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COMPANY LAW CRE

Guptesh Sports Equipment Ltd. [Guptesh] is a well-known company in


the Union of Indish. In order to expand, its promoter Ms. Prawna Maths
decided to enter into business of textiles. Hence, on September 21, 2011,
she decided to solicit money from her forty nine relatives and friends by
sending them application forms to their respective addresses and e-mail ids.
Such task of sending solicitations forms was allotted to Mr. Shaggi.
On October 5, 2011, Mr. Shaggi, while posting those forty nine applications,
also uploaded the same on Gupteshs website. In light of the companys
popularity, Mr. Surva Dhareen, a sports enthusiast, shared the website page
that was soliciting money from public on Facebook. Subsequently, news
went viral and many people, apart from those forty nine acquaintances,
applied for the subscription by sending applications to the company.
Ms. Prawna, unaware of the prevailing law, was enlightened with such high
demand. In total, she had received Rs. 200 crores from the subscribers. On
December 6, 2011, Ms. Prawna, allotted optionally fully convertible
debentures [OFCDs] to all retail investors who had applied for
subscription.
Later, when the Securities and Exchange Board of Indish [SEBI] became
aware of such an action, it sent a notice to Ms. Prawna on why an action
shouldnt be taken against her. Aggrieved by the notice, Ms. Prawna filed a
writ petition before the Supreme Court of Indish questioning the
jurisdiction of SEBI in the present matter.
According to SEBI, since Guptesh is not a citizen under the Constitution of
Indish, writ petition was not maintainable. Further, SEBI also contended
that such issuance of shares is a blatant violation of the Companies Act,
1956 and Guptesh should have got its shares listed. However, in reply to
SEBIs arguments, it was urged by Guptesh that since all its shareholders
are citizens of Indish, it should also be considered as a citizen under Part

III of the Constitution of Indish. Further, it was argued that OFCDs are not
securities under the Securities Contracts (Regulation) Act, 1956. Lastly,
Guptesh contended that since it did not intend to offer shares to public and
application forms were mistakenly uploaded on the website, there was no
violation of the Companies Act, 1956.
In view of importance of the matter on questions of business law, the
Supreme Court has formed a five-judge bench. The said matter has been
listed for hearing on August 30, 2012.
NOTE:
1. Laws of Union of Indish are pari materia to laws of Union of India.
2. Students are encouraged to include more arguments not mentioned in
the CRE Problem for supporting their stance.