) 1 CompLJ 258 SA, 258.
91Report of the Reconvened Committee on Substantial Acquisition of Shares and Takeover under the
Chairmanship of Justice P.N. Bhagwati, (May, 2002), available at
http://www.sebi.gov.in/takeover/takeoverreport.pdf. (Para 12.4)

class through the specific provisions of Regulation 27(1)(a), (b) and (c). Even though Regulation
27(1)(a) has been deleted Regulation 27(1)(d) remains the same, indicating the same legislative
intention as existed.92 Hence, in the absence of the class of impossibility, the rule of ejusdem
generis cannot be applied to restrict the meaning of such circumstances as the Board merit
withdrawal.
[B]. The Rule Of Ejusdem Generis Must Be Used With Caution.
It is submitted that if the rule ejusdem generis is applied to the present case, it would defeat the
purpose of the legislation. [B.1] Also, applying the rule of ejusdem generis would make the
provision of Regulation 27(1)(d) is redundant. [B.2]
[B.1] Applying Ejusdem Generis Would Defeat The Purpose Of Legislation.
It is submitted that a general term in a provision is to be construed as per the nature of the
preceding specific terms unless there exists something to show that a broader meaning was
intended of the general term.93 The rule of ejusdem generis is not an inviolable rule and is
permissible only when there exists no contrary indication.94 Where the context and object of the
legislation does not imply a restricted approach to the general term, courts must construe such
term as per its plain meaning.95 A narrow construction based on the rule of ejudem generis must
be rejected to give effect to a broader construction in light of the parliamentary intention. 96 In this
situation, the courts must therefore adopt a purposive interpretation. 97 Here, it is important to
92 SHISHIR JOSE VAYTTADEN, SEBIS TAKEOVER REGULATIONS 331 (LexisNexis Butterworths
Wadhwa, 1st ed., 2010).
93 Aruna Roy v. Union of India, (2002) 7 SCC 368, 368.
94 Grasim Industries Ltd. v. Collector of Customs, Bombay, AIR 2002 SC 1706, 1706.
95 Lilawati Bai v. State of Bombay, AIR 1957 SC 521, 521.
96 In Re. C (a minor), (1996) 4 All ER 871, 871.
97 Association of Radio and Television Engineering Employees v. Union of India, (2012) ILR Delhi 180,
180.

look at the objects and purpose of the SEBI (SAST) Regulations, 1997. The SEBI (SAST)
Regulations 1997, along with its provisions and changes aim at maintaining transparency in the
process of acquisition of shares in order to protect interest of the investors and maintain equity
among various concerned parties.98
It is further submitted that the duty of SEBI extends to protecting the rights of investors to
regulate the securities market.99 Such protection to investors is given against various forms of
opportunistic behavior of the insiders of a listed company so as to maintain integrity of the
market.100 Here, if Regulation 27(1)(d) is construed only on the lines of impossibility, it would
act as a prejudice against rights of innocent investors who are victims of fraud committed by the
target company. This would clearly defeat the purpose of the Regulations that seek to secure a
balance between investor protection and rights of the shareholders of the target company. Hence,
the phrase such circumstances as the Board merit withdrawal cannot be given a narrow
interpretation using the rule of ejusdem generis. It should instead be understood to confer on
SEBI wide discretionary power to grant withdrawal of an open offer that becomes necessary to
protect the innocent investor.

[B.2] Applying The Rule Of Ejusdem Generis Would Make The Provision Of Regulation 27(1)
(d) Is Redundant.
It is submitted that the purpose of the doctrine of ejusdem generis is to bridge the gap between
specific words and general words such that no word in the legislation acts as superfluous. 101 So,
the rule of ejusdem generis cannot be applied if it makes the concerned provision redundant.102 It
is a primary rule of construction that no law can be interpreted in a way that renders a part of it
98 Justice P.N. Bhagwati Committee on Takeover, (January 18, 1997), available at
http://www.sebi.gov.in/com mreport/bagawati-report.html. (Preface, Para 6)
99 SEBI ACT, 1992, 11(1).
100 N. Narayanan v. Adjudicating Officer SEBI, AIR 2013 SC 3191, 3191.
101 NORMAN J. SINGER, SHAMBIE SINGER , SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION
189 (Clark Boardman Callaghan, 5th ed., 2010)

otiose or meaningless.103 Here, applying the rule of ejusdem generis with impossibility as the
common class or genus will make the provision for withdrawal of open offer under Regulation
27(1)(d) completely redundant. If the provision is construed to refer to cases solely pertaining to
impossibility, the presence of a separate provision for withdrawal of the offer becomes
meaningless. Hence, such circumstances as the Board merit withdrawal cannot be narrowed
down to the ground of impossibility only using the principle of ejusdem generis.

102 Amar Chandra Chakraborty v. The Collector of Excise, Govt. of Tripura, Agartala, AIR 1972 SC
1863, 1863.
103 Maharashtra University of Health Sciences v. Satchikitsa Prasarak Madal, AIR 2010 SC 1325, 1325.

PRAYER
In light of the above submissions, it is humbly submitted on behalf of the Appellant that the
Honble Supreme Court may find, adjudge and DECLARE that:
1. Regulation 23 of the SEBI (SAST) Regulations, 2011, that relates to withdrawal of open offer be
applied to the open offer made by the Appellant.
2. The Appellant has conducted proper due diligence and did not know or could not have known
about the fraud committed by the promoters of Artemis.
3. The Respondent has violated the principles of natural justice by passing an order rejecting the
Appellants application requesting withdrawal of open offer, without providing to the Appellant
an opportunity of hearing.
4. The words such circumstances in the opinion of the court merit withdrawal in Regulation 27 (1)
(d) of the SEBI (SAST) Regulations, 1997 cannot be read ejusdem generis with the other
provisions of Regulation 27(1).
The Honble Court may also be pleased to pass any other order which it deems fit in the
interest of justice, equity and good conscience.
For this act of kindness, the Appellant shall duty bound forever pray.

SD/(Counsels for the Appellant)