T-42 T-42

DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

University Moot Court Selection, 2021
Before,
THE HON’BLE SECURITY APPELLATE TRIBUNAL

APPELLATE JURISDICTION UNDER SECTION 15K OF THE SEBI ACT, 1992

APPEAL 1
(NO. 202 OF 2022)
MOON PHARMA & MR. BENNETT………………………………………APPEALLANTS

vs.

SECURITY BOARD OF PINDIA…………………………………………..RESPONDENTS

CLUBBED WITH

APPEAL 2
(No. 317 of 2022)

MR. DARCY & MS. JANE………………………………………..APPELLANTS

Vs.

SECURITY BOARD OF PINDIA…………………………………………..RESPONDENTS

MEMORANDUM ON BEHALF OF APPELANTS

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LIST OF ABBREVIATIONS

Abbreviations Full form

S. Section
AO Adjudication officer
BOD Board of Directors
& And
CA Companies Act
Cir. Circuit
Cl. Clause
Comp. L. J Company Law Journal
Ed. Edition
Prohibition of Fraudulent Unfair Trade
PFUTP
Practice
Ltd. Limited
MD Managing Director
Ors. Others
PIT Prohibition of Insider Trading
Reg. Regulation
SAT Security Appellate Tribunal
SC Supreme Court
SCC Supreme Court Cases
SCL SEBI and Corporate Laws
SEBI Security and Exchange Board of India
Supp. Supplementary
UPSI Unpublished Price Sensitive Information
WTM Whole Time Member
SBP Security Board of Pindia
MANU. Manupatra

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Table of contents
1. Statement of facts………………………………………………..8
2. Issues raised…………………………………………………………10
3. Summary of arguments………………………………………..11
4. Arguments advanced……………………………………………13
4.1 It is humbly submitted before the court that the information and agreements
pertaining to deal between moon pharma and bockhardt was not upsi in terms of the
pit regulations on the following grounds.
4.1.1.1 That it is the prerogative of moon pharma to determine whether the
information is upsi or not.
4.1.1.2 that the information regarding deal bockhardt is not price sensitive
information
4.1.1.3 That the information pertaining to agreement was already in the
market

4.2 The facts of the matter did not warranted passing of an ex parte ad interim order
and spb has exercised its powers within the confines of law of land.
4.2.1.1 The ex parte ad interim order is in violation of principles of natural
justice, as the appellants were not given an opportunity to be heard
4.2.1.2 The facts don’t warrant passing of an ex parte ad interim order as there
was no urgency in the matter to pass ex parte ad interim order
4.2.1.3 The spb has not exercised its powers within confines of law of land

4.2.1.4 Ex parte ad interim order is in violation of second proviso to s. 11(4)

of the sebi act
4.2.1.5 The direction of disgorgement was illegal

4.3 That sbp's refusal to provide the information and documents is against the principles
of natural justice on the following grounds.

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4.3.1.1 That the non-disclosure the of documents is against the principles of

natural justice
4.3.1.2 That the disclosure of the documents is a legal right of the parties and
it us necessary to ensure fairness in proceedings.
4.3.1.3 That the documents form the basis on which sbp relied to pass the
orders.

4.4 Whether the trades undertaken by darcy were in violation of pit regulations?
4.4.1.1 Darcy wasn’t in the possession of the details regarding the deal,
allegedly upsi
4.4.1.2 The information, allegedly upsi was not communicated to him by jane

5. Prayer……………………………………………………………………………..34

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Index of Authorities

............................................................................................................................ Cases
Anil Harish v. SEBI SAT Appeal No. 217 of 2011....................................................................................14
Balram Garg vs. SEBI (2022) SCC Online SC 472.............................................................................12, 30
Bharat Jayantilal Patel vs. SEBI 2010 SCC Online SAT 284...................................................................23
D.A. Gadgil vs. SEBI & Others Appeal no. 3/2000...................................................................................22
Fateh Singh v. State of Rajasthan (1968) SC [CA 1362/67 dt. 16 CJ2. 1968] 39......................................16
Harbans Lal v. Commissioner AIR 1994 SC 39........................................................................................16
Hindustan Dorr Oliver Ltd vs. SEBI (Appeal no. 107 of 2011, decided on 19.10.2011)...........................13
Jagdish Prasad Saxena v. state of Madhya Bharat AIR 1961 SC 1070.....................................................22
Khemchand v. Union of India AIR 1958 SC 300.......................................................................................22
Khudiram Das v. State of West Bengal (1975) 2 SCC 81...........................................................................25
Krishna Chandra Tandon vs. UOI 1974 (Civil Appeal no. 2041 of 1969)................................................25
Managing Director, ECIL vs. B. Karunakar MANU/SC/0237/1994.........................................................26
Manak Lal, Advocate v. Dr. Prem Chand 1957 AIR 425..........................................................................22
National Central Co-operative Bank v. Ajay Kumar AIR 1995 Raj. 1535................................................16
Nitin Kumar Didwania vs. SEBI (Appeal No. 41 of 2016)........................................................................24
North End Foods Marketing Pvt. Ltd. Vs SEBI (Appeal No. 80 of 2019, decided on March 12, 2019).....16
Price Waterhouse vs. SEBI 2011 SCC Online SAT 58..............................................................................23
Rajeev Vasant vs. SEBI Appeal No.536 of 2021........................................................................................31
Reliance Industries limited (RIL) vs. SEBI 2004 55 SCL 81 SAT.................................................................27
Schmidt vs Secretary of State for Home Affairs (1969) 2 Ch. D 149.........................................................22
Shri B. Ramalinga Raju v. SEBI 2017 SCC Online SAT 183....................................................................23
State of Mysore vs. Shivabasappa AIR 1963 SC 375................................................................................23
T. Takano v. Securities and Exchange Board of India 2022 SCC Online SC 210.......................................23
Union Of India And Another vs Tulsiram Patel And Others 1985 AIR 1416..............................................24

Statutes

Balram Garg vs. SEBI (2022) SCC Online SC 472...................................................................................30

Constitution of India 1950, Art. 14............................................................................................................24
Constitution of India 1950, Art. 21............................................................................................................24
Manak Lal, Advocate v. Dr. Prem Chand 1957 AIR 425..........................................................................22
PC 1908, Order V......................................................................................................................................16
PIT Regulations 1992, Section 2(k)...........................................................................................................12
Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I (2008) 14 SCC 151...............20
SEBI (PIT) Regulations 1992, sec 2(ha)....................................................................................................15

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SEBI (PIT) Regulations 2015, sec 2(1)(n).................................................................................................14

SEBI (PIT) Regulations 2015, section 2(1)(n)...........................................................................................13
SEBI (Prohibition Of Insider Trading Regulations), 2015.........................................................................12
SEBI Act 1992, S.11(4).............................................................................................................................20
SEBI Act 1992, S.15G...............................................................................................................................18
SEBI Act 1992, S.15I(1)............................................................................................................................18
SEBI Act 1992, S.15I................................................................................................................................18
SEBI Act 1992, S.15J (a)...........................................................................................................................18
SEBI Act 1992, Sec. 11.............................................................................................................................17
SEBI Act 1992, Section 11(1)...................................................................................................................28
SEBI Act 1992, Section 11(2)...................................................................................................................28
SEBI Act, 1992, Chapter VI A..................................................................................................................19
SEBI Act, 1992, Section 11(3)(ii).............................................................................................................16
SEBI Act, 1992, Section 27.......................................................................................................................16
SEBI( Prohibition of insider Trading) Regulations, 2015 Section 8(1).....................................................13
Securities and Exchange Board of India (( Listing Obligations and disclosure Requirement) Regulations
2015, Regulation 30...............................................................................................................................11
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, Clause 1 of Rule 4.........................................................................19
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, Clause 5 of Rule 4.........................................................................19
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, Rule 4............................................................................................19

Web sources

(1615) 11 Co. Rep 93 b: 8 Digest 218 https://www.legalserviceindia.com/legal/article-46-audi-alteram-

partem.html#:~:text=The%20Latin%20maxim%2C%20%27Audi%20Alteram,the%20point%20of
%20another%20party............................................................................................................................16

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STATEMENT OF JURISDICTION

Mr. Darcy, Ms. Jane, Mr. Bennett and Moon Pharma have invoked the jurisdiction of Security
Appellate Tribunal to hear the instant appeal by virtue of:
Section 15K of the Securities and Exchange Board of India Act, 1992
Establishment of Securities Appellate Tribunal —

15 K (1) The Central Government shall, by notification, establish a Tribunal to be known as the
Securities Appellate Tribunal to exercise the jurisdiction, powers and authority conferred on it
by or under this Act or any other law for the time being in force.

(2) The Central Government shall also specify in the notification referred to in sub-section (1),
the matters and places in relation to which the Securities Appellate Tribunal may exercise
jurisdiction.

FOR THE BREVITY OF ARGUMENTS, SECURITY APPELLATE TRIBUNAL HAS

MADE MR. DARCY, MS. JANE, MR. BENNETT AND MOON PHARMA THE
APPELLANTS IN THE INSTANT CLUBBED MATTER FOR PRESENTATION OF
MEMORANDUM AND ORAL HEARING.

THIS MEMORANDUM SETS FORTH THE FACTS, CONTENTIONS AND

ARGUMENTS ON BEHALF OF APPELLANTS IN THE PRESENT MATTER.

STATEMENT OF FACTS

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Parties: Moon Pharmaceutical Ltd. is a Pharma Company which is into the business of
manufacturing medicines and medical products it is the second largest pharmaceutical company
in Pindia after Tibbott ltd. Darcy is an active trader who frequently trades in the stock of various
Pindian listed Companies. He has worked with moon Pharma from 2015 to 2020. Thereafter he
joined Tibbott. Jane has been working with Moon Pharma since 2017; she is in continuous touch
with Darcy. Mr. Bennett was the executive director who was also designated as the compliance
officer of Moon Pharma. These are the appellants.
The Securities Board of Pindia is the regulator of securities market in Pindia. SBP is the
respondent.
Background: In 2020, a contagious disease caused by the alpha virus raged across the world.
All the industries were at a loss because of nationwide lockdown but the healthcare sector was at
its peak. Bockhardt ltd., a U.S based Company was looking to import a newly patented cold and
cough medicine from Pindia.
Cause of Conflict: By mid-November 2021, it was speculated that the US company has rejected
Tibbott’s bid and was going ahead with Moon Pharma. The companies entered into a definitive
licensing and supply agreement early morning on December 24, 2021, at 0400 hours and the
companies made a public announcement of the agreement on the same day at 8:55 hours in their
respective jurisdictions on the stock exchanges. Darcy and Jane were senior employees in the
respective companies and were incidentally involved in financial discussions on behalf of the
respective companies. Darcy’s approximate total profit from the sale of Moon Pharma shares on
December 24, 2021, was around 57.2 lakhs. The same day he also sold mutual fund units held by
him in the FBI Pharma scheme of the FBI Pharma focus mutual fund whose 50% of total assets
under management were securities in Moon Pharma. He made a profit of 1cr with this these units
were bought by him to a systematic investment plan over a period of five years.
Investigation by SBP: SBP got an alert and entered into an investigation into the trading
activities undertaken in the scrip Moon Pharma during the period of September 1, 2021, and
December 30, 2021. As a part of its investigation process, Moon Pharma was asked to submit
copies containing details of the deal. Darcy and Jane were summoned at multiple occasions and
made to answer queries.

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Legal Journey: On June 23 2022 a whole time member of SBP passed two ex parte ad interim
orders and prevented the entities from further committing breach of securities law in securities
market.
Order 1: SBP prohibited Moon Pharma from accessing the financial market and raising money
additionally until additional SBP instructions. Mr. Bennett was forbidden from accepting a
directorship in any other listed entity.
Order 2: SBP found several calls between Jane and Darcy from October to December therefore
SBP ostensibly assumed that Jane had communicated the details of the agreements to Darcy and
forbade Jane and Darcy from accessing the securities market and also asked Darcy to disgorge a
sum of INR 1.57cr which represents projected gains from the alleged improper trade done by
Darcy. Darcy and Jane were asked not to associate themselves with any listed companies till
further orders.
Upon receipt of the order Darcy and Jane requested for inspection of all documents that were
relied upon by SBP while issuing the order.
Appeals before SAT: Pursuant to the said orders, the following two appeals have been filed
before the Securities Appellate Tribunal (“SAT) filed jointly by Moon Pharma and Mr. Bennett –
Wherein Moon Pharma has stated that as per the internal policies and processes of Moon
Pharma, it was discussed that the information pertaining to the Agreement with Bockhardt will
not be considered as UPSI. Further, determination of whether information/event was UPSI or not
was the company’s prerogative and SPB cannot hold Moon Pharma and Mr. Bennett liable for
the same.
Appeal 2 filed by Jane and Darcy – Jane has submitted that she is friends with Darcy and they
occasionally talk over phone. One such usual conversation happened on October 28, 2021
between them and Jane did not communicate any UPSI to Darcy. In addition, Darcy has also
submitted that the decision to trade in the securities of Moon Pharma was taken independently by
him, as the healthcare sector was generally performing well on account of the Alpha Pandemic
and his decision was based on the developments in the healthcare sector on account of news in
the media and announcements made by the Government during this period. Darcy has also
contended that the direction for disgorgement was illegal. Darcy and Jane have requested that the
proceedings by SPB should not go ahead till all the documents requested by them are provided to
Darcy and Jane.

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ISSUES RAISED

I. WHETHER THE INFORMATION AND AGREEMENTS PERTAINING TO DEAL

BETWEEN MOON PHARMA & BOCKHARDT WAS UPSI IN TERMS OF PIT
REGULATIONS?
II. WHETHER THE FACTS OF THE MATTER WARRANTED PASSING OF AN EX
PARTE AD INTERIM ORDER AND WHETHER SBP HAS EXERCISED ITS
POWER WITHIN THE CONFINES OF THE LAW OF LAND?
III. WHETHER SBP’S REFUSAL TO PROVIDE INFORMATION AND DOCUMENTS,
AS SOUGHT BY DARCY AND JANE, IS IN ACCORDANCE WITH THE
PRINCIPLES OF NATURAL JUSTICE?
IV. WHETHET THE TRADES UNDER TAKEN BY DARCY WERE IN VOILATON OF
PIT REGULATION?

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SUMMARY OF ARGUMENTS

1. WHETHER THE INFORMATION AND AGREEMENTS PERTAINING TO

DEAL BETWEEN MOON PHARMA & BOCKHARDT WAS UPSI IN TERMS
OF THE PIT REGULATIONS.
1.2 It is humbly submitted before the Security Appellate Tribunal that the information
and agreement pertaining to deal between Moon Pharma & Bockhardt was not UPSI
in terms of PIT Regulations as the information was not materially affected the price
of the securities of the Moon Pharma. Also it was published as well as it was a
generally available information. Thus, the accused should be liable for insider trading.

2. WHETHER THE FACTS OF THE MATTER WARRANTED PASSING OF AN

EXPARTE AD INTERIM ORDER AND WHETEHR SBP HAS EXERCISED ITS
POWERS UNDER THE CONFINES OF LAW OF LAND?
2.2 It is humbly submitted before the SAT that the facts of the matter did not warranted
passing of an ex parte ad interim order because it is in violation of principles of
natural justice, as the appellants were not given an opportunity to be heard; The facts
don’t warrant passing of an ex parte ad interim order as, there was no urgency in the
matter to pass ex parte ad interim order and SPB has not exercised its powers within
confines of law of land. No show cause notice was issued to appellants, nor can the
orders passed be considered as show cause notices. The ex parte ad interim order is in
violation of second proviso to S.11 (4) of the SEBI Act, 1992 .The direction of
disgorgement of amount of Rs. 1.57 Crores was illegal.

3. WHETHER SBP’S REFUSAL TO PROVIDE THE INFORMATION &

DOCUMENTS, AS SOUGHT BY DARCY AND JANE, IS IN ACCORDANCE
WITH THE PRINCIPLE OF NATURAL JUSTICE?
3.2 It is humbly submitted that SBP's refusal to provide the information and documents is
against the principles of natural justice. Providing all the documents is a legal right of
the appellants and it will ensure fairness in the proceedings. Thus, it is prayed before

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the Tribunal that the information and documents requested by the appellants must be
provided to them.

4. WHETHER THE TRADES UNDERTAKEN BY DARCY WERE IN VIOLATION

OF PIT REGULATIONS?
4.2 It is humbly submitted before SAT as per the series of judgements given by the
Securities Apellate Tribunal as well as the apex court of Pindia and as per the chain of
circumstances The trades undertaken by Darcy were not in violation of PIT
Regulations because it complied with the code of conduct of PIT Regulations and
trading in securities while in possession of UPSI is itself a prohibition as per PIT
regulations.

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ARGUMENTS ADVANCED

[1] IT IS HUMBLY SUBMITTED BEFORE THE COURT THAT THE INFORMATION

AND AGREEMENTS PERTAINING TO DEAL BETWEEN MOON PHARMA AND
BOCKHARDT WAS NOT UPSI IN TERMS OF THE PIT REGULATIONS ON THE
FOLLOWING GROUNDS.

It is most humbly submitted before the tribunal that the information and agreements pertaining to
deal between Moon Pharma and Bockhardt was not UPSI as it does not materially affects the
price of the shares. Also the company did not identify it as an UPSI in furtherance of Regulation
30 of SBP (Listing Obligations and disclosure Requirement) Regulations,20151. Further there
was a speculation in market about the deal so it can be inferred as that the information was
generally available.

However the onus to prove that the information amounts to UPSI lies on SBP. Mere
circumstantial evidence such as the trading pattern and timing was not sufficient to hold them
guilty.2

Before adverting to the facts of the present case, the Regulations defining UPSI are humbly
submitted before the court.

According to definition of ‘unpublished’ under SEBI (PIT) Regulations, 1992 “unpublished”

means information which is not published by the company or its agents and is not specific in
nature.”3

Explanation.—Speculative reports in print or electronic media shall not be considered as

published information.]

1
Securities and Exchange Board of India (( Listing Obligations and disclosure Requirement) Regulations 2015,
Regulation 30.
2
Balram Garg vs. SEBI (2022) SCC Online SC 472.
3
PIT Regulations 1992, Section 2(k).

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According to definition of UPSI "unpublished price sensitive information" means any

information, relating to a company or its securities, directly or indirectly, that is not generally
available which upon becoming generally available, is likely to materially affect the price of the
securities and shall, ordinarily including but not restricted to, information relating to the
following: –

i. financial results;
ii. dividends;
iii. change in capital structure; mergers, de-mergers, acquisitions, delistings,
disposals and expansion of business and such other transactions;
iv. changes in key managerial personnel; and
v. material events in accordance with the listing agreement4

Further, generally available information means information that is accessible to the public on a
non-discriminatory basis. However, SAT has clarified that the list contained in the explanation
clause of the definition of ‘unpublished price sensitive information’ is not exhaustive in nature
and in fact, is much wider.5

1.1 That it is the prerogative of Moon Pharma to determine whether the information is
UPSI or not.
Every listed company has to disclose events or information which is material in nature.
Companies prepare a materiality policy to determine such events or information. However
Section 8(1) of SEBI( Prohibition of insider Trading) Regulations, 2015 states, “The board of
directors of every company, whose securities are listed on a stock exchange, shall formulate and
publish on its official website, a code of practices and procedures for fair disclosure of
unpublished price sensitive information that it would follow in order to adhere to each of the
principles set out in Schedule A to these regulations, without diluting the provisions of these
regulations in any manner. Since all such material events may not be UPSI, companies would
have to exercise caution and their own prudence to determine which of these deemed material
events and other material events as determined by the materiality policy of the company would
be UPSI as they are likely to affect the price of securities of the company.”6
4
SEBI (Prohibition Of Insider Trading Regulations), 2015.
5
Hindustan Dorr Oliver Ltd vs. SEBI (Appeal no. 107 of 2011, decided on 19.10.2011).
6
SEBI( Prohibition of insider Trading) Regulations, 2015 Section 8(1).

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In the present case, the information pertaining to the Agreement with Bockhardt will not be
considered as UPSI as per the internal policies and processes of Moon Pharma7. Also it is the
prerogative of the company to determine if the information is UPSI or not.

1.2 That the information regarding deal Bockhardt is not Price Sensitive Information

》The information pertaining to the Licensing and Supply Agreement does not constitute price
sensitive information. Price Sensitive Information is information which is likely to materially to
affect the price of securities8. Here, the information pertaining to deal is unlikely to affect the
price of Moon Pharma’s securities, as the deal with Bockhardt was undertaken in the ordinary
course of the company’s business and the expected revenue pursuant to the deal was only 1.3%
of the total revenue of the company during FY’219. Moreover, if anything is done in the ordinary
course of business, it would not constitute as price sensitive information.10(Ordinary course of
business is defined as the normal routine in managing a trade or business

》The information regarding the deal has a negligible effect on the stock price of the issuer
company. The terminus a quo of price sensitive information varies depending on the fact and
circumstances of each case11. The agreement cannot be construed as ‘material’ price sensitive
information uniformly in all the situations and circumstances.

》The reason behind a sudden increase in the price of shares of Moon Pharma was that the
healthcare sector was generally performing well on account of the Alpha Pandemic and
concessions given by government to pharma companies.12

7
Moot proposition para. 17.
8
SEBI (PIT) Regulations 2015, section 2(1)(n).
9
Moot proposition para. 12.
10
Anil Harish v. SEBI SAT Appeal No. 217 of 2011.
11
supra 10
12
Moot proposition para 18.

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1.3 That the information pertaining to agreement was already in the market

》 In the instant case, as the information regarding capital infusion was already known to the
market as there were speculations about the deal by mid-November, the same cannot be alleged
to have any material effect on securities.

》 Although the issue of securities is mentioned as ‘deemed to be UPSI’ in the list given under
definition of UPSI.13The mere inclusion of the event in the list does not follow that it would
consequently constitute UPSI regardless of the materiality of its potential price impact. Mere
Information about the details of the deal does not amount to material information.

》 the information about the conclusion of the agreement was released in the public domain on
the same day i.e., 24Ath of December, 2022. The information pertaining to the agreement was
already in public domain, and was available to the public on a non-discriminatory basis.

It is submitted that for information to be price sensitive under Regulation 2(ha) of the SEBI (PIT)
Regulations, 199214, it has to be unpublished and if published, must be likely to materially affect
the price of the securities. It is noted that the information pertaining to deal falls under the
information that cannot be deemed to be price sensitive. However, in order to be deemed as
UPSI, it has to be both unpublished and price sensitive. It is well-established, with reference to
the abovementioned submissions, that such information was published. As both conditions not
being satisfied, such information cannot be deemed to be UPSI.

[2] THE FACTS OF THE MATTER DID NOT WARRANTED PASSING OF AN EX

PARTE AD INTERIM ORDER AND SPB HAS EXERCISED ITS POWERS WITHIN
THE CONFINES OF LAW OF LAND.

1) It is humbly contended that the facts of the matter do not warrant passing of an ex parte
ad interim order and the SPB has not exercised its powers within the confines of law of
land as [I.A.] The ex parte ad interim order is in violation of principles of natural justice,
as the appellants were not given an opportunity to be heard; [I.B.]The facts don’t warrant
passing of an ex parte ad interim order as, there was no urgency in the matter to pass ex

13
SEBI (PIT) Regulations 2015, sec 2(1)(n).
14
SEBI (PIT) Regulations 1992, sec 2(ha).

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parte ad interim order and [I.C.]The SPB has not exercised its powers within confines of
law of land
I. No show cause notice was issued to appellants, nor the orders passed can be
considered as show cause notices
II. The ex parte ad interim order is in violation of second proviso to S.11(4) of the
SEBI Act, 1992
III. The direction of disgorgement of amount of Rs. 1.57 Crores was illegal

2.1. THE EX PARTE AD INTERIM ORDER IS IN VIOLATION OF PRINCIPLES OF

NATURAL JUSTICE, AS THE APPELLANTS WERE NOT GIVEN AN
OPPORTUNITY TO BE HEARD
1. The SPB didn’t exercise the power of issuing summons to compel the appearance of
appellants, conferred upon it u/s 11(3) (ii)15 r/w S. 2716 of the SEBI Act and relevant
provisions of Order V of the CPC 17, while passing the order dated 23.06.2022 and the
foundational and fundamental values of justice, the principles of natural justice were not
followed in its true spirit. Natural justice implies fairness, reasonableness, equality and
equity. One such principle is audi alteram partem i.e., hear the other side. The doctrine of
audi alteram partem makes ‘hearing other side’ fundamental and as stated by Dr. Smith 18,
no proposition can be established than that a man cannot incur losses for an alleged
offence without given opportunity of being heard.
2. It has been held in cases such as Harbans Lal v. Commissioner19and National Central
Co-operative Bank v. Ajay Kumar20 that an order passed by the authority without
providing reasonable opportunity of being heard to the persons affected by it adversely
will be invalid, gross violation of principles of natural justice and must be set aside. The
Court has taken similar view in Fateh Singh v. State of Rajasthan21. An order passed in

15
SEBI Act, 1992, Section 11(3)(ii).
16
SEBI Act, 1992, Section 27.
17
CPC 1908, Order V.
18
(1615) 11 Co. Rep 93 b: 8 Digest 218 https://www.legalserviceindia.com/legal/article-46-audi-alteram-
partem.html#:~:text=The%20Latin%20maxim%2C%20%27Audi%20Alteram,the%20point%20of%20another
%20party.
19
Harbans Lal v. Commissioner AIR 1994 SC 39.
20
National Central Co-operative Bank v. Ajay Kumar AIR 1995 Raj. 1535.
21
Fateh Singh v. State of Rajasthan (1968) SC [CA 1362/67 dt. 16 CJ2. 1968] 39.

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gross violation of the principles of natural justice is not sustainable in the eyes of law as it
is also violative of Article 14 of the Constitution of India, as was also held in the case of
North End Foods Marketing Pvt. Ltd. vs. SEBI, 201922. The Hon’ble Tribunal in the said
case has also held “while passing an interim order, the principles of natural justice has to
be adhered to, namely, that an opportunity of hearing is required to be given. Procedural
fairness embodying natural justice is to be applied whenever action is taken affecting the
rights of the parties.”

3. However, there are certain exceptions when the rule of audi alteram partem is not
necessary to be followed, which are
 When excluded by way of Statutory exclusion
 Exclude through legislative function i.e., when the administrative action in
question is legislative.
1. However, in the present case, none of the exceptions are fulfilled.

2.2 THE FACTS DON’T WARRANT PASSING OF AN EX PARTE AD INTERIM

ORDER AS THERE WAS NO URGENCY IN THE MATTER TO PASS EX PARTE AD
INTERIM ORDER

1. It is submitted before the Hon’ble Tribunal that its res integra that wide powers have been
conferred upon the Board vide section 11 of the SEBI Act, 1992 23, including passing ex
parte ad interim order to protect the interests of investors in the securities market.
However, this does not imply that in every case, an ex parte ad interim order should be
passed on pretext that it was imminent to protect interests of investors.
2. As the ex parte order implies order passed without hearing a party, and considering the
violation of principles of natural justice, it has been held in catena of judgments that such
an ex parte ad interim order shall only be passed in urgent cases. It has been further
observed that in the garb of protecting the interests of investors in the securities market,
the Board cannot exercise the power in a manner that, it leaves serious consequences to
any party.

22
North End Foods Marketing Pvt. Ltd. Vs SEBI (Appeal No. 80 of 2019, decided on March 12, 2019).
23
SEBI Act 1992, Sec. 11.

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3. The Hon’ble Tribunal in its earlier decision of North End Foods Marketing Pvt. Ltd. Vs
SEBI, 201924, has held that “An interim order, however, temporary it may be, restraining
an entity/person from pursuing his profession/trade may have substantial and serious
consequences which cannot be compensated in terms of money and thus, ex-parte interim
order may be made when there is an urgency.”
4. In the present case, the trades have been done by Darcy in October, 2021 and the Board
after carrying out detailed investigation passed ex parte ad interim orders on 23.06.2022.
There has been lapse of reasonable time period from the alleged insider trading till
passing of orders, thus, it cannot be said that the ex parte ad interim orders were
mandatory to be passed to prevent the irreparable loss or injury to respondent, or the ex
parte ad interim orders were issued out of sheer urgency.

2.3 THE SPB HAS NOT EXERCISED ITS POWERS WITHIN CONFINES OF LAW OF
LAND

It is submitted before the Hon’ble Tribunal that the ex parte ad interim order was passed by the
Whole Time Member of the board in exercise of the powers delegated to him by the SEBI Board
in terms of section 19 of the SEBI Act read with sections 11, 11B and 11 (4) (b) of the SEBI Act.
It is mentioned that though the order was passed apparently under provisions of law, however,
the directions that the order contained were illegal, as it was beyond confine of the law of land.

NO SHOW CAUSE NOTICE WAS ISSUED TO APPELLANTS, NOR THE ORDERS

DATED 23.06.2022 ISSUED CAN BE CONSIDERED AS SHOW CAUSE NOTICES

 It is submitted that the Board via passing direction to disgorge a sum of INR 1.58 crores,
being estimated profits made, has imposed penalty on the alleged wrongful trade by
committing the insider trading, u/s 15G25 r/w S.15J (a)26 and S. 15I27 of the SEBI Act,
1992. S.15 G of the act imposes penalty, S. 15J(a) prescribes factors to be taken into

24
supra 24
25
SEBI Act 1992, S.15G.
26
SEBI Act 1992, S.15J (a).
27
SEBI Act 1992, S.15I.

19
T-42

account while adjudging the quantum of penalty to be imposed and S.15I of the act
confers upon powers on the adjudicating officer, who is adjudicating the allegations upon
person concerned on the directions and delegations of power by the Board u/s 15I (1) of
the Act28.
 It is further mentioned that Rule 4 of Securities and Exchange Board of India (Procedure
for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 199529 has
prescribed procedure for holding inquiry for the purpose of sections under Chapter VI-A
of the SEBI Act, 199230. Clause 1 of Rule 4 of the Rules, 199531 reads as:
“……..the adjudicating officer shall, in the first instance, issue a notice to
such person requiring him to show cause within such period as may be
specified in the notice (being not less than fourteen days from the date of
service thereof) why an inquiry should not be held against him.”

 It is submitted that in the case at hand, no show cause notice was served to the appellants.
Though, the SBP had summoned Mr. Bennett, Compliance officer of Moon Pharma,
directed Moon Pharma to provide certain information and also summoned Darcy and
Jane on multiple occasions. However, no show cause notice in furtherance to clause 1 of
Rule 4 of the Rules, 199532 was served and nor the appellants were given an opportunity
to produce such documents or evidence as may be considered relevant for the inquiry
under clause 5 of Rule 4 of the Rules, 199533.
 In the present case, an attached direction with the order was that it shall be treated as
show cause notice. However, the so-called show cause notice of the Whole Time
Member, SEBI is in effect of an order, as it inflicts restraints and prohibitions on
appellants from carrying out legitimate business. It is settled law that a prohibitory
order cannot come into effect through a show cause notice. If the show cause notice is

28
SEBI Act 1992, S.15I(1).
29
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995, Rule 4.
30
SEBI Act, 1992, Chapter VI A.
31
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995, Clause 1 of Rule 4.
32
Id
33
Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995, Clause 5 of Rule 4.

20
T-42

itself an order, the ultimate purpose of issuing show cause notice is defeated. Law
doesn’t recognize show cause-cum penal orders.
 Therefore, it is submitted that proceeding with passing an order without serving the
show cause notice, has defied the ultimate purpose of issuing show cause notice itself,
that deprived the appellants of being given an opportunity to show cause as to why
proceedings must not be initiated against them. The Board, vide the said direction of
considering the orders as show cause notices has further violated the rule of prudence
and made this direction for the mere formality and peripheral compliance of
procedure prescribed in the Rules, 1995.

I. EX PARTE AD INTERIM ORDER IS IN VIOLATION OF SECOND PROVISO

TO S. 11(4) OF THE SEBI ACT

 It is submitted before the Hon’ble Tribunal that Section 11(4) of the SEBI Act 34
confers power upon the Board, of passing an order along with recording its reasons in
writing, in the interests of investors or securities market, and further says that SEBI
can take certain measures.
 The second Proviso to the provision reads as “the Board shall, either before or after
passing such orders, give an opportunity of hearing to such intermediaries or persons
concerned”, and mandates opportunity of being heard to the person concerned,
against whom or in relation to whom the order is being passed. However, in the
present case, the Board didn’t comply with the proviso as required, and there’s clear
violation of proviso to S.11(4) of the act35.
 In the present case, the Board has not provided any reason for its findings and
observations and consequently, the making of judicial opinion, which was then
expressed through ex parte ad interim order, and thus, the Board has not followed the
said proviso. Therefore, the order is a non-speaking one, also violative of principles
of natural justice which is dealt in next issue.

34
SEBI Act 1992, S.11(4).
35
SEBI Act, 1992, S. 11(4).

21
T-42

 Further, the Supreme Court in its decision of Sahara India (Firm), Lucknow v.
Commissioner of Income Tax, Central-I36 observed that the requirement of giving
reasonable opportunity of being heard is generally read into the provisions of a
statute, particularly when the order has adverse civil consequences and this principle
will hold good irrespective of whether the power conferred on the statutory body or
the tribunal is administrative or quasi-judicial.
 Case of balram gupta vs…..

II. THE DIRECTION OF DISGORGEMENT WAS ILLEGAL

 It is pertinent to note that the direction passed to disgorge the money was illegal as:
a. the appellants were not given chance to be heard,
b. Darcy was asked to deposit money within 15 days i.e., time prior to filing replies/
objections that is within 21 days which in itself is against the rule of prudence and
indicative of biasness towards the investigating authority and board.

[3] THAT SBP'S REFUSAL TO PROVIDE THE INFORMATION AND DOCUMENTS

IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE ON THE FOLLOWING
GROUNDS.

It is brought before the Hon'ble Securities Appellate Tribunal that SEBI is required to prove a
noticee inspection and copies of all the documents and statements recorded during the course of
investigation and non-compliance of it resulted in; that [3.1] The principle of natural justice has
been violated, that, [3.2] providing all the documents collected during investigation is a legal
right of the alleged parties, that, to ensure fairness in the proceedings all the documents collected
during the investigation must be provided to the noticee, that,[3.3] the requested documents form
the basis on which SBP relied to pass its orders.

Before adverting to the validity and sustainability of the appeal under challenge, it is felt
necessary to briefly state the back ground leading to filing of the present appeal SBP passed two
ex parte ad interim orders on June 23, 2022. Prima facie violation of securities laws against the
following entities was found.

36
Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I (2008) 14 SCC 151.

22
T-42

Order 1: The deal between Moon Pharma and Bockhardt should have been considered as
UPSI by Moon Pharma. Until further instructions, SEBI forbade Moon Pharma from
accessing the financial markets and raising money. Additionally, until additional SBP
instructions, Mr. Bennett was forbidden from accepting a directorship in any other listed
entity.
Order 2: When searching through Darcy's phone data (not recordings), SBP discovered
multiple conversations between Jane and Darcy from October to December, including a 5-
minute conversation on October 28, 2021, at 8 o'clock. Therefore, SBP ostensibly assumed
that Jane had informed Darcy of the Agreement's specifics and the day it will be finally
implemented. Until further orders, SBP forbade Jane and Darcy from entering the stock
market or dealing in securities of any listed companies. In addition, Darcy was ordered to pay
back INR 1.57 crores, which represents projected proceeds from the alleged improper trade
in Moon Pharma's stock, within 15 days of receiving the judgment. Darcy and Jane were also
directed not to associate themselves with any listed company till further orders.
Upon receiving the order, Darcy and Jane asked to see every document that SPB had used as
support and as a basis for the order, some of those are:
a. Call records available with SEBI;
b. All documents obtained from Moon Pharma; and,
c. Internal File notings of the surveillance team of SBP with respect to the case.

Main thrust of the learned Counsel’s argument is that the impugned order was passed behind the
back of the Appellant without following the principles of natural justice. Natural justice demands
that a person who is to be directly affected by an administrative action be given prior notice of
what is proposed so as to enable him to make proper representation to defend his cause.( Manak
Lal, Advocate v. Dr. Prem Chand37, Khemchand v. Union of India38, Jagdish Prasad Saxena v.
The state of Madhya Bharat39) The aim of the rules of natural justice is to secure justice. Soul of

37
Manak Lal, Advocate v. Dr. Prem Chand 1957 AIR 425.
38
Khemchand v. Union of India AIR 1958 SC 300.
39
Jagdish Prasad Saxena v. state of Madhya Bharat AIR 1961 SC 1070.

23
T-42

the rule is fair play in action. 40 The message of the doctrine is that no one should be condemned
without being heard. The concept has been evolved to uphold the rule of law.41

3.1 That the non-disclosure the of documents is against the principles of natural justice
It is most humbly contended that the “denial” by SBP to provide inspection and copies
of all documents and statements collected during the investigation is an utter violation of
natural justice.42 A fair appreciation of evidences is necessary to abide by the principle of
natural justice.43 The appellants be given a fair opportunity to defend themselves by
providing them access to all the documents and statements collected by SEBI. Any inquiry
that is to be conducted before issuing a direction in terms of Section 11 and 11B of the Act
must comply with the bare minimum principles of natural justice.44
The Hon'ble Securities Appellate Tribunal in the matter of Shri B. Ramalinga Raju v.
SEBI had held that “There can be no dispute that while determining the rights and
obligations of the parties the quasi-judicial authority must adhere to the principles of natural
justice which inter alia, includes the obligation to furnish requisite documents on the basis of
which charges are framed and permit cross-examination of the persons whose statements are
relied upon”45. Hence, non-grant of the documents asked by the appellants in the instant case
is a violation of the principles of natural justice as the documents may contain certain
information or evidence ‘which can favour the appellants and denial of the same is fatal in
the lights of natural justice”

3.2 That the disclosure of the documents is a legal right of the parties and it us
necessary to ensure fairness in proceedings.
On the above question of law, the Hon'ble Tribunal must note that keeping a party abreast of
the information that influenced the decision promotes transparency of the judicial process.

40
D.A. Gadgil vs. SEBI & Others Appeal no. 3/2000.
41
Schmidt vs Secretary of State for Home Affairs (1969) 2 Ch. D 149.
42
Bharat Jayantilal Patel vs. SEBI 2010 SCC Online SAT 284.
43
State of Mysore vs. Shivabasappa AIR 1963 SC 375.
44
Price Waterhouse vs. SEBI 2011 SCC Online SAT 58.
45
Shri B. Ramalinga Raju v. SEBI 2017 SCC Online SAT 183.

24
T-42

The Apex Court in a recent decision in case of T. Takano v. Securities and Exchange Board
of India46 wherein it was held the all the documents (including the investigation report) relied
by SEBI on the basis of which the proceedings have been initiated, should be delivered to the
other party so as to enable it to effectively put forth its defense in the case made against it by
the Regulator
The documents relied upon are fundamental components of SEBI's determination of whether
a violation has occurred. Accordingly, It would be crucial to reveal the documents in the
interest of:
• Dependability of the record in aiding the judge and reducing the likelihood of a mistake in a
decision;
• A fair trial with the justifiable expectation that all relevant information will be on file for
parties to participate in procedures;
•Since it is "relevant" to the proceedings and ensures the transparency of adjudicatory
processes and accountability to the Rule of Law.
It is submitted that the Respondents had come to certain conclusions based on the
statements/submissions given by certain persons, without affording an opportunity to the
Appellant to rebut those statements/submissions. He urged that since the refusal by SBP is
violative of Right to equality 47 and Right to life and personal liberty 48 enshrined under the
Constitution the same need be set aside. 
The rule of natural justice with which we are concerned in this Appeal namely,
the audi alteram partem rule, in its fullest amplitude means that a person against whom an
order to his prejudice may be passed should be informed of the allegations and charges
against him, be given an opportunity of submitting his explanation thereto, have the right to
know the evidence, both oral or documentary, by which the matter is proposed to be decided
against him, and to inspect the documents which are relied upon for the purpose of
being used against him, to have the witnesses who are to give evidence against him
examined in his presence and have the right to cross-examine them, and to lead his own

46
T. Takano v. Securities and Exchange Board of India 2022 SCC Online SC 210.
47
Constitution of India 1950, Art. 14.
48
Constitution of India 1950, Art. 21.

25
T-42

evidence, both oral and documentary, in his defence.49. In this regard, reliance is placed on
the order of Hon'ble SAT in the matter of Mr. Nitin Kumar Didwania, “Not providing
documents without any lawful justification amounts to "judicial insubordination" and SEBI
has acted in gross violation of the order of Hon'ble SAT” 50. The appellants have not been
provided with a copy of preliminary findings on the basis of which aforesaid allegations have
been levelled against them.

In Khudiram Das v. State of West Bengal51, this Court held that once a statute prescribes
reliance on certain material, such material should be disclosed to the opposite party. This
principle has been followed in multiple contexts, including proceedings under the Companies
Act 1956 and Special Courts Act 1979.
An assertion of the authority that it has not relied on certain material would not exempt it of
its liability to disclose such material if it is relevant to and has a nexus to the action that is
taken by the authority. In all reasonable probability, such material would have influenced the
decision reached by the authority. Thus, the actual test is whether the material that is required
to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural
justice require its due disclosure.
However, it is clear from the judgment that even if the documents are merely inter-
departmental communications, there is a duty to disclose such documents if they have been
relied upon by the enquiry officer.52

3.3 That the documents form the basis on which SBP relied to pass the orders.
In Khudiram Das ‘s case, a four-Judge Bench of this Court laid down a two-prong test for the
standard of 'relevancy'; firstly, the material must have nexus with the order and secondly, the
material might have influenced the decision of the authority.53

49
Union Of India And Another vs Tulsiram Patel And Others 1985 AIR 1416.
50
Nitin Kumar Didwania vs. SEBI (Appeal No. 41 of 2016).
51
Khudiram Das v. State of West Bengal (1975) 2 SCC 81.
52
Krishna Chandra Tandon vs. UOI 1974 (Civil Appeal no. 2041 of 1969).
53
supra 51

26
T-42

The SBP received a notification in its internal surveillance system, and as a result, it
conducted a thorough examination into the trading activities carried out in Moon Pharma's
stock between September 1, 2021, and December 30, 2021. 54 If there was no alert received in
its surveillance system then no investigation would have been carried out. Thus, it can be
inferred that the internal notings of surveillance system forms the basis of investigation and
passing of orders in furtherance of the Investigation.

The findings further might have been recorded without considering the relevant evidence on
record, or by misconstruing it or unsupported by it. If such a finding is to be one of the
documents to be considered by the disciplinary authority, the principles of natural justice
require that the appellants should have a fair opportunity to meet, explain and controvert it
before they are condemned. Although it is true that the disciplinary authority is supposed to
arrive at its own findings on the basis of the evidence recorded in the inquiry, it is also
equally true that the disciplinary authority takes into consideration the findings recorded by
the surveillance team along with the evidence on record. 55 In the circumstances, the findings
of the surveillance team do constitute an important material before the disciplinary authority
which is likely to influence its conclusions.

The SBP also directed the Moon Pharma to provide details regarding the time, events and
persons involved in the deal with Bockhardt Ltd along with the details of closure of the
trading window. After analysing the information, the SBP came to a conclusion that the deal
between Moon Pharma and Bockhardt should have been considered as UPSI and Moon
Pharma has failed to comply with the PIT Regulations, 2015. The order passed completely
relies upon the documents obtained from Moon Pharma stating the details of the deal.
SBP has inferred from the call data between Jane and Darcy that Jane had communicated the
details of the Agreement to Darcy and the date on which the agreement will be finally
executed. The board also inferred that consequently the information provided by Jane has
affected the decision of Darcy to trade in stocks of Moon Pharma. Hence the call records also
form a basis on which the ex parte ad interim orders were passed as the said inference relied
upon the call records between Jane and Darcy. It is emphasised that if the transcripts
54
Moot proposition, para. 10
55
Managing Director, ECIL vs. B. Karunakar MANU/SC/0237/1994.

27
T-42

containing phone call data were to contain something adverse to the petitioners, there was
time enough for giving reasonable opportunity to the petitioners to explain the adverse
material against them. 
Thus all the documents requested for inspection by the appellants form a basis on the which
SBP relied while issuing the order.

In the light of the aforementioned reasons, it is humbly submitted that the SBP should have
provided the appellants all the documents collected and statements recorded during the
course of investigation and as SBP didn't comply, the proceedings by SBP suffers from the
violation of principles of natural justice.

[4] WHETHER THE TRADES UNDERTAKEN BY DARCY WERE IN VIOLATION OF

PIT REGULATIONS?
The trades undertaken by Darcy were not in violation of the PIT Regulations as
A. He wasn’t in the possession of details regarding the deal, allegedly UPSI
B. Neither he was communicated about the same by Jane
C. He carried trades of shares in the scrip of Moon Pharma, including the Mutual Funds as
per his own decision
He wasn’t in the possession of the details regarding the deal, allegedly UPSI nor was the same
communicated to him by Jane:

4.1 Darcy wasn’t in the possession of the details regarding the deal, allegedly UPSI:

 Assuming but not conceding that the information and agreements pertaining to the deal
between Moon Pharma and Bockhardt was UPSI in terms of the PIT Regulations, Darcy
was not an insider. Insider is defined under Regulation 2 of the PIT Regulations as:
"insider" means any person who is: i) a connected person; or ii) in possession of or
having access to unpublished price sensitive information;
As it was held in Reliance Industries limited (RIL) vs. SEBI 56 , SEBI carried out
an investigation and a case was filed against RIL in which they were held to be
56
Reliance Industries limited (RIL) vs. SEBI 2004 55 SCL 81 SAT.

28
T-42

guilty of Insider trading. In an appeal, the Appellate Tribunal reversed the order of
SEBI stating that the information was not passed by the nominees of L&T and the
same had no relation in communicating or passing of the information. L&T was
not even aware of the deal and there was no evidence to prove the same.
Therefore, RIL was not made liable for Insider trading.

In the present case, Darcy is not a connected person, which is defined under Regulation 2(d), as a
person who is or has during the six months prior to the concerned act been associated with a
company in whatever means. Darcy had worked in Moon Pharma from 2015 to November 2020,
and when the concerned act, here, purchase of shares of Moon Pharma, trade in the scrip of
Moon Pharma occurred in October, 2021, which clearly doesn’t falls within the ambit of 6
months as required here.

Further, it is made clear in the first issue that the information was not UPSI so Darcy was neither
in possession of nor had access to alleged UPSI. Moreover, the note to the regulation 2(g) which
defines Insider says:

“……………The onus of showing that a certain person was in possession of or had access
to unpublished price sensitive information at the time of trading would, therefore, be on
the person leveling the charge after which the person who has traded when in possession
of or having access to unpublished price sensitive information may demonstrate that he
was not in such possession or that he has not traded or he could not access or that his
trading when in possession of such information was squarely covered by the exonerating
circumstances.”

The binding value of note provided to the regulation is same as that of regulations made under
the provisions of the SEBI Act. The Board has been given wide powers under the Act, such as
S.11 (1) of the Act57 which says that the Board in order to protect the interests of investors in
securities and to promote the development of, and to regulate the securities market, by such
measures as it thinks fit. The measures have been further prescribed u/s 11(2) of the act58.
57
SEBI Act 1992, Section 11(1).
58
SEBI Act 1992, Section 11(2).

29
T-42

The PIT regulations have been formulated by the Board in the execution of power conferred
upon it by section 30 read with clause (g) of sub-section (2) of section 11 and clause (d) and
clause (e) of section 12A of the Securities and Exchange Board of India Act, 1992 (15 of 1992),
to put in place a framework for prohibition of insider trading in securities and to strengthen the
legal framework. The notes have been provided beneath clauses, sub-clauses of regulations for
better understanding with a view to remove ambiguity.
Section 30-> Power to make regulations.—

The Board may, by notification, make regulations consistent with this Act and the rules made
thereunder to carry out the purposes of this Act.

In particular, and without prejudice to the generality of the forgoing power, such regulations
may provide for all or any of the following matters, namely:—

The times and places of meetings of the Board and the procedure to be followed at such meetings
under sub-section (1) of section 7 including quorum necessary for the transaction of business;

the term and other conditions of service of officers and employees of the Board under sub-
section (2) of section 9; 2(c) the matters relating to issue of capital, transfer of securities and
other matters incidental thereto and the manner in which such matters shall be disclosed by the
companies under section 11A;

Section 11(2) (g)-> states that Without prejudice to the generality of the foregoing provisions,
the measures referred to therein may provide for Prohibiting Insider trading in Securities.

Section 12 A -> says that No person shall directly or indirectly -

(d) Engage in insider trading;

(e) deal in securities while in possession of material or non-public information or communicate

such material or non-public information to any other person, in a manner which is in
contravention of the provisions of this Act or the rules or the regulations made thereunder;

Therefore, the onus was on the Investigating authority carrying out the investigation as per
Section11C of the SEBI Act, 1992, on the directions of the Board after delegation of power u/s
19 of SEBI Act, 1992. However, in the present case, the onus has not been exercised well. The
burden of proof lies on the party bringing the charge and the regulator (in its capacity as
investigating body) must adduce evidence to support the allegations made out. There are

30
T-42

exceptions to this rule, though, in cases where the transfer of such burden is hardwired into the
law, subject to the satisfaction of certain circumstances. For instance, regulation 2(1) (q) (2) of
the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 defines various
categories of persons who are deemed to be acting in concert with other persons in the same
category, unless the contrary is established. Therefore, where parties falling within the list of
such enumerated relationships acquire shares in a listed company beyond certain legally
identified thresholds without complying with the attendant requirements under the Takeover
Regulations (of disclosures or open offers, as the case may be), the burden lies on them, and not
SEBI, to rebut the presumption that they acted as a homogenous unit and establish that their
acquisitions did not share a common objective.
The Supreme Court observed that the PIT Regulations provided that the onus of proving that
persons who were not connected persons were in possession of, or had access to UPSI, was on
SEBI. Court further opined that an offence of 'communication or procurement' of UPSI can only
be established through the production of cogent materials. In fact, the onus is on SEBI to
properly investigate and establish the communication of UPSI though letters, emails, witnesses,
etc. SEBI cannot simply presume that communication occurred based on the alleged proximity
between the parties59.

In the present case SEBI failed to produce any material on record to establish the communication
of UPSI by an insider or connected persons. There was no direct evidence to establish if anyone
had disclosed the UPSI to Darcy. SEBI had simply proceeded on the assumption that Darcy had
access to UPSI by virtue of his relationship to Jane, and the 5 minute phone call between both,
soon before the purchase of the shares in Moon Pharma's scrip. SEBI had, therefore, failed to
establish this requirement of proof.
Therefore, Darcy was not an insider, and provisions under Regulation 3 and 4 have not been
violated by him.

4.2 The information, allegedly UPSI was not communicated to him by Jane:

59
Balram Garg vs. SEBI (2022) SCC Online SC 472.

31
T-42

 Clearly, as stated in facts, Jane was involved in the discussions pertaining to financials of
the deal between Bockhardt and Moon Pharma, and was aware about the nitty gritty of
the deal. This is also clear that Jane and Darcy have kept in touch and used to talk/ meet
occasionally.
 However, in its order no. 2 dated 23.06.2022, the whole-time member of the SBP has
failed to give a reasoned order with its findings based on substantial grounds. Mere
perusal of call data (not recordings), finding a 5-minute call on Oct. 28, 2021 at 8 PM,
and subsequent inference drawn that Jane had communicated the details of the agreement
and the date on which agreement will be finally executed, doesn’t establish that Jane had
communicated the details. Nor any ground or reason of drawing the inference has been
stated in the order.

SEBI conducted an investigation into suspected insider trading activities in the scrip of
Tara Jewels ltd. To ascertain whether the entities had traded in the shares of Tara Jewels
ltd. While being in the possession of UPSI. SEBI passed the final order whereby the
promoters were found to have indulged in insider trading in the shares of TJL on the basis
of which the promoters were debarred from accessing the securities market and were
further directed to deposit certain amount towards alleged loss avoided by them. SAT
held that the finding of SEBI that the utilization of sale proceedes by the Appellants is not
a "permissible exonerating circumstance" is patently erroneous and the said explanation

given by the Appellants is sufficient to prove their innocence60.

 He carried trades of shares in the scrip of Moon Pharma, including the Mutual Funds as
per his own decision – two parts –
a) trade in scrip of Moon Pharma

Darcy was a frequent trader, had earlier traded as well…his decision to trade in the securities of
Moon Pharma was taken independently by him, as the healthcare sector was generally
performing well on account of the Alpha Pandemic and concessions given by

60
Rajeev Vasant vs. SEBI Appeal No.536 of 2021.

32
T-42

government to Pharma companies. His decision to buy and sell was based on the
developments in the healthcare sector on account of news in the media and
announcements made by the Government during this period.

b) Trade in FBI Pharma MF

It can also be inferred from the facts that since there was a speculation since mid-November that
bockhardt has rejected Tibbot’s bid and was going ahead with Moon Pharma which clearly
hinted that the trading in Moon Pharma securities would be profitable for him; also the units
bought by Darcy through a Systematic Investment. So it cannot be said that the trades performed
by Darcy was against the PIT Regulations.

33
T-42

PRAYER

Wherefore in the light of facts stated, issues raised, arguments advanced and authorities
cited, it is most humbly prayed that the Security Appellate Tribunal may be pleased to
adjudge and declare that:

I. The information and agreements pertaining to the deal between Moon Pharma &
Bockhardt was not UPSI in terms of PIT Regulations.
II. The facts of the matter did not warranted passing of an ex parte and interim order and
SBP has not exercised its powers within the confines of law of land.
III. SBP’s refusal to provide the information and documents, as sought by Darcy and Jane, is
not in accordance with the principles of natural justice.
IV. Trades undertaken by Darcy were not in violation of PIT Regulations.

Grant any other order in favor of Respondents that the Security Appellate Tribunal may
deem fit in the eyes of equality, justice and good conscience.

All of which is respectfully submitted

Sd/-
COUNSELS FOR THE APPELLLANTS

34