JGU Id. No.

_____________

O.P. Jindal Global University

Jindal Global Law School
End-term Examination – Semester A

Course Name : Security Regulation

Course Code : L-EL-0131
Programme : Elective Course
Session : 2016 - 2017
Time Allowed : 3 Hours
Maximum Marks : 30

This question paper has three (3) printed pages (including this page).

Instructions to students:
1. DO NOT write your Name and Student Id. No. anywhere on the answer book except on the space
provided.
2. DO NOT write anything on the question paper except Student Id. No. on the space provided.
3. Start each question on a new page.
4. Use of mobile phone or any electronic storage and access system is prohibited. Calculator is allowed.
5. Students undertaking the examination are requested to adhere to the University norms related to
examinations.

__________________________________________________________________________________________
This is a Closed Book examination. Students are not allowed to bring any material in the Examination Hall.
Warning: Plagiarism in any form is prohibited. Anyone found using unfair means will be penalized
severely.
JGLS [End-term Examination - Semester A, 2016 - 2017] Page 1
Answer any three (3) of the following four (4) questions. All questions carry ten (10) marks each.

1. You have been engaged to advise a company that is undertaking an Initial Public Offering. In the course
of your diligence, you find that the company in question is heavily dependent on one particular customer
which purchases approximately 60% of their goods. The agreement for the supply of goods also allows
the customer to cancel the agreement by giving a one-month written notice.

Draft an appropriate risk factor for the Red Herring Prospectus.

2. Crowdfunding merges the complexity of a public issue with the risks of a private placement.
(i) Do you agree or disagree with this statement?
(ii) What changes would you suggest be made in the proposed Crowdfunding Regulations by SEBI in
order to provide for a robust crowdfunding market in India?

3. Your client (Acquirer) wishes to acquire a company (Target) listed on the BSE and NSE. The shareholding
pattern of the Target is as follows:

(i) Promoter – 51,000 equity shares

(ii) Private Financial Institutions (non-public) – 23,000 equity shares
(iii) Public – 26,000 equity shares

An SPA has been drafted (but not yet signed) after negotiations with the Promoter. The SPA provides that
the Acquirer will purchase the entire shareholding of the Promoter at a price of INR 35 (Indian Rupees
Thirty Five Only) per share, subject to the completion of an open offer. The SPA also provides that a
control premium of INR 715,000 (Indian Rupees Seven Hundred and Fifteen Thousand) shall be paid by
the Acquirer to the Promoter.

(i) Advise your client as to the process of an open offer

(ii) The average market price and trading volume of the shares over the previous 60 days of the Target
was reported as follows:

Average Daily Average Daily

Day Volume Price
1-9 16000 44
10-19 15000 42
20-29 14700 39
30-39 23800 45
40-49 25100 47
50-59 25500 46

What should be an appropriate price for the open offer?

JGLS [End-term Examination - Semester A, 2016 - 2017] Page 2

4. Ms. Benson is the fund manager for Hedges Venture Capital – a hedge fund registered under the SEBI
Venture Capital Funds Regulations. While their primary focus is on making late-stage investments in
mature companies, they also take an interest and make investments in publicly listed entities from time to
time.

Nicolette Ltd is one such company that they’re interested in. They require an injection of fresh capital for
the purposes of expanding their existing manufacturing capacity. Through a confidential due diligence on
Nicolette, Hedges’ advisors found that Nicolette is well-poised for swift growth subject to the fresh
investment by Hedges. Ms Benson noted that post the investment, the valuation and therefore the market
price of Nicolette was sure to increase. A confidential term sheet was entered into, which provided that
Hedges Venture Capital would subscribe to fresh issue of shares through a preferential allotment
amounting to 15% of the pre-issue paid up share capital.

As soon Ms Benson had made her decision to sign the term sheet, she Whatsapped her dear friend from
business school, Mr Wills that Hedges was making a significant investment in Nicolette and that the share
price would soon rise. At the time, Wills was in a cab travelling from his office to his residence. Excited
by this news, Mr Wills immediately phoned his stock broker to buy a large number of shares of Nicolette
from the open market.

Unfortunately, in his excitement, Mr Wills forgot his cellular phone while alighting from the cab. The cab
picked up a new passenger by the name of Mx. Paula, a transgender musician struggling to make a living
in performing music. By happenchance, Paula found Wills’ phone and saw the Whatsapp message.
Immediately, Paula went to a bank, opened a demat account and used her entire savings to buy as many
shares of Nicollete as she could from the open market.

Hedges completed the preferential allotment and was issued 15% of the paid up equity capital in Nicolette.
As expected, the share price increased swiftly, doubling in a month.

At the same time, investigators at SEBI noted two large transactions being the purchase of shares by Wills
and Paula. An enquiry was commissioned and charges of insider trading were brought against both of
them.

Would Wills and Paula be liable for insider trading?

JGLS [End-term Examination - Semester A, 2016 - 2017] Page 3