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128A

2ND GNLU MOOT ON SECURITY & INVESTMENT LAW

BEFORE THE HON’BLE SUPREME COURT

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO._____ OF 2016

UNDER SECTION 15Z OF SEBI ACT, 1992

IN THE MATTER OF

DREAMSELLERS LTD. APPELLANT

VS

SECURITIES AND EXCHANGE BOARD OF INDIA RESPONDENT

i
MEMORIAL FOR APPELLANT

TABLE OF CONTENTS

LIST OF ABBREVIATION .......................................................................................................... iv

INDEX OF AUTHORITIES.......................................................................................................... vi

STATEMENT OF FACTS ............................................................................................................ ix

ISSUES RAISED ........................................................................................................................... xi

SUMMARY OF THE ARGUMENTS ADVANCED .................................................................. xii

ARGUMENTS ADVANCED ........................................................................................................ 1

I. Whether regulation 27 (1)(d) of 1997 takeover regulation 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. .................................................................................. 1

A. Interpretation Of Regulation 27 (1). ................................................................................... 1

B. Inexplicable delay ............................................................................................................... 7

II. Whether the provisions of regulation 23 of the new takeover regulation relating to
withdrawal of open could be applied to an open offer made under the regulation 1997 takeover
regulation. .................................................................................................................................... 9

A. Grounds for applicability of new takeover regulation ........................................................ 9

B. Withdrawal grounds of open offer .................................................................................... 11

III. Whether SEBI has violated the principles of natural justice in the present case while
passing its order rejecting the application to withdraw open offer without hearing dream
sellers......................................................................................................................................... 12

A. Dreamsellers has not been given the chance to present its case. ...................................... 12

B. Dreamsellers right as an investor has been violated. ........................................................ 15

IV. 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‖. ................................................................ 17

ii
MEMORIAL FOR APPELLANT

A. Dreamsellers had analyzed the financial statement of the company in public domain. 17

B. Dreamsellers appointed a merchant banker authorized by SEBI as investment adviser. . 19

PRAYER ....................................................................................................................................... 21

iii
MEMORIAL FOR APPELLANT

Others PA Public Announcement Para Paragraph iv MEMORIAL FOR APPELLANT .I. LIST OF ABBREVIATION % Percentage & And A. Company Cr. February Guj. Edition ER English reporter Feb. Kerala Ltd. All India Report BSE Bombay Stock Exchange CJ Chief Justice Co. Department DTC Delhi Transport Corporation ECIL Electronics Corporation of India Limited Ed. Gujarat H. Limited Ors. Crore Dept. Himachal Pradesh Ker.P.R.

B. Section SLP Special Leave Petition U. Versus W. Pg.I. Rupees SAT Security Appellate Tribunal SC Supreme Court SCC Supreme Court Cases SEBI Security Exchange Board Of India Sec. Union Of India US United States v. West Bengal v MEMORIAL FOR APPELLANT .O. Page Rs.

.. 14 20................I................... Canara Bank & Ors................ Managing Director... 6 19....... Vinay Heavy Equipment.. Managing director ECIL v.... 20 17.. Satchikitsa Prasarak Mandal & Others MANU/SC/0136/2010 ........O.... 11 13..................... B..................... 16 21........... K.. Hyderabad & Ors. 13 4..... state of west Bengal........ Rajinder Singh Anand... 19 vi MEMORIAL FOR APPELLANT ...... v............................................... ....... Karunakae...... 14 3....... M/s................. 17 5.. U............. AIR 1991 SC 101 .... Debasis Das & Ors.................. ECIL......... v........ State of Madras and Kerala... 16 11.... Haryana Urban Development Authority v........................... .... [2008] SC 2461....... .... 16 6. 4 12.............................................. AIR 1960 SC 1080 ...................................................... 19 15..................... [2012] SAT 84 . v........ Keynote Corporate Services Ltd........ (1993) 3 SCC 259 .................K. 1990 1 SCC 484........................................... Erusian Equipment and chemical ltd v............ ......... 3 18.............. Maneka Gandhi v.................. Kochuni v.......... 4 16.................. Dayawati v.................. v.. Inderjit................. Chander Kanta Bansal v..... Chiranjit Lal Chowdhuri v...................................................... (1993) 4 SCC 727 ............................................... Amar Chandra v... 18 14............. 573.... (1975) 1 SCC 70: AIR 1975 SC 266 ............ v...... Union of India (1978)1 SCC 248: AIR 1978 SC 597............... D....... industries ltd.A...... AIR 1972 SC 1863.............. Yadav v.M...................... Midland Bank Ltd....... Saurabh Aggarwal: (2005)9SCC549 ................ Hatti Gold Mines Company Ltd.......... 12 7............ INDEX OF AUTHORITIES Cases 1.......................... Industrial Chain Concern.......................[2008] SC 1893 ..... Hamdard dawakahana v....... The Union of India AIR 1951 SC 41 ...... v............. Eurasian equipment & chemicals ltd....... DTC Mazdoor congress.......... Maharashtra University of Health and others v.. AIR 1966 SC 1423........ AIR 1965 SC 1167 .................... Designated Authority & Ors......... Ltd........ 3 2. 6 10........ Indian Overseas Bank v........................ AIR 1975 SC 226 ... AIR 1994 SC 1074................. (2011) 2 SCC 258 .... Collector of Excise... 13 9. state of WB................. The Securities and Exchange Board of India SEBI Bhawan.... Delhi Transport Corporation v.. .... (2003) 4 SCC 557 ....................K.. J...................... Marfani and Co... 10 8............... 1968 (2) All E.. ...... Karunakar & Ors..R............. Automotive Tyre Manufacturers Association v...

............S.......... LNIND 2014 HP 9800 ............ Associated provincial pictures houses ltd......................... (2003)7 SCC 492 ...... state of Kerala.. Gough (1993) AC 646....... Municipal Corporation of Delhi....................O..... Savitri Devi and Ors.. Jesus Sales Corporation.. Bharat Petroleum Corporation Ltd........ Nani gopal mitra v... Smt...... (1996) 4 SCC 69 ...... [1994] SC 5674 at ..................... Prasada v.......... exp Mccarthy (1924) 1 KB 256. v... [1999] SC 3137 ..........................L Aggarwal [1996] 84 Taxman 45 (Guj........... 16 29.... AIR 1985 Ker 69 .... Sussex Justices............. WB electricity regulatory common board v..................... 1996 AIR 1509 .I..... R v...... 14 30............. (1976) 1 SCC 719................. 14 24............... 10 33................................ R...... Shri builders v......... 11 6... Guy T.. Union of India & Anr.. 4 34.................K....................B........ AIR 1970 SC 1636 . (2002) 8 SCC 715 ..........).. CESC ltd................................................. [ 1948] 1 KAB 223 . MANU/SC/0350/2009........................ Stockholms Enskilda Bank........................ 293 US 84........ Ram Chandra Singh v........... 19 32............ v...259 .... Shamlal murari.. Union of India.. 9 27.... Tribhuwan prakashnayyaar v. 22. 5 4.................. wednesbury corporation.. AIR 1978 SC 1272 ......... 11 31. State of Punjab v......... Quitlynn Ltd (1986) 85 LGR 249 ..................... v.. Shyam Kishore v.............E Vasudevan v..................................... 14 vii MEMORIAL FOR APPELLANT . Helvering v................ N.. R v.. (2011) 6 SCC 739 ........... 19 3................................. and Ors.... 13 Foreign Cases 1............. Suraj Kumar Walia v. Municipal Corporation of Greater Bombay v................... 8 23........ (2003)8 SCC ...... 9 26.. 55 S Ct 50....................... Federal Investment Advisers Act in Lowe v.............. Punam Walia & ors.......... 6 28....... SEC..................... V. 185 (1985).. .................................................... 181....... state of Bihar...... 13 5........) and Ors............ 15 35...... ........ 52 (1934)....... ex p................................. ................ Peterborough City Council................. 6 36............................. Goutam Dudhoria and Ors........... v....... ........... 660 ......... 10 25.......... R v....... 6 2...... 472 U.. Asha Devi Gupta (Smt..................... 88-89.............. Thirumalai Chemicals Limited v. 79 L Ed 211....... Sohan Lal Gupta (Dead) through LRs............. Government of India and Ors..... Rani Aloka Dudhoria and Ors......................................... U.....

........... The constitution of India... 163 (3rd ed............................... 12 2....... Jaconelli Joseph................. Limitation Act................... 2004........... 30 (3rd ed. 18 2................................ Cane P.......................Statutes 1... 497 (6th ed... .................................................f.......................................................... 10 3.................................. pg.......................... Wade H................ ‗The Origins and Logical Implications of the Ejusdem Generis Rule‘ 7 Conv (NS) 119 .... Administrative law...... 1950 ................. w................................ An introduction to Administrative Law.......... 12 3... Maxwell...................... oxford: New Delhi).... 16 Other Authorities 1.. pg........................... 1 2... 1992 ......... ....................... 15 3......... Williams Glanville........... 1997 ........................................... W...................e.................. SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations.......................................... pg......................... interpretation of statue (1972) at pg....................... 3-9-2004................. ............. 10 4............... 12 5.............. 11 viii MEMORIAL FOR APPELLANT .................... 1963 ............ SEBI Act........................... R.................. 2011... 1988).... SEBI (acquisition of share and takeovers) regulations......1996 .... 3 Regulations 1............................ SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS........ Open Justice-a critique of the public trial.......

It was commercially good for them if they could get control of company as promoters were in financial stressed & even after promising they were unable to repay until September 30. board of directors directed special investigative audit into the financial affairs of the company for which independent auditor was appointed. The independent non-executive directors having hardly day-to-day insight into the company‘s operations forced the conduct of an internal assurance audit of Artemis‘ operations & financial statements. ix MEMORIAL FOR APPELLANT . a BSE listed company. 2. failing which Dreamsellers would invoke the pledge. On October 30. Borrowing of money: On January 30. STATEMENT OF FACTS 1.100 Cr. It was found that Rs. Even after invocation of pledge Dreamsellers was unsure about recovery of debt unless they have say in running of company. Audit in financial affairs: Lenders pressurized the Board of Directors to review the operations of Artemis & reminded their fiduciary duties. 300 Cr. Dreamsellers issued a letter for calling them to repay debt within 30 days. PA of open offer: In order to get control of Artemis. Invoking of pledge: Upon default by promoters of Artemis the pledge was invoked by Dreamsellers on July 22. Upon pressure from independent directors. Dreamsellers on the ground that new facts came in to existence wrote through its merchant banker to SEBI for withdrawal or re-pricing of voluntary open offer as after disclosure of facts the share prices had reduced a lot as compared to earlier prices.. from Dreamsellers Ltd & pledged the equity shares of Artemis Limited as security. borrowed a sum of Rs. 5. which made them entitled to 12. 4. Dreamsellers decided to make a voluntary open offer under regulation 10 of takeover regulation. 1997 to acquire 37.6% of equity shares in Artemis & public announcement for it was made in Financial Express. 2009. 2010. 2011 the investigative report was brought into the public domain by the board of directors of Artemis which resulted in sharp decline of share price & one of the lenders instituted a case in Delhi High Court. Application for withdrawal and re-pricing: On October 25. 2011. Upon which irregularities in financial statement between 2005 to 2008 was found. On June 10. 2010. 2010. 3. 2010.5 per cent equity shares in Artemis. Draft letter of offer was sent to SEBI on which several questions were asked and it was under dialogue between SEBI and merchant banker. the Promoters of Artemis Ltd. had been siphoned off & embezzled by the Promoters of Artemis Ltd. on October 1.

It being a voluntary open offer. New Takeover Regulations. Dreamsellers should have done due diligence as before making open offer & there is no any violation of natural justice principle as there was a dialogue between SEBI & merchant banker addressed all issues. Appeal before SAT: Aggrieved by the SEBI Order. 2011. 9. 7. any old case law governing the old regulations couldn‘t be validly applied. Fraud vitiates all solemn acts & discovery of fraud entitles them to withdraw the open offer. Meanwhile. 1997. SEBI also responded that regulation 23 of new takeover code would not be applied since voluntary open offer was made under 1997 Takeover Regulations. SEBI took no account of new facts related to embezzlement & said that acquirer should have done due diligence and offer once made can only be withdrawn only in case similar to the death of the acquirer or statutory approvals not being provided. 2011 had been notified on September 23. The interplay of regulations governing insider trading & takeovers. x MEMORIAL FOR APPELLANT . SEBI did not conduct any hearing for taking such a vital decision which leads to violation of natural justice. 8. SEBI had not even considered the proposal to re-price the open offer on the grounds of new facts & fraud. 2011 after a long SEBI responded in negative manner cancelling the request for withdrawal & no response on re-pricing. 1992 on the grounds that Dreamsellers had no way of knowing about the state of affairs of Artemis‘ finances & operations.6. 2011 won‘t be applicable as open offer was made under old takeover regulation. Order by SAT: SAT after hearing passed an order dismissing the appeal & held new takeover regulation. 2011 & the same came into force with effect from October 22. Dreamsellers filed an appeal before SAT under Section 15T of the SEBI Act. it being a public listed company & only published information was basis of all its decisions. Appeal to SC: Aggrieved by order of SAT Dreamsellers approached the Supreme Court. The observations issued by SEBI were under the provisions of the New Takeover Regulations & therefore with the repeal of the 1997 Takeover Regulations. Further it held that Regulation 27 (1) (d) of the 1997 Takeover Regulations is to be given an ejusdem generis interpretation & Regulation 27(1) to be limited to only circumstances where it is impossible to make a public offer. Observations of SEBI: On November 1. no one would unfairly lose anything or gain anything if the open offer were permitted to be withdrawn.

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. as circumstances where it is impossible to perform the open offer 2. 4. 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 3. 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. 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.e. ISSUES RAISED 1. if Dreamsellers had exercised proper “due diligence” xi MEMORIAL FOR APPELLANT .

Meanwhile new takeover regulation. 2011 and that too after a withdrawal request was filled by the appellants for withdrawal of open offer. merits withdrawal. Appellants seek exemption under Regulation 3(1)(f) because Dreamsellers has made PA with motive to get back its loan money 2.e. SUMMARY OF THE ARGUMENTS ADVANCED 1. 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. but such an offer. Ejusdem generis interpretation of Regulation 27(1) (d) would permit withdrawal only on the same footing as the circumstances enumerated under Regulation 27(1)(b) and (c) leaving no discretion with SEBI to approve withdrawal. 2011. Therefore the withdrawal application should be allowed under regulation 23 of new takeover regulation. Withdrawal request was after 13 months delay by SEBI to make observation and during this time prices have fell down due large amount of embezzlement committed by promoters of Artemis. in its opinion. Further it is submitted that procedural law is generally retrospective in xii MEMORIAL FOR APPELLANT . This would impose huge financial liability on the appellants. as circumstances where it is impossible to perform the open offer . Regulation 27(1) (d) should be construed to confer wide powers on SEBI to allow withdrawal of an open offer in cases where it is not necessarily impossible to complete open offer. 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 The appellants humbly submits that appellant have made the public announcement on 1st October 2010 under the 1997 takeover regulation but the SEBI had not made any observation until 1st November. Appellants made voluntary open offer and PA was made on 1st October 2010 & published in newspaper On October 30th of 2011 the appellant wrote through its merchant banker to SEBI seeking withdrawal of the open offer due to some new facts regarding embezzlement by the promoters of Artemis came to their knowledge. 2011 was enacted on 22 October 2011 and withdrawal application was filled after enactment of new regulation. Whether Regulation 27 (1) (d) of the 1997 Takeover Regulations is to be given an interpretation whereby.

it is submitted that the appellant has taken due diligence in its part. xiii MEMORIAL FOR APPELLANT . But the SEBI in its statement wanted to protect those individuals who are prospective buyers or who don‘t exist for the company on that very day. In the present case the SEBI. 4. So. if Dreamsellers had exercised proper “due diligence”. So. it is totally vague that SEBI expects an investor company to take extraordinary care because the type of care they are talking about is far ahead than a due diligence. nature and takeover is procedural in nature therefore it should be made retrospective in nature and withdrawal should be allowed under regulation 23 of new takeover regulation. 2011. All the steps to be taken by a prudent person has been taken by the dreamsellers. has violated the basic element of justice – fair trial. the company has verified the financial data provided in the public domain by the Artemis ltd. being a quasi. 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 The Appellants humbly submit that Natural justice has been violated. The dreamsellers had also employed the merchant banker registered under SEBI to take due diligence. The SEBI without citing any reason has refused the dreamsellers to re-price the shares. Such act of SEBI eclipses the buyers‘ rights to buy on an agreeable price. This principle of fair trail involves the right to be heard. it becomes essential for the SEBI to protect the investor against the loss in the share market due to such malpractices. 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. 3. The voluntary open offer made by the company was totally under deception and fraud due to misleading data provided by the Artemis ltd.judicial body. It is also to be taken into account that an institution like SEBI with all its expertise cannot point out the discrepancies in the working of Artemis. But in this case the SEBI has arbitrarily rejected the interest of the dreamsellers and they were deprived of the right to present their case in front of the hon‘ble court. In this case. Even if the problem aroused it means it is the deficiency in services by the merchant bankers of SEBI. Hence. The Appellants humbly submit that due diligence had been taken care of on part of Dreamsellers.

SAT rejected the appeal of Dreamsellers stating that the regulation 27(1) (d)2 of 1997 takeover code is to given strict interpretation and the words ―such circumstances as in the opinion of the board merit withdrawal” are to be read ejusdem generis with the other provisions of the regulation 27(1)3 to be limited to only circumstances where it is impossible to make a public offer.6 % equity share of Artemis. the words “such circumstances as in the opinion of the board merit withdrawal” are to be read ejusdem generis with the other. 1997. SEBI issued an observation on the draft letter submitted by Dreamsellers that request for withdrawal of open offer was not being considered favorable. Public announcement (PA) was made on 1st October 2010 published in newspaper to acquire of 37. Interpretation Of Regulation 27 (1). by the promoters of the target company resulting in sharp decline in the prices of share. 2 Ibid. merits withdrawal. ARGUMENTS ADVANCED I. Whether regulation 27 (1)(d) of 1997 takeover regulation is to be given an interpretation whereby. 1997 Regulation 101 states that there should be a public announcement to acquire shares of Target Company. Regulation 27(1)(d) should be construed to confer wide powers on SEBI to allow withdrawal of an open offer in cases where although it is not impossible to complete open offer. The appellant then went to SAT in appeal to the decision of SEBI. 300 Cr. The draft letter of offer was send to SEBI. in its opinion. A. emblazonment of Rs. but such an offer. 3 Ibid. ii) Delay in forwarding voluntary open offer letter to the shareholders. appearing in Regulation 27(1) (d) of the Takeover Regulations must mean – 1 SEBI (acquisition of share and takeovers) regulations. On October 30th of 2011 the appellant wrote through its merchant banker to SEBI seeking withdrawal of the open offer on following main grounds- i) Discovery of new facts i.e. It is most humbly submitted that Dreamsellers decided to voluntarily make an open offer under Regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers). 1 MEMORIAL FOR APPELLANT . It is submitted that the words ―such circumstances as in the opinion of the Board merit withdrawal‖. On 1st November 2011.

b) The opinion must be one that is formed by Respondent based upon. c) Circumstances which go into the formation of the opinion. can be compelled to (ignore such circumstances and) proceed with the public offer. The public dissemination of the contents of the audit report resulted in sharp declaim in the prices of shares of Artemis. The appellant after the revocation of the pledge was unsure of whether the shares would pay off the debt unless they got a say in the running of Artemis. If the open offer is not withdrawn then it will be injustice to the appellant who is the creditor and the investor too.300 Cr. The discretion conferred on respondent under Regulation 27(1) (d). That the scheme of the Takeover Code is – (a) to ensure that the target company is aware of the substantial acquisition .a) The formation of an opinion by Respondent – which though subjective in nature – must be based on the existence of objective facts. The respondent failed to do so as in this case the appellant were the creditor and the target company failed to repay the debt so the pledge of 12. It 2 MEMORIAL FOR APPELLANT .6% equity share. (b) to ensure that in the process of the substantial acquisition or takeover. Now the appellant want to withdraw the open offer as the market price quoted in the public announcement is much higher than the actual market price of the share after discloser of embalmment. The appellant in order to reimburse the debt decided to voluntarily make an open offer for acquiring more of 37. In other words. must be circumstances that are relevant to the question of withdrawal of the public offer. that is. they are offered a choice to either offload their shares at a price as determined in accordance with the takeover code or to continue as shareholders under the new dispensation. the security market is not distorted or manipulated and (c) to ensure that the small investors are given an option to exit. circumstances which merit withdrawal of the public offer. the takeover code is meant to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers and that the process does not take place in a clandestine manner without protecting the interest of the shareholders. entailed the duty of respondent to form its opinion based on relevant facts and the circumstances prevailing at the time when the application for withdrawal of open offer was made. Meanwhile the directors of Artemis conducted an internal audit in which fraudulent transaction were observed which was around Rs. who comes into possession or knowledge thereof.5% equity share was revoked. d) The circumstances must be such that no reasonable person.

The sub-clauses of Regulation 27 do not form a common genus of cases where it is impossible to do an open offer.is keeping in view the aforesaid aims and objects of the takeover code that we shall have to interpret Regulations 27(1). the meaning of the general words are taken to be restricted by implication with the meaning of restricted words. Satchikitsa Prasarak Mandal & Others (Decided on 25. Collector of Excise7 has laid down the following five essential elements of this Ejusdem Generis: (1) The statute contains an enumeration of specific words. i. The SC has examined and explained the meaning of 'Ejusdem Generis' as a rule of interpretation of statutes in our legal system. This is a principle which arises ‗from the linguistic implication by which words having literally a wide meaning (when taken in isolation) are treated as reduced in scope by the verbal context. It is submitted that the 4 Supra note 1at 1. 6 Williams Glanville. ‗The Origins and Logical Implications of the Ejusdem Generis Rule‘ 7 Conv (NS) 119. This principle is presumed to apply unless there is some contrary indication. 3 MEMORIAL FOR APPELLANT . 7 Amar Chandra v.02. AIR 1972 SC 1863. It is submitted that in the present case none of the said requirements given by this court in case of Amar Chandra (supra) are met. and in totality from a singular genus along with the general words. and (5) There is no indication of a different legislative intent.2010) MANU/SC/0136/2010. The rule of ejusdem generis is restricted to cases where the specific words precede the general words in the language of the statute.‖6 Further the Supreme Court in the case of Amar Chandra v. (3) That class or category is not exhausted by the enumeration (4) The general terms follow the enumeration. Collector of Excise. Ejusdem Generis SAT passed an order dismissing the appeal filed by Dreamsellers for withdrawal of open offer under regulation 27(1) (d)4 stating that the regulation should be given strict interpretation and the words of the sub – regulation to be read ejusdem generis.‘ It may be regarded as an instance of ellipsis. While examining the doctrine. or reliance on implication. 5 Maharashtra University of Health and others v. meaning thereby when general words in a statutory text are flanked by restricted words. (2) The subjects of enumeration constitute a class or category. the SC held as5 ―The Latin expression ‗ejusdem generis’ which means ―of the same kind or nature‖ is a principle of construction.

Kochuni v. The rule requires that the specific words are all of one genus. pg..provisions contained in the Takeover Code are regulatory in nature and. but grants power to SEBI to permit withdrawal of open 8 Tribhuwan prakashnayyaar v. It is not an inviolable rule of law. State of Madras and Kerala. 2002. it becomes the duty of the courts to give those words plain and ordinary meaning. in order to give them a meaning on a supposed intention of the legislature. to ensure that shareholders of Target Company should have an option to decide from both offers.. but is only permissible inference in the absence of an indication to the contrary. the general words may be presumed to be restricted to that genus. therefore. in which case. 10 K. is not confined to a particular situation. it implies a departure from the natural meaning of words. But it is clearly laid down by decided cases that the specific words must form a distinct genus or category. AIR 1960 SC 1080: at para 50. 9 Hamdard dawakahana v. have to be construed widely. because. However.O.The rule is that when general words follow particular and specific words of the same nature. as originally enacted.K.I. The rule must be controlled by the fundamental rule that statutes must be construed so as to carry out the object sought to be accomplished. U.I. It is pointed out that sub-regulation (a) of Regulation 27(1). sub-regulation (a) was omitted on September 9.K..O. Kochuni v. and Sub-Regulation (c) deals with a situation where the sole acquirer dies. 4 MEMORIAL FOR APPELLANT . Sub-Regulation (b) situation where requisite statutory approvals are not granted to make the open offer. U. where the context and object and mischief of the enactment do not require restricted meaning to be attached to the words of general import. dealt with a case of a competing acquirer which would entitle the first acquirer to be exempted from making the open offer. The rule of Ejusdem Generis must be applied with great caution8. That the legislative history of Regulation 27(1) would clearly show that ejusdem generis was not the appropriate rule of interpretation to be implied while construing the aforesaid provisions. A Constitution Bench of this Court speaking through Justice Subba Rao opined:-". 1103." Regulation 27(1)(d). State of Madras and Kerala10... AIR 1978 SC 1272. AIR 1965 SC 1167. Rule or Regulation. the general words must be confined to the things of the same kind as those specified. This Court while construing the principle of ejusdem generis laid down similar principles in the case of K.9 The court should look at the legislative history for interpretation of any provision in the Act.

of which the rule of ejusdem generis is only one. Applying this to Regulation 27. 5 MEMORIAL FOR APPELLANT . Regulation 27(1)(d) provides an exception for withdrawal of open offer & not limited to the narrow confines of Clauses (b) and (c). as "while the rule is a well-established and useful one. they may be submitted to the test of all appropriate canons of statutory construction. If. Therefore. The exception under Regulation 27(1) (d) deals with a separate and distinct class of cases i. which in the opinion of the Board ―merit withdrawal. we must give effect to the conclusion afforded by the wider view in order that the will of the Legislature shall not fail. 79 L Ed 211. 88-89. upon a consideration of the context and the objects sought to be attained and the act as a whole.‖ It is submitted that regulation 22(14)12 of the Takeover Regulations provides that an acquirer who has withdrawn an open offer shall not be permitted to make an open offer for a period of six months from the date of withdrawal of the offer. it is submitted that it is amply clear that impossibility as sought to be interpreted in Regulation 27 cannot vanish in six months. Stockholms Enskilda Bank11. it is. where respondent has been conferred discretion to allow withdrawal of open offers in ―such circumstances. 52 (1934). 11 Guy T. taking into account the facts and circumstances of that particular case.‖ which ―in the opinion of the Board merit withdrawal‖. ―in such circumstances‖." The narrow construction of Regulation 27(1)(d) would permit withdrawal only on the same footing as the circumstances enumerated under Regulation 27(1)(b) & (c).offer. 55 S Ct 50. 293 US 84. it is clear that withdrawal of an open offer need not be on account of impossibility only. Stockholms Enskilda Bank. like other canons of statutory construction. This would leave no discretion with SEBI to approve withdrawal. To ascertain the meaning of the words of a statute. Helvering v. 12 Supra note 1. It is neither final nor exclusive. it adequately appears that the general words were not used in the restricted sense suggested by the rule. Helvering v.e. The SAT erred in law in construing Regulation 27(1) (d) on the principle of ejusdem generis. only an aid to the ascertainment of the true meaning of the statute. The observations of the Supreme Court of US in Guy T.

Wednesbury Corporation. The respondent have not taken the whole facts and the circumstances of the case. wednesbury corporation17 popularly known as Wednesbury‘s principal. AIR 1975 SC 226. It is submitted that the SEBI have only chosen one course of action i.a) Fairness – the activities of the government have a public element and therefore. 15 Shri Builders v. c) Consideration of relevant facts. state of west Bengal. A judicial discretion must fulfill three basic ingredients for the exercise of discretionary power are.L Aggarwal [1996] 84 Taxman 45 (Guj. Discretion of SEBI under regulation 27(1) (d) Regulation 27(1)(d) has given wide judicial discretionary power to SEBI. there should be fairness and equality16.B. R. they have restricted their opinion to the other provision of the regulation where there is no discretionary.). 17 Associated provincial pictures houses ltd. It read as. direct himself properly in law. state of Kerala. ii. 16 Erusian Equipment and chemical ltd v. The power is coupled with a duty and when the conditions for its exercise are established the authority cannot refuse to exercise it15. b) Reasonableness – power should be exercised not capriciously but on judicial grounds and for substantial reasons. No discretion should be read with ejusdem generis with the other provision because then there is no discretion left.―such circumstances as in the opinion of the Board merit withdrawal‖. 13 V. AIR 1985 Ker 69.e. He must call his own attention to the matters which he is bound to consider‖. The respondent was required to act judicially to render justice and use its judicious mind. v. Further the Supreme Court have given the meaning of discretion as ―to say that a person has a discretion presupposes that there are two ways to answer a problem‖14. so to speak.E Vasudevan v. 14 Managing director ECIL v Karunakae. 6 MEMORIAL FOR APPELLANT . Discretion can be defined as ―The legal concept of discretion implies power to make a choice between two alternative courses of action. The main objective of the legislation to add discretion clause is that to widen the ambit of law for the fact and circumstances as arose. If only one course of action can lawfully be adopted. ―exercise of discretion reasonably according to this principal means that a person entrusted with the discretion must. the decision taken is not in the exercise of discretion but in the performance of a duty‖13. v. [1948] 1 KAB 223. apply the parameter of impossibility to perform open offer but regulation 27 (1)(d) confer wide power of discretion to SEBI. The standard of reasonableness is laid down in associated provincial pictures houses ltd. AIR 1994 SC 1074. SEBI is a quasi-judicial body and it is not restricted to the guidelines and norms as given to the administrative discretionary power.

According to the counsel for appellant. It is submitted that once the letter of offer is filed. Voluntary open offer There is a fundamental difference between a mandatory public offer and a voluntary open offer. During 21 days. in a voluntary open offer. since the offer is not the result of a triggered acquisition. the underlying decision to consolidate shareholding had become in fructuous by sheer efflux of time. On November 1st 2011 on gap of 13 months issued an observation on the draft letter of offer stating that the withdrawal was unfavorable and was silent on re pricing of the offer price. By that time. Inexplicable delay Dreamsellers have made the public announcement on 1st October 2010. There was a non-compliance of Regulation 18(1) and there was no occasion to invoke proviso to Regulation 18(2). no such right accrues. it can call for a revised letter of offer. A draft letter was send to the SEBI for the approval and for the forwarding of the offer to the shareholder. Regulation 15(4) deems that the offer is made on the date 7 MEMORIAL FOR APPELLANT . It was under these circumstances that the appellant intimated its decision to withdraw its voluntary open offer. SEBI was required to dispatch the same to the shareholders immediately after 21 days. B. Mumbai edition. It is indicated that it was because of the unexplained delay of 13 months on the part of SEBI to process the Letter of Offer of the appellants that the price for the shares of the target company went down during this period. the action of SEBI is contrary to Regulation 18. inexplicable and inordinate. before it is dispatched to the shareholders. However. i. The letter of offer was not dispatched to the shareholders as per Regulation 18(1). published in financial express. SEBI receives a complaint or it initiates an enquiry or investigation in respect of public offer. In the present case. SEBI is permitted to stipulate the changes required to be made in the letter of offer which the Merchant Banker and the Acquirer shall incorporate in the letter of offer. delay on the part of the appellant in issuing comments on the draft letter of offer created a situation wherein it was impossible for the respondent to implement the voluntary open offer. It cannot be placed on the same pedestal. In case. On October 30th 2011 Dreamsellers wrote through its merchant banker for the withdrawal or re-pricing of voluntary open offer made by them. That the unjustifiable. in a mandatory public offer there exists an underlying transaction which triggers the Takeover Code under which the shareholders obtain a right to exit from the company. This would impose huge financial liability on the appellants.

the appellant would be squarely covered under Regulation 27(1)(d). ―18. That because of the inaction on the part of SEBI. [1994] SC 5674 at 3. 'Advertisement'. thirdly: the present case does not fall within the ambit of Regulation 27 of Takeover Regulations. the word 'direction' in the context of users of the road….―. Since Regulation 18 had not been complied with and there was no dispatch of the letter of offer to the shareholders. we find HC to have adopted a hyper-technical approach. An offer ones made cannot be withdrawn but a public announcement made can be withdrawn. It needn‘t necessarily be to sell only or solely for commercial exploitation. 'announcement' also normally means any and every effort or enterprise and attempts made to make known a thing or the existence of a thing openly or publicly. altogether. Similarly. ―offer once made‖ in Regulation 27 is misconceived. That firstly: this is a case where the respondent had made voluntary open offer. 18 Municipal Corporation of Greater Bombay v. Likewise. This expression has to be understood in terms of Regulation 18. 'advertisement' means to make publicly known information by some device and to draw or attract attention of public concerned to such information. Bharat Petroleum Corporation Ltd.. the appellant was entitled to assume that it had been refused. It is worth mentioning that there is difference between a public announcement and open offer. no prejudice has been caused to any shareholder. there was no question of any prejudice being caused to the interest of the shareholders. It has nothing to do with Regulation 18 which is to dispatch the actual offer to the shareholders. 8 MEMORIAL FOR APPELLANT .on which the Public Announcement has appeared in any newspaper. 'Announcement' and 'Direction' used in the statutory provision under consideration. It is submitted that the directions issued by the SEBI are based on a misconception of the law applicable to the peculiar facts of this case. Public announcement was explained by this court as. Regulation 27 ought to be read in a manner that it would only govern mandatory open offers and not voluntary open offers. But this deeming fiction is for the purpose of price fixation for the offer.Coming to ordinary meaning of the words noticed by the HC. secondly: since the open offer was a pure and simple voluntary offer. The approval of the letter of offer by the appellant is statutory in nature. Therefore. Since it had not been granted within the stipulated period of time. In common parlance.

as is well known. the said objective would be taken to apply in the case of a private company which gives credit and acquires shares as pledged in course of the business. 2011 that too after a withdrawal request was filled by the appellants for withdrawal of open offer. Further after the investigation by CA. since the object of such companies is also not to take over the management but to secure their loan. MANU/SC/0350/2009.e.. As soon as the CA report was made public. v. facts which came in the public domain and/or the knowledge of the appellants. Rs. Fraud in Target Company It is submitted that the special circumstances in which the appellants made an application to withdraw the public offer was on the basis of certain facts which came to light subsequently i. but not to take over the management of the target companies. Savitri Devi and Ors.‖19 iii. (2003)8 SCC 319. II. Acquisition of shares in ordinary course of business Regulation 3(1)(f) of the Takeover Code. Meanwhile the new 19 Ram Chandra Singh v. It is also submitted that Regulation 27(1) (d) of the Takeover Code ought to be interpreted with such latitude to further the said objective of the Takeover Code. for the first time informed the public that through fraudulent transactions. vitiates all solemn acts . ii. On similar reasoning. Rani Aloka Dudhoria and Ors. Grounds for applicability of new takeover regulation The appellant have made the public announcement on 1st October 2010 under the 1997 takeover regulation but the SEBI had not made any observation until 1st November. A. only after the appellants made consequential public announcement. were siphoned off/embezzled by erstwhile promoters.300 Cr.. the market price of the shares of the target company fell. in pursuance of the pledge of shares made in its favor. Whether the provisions of regulation 23 of the new takeover regulation relating to withdrawal of open could be applied to an open offer made under the regulation 1997 takeover regulation. ―Fraud. It is submitted that the objective underlying the said provision appears to be to give an exemption to the creditors who acquire shares to secure the loan/credit and then invoke the pledge to recover such credit from the defaulting parties. which exempts the banks and financial institutions from making a public offer where an acquisition of shares is made in the ordinary course of business. Goutam Dudhoria and Ors. which came in public domain after the public announcement. 9 MEMORIAL FOR APPELLANT .

w. interpretation of statue (1972) at pg. Inderjit. SEBI (acquisition of share and takeovers) regulation.26Further Krishna Iyer. Inderjit25 this court has reiterated that ―Matters of procedure are. 24 Thirumalai Chemicals Limited v. J. SEBI (acquisition of share and takeovers) regulation. Therefore appellant submits that takeover regulation being a procedural law in nature and applicability should be given retrospective effect and withdrawal should be allowed under regulation 23 of new takeover regulation.e. however. in 20 Substituted for "sixtieth" by the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations. 1997 it shall be allowed to be withdrawn under new takeover regulation. In the present case 13 months have passed but offer has not opened thus there is no compliance of takeover regulation.Securities and exchange board of India (substantial acquisition of share and takeovers) regulation 2011 was notified on 23th September 2011 and it came into force on 22 October 2011.e. Therefore it should be construed that open offer made under takeover regulation. 25 Dayawati v. AIR 1966 SC 1423. Maxwell. AIR 1970 SC 1636.24 Therefore even if the open offer is made under takeover regulation. This court has decided that ―Procedural law is retrospective meaning thereby that it will apply even to acts or transactions under the repealed Act‖.f. 2004. 22 Substituted for "30" by the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations. w. 21 Regulation 22(4). 2011. 1997. 222 10 MEMORIAL FOR APPELLANT . It is submitted that the appeal for withdrawal of open offer shall be allowed to be withdrawn under regulation 23 of new takeover code. It is submitted that ―The date of opening of the offer shall be not later than the 20[fifty fifth] day from the date of public announcement‖21 and ―The offer to acquire shares from the shareholders 22 shall remain open for a period of [twenty] days‖23. It is submitted that SEBI has not complied with its duties by not giving observation so the public announcement should not be construed as actual open offer but should be considered merely for the purpose of price fixation.f. (i). 1997. 2004. 2011. (2011) 6 SCC 739. 1997 is not valid and its withdrawal should be allowed under new takeover regulation. Union of India. 1997. 23 Regulation 22(5). Retrospective applicability It is submitted that it is a well settled principle of interpretation that procedural laws are always retrospective in operation unless there are good reasons to contrary. 26 Nani gopal mitra v. Further in the case of Dayawati v. 3-9-2004. state of Bihar. 3-9-2004. 2011. different and the law affecting procedure is always retrospective‖.

Therefore appellant should be allowed to withdraw the offer made by them under regulation 23(1) (c). But grammar apart. 2011. The reason for which appellant made public offer was to reimburse loan amount which they were skeptic to recover even after invocation of pledge. lubricant. Quit lynn Ltd (1986) 85 LGR 249 30 Ibid. Shamlal murari. 28 Regulation 23(1) (c). 31 Regulation 23(1) (d). merit withdrawal‖31. and such agreement is rescinded. It is submitted that court can do ―filling gaps due to the drafter failing to envisage a particular situation‖29 and ―filling gaps by applying a strained meaning to the existing wording‖30. not wreck this end product into technicalities. Further it is submitted that an open offer can be withdrawn ―if such circumstances as in the opinion of the Board. Where the non-compliance. 11 MEMORIAL FOR APPELLANT . Saurabh Aggarwal: (2005)9 SCC 549. Peterborough City Council. after all. It has been wisely observed that procedural prescription are handmaid and not the mistress. Securities And Exchange Board Of India (Substantial Acquisition Of Shares And Takeovers) Regulations. Therefore to meets the ends of justice new takeover regulation. if breach can be corrected without injury to a just disposal of the case. 32 Haryana Urban Development Authority v. 2011 has to be given retrospective effect. SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS. ex p. By this provision a discretionary power has been conferred upon SEBI and this court has made it clear that ―discretion must be exercised judiciously‖32. will thwart fair hearing or prejudice doing of justice to the parties. B.state of Punjab v. the rule is mandatory. courts are to do justice. not a resistant in the administration of justice. Withdrawal grounds of open offer It is submitted that under new takeover regulation an open offer can be withdrawn if ―any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer. we should not enthrone a regulatory requirement into a dominant desideratum. shamlal murari27 ―we must always remember that procedural law is not to be tyrant but a servant. subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer‖28. 27 State of Punjab v. Without using judicious mind regarding the new facts of embezzlement by the promoters SEBI has rejected the application for withdrawal and this decision of SEBI has to be rejected. though procedural. 2011. 29 R v. (1976) 1 SCC 719. not an obstruction but an aid to justice.

a skeletal version of the elaborate rules of judicial proceeding to be found in their fullest form in the rules of SC. (1993) 3 SCC 259. 12 MEMORIAL FOR APPELLANT . Open Justice-a critique of the public trial. 497 (6 th ed.A. i. as a consequence. pg.K. Such right of hearing conferred by a 33 Jaconelli Joseph. Thus. The second limb deals with the question: the proper standard to be applied in the scrutiny of tribunals the proceeding of which may have been tainted with bias. industries ltd. A. the natural justice has been described as ‗in essence‘. which are predominantly expressions of the value of Natural and open Justice. The standard face of natural justice litigation deals with such question as (for instance) whether the plaintiff was entitled to an oral hearing before a tribunal. pg. It is humbly submitted that Dreamsellers has not been given the change to present its case before the Board. Gough (1993) AC 646.35 In India.34 As for natural justice the observance of the standard laid down in its rules was long required only of bodies which discharge ‗judicial‘ or (on an alternative formulation) ‗quasi-judicial functions. J. W. An introduction to Administrative Law.. pg. application of the principle of natural justice intends to prevent the authority from acting arbitrarily affecting the rights of the concerned person.33 So. International recognition of the audi alteram partem rule. Whether SEBI has violated the principles of natural justice in the present case while passing its order rejecting the application to withdraw open offer without hearing dream sellers. 34 D.37 The right of audi alteram partem is a valuable right recognized even under the constitution of India where in it has been held that the principle of the maxim which mandates that no one should be condemned unheard. it is a violation of the principle of natural justice as enshrined in our constitution and the basic element of our legal system. they cite provisions such as article 6(1) of the European convention human rights. 1988). 163 (3 rd ed. R. 660. 30 (3 rd ed..M. Yadav v. Administrative law. 36 Cane P. 37 R v. oxford: New Delhi). is a part of natural justice.1996).. 35 Wade H.III. Natural justice: Natural justice doctrine embodies two limbs: Right to be Heard (Audi Alteram Partem) and the Rule against Bias (Nemo Judex in Causa Sua).36 There is one perspective that has been given value in such rulings is that of a reasonable and fair minded person seating in the court and knowing all relevant facts. Dreamsellers has not been given the chance to present its case.

ECIL. We submit that an oral hearing was particularly necessary in the light of the fraud. ECIL42 here 38 WB electricity regulatory common board v. 41 R v. which the appellants would suffer under the impugned order passed by the SEBI upheld by SAT. Rules of natural justice don‘t supplant but supplement the rules and regulations.259. exp Mccarthy (1924) 1 KB 256. B. 40 Canara Bank & Ors. it ought to be read into the regulations in view of the drastic civil consequences. the Dreamsellers deserve an opportunity of hearing. v. Per Howart CJ. Debasis Das & Ors.39 ii. Further that the rules have been enforced by the Courts to ensure that substantial justice is done to the party proceeded against. 39 Delhi Transport Corporation v. The purpose of granting an opportunity of hearing is to ensure fair treatment of the person or entity against whom an order is likely to be passed. this Court reiterated the well-known principle that natural justice is the administration of justice in a common sense liberal way. It has been straightaway pointed out to the order passed by SEBI on 1st November. 42 Managing Director. 41 Taking into account the executive action. 2011 for withdrawal of the public offer. SEBI refusal to allow hearing violate natural justice The primary submission is based on the breach of rules of natural justice. (2003) 4 SCC 557. CESC ltd. so following the above mentioned principles.statute cannot be taken even by courts. Hyderabad & Ors.38 The audi alteram partem rule which is essence. Karunakar & Ors. (1993) 4 SCC 727. v. Similar view has been given by this court in the Canara Banks case 40. DTC Mazdoor congress. Even if the regulations do not specifically provide for the grant of an opportunity of hearing. 13 MEMORIAL FOR APPELLANT . this very court had mandated the natural justice to be taken into consideration before issuing an administrative order. enforces the equality clause in article 14 is applicable not only to quasi-judicial orders but to administrative orders effecting prejudicially the party-in-question unless the application of the rule is expressly excluded by the act or regulation or rule concerned. Sussex Justices. as in this case. which has been perpetrated by the promoters of the target company on the innocent shareholders. And in the present scenario as a strict decision against the plea of the withdrawal and re pricing has been passed. It is submitted that the order passed by SEBI has been passed without granting any opportunity of hearing to the appellants. In Managing Director. 2011 rejecting the request made in letter dated 30 October. It is not merely of some importance but is of fundamental importance that justice should not only be done but should manifestly and undoubtedly be seen to be done. (2002) 8 SCC 715 para 101. which will also include the appellants. AIR 1991 SC 101.

In other words. the court gave the special importance to oral hearing. The principle holds good irrespective of whether the power conferred on a statutory body or Tribunal is administrative or quasi-judicial. A personal hearing before taking a final decision in the matter. A personal hearing enables the authority concerned to watch the demeanor of the witnesses.again. In N.43 In Automotive Tyre case. Sohan Lal Gupta (Dead) through LRs. Asha Devi Gupta (Smt. Government of India and Ors. either specifically or by necessary implication excludes the application of principles of natural justice. which involved civil consequences. cannot be put into a strait-jacket formula.K. particularly when the order has adverse civil consequences which obviously cover infraction of property. The rejection of the request made by the appellants for withdrawal from the public offer or exemption under Regulation 27(1) (d) can be said to be an order causing adverse civil consequences. (2011) 2 SCC 258. it is mandatory for following principles of natural justice to hear the other party in person. 14 MEMORIAL FOR APPELLANT .K. It is equally trite that the concept of natural justice can neither be put in a straitjacket nor is it a general rule of universal application. 45 N. it is well-settled. well settled that unless a statutory provision. (2003)7 SCC 492. it is well understood that this is the fit case where natural justice is being violated as the non-compliance of the principle invites civil consequences.) and Ors. and Ors. etc. this Court has reiterated that even an administrative order. Prasada v. despite of filing the written argument. It is thus. this Court observed: "The principles of natural justice. must be consistent with the rules of natural justice. the requirement of giving reasonable opportunity of being heard before an order is made. because in that event the court would not ignore the legislative mandate. anything which affects the rights of the citizen in ordinary civil life. is generally read into the provisions of a statute. Its application will depend upon the facts and circumstances of each case. 43 Automotive Tyre Manufacturers Association v. and also clear up his doubts during the course of the arguments. Government of India and Ors. Even written arguments are no substitute for an oral hearing. Designated Authority & Ors. personal rights and material deprivations for the party affected.44 So. 45 And looking into the facts of the case. [1999] SC 3137 at 11. 44 ibid. The expression civil consequences encompasses infraction of not merely property or personal rights but of civil liberties. Disposed of on 12th April. material deprivations and non-pecuniary damages. v. 2004. Prasada v.

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as "to protect the interests of investors in securities and to promote the development of. are still to be purchased. Hence. So. they were unsure of whether the shares would pay off the debt unless they got a say in the running of Artemis. That the Dreamsellers (quoted the higher price due to fraud of promoters) is an investor. Dreamsellers right as an investor has been violated. Now. in the Charanjit Lal Chowdhury case. (1996) 4 SCC 69.On the basis of practice which has grown during the years. Instead of protecting the investors. and to regulate the securities market and for matters connected therewith or incidental thereto"47 The reason for the non-allowance of re-pricing of the shares as it is clear from the facts is ―the protection of interest of the investors‖. 1992. Such authorities which shall be deemed to be quasi-judicial authorities are expected to apply their judicial mind over the grievances made by the appellants or applicants concerned46 B. v. the step by SEBI is causing huge financial loss to ―investors‖.5% of the shareholder in the company. But in taking such step the SEBI missed two vital points: 1. the court held that a law may be constitutional even though it applies to a single individual if. 15 MEMORIAL FOR APPELLANT . there is no doubt that they are investors of the company. 47 SEBI Act. being one case of its own kind. Jesus Sales Corporation. Because. the courts and quasi-judicial authorities have been hearing the appellants and applicants before dismissing such appeals or applications as barred by limitations. the non-allowance to withdraw will defeat the very purpose of the SEBI Act. it is clear that after Dreamsellers invoked the pledge. From the facts of the case. whose pricing has been done. 2. that single individual may be treated as a 46 Union of India & Anr. It can be said that courts have read the requirements of hearing the appellants or the applicants before dismissing their appeals or applications filed beyond time on principle of natural justice. it cannot be ignored or its rights cannot be compromised. whose rights have been violated. That the shares. since they hold 12. on account of some special circumstances or reasons applicable to him and not applicable to others. although the concerned statute does not prescribe such requirement specifically. In this case we have only one company – Dreamsellers.

The buyers will purchase the shares on their sweet will. state of WB. 16 MEMORIAL FOR APPELLANT . It is nowhere that the interest of the buyers is being infringed. Since.50 It means this court said that anything in contravention of article 14 is unconstitutional and hence.53 Here. It is arbitrary on part of SEBI to delay the observation about appropriateness of the public offer made and after that rejecting the request made before the board without citing the reason for such step. 49 The constitution of India. it becomes the duty of the SEBI to give equal importance to both types of investors.48 If we take this issue in common parlance. Non-allowance of the re-pricing is totally unfair. The company should be allowed to fix the price as it thinks fit. never bothered to give the reason for such denial of hearing the appellant. the court held that art. 48 Chiranjit Lal Chowdhuri v. Hence. cannot choose to exclude persons by discrimination as it had the effect of depriving a person of equality of opportunity. Municipal Corporation of Delhi. 50 Shyam Kishore v. SEBI is a quasi-judicial. So.51 So. v. it has been held by this Court that any such requirement can be held to be harsh or violative of Article 14 of the Constitution. The Union of India AIR 1951 SC 41. fairness and equality must be observed in their exercise. 1996 AIR 1509. 1950. as to declare the requirement of pre-deposit itself as unconstitutional. Municipal Corporation of Delhi. 14 require the observance of the principles of natural justice. The government. Moreover. fit to be set aside. including the requirement of reasoned decisions.class by itself because the mismanagement of the companies similarly circumstanced. SEBI violating the guidelines of SC. In the case of Shyam Kishore v. It is its responsibility to adhere to such guidelines given by the SC in Maneka Gandhi52. It is upon the buyers whether they will buy the same shares at that price or not. unlike an ordinary individual. the legislation must be presumed to be constitutional. It is totally dictatorial to impose the whole burden on bigger investor only because he has more money or he can easily face such losses without great difficulty. This invokes the article 1449. the activities of the government have a public element and. (1975) 1 SCC 70: AIR 1975 SC 266. It is not only infringes the rights of a seller but also discriminates one investor over the other. Union of India (1978)1 SCC 248: AIR 1978 SC 597. therefore. it is clear that the Dreamsellers has not been given the chance to present its case rather Dreamsellers right as an investor has been violated by the arbitrary step taken by the SEBI. 52 Maneka Gandhi v. the thing is that SEBI is going to give undue protection to the future buyers at the cost of the seller. 51 Eurasian equipment & chemicals ltd.

The Appellants humbly submit that due diligence had been taken care of on part of Dreamsellers. Dreamsellers had appointed a merchant banker authorised by SEBI as investment adviser [B].54 It is submitted that SEBI wrongly concluded that existence of large amount of embezzlement could have been known if appellants would have exercised due diligence.IV. The words "due diligence" has not been defined in the Code. these reports were not made public and in fact were deliberately withheld from the public in spite of the same being price sensitive. 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. This argument is twofold. the attention and care required from a person in a given situation. 17 MEMORIAL FOR APPELLANT . These reports were submitted to the erstwhile Board of Directors of the target company in 30 September 2011. "diligence" means a continual effort to accomplish something. if Dreamsellers had exercised proper “due diligence”. After the audit report the fact the embezzlement has been committed came to public for the first time. "Due diligence" means reasonable diligence. the market price of the shares of the target company fell drastically. As per Black's Law Dictionary (Eighth Edition). According to Words and Phrases by Drain-Dyspnoea (Permanent Edition 13A) "due diligence". "Due diligence" means the diligence reasonably expected from. Firstly. a person who seeks to satisfy a legal requirement or to discharge an obligation. Secondly. mere action cannot be accepted and file a petition after the commencement of trial. means doing everything reasonable. "Diligent" means careful and steady in application to one's work and duties. According to Oxford Dictionary (Edition 2006). it means such diligence as a prudent man would exercise in the conduct of his own affairs. in law. the word "diligence" means careful and persistent application or effort. showing care and effort. It is clear that unless the party takes prompt steps. Dreamsellers had analysed the financial statement of Artemis [A]. As soon as the report was made public. However. care. and ordinarily exercised by. Rajinder Singh Anand. caution. Dreamsellers had analyzed the financial statement of the company in public domain. It clearly shows that the 54 Chander Kanta Bansal v. not everything possible.[2008] SC 1893. A.

Enterprises v. as such action would constitute dealing in securities. The Dreamsellers while investing into the company had verified the data in public domain which a prudent person will do. The time during which a court holds up a case while it is discovering that it ought to have been presented in another court. Therefore.56 Due diligence cannot be measured by any absolute standards. Irrigation Dept.55 ―To attract the provisions of Sec. Vinay Heavy Equipment. the capital market regulator. The same had been incorporated in Consolidated Eng. v. Section 14 requires that the prior proceeding should have been prosecuted in good faith and with due diligence. submitted that if the appellants were privy to the contents of the reports it would have been precluded from invoking the pledges. misuse and embezzle funds belonging to investors in the securities market. 18 MEMORIAL FOR APPELLANT . nor is the party obliged to make any enquiries unless it can be established that there 55 Hatti Gold Mines Company Ltd. The appellants relying on Regulation 3A which prohibits dealing in securities of a target company if a person has access to price sensitive information. 14 of the Limitation Act. as the delay of the court cannot affect the due diligence of the party. it is clear from the arguments and facts so far that SEBI has failed in its duty at every count. 56 Limitation Act. 1963. could not have and did not know the existence and nature of the fraud and embezzlements by the erstwhile promoters of the target company. It is also submitted by appellants that the expression due diligence does not mean that the party has to assume the role of amateur detective. The appellant further brings to the notice of this court the facts which were known at the time of public announcement and the facts which could not have been known even after due diligence since the same did not reflect in the balance sheet and/or financial statement of the target company. Due diligence and caution are essentially pre-requisites for attracting Sec. five conditions enumerated in the earlier part of this Judgment have to co-exist. with all its infrastructure did not become aware of the damning indictment of a listed company permitting its controlling promoters to abuse. Due diligence is a measure of prudence or activity expected from and ordinarily exercised by a reasonable and prudent person under the particular circumstances.Dreamsellers were unaware of such irregularities in the financial statement. must be excluded. the appellants. There is no manner of doubt that the section deserves to be construed liberally. [2008] SC 2461. any person exercising due diligence and care. or for that matter. Principal Secy. And Ors. Hence.‖ If the SEBI. it cannot rationally be accepted that the appellants would have discovered the same by exercise of due diligence. 14.

Ltd. 59 Suraj Kumar Walia v.R.Section 2. Midland Bank Ltd. Industrial Chain Concern. Smt. v. congress. 573.57 and Indian Overseas Bank v. 181. Merchant bankers . wanted to make clear that it did not seek to regulate the press through the licensing of the non- personalized publishing activities. It is also submitted that the law laid down in Marfani and Co. After the enactment of Uniform Securities Act of 1956. 60 Securities and Exchange Board of India (Merchant Bankers) Regulations. On the other hand. capital market got flooded with companies. buying or subscribing to securities or acting as manager.existed any circumstances which should have aroused any suspicion. Punam Walia & ors. 58 Indian Overseas Bank v. to enable investors to take informed investment decisions. This brought into the light the role of merchant banker and made it more responsible regarding the demonstration of qualitative due diligence in the transactions being sponsored by them. SEC61 and concluded that: Congress did not intend to exclude publication that are distributed by investment advisers as the normal part of the business of serving the clients. Punam Walia & ors59— Due diligence is the idea that reasonable investigation is necessary before certain kinds of relief are requested. Midland Bank Ltd. 19 MEMORIAL FOR APPELLANT . plainly sensitive to first amendment concerns. the supreme court of United States construed a definition of investment adviser under the Federal Investment Advisers Act in Lowe v. 472 U. consultant. In Suraj Kumar Walia v. Only then the issue can be priced realistically and the disclosures in the offer document can be of a very high standard.S. B. After the liberalization and the introduction of the free pricing regime. adviser or rendering corporate advisory service in relation to such issue management. 1990 1 SCC 484. Dreamsellers appointed a merchant banker authorized by SEBI as investment adviser. SEC. 185 (1985). Industrial Chain Concern58 which enumerates the benchmark or standards accepted from a party while performing the due diligence should be taken into account. Ltd. The onus is on the merchant banker to find out every aspect of the issuer company 57 Marfani and Co. 61 Federal Investment Advisers Act in Lowe v. 1992. Smt. 1968 (2) All E.60 (cb) —―Merchant Banker‖ means any person who is engaged in the business of issue management either by making arrangements regarding selling. The legislative history plainly demonstrates that congress was primarily interested in regulating the business of rendering personalized investment advice including publishing activities that are a normal incident there to. LNIND 2014 HP 9800. v.

c. b. Further. The Securities and Exchange Board of India SEBI Bhawan.which could be material information for an investment decision. 62 M/s.62 There is no definition of due diligence either in Companies Act or the SEBI guidelines. it is prescribed that it is Merchant Banker‘s duty to exercise due diligence at all times. 20 MEMORIAL FOR APPELLANT . Merchant banker has to find everything important and not rely just on published facts. It is about making an active effort to find out material developments that would affect interest of investors. The extent of investigation that a prudent man in the circumstances of the particular issue of securities in question. The investigation must elicit those facts which a reasonable person would consider important in determining whether to invest in the securities in question. v. [2012] SAT 84. However. Keynote Corporate Services Ltd. This is the due diligence defence. It is on faith that intermediary has conducted due diligence with utmost sincerity that investing public goes forward and decides to invest in a particular company. In the event of a claim that there was an untrue statement of a material fact or an omission of a material fact in an offer document. it is referred in SEBI guidelines. The following principles are considered relevant to due diligence investigation: a. the defence is satisfied where a defendant can show that after reasonable investigation he has reasonable grounds to believe and did so believe at the time when the offer document became effective that the statement was true and there was no omission of a material fact. circulars and SEBI (Merchant Bankers) Rules and regulations. in the code of conduct for merchant bankers. Data and information furnished by the issuing company should be independently verified as far as is reasonably possible. 1992.

AND Pass any other order that it deems fit in the interest of Justice. the Petitioner as in duty bound. And for this. it is most humbly prayed and implored before the Hon‘ble Supreme Court that it may be graciously pleased to adjudge and declare that:  the order passed by SAT and SEBI are invalid and against natural justice  Dreamsellers application for withdrawal of open offer is allowed. issues raised. arguments advanced and authorities cited. in the light of the facts raised.  The application for new takeover regulation. Equity and Good Conscience. All of which is most humbly and respectfully submitted Sd/- COUNSEL FOR APPELLANTS 21 MEMORIAL FOR APPELLANT . shall humbly pray. PRAYER Wherefore. 2011 for withdrawal of open offer is allowed.  Dreamsellers application for re-pricing is allowed.