TEAM CODE- N-024

IN THE HONBLE
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
RESPONDENT

29th
BAR COUNCIL OF INDIA TRUST INTER UNIVERSITY,
MOOT COURT COMPETITION
2013-2014

SUBMITTED IN THE REGISTRY OF THE COURT

ON BEHALF OF THE RESPONDENT
-SECURITIES AND EXCHANGE BOARD OF INDIA

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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?.....................................................................................................................................5
PRAYER....................................................................................................................................6

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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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INDEX OF AUTHORITY

S.NO.

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.

COMPANIES ACT, 1956.

BOOKS REFERRED
1. Dr. J.N. Pandey, The Constitutional Law of India, Central Law Agency, 48th
Edition.
2. M.P. Jain, Indian Constitutional Law, 256, (LexisNexis Butterworths
Wadhwa, Nagpur, 2010).
3. A K Majumdar, G K Kapoor, Company Law, Taxmann Publications Pvt.
Ltd., 15th Edition
H. Nejat Seyhun, Investment Intelligence from Insider Trading, The MIT
Press; First Edition edition

DICTIONARIES & LAW LEXICONS:

i.

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

ii.

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

University Press 2nd ed. Oxford (1995)

iii.

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

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

WEBSITES REFERRED:
i.

www.findlaw.com

ii.

www.indiankanoon.com

iii.

www.indlawinfo.org

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iv.

www.jstor.org.

v.

www.judis.nic.in

vi.

www.lawsofindia.org

vii.

www.manupatra.com

viii.

www.scconline.com
www.supremecourtcaselaw.com

ix.

CASES REFERRED
1. Glaxosmithkline

and

Horlicks

Limited

v.

Heinz

India,

(MANU/DE/0011/2009).
2. Narpat Singh v. Jaipur Development Authority (2002) 4 SCC 666.
3. Bal Ram Prasad Rawat v. State of Uttar Pradesh, AIR 1981 SC 1575.
4. S.G. Chemicals & Dyes Trading Employees Union v. S.G. Chemicals & Dyes
Trading Ltd., (1986) 2 SCC 624.
5. M.V. Vali Pero v. Fernandeo Lopez, AIR 1989 SC 2206.
6. Mathai @ Joby v. George (2010) 4 SCC 358.
7. N. Suriyakala v. Mohandoss and Ors (2007) 9 SCC 196.
8. SEC v. Texas Gulf Sulphur Co 401 F.2d 833, 848 (2d Cir.1968), cert. denied,
394 U.S 976 (1969).
9. Dirks v. SEC, 463 U.S 646(1983).
10.

SEC v. Geon Industries 531 F.2d 39, 48 (2d Cir.1976).

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STATEMENT OF JURISDICTION
The Honble Supreme Court has the jurisdiction to try and entertain the present appeal under
Article 136 of the Indian Constitution. Article 136 of the Indian Constitution reads as
hereunder:
Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant
special leave to appeal from any judgment, decree, determination, sentence or order in any
cause or matter passed or made by any court or tribunal in the territory of India.

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STATEMENT OF FACTS
Fortune India Ltd., is a Company incorporated under the Indian Companies Act, 1956,
having its registered office at No.5, Avenue road, Bazaar Street, Mumbai was engaged in the
business of Cotton yarn, manufacturing and trading. It was a listed Company, and its equity
was listed in the Bombay Stock Exchange. The Company has been declaring dividend from
the last ten years. One of the independent directors, Mr. Sanjay 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 wifes cell to talk to one Mrs. Susma, a sharebroker asking for the price of
Fortune for the last about a month. There was no further discussion.
DRIVER ACQUAINTANCE
The driver of Agarwal brothers had acquaintance with the driver of Mrs. Susma. They in
between their discussion, in the drivers club about Fortunes idea of sale or buy were loud
enough to be heard by the driver of Mr. Bansal of Fortune. Mrs. Susma started acquiring
shares of those two companies and Bansal started buying Deltas shares after they got this
scoop from their respective drivers.

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ADVERTISEMNT FOR PUBLIC AUCTION
After about two months, Fortune went for giving an advertisement for public auction for
acquiring 60% shares of Delta. Mrs. Susma by the time held 30% shares and Bansal another
20%. Naturally, they made a fall through.

DECISSION OF SEBI TO AN ANONYMOUS COMPLAINT

SEBI, on an anonymous complaint issued notice to:1. Fortune, its directors.
2. Delta, its directors.
3. Mrs. Susma.
SEBI after enquiry found that charge of insider trading was established against 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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STATEMENT OF ISSUES
ISSUE NO.1-WHETHER THE PETITION IS MAINTAINABLE?
ISSUE NO.2-WHETHER THE TELEPHONIC CONVERSATION AMOUNTED TO
INSIDE INFORMATION?
ISSUE NO.3-WHETHER SURESH AGARWAL ACTED ON THE SAID INFORMATION
AND MADE PROFIT THEREOF?

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SUMMARY OF ARGUMENTS
ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?

The present petition filed under Article 136 of the Indian Constitution is non
maintainable on the ground of Forum Non Conveniens1, as an alternative and
efficacious remedy is already available under Section 15Z of The SEBI Act, 1992.
Supreme Court has imposed limitations on itself under Article 136 that it does not
usually entertain appeals against an order of the tribunal unless the appellant has
exhausted the alternative remedies provided by the relevant law. Article 136 does not
confer upon a litigant a right to appeal against any order or judgement but vest the
Supreme Court of India with a discretionary power to interfere with the orders of the
lower Courts only in cases of exceptional character where gross injustice has been
carried out. Furthermore, up to June 2013, 35439 SLPs which do not involve
important constitutional issues or issues of general importance are pending in the
Court. This shows that Supreme Court has merely become a Court of Appeal.

Doctrine of Lex Specialis states that where two laws govern the same factual situation,
a law governing a specific subject matter (lex specialis) over rides the laws which
governs general matters (lex generalis). Therefore, when special provision has been
provided under Section 15Z of the Act, then it would over ride the general provision
as provided under Article 136.

Even if the Hon'ble Court exercises its discretion under Article 136, both the
appellants, Mrs. Sushma and Mr. Sanjay Bansal would come within the ambit of the
term insiders defined under Regulation 2(e) and 2(h) of Securities and Exchange
Board of India (Prohibition of Insider Trading) Regulations, 1992 and have used
unpublished price sensitive information to make illegitimate profits.

ISSUE NO.2 - WHETHER

THE

TELEPHONIC CONVERSATION AMOUNTED

TO

INSIDE

INFORMATION?
The material information in the instant case about Fortune's intention to merge or acquire and
the Delta's intention to acquire was already known to the insiders of both the companies i.e.
Mr. Sanjay Bansal and Aggarwal brothers including Mrs.Sushma, the share broker, which
means there was a breach of fiduciary duty to keep the information confidential. This fact is
1

Glaxosmithkline and Horlicks Limited v. Heinz India (MANU/DE/0011/2009).

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corroborated by the fact that while driving car back home the Aggarwal brothers were
discussing about the pros and cons of Fortune's idea of sale or buy exclusively and not any
other company as overheard by their driver, which he was sharing with the driver of Mrs.
Sushma which was subsequently over heard by the driver of Mr.Bansal of Fortune. The
telephonic call made to Mrs. Sushma by Mr. Suresh intentionally by her wife's cell phone
amounted to inside information as Sushma's subsequent conduct of purchasing the shares of
Delta and that too in such a large quantity (30%) unambiguously exhibit that there was a
exchange of price related sensitive information between the two. As per the doctrine of Res
Gestae, the subsequent conduct of Mrs Sushma of purchasing shares clearly point towards the
guilt of the accused.
ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED

ON

THE SAID INFORMATION AND

MADE PROFIT THEREOF?

Suresh Agarwal acted on the insider information and accrued illegal profits thereof. It can be
ascertained from the facts that Agarwal brothers acted suspiciously by using his wife's cell
phone to call Share brokers, exclusively discussing about the acquisition of Fortunes shares
subsequent to their meeting about acquiring shares of a similar company, and in the end
Delta's take over by the Fortune. Mr. Suresh Agarwal's conversation with Sushma also
resulted in her acquiring huge quantities of Delta's Shares.

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DETAILED PLEADINGS
ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?
It is most humbly submitted that, the present petition filed under Article 136 of the Indian
Constitution is non maintainable on the ground of Forum Non Conveniens2, as an alternative
and efficacious remedy is already available under Section 15Z of The SEBI Act, 1992, which
reads "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 on him on any question of law
arising out of such order....".
That, under the facts and circumstances of the instant case, the appellants namely Sushma and
Sanjay Bansal, aggrieved by the order of the Securities Appellate Tribunal, filed an SLP to
the Apex Court under Article 136 of the Constitution. Supreme Court has imposed limitations
on itself that it does not usually entertain appeals against an order of the tribunal unless the
appellant has exhausted the alternative remedies provided by the relevant law. The court has
imposed this restriction in view of the heavy rush of the cases. In the year 2011, about 85%
(eighty-five percent) of the cases were the SLPs3. Article 136 does not confer upon a litigant
a right to appeal against any order or judgement4 but vest the Supreme Court of India with a
discretionary power to interfere with the orders of the lower Courts only in cases of
exceptional character where gross injustice has been carried out. This means that the
Supreme Court can relax if special circumstances are present 5. Furthermore SLP also acts
against the mandate of S.15Z and the legislative intent to expeditiously file an appeal in the
Apex Court within the prescribed period of 60 days 6 as rights of public at large are involved.
If SLPS are allowed under such circumstances the law of the land will be misused as no
limits are prescribed under the Constitution of India for filing an SLP and it would further
lead to conflict of laws as one being the law of the land while other the derivative of same.
That, the above proposition stands corroborated by the common law doctrine of Lex
Specialis, relating to interpretation of laws, which can be applied both in domestic and

Glaxosmithkline and Horlicks Limited v. Heinz India (MANU/DE/0011/2009).

Aju John, The SLP Court Of India, available at: www.mylaw.net/Article/the_slp_court_of_india/#.Uh9A6RtT
(Visited on August 25, 2013).
4
Narpat Singh v. Jaipur Development Authority (2002) 4 SCC 666.
5
Bal Ram Prasad Rawat v. State of Uttar Pradesh, AIR 1981 SC 1575 ; S.G. Chemicals & Dyes Trading
Employees Union v. S.G. Chemicals & Dyes Trading Ltd., (1986) 2 SCC 624, M.V. Vali Pero v. Fernandeo
Lopez, AIR 1989 SC 2206 as cited in M.P. Jain, Indian Constitutional Law, (LexisNexis, Nagpur, 6th Edn.,
2010) pg.264.
6
S.15Z of the SEBI Act, 1992.
3

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international law contexts. The doctrine states that where two laws govern the same factual
situation, a law governing a specific subject matter (lex specialis) over rides the laws which
governs general matters (lex generalis)7.
That, The Supreme Court in Mathai @ Joby v. George8 has lamented the abuse of Article
136 of the Constitution whereby unscrupulous litigants approach the Supreme Court at the
drop of a hat, thereby clogging up the justice delivery system. The Supreme Court has held
that there is urgent need to address the issue and has accordingly placed the matter before a
larger bench for framing guidelines for entertaining Special Leave Petition under Article 136
of the Constitution. Furtheremore, in N. Suriyakala v. Mohandoss and Ors.9, the Court
observed, "In this connection we merely clarify the scope of Article 136. Article 136 of the
Constitution is not a regular forum of appeal at all. It is a residual provision which enables
the Supreme Court to interfere with the judgement or order of any Court or tribunal in India
in its discretion".
That, Mr. K.K. Venugopal, Senior Advocate Supreme Court of India, has pointed in his R.K.
Jain Memorial Lecture delivered on 30.01.2010 has pointed out that in 2009 almost 70,000
cases were filed in the Supreme Court of which an overwhelming number were SLPs under
Article 13610. Furthermore, Upto June 2013, 35439 SLPs which do not involve important
constitutional issues or issues of general importance are pending in the Court11.
Furthermore, Arguendo, even if the Hon'ble Court exercises its discretion under Article 136,
both the appellants, Mrs. Sushma and Mr. Sanjay Bansal would come within the ambit of the
term insiders defined under Regulation 2(e) and 2(h) of Securities and Exchange Board of
India (Prohibition of Insider Trading) Regulations, 1992 and have used unpublished price
sensitive information to make illegitimate profits (discussed subsequently).
Therefore, in light of the above arguments it is vehemently prayed that the present petition
should not be allowed under Article 136 of the Indian Constitution and should be moved
before the appropriate Bench through appropriate channel of law i.e. S.15Z of the SEBI Act.
When an exclusive provision to file an appeal exists under the law governing such
transactions, the exclusive provision is ought to be followed.

Available at, www.trans-lex.org/9100. (Visited on August 26, 2013).

(2010) 4 SCC 358.
9
(2007) 9 SCC 196.
10
Available at, www.legalblog.in/2011/09/abuse-of-article-136-of-constitution.html. By Justice Markandey
Katju (Visited on August 26, 2013).
11
Editorial, "Restoring the Supreme Court's Exclusivity" The Hindu, Aug 31, 2013.
8

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ISSUE NO.2 - WHETHER

THE

TELEPHONIC CONVERSATION AMOUNTED

TO

INSIDE

INFORMATION?
It is most humbly submitted, that insider trading on the basis of private information is highly
profitable in the context of corporate take over's12. Important corporate decisions like mergers
or takeovers or rights issue often affect the price of the stock materially. In order to answer
the above question affirmatively it is pertinent to note the landmark case of SEC v. Texas
Gulf Sulphur Co.13 in which it was discussed that it is important to determine when the
information in question became material as it is to determine whether the information was
material.
That, the material information in the instant case about Fortune's intention to merge or
acquire and the Delta's intention to acquire was already known to the insiders of both the
companies i.e. Mr. Sanjay Bansal and Aggarwal brothers including Mrs.Sushma, the share
broker, which means there was a breach of fiduciary duty to keep the information
confidential. This fact is corroborated by the fact that while driving car back home the
Aggarwal brothers were discussing about the pros and cons of Fortune's idea of sale or buy
exclusively and not any other company as overheard by their driver, which he was sharing
with the driver of Mrs. Sushma which was subsequently over heard by the driver of
Mr.Bansal of Fortune.
That, the telephonic call made to Mrs. Sushma by Mr. Suresh intentionally by her wife's cell
phone amounted to inside information as Sushma's subsequent conduct of purchasing the
shares of Delta and that too in such a large quantity (30%) unambiguously exhibit that there
was a exchange of price related sensitive information14 between the two. Whereas Mr. Sanjay
Bansal also obtained 20% of the Delta's shares, as he would had made no loss being an
independent director of Fortune due the absence of any monitory liability. Furthermore once
the information is proved to be a disclosure of a material information, it is not important
whether the purchasing of shares was predictions or not15. The same view can be taken with
respect to information that remained unverified when it was received16. Furthermore

12

Laura Nyantung Beny, The Political Economy of Insider Trading Legislation and Enforcement: International
Evidence, p.6. cited at Santhi Dasari, Inside or price sensitive information in insider trading of securities - An
analysis of English, U.S. and Indian Laws.
13
401 F.2d 833, 848 (2d Cir.1968), cert. denied, 394 U.S 976 (1969).
14
S.2(h) of SEBI (Insider Trading Regulations) 1992.
15
Supra 10.
16
Dirks v. SEC, 463 U.S 646(1983).
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Mrs.Sushma was merely a Share broker and not a Stock Analyst, whose interest and duty is
merely restricted to buying and selling stocks and not analyzing the price of Fortune.
That, another test known as 'probability magnitude' test was also articulated for the first time
in Texas Gulf Sulphur case17. In case of mergers, one company will approach another to
discuss the possibility of an acquisition. Therefore the insiders of both the company would be
prohibited from trading. Therefore if any of insiders have brought the shares of the other
company in the same proximity of events, it clearly signifies that price related insider
information was already exchanged. The possibility of Aggawarl brothers selling their own
shares and company's assets cannot be ruled out to Bansal and Sushma to accrue undue
profits cannot be ruled out.
Furthermore, a call to a professional analyst i.e. Sushma, who analyses the information
available in the market and advises the clients, the proof of trading based on non public
information would be difficult to establish. The reason behind this is due to the fact that such
analysts receive their information from various sources. However, in various cases just like
the instant case the nature of transaction and close proximity between events exhibit insiders
trading. In SEC v. Geon Industries18, the court depended on the fact that the defendant had
shown no prior interest in trading in the securities of the company until he gets the
information from a company insider, similar to that of the instant case, neither of the two
Appellants ever showed any interest or held any share previous to these material
conversations.
That, in respect of the above preposition it is pertinent to highlight the doctrine of Res Gastae
envisaged under S.6 of the Indian Evidence Act. Section 6 reads " Relevancy of facts forming
part of same transaction.- Facts which, though not in issue, are so connected with a fact in
issue as to form part of the same transaction, are relevant, whether they occurred at the same
time and place or at different time and places.
According to this doctrine a transaction may be described as any physical act, or a series of
connected acts, together with the words accompanying such act or acts. Every fact which is
part of the same transaction as the fact in issue is deemed to be relevant to the fact in issue.
Proximity of place, proximity of time, proximity of events and proximity of space forms the
same transaction. Under the facts and circumstances of the instant case, the proximity of
events i.e. (i) the drivers over hearing Aggarwal brothers exclusively talk about fortune, (ii)
Aggarwal brothers calling Mrs. Sushma, (iii) Mrs. Sushma and Mr.Sanjay Bansal
17
18

Supra 11.
531 F.2d 39, 48 (2d Cir.1976).
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immediately acquiring Delta's Share and (iv) subsequent acquisition of Delta by Fortune very
unambiguously exhibit the guilt of the Appellants as the proximate nexus of events, place and
timings are very closely linked.
ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED

ON

THE SAID INFORMATION AND

MADE PROFIT THEREOF?

It is most humbly submitted that, Suresh Agarwal acted on the insider information and
accrued illegal profits thereof. From the facts already discussed previously, it can be
ascertained that, Agarwal brothers acted suspiciously by using his wife's cell phone to call
Share brokers, exclusively discussing about the acquisition of Fortunes shares subsequent to
their meeting about acquiring shares of a similar company, and in the end Delta's take over by
the Fortune. Mr. Suresh Agarwal's conversation with Sushma also resulted in her acquiring
huge quantities of Delta's Shares. All the ingredients of insiders trading are positively
established in the previous issue.
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 in possession of unpublished pricesensitive information. Therefore if any unpublished price sensitive information is leaked, the
penetrator of such information can be held liable. The Insider Trading Regulations do not
contain the requirement of motive for the conviction of insider trading. Further, the
Regulations also do not contain the requirement of knowledge and intention for the
conviction in insider trading. Regulation 4 of the Insider Trading Regulations states that any
insider who deals in securities in contravention of the provisions of Regulations 3 or 3A of
the Insider Trading Regulations shall be guilty of insider trading. Thus, once it is proved that
he is an insider and has committed any of the acts prohibited by regulations 3 and 3A, it does
not matter whether he had done it deliberately, intentionally or knowingly. Thus in India,
insider trading can be called a crime of strict liability19.
Therefore, it is most humbly prayed that Mr. Suresh did act on insider's information and
accrued undue profits by breaching his fiduciary duty towards his company.

19

Rishi Thakur & Pranti, "Insider Trading as strict liability crime", Vol 84 CLA, Section 4, May(1) 2008, p.16.
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PRAYER
Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is
most humbly prayed that this Honorable Court may be pleased to:

TO HOLD

That the present petition under Article 136 of the Indian Constitution is not
maintainable.

That the telephonic conversation amounted to inside information.

That Mr. Suresh Agarwal did not act on the said information and has not made any
profits thereof.

TO UPHOLD

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

MISCELLANEOUS

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

ALL OF WHICH IS RESPECTFULLY SUBMITTED

COUNSELS FOR RESPONDENT

Sd.

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