TEAM CODE- N-024

IN THE HONBLE
SUPREME COURT OF INDIA,
AT NEW DELHI.

SPECIAL LEAVE PETITION NO.

Of 2013

MS. SUSHMA & MR. SANJAY BANSAL

APPELLANTS
VS.
SECURITIES AND EXCHANGE BOARD OF INDIA
RESPONDENT

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

SUBMITTED IN THE REGISTRY OF THE COURT

ON BEHALF OF THE APPELLANTS
-MS. SUSHMA AND MR. SANJAY BANSAL

MEMORIAL ON BEHALF OF THE APPELLANTS

29th BCI Moot Court Competition.
TABLE OF CONTENTS
LIST OF ABBREVIATIONS..... III
INDEX OF AUTHORITY.......................................................................................................IV
STATEMENT OF JURISDICTION........................................................................................VI
STATEMENT OF FACTS.....................................................................................................VII
STATEMENT OF ISSUES.....................................................................................................IX
SUMMARY OF ARGUMENTS..............................................................................................X
DETAILED PLEADING...1

ISSUE NO. 1: Whether the Petition is maintainable?...............................................................1

ISSUE NO.2 - Whether the telephonic conversation amounted to Inside Information?...........3
ISSUE NO.3 - Whether Suresh Agarwal acted on the said Information and made profit
Thereof?.....................................................................................................................................4
PRAYER....................................................................................................................................6

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LIST OF ABBREVIATIONS

SEBI

Securities and Exchange Board of India.

SAT

Securities and appellate tribunal.

AIR

All India Reporter.

SC

Supreme Court.

CIT

Commissioner of Income Tax.

SEC

Securities Exchange Commission.

US

United States.

SCC

Supreme Court Cases.

Sec.

Section.

u/s

under section.

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INDEX OF AUTHORITY

S.NO.

PARTICULARS

STATUTORY COMPILATIONS
1. THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.
2. PROHIBITION OF INSIDER TRADING REGULATIONS, 1992.
3. CONSTITUTION OF INDIA.
4.

COMPANIES ACT, 1956.

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

DICTIONARIES & LAW LEXICONS:

i.

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

ii.

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

University Press 2nd ed. Oxford (1995)

iii.

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

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

WEBSITES REFERRED:
i.

www.findlaw.com

ii.

www.indiankanoon.com

iii.

www.indlawinfo.org

iv.

www.jstor.org.

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v.

www.judis.nic.in

vi.

www.lawsofindia.org

vii.

www.manupatra.com

viii.

www.scconline.com

ix.

www.supremecourtcaselaw.com

CASES REFERRED
1. Bhikaji Keshao v. Brij Lal Nandlal, AIR 1955 SC 610.
2. Siemens Eng. & Manufacturing Co. v. Union of India, AIR 1976 SC 1785.
3. Manoj Kumar Rai v. Union of India, AIR 1993 SC 882.
4. D.C. Mills v. CIT, AIR 1955 SC 65.
5. Mohan Lal v. Management, Bharat Electronics Ltd. AIR 1981 SC 1253.
6. Mehar Singh v. Shri Moni Gurudwara Prabandhak Committee, AIR 2000 SC
492.
7. Dhirajlal Girdharilal v. I.T. Commr., AIR 1955 SC 271.
8. Dirks v. SEC 463 U.S 646(1983).
9. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968), cert,
denied, 394 U.S 976 (1969).
10. Rakesh Agarwal v. SEBI (2004) 1 CompLJ 193 SAT, 2004.

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

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STATEMENT OF FACTS
Fortune India Ltd., is a Company incorporated under the Indian Companies Act, 1956,
having its registered office at No.5, Avenue road, Bazaar Street, Mumbai was engaged in the
business of Cotton yarn, manufacturing and trading. It was a listed Company, and its equity
was listed in the Bombay Stock Exchange. The Company has been declaring dividend from
the last ten years. One of the independent directors, Mr. Sanjay Bansal was a nominee of a
Central Co-operative Bank.
DISCUSION OF THE BOARD OF DIRECTORS IN SEPTEMBER- 2012 MEETING.
Business proposal of either acquiring or merging with a Company engaged in the forward
trading to effectively control over the periodical supply of high quality long staple cotton for
the plant of the Company and to effectively meet demand for the garment industry engaged in
supply of quality product for US / EU market.
Delta Future Trading Co. Ltd., also a listed Company with NSE having its registered office
at No. 25, Avenue road, Bazaar Street, Mumbai was engaged in the business of forward
trading of cotton, wheat and maize. The company has Mr. Mahesh Agarwal and Mr. Suresh
Agarwal in its Board of Directors.
DECISSION OF THE BOARD OF DIRECTORS IN SEPTEMBER- 2012 MEETING.
The Board decided to acquire shares of a company engaged in business of manufacturing
yarn.
The driver of the car overheard the proposal, while the two Agarwal brothers were discussing
the pros and cons of the proposal while driving the car back home. Thereafter, next day, Mr.
Suresh used his wifes cell to talk to one Mrs. Susma, a sharebroker asking for the price of
Fortune for the last about a month. There was no further discussion.
DRIVER ACQUAINTANCE
The driver of Agarwal brothers had acquaintance with the driver of Mrs. Susma. They in
between their discussion, in the drivers club about Fortunes idea of sale or buy were loud
enough to be heard by the driver of Mr. Bansal of Fortune. Mrs. Susma started acquiring
shares of those two companies and Bansal started buying Deltas shares after they got this
scoop from their respective drivers.

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

DECISSION OF SEBI TO AN ANONYMOUS COMPLAINT

SEBI, on an anonymous complaint issued notice to:1. Fortune, its directors.
2. Delta, its directors.
3. Mrs. Susma.
SEBI after enquiry found that charge of insider trading was established against Sanjay
Bansal, Agarwal brothers and Mrs. Susma and imposed penalty equal to double of the gains
made by the parties.
APPEALS TO APPELLATE SECURITY TRIBUNAL
Aggrieved, by the orders of SEBI, Agarwal brothers, Bansal and Susma in separate appeals
went to the Appellate Security Tribunal. The Tribunal found charges against Agarwal
brothers not justified and exonerated them but upheld the order of the SEBI against Bansal
and Susma.

Susma and Bansal submitted an SLP to the Supreme Court of India.

Hence the present dispute.

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STATEMENT OF ISSUES
ISSUE NO.1-WHETHER THE PETITION IS MAINTAINABLE?
ISSUE NO.2-WHETHER THE TELEPHONIC CONVERSATION AMOUNTED TO
INSIDE INFORMATION?
ISSUE NO.3-WHETHER SURESH AGARWAL ACTED ON THE SAID INFORMATION
AND MADE PROFIT THEREOF?

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SUMMARY OF ARGUMENTS
ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?
Article 136(1) empowers the Supreme Court to grant special leave to appeal in its discretion.
The provision is couched in very wide terms. The main consideration on which the Supreme
Court acts is that under Article 136, it is its duty to see that injustice is not perpetrated or
perpetuated by the tribunals. One of the pre-requisites to entertain an appeal under Article
136(1) is that the order of the tribunal must be erroneous or unjust. Under the facts and
circumstances of the instant case the Appellate Security Tribunal acted erroneously on the
following

Mr. Sanjay Bansal did not possess any unpublished price sensitive information about
Delta, as the drivers in the Drivers Club were merely discussing about the Fortune's
idea of sale or buy, which he was already aware of because of his position. Mr. Sanjay
Bansal did not have any pecuniary relationship with the company. he could not have
influenced the decision of the Board of directors to acquire Delta Future Trading Ltd.
Exclusively.

During the conversation between Mrs. Sushma and Mr. Suresh Agarwal, there was no
exchange of insider information as he merely asked her for the prices of Fortune for
last about a month as this sole piece of information is not material enough to
commence insider trading in any practical possibility.

The conversation between the drivers in the Driver's Club is nothing but hearsay, on
which reliance cannot be placed for conviction. The legitimacy of information is
questionable hence not concrete in nature.

ISSUE NO.2 - WHETHER

THE

TELEPHONIC CONVERSATION AMOUNTED

TO

INSIDE

INFORMATION?
The telephonic conversation between Mr. Suresh Agarwal and Mrs. Sushma was general in
nature and no unpublished price sensitive information was disclosed or shared amongst the
two, as the discussion was merely restricted to price of the Fortune. Stock brokers often
render good tips, which is usually beneficial in the investment process and that is why Mr.
Suresh Agarwal had a conversation with Mrs. Sushma. The conversation between Mr. Suresh
Agarwal & Mrs. Sushma does not fall within the ambit of "price sensitive information"

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defined under S.2[(ha)] of the SEBI regulations on Prohibition of Insiders Trading Act, 1992.
The telephonic conversation was pertaining to "price of Fortune for the last about a month".
This information is not a non-public information, as it is generally available to the investing
public. For that matter, even the price sensitive information should be unpublished in order to
constitute insider trading as per Regulation 3 of SEBI (Prohibition of Insider Trading
Regulations) 1992. Merely asking the Price of Shares for about a month does not even in the
remotest of sense constitute unpublished price sensitive information.
ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED

ON

THE SAID INFORMATION AND

MADE PROFIT THEREOF?

Agarwal Brothers were merely two of the board of directors of a company who chose only to
acquire another company, in their meeting. Being merely two of the board of directors of
Delta, Agarwal brothers were not solely in the position to change the company's idea of
acquiring, but the company ended up being acquired. This fact further clarifies that Agarwal
brothers and especially Suresh Agarwal restricted his conversation merely to official and
legal talk. There was no exchange of insider information whatsoever and Suresh Agarwal did
not make any profit.

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DETAILED PLEADINGS
ISSUE No. 1: WHETHER THE PETITION IS MAINTAINABLE?
It is most humbly submitted that, the present petition has been filed under Article 136 of the
Constitution by way of a Special Leave Petition (hereinafter referred to as SLP), aggrieved by
the order of the Appellate Security Tribunal. It is an outstanding feature of Article 136(1)1
that it empowers the Supreme Court of India to hear appeals not only from courts but also
from tribunals in any cause or matter2, though at its discretion. Article 136(1) empowers the
Supreme Court to grant special leave to appeal in its discretion. The provision is couched in
very wide terms. The constitutional provision lays down no norms to regulate Court's
discretion in the matter of hearing appeals, but acts as a check upon the unfettered powers of
the Tribunals and Courts.
That, one of the pre-requisites to entertain an appeal under Article 136(1) is that the order of
the tribunal must be erroneous3 or unjust4. Generally the main consideration on which the
Supreme Court acts is that under Article 136, it is its duty to see that injustice is not
perpetrated or perpetuated by the tribunals5. The Court would interfere with the finding of a
fact if there are special circumstances, e.g. absence of consideration of important piece of
legal evidence6 or when the findings are based on irrelevant considerations7.
Under the facts and circumstances of the instant case the Appellate Security Tribunal acted
erroneously, which this Hon'ble Court may graciously be pleased to note are the following:

That Mr. Sanjay Bansal (Independent Director of Fortune India Ltd.), did not possess any
unpublished price sensitive information8 about Delta, as the drivers in the Drivers Club
were merely discussing about the Fortune's idea of sale or buy, which he was already
aware of because of his position. So he did not get any scoop from his driver. Furthermore,
in the September 2012 meeting of Fortune India Ltd. there was no proposal of acquiring
Delta Future Trading Co. Ltd. in particular.

Article 136(1): Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant
special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter
passed or made by any court or tribunal in the territory of India.
2
M.P. Jain, Indian Constitutional Law, 256, (LexisNexis Butterworths Wadhwa, Nagpur, 2010).
3
Bhikaji Keshao v. Brij Lal Nandlal, AIR 1955 SC 610; Siemens Eng. & Manufacturing Co. v. Union of India,
AIR 1976 SC 1785.
4
Manoj Kumar Rai v. Union of India, AIR 1993 SC 882.
5
D.C. Mills v. CIT, AIR 1955 SC 65; Mohan Lal v. Management, Bharat Electronics Ltd. AIR 1981 SC 1253.
6
Mehar Singh v. Shri Moni Gurudwara Prabandhak Committee, AIR 2000 SC 492.
7
Dhirajlal Girdharilal v. I.T. Commr., AIR 1955 SC 271.
8
Regulation 2(ha) & 2(k) of the SEBI(Insiders Trading Prohibition Regulations) 1992.
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That Mr. Sanjay Bansal, being merely an independent director of Fortune India Ltd. does
not have any pecuniary relationship with the company, its promoters, senior management
or affiliate companies, therefore he could not have influenced the decision of the Board of
directors to acquire Delta Future Trading Ltd. exclusively, as Fortune was even intending
to merge. Furthermore, there was no breach of Regulation 3 of the SEBI regulations on
prohibition of Insider Trading.

That Mrs. Sushma is a professional analyst, who analyses the information available in the
market and advices the clients, therefore the proof of trading based on non public
information cannot be established under the given facts and circumstances. In the instant
case Mr. Suresh merely asked for the price for fortune for the last about a month and no
further discussion took place between them. This information cannot be called as insiders
information as this sole piece of information is not material enough to commence insider
trading in any practical possibility. Under similar circumstances it is merely the expertise
and efficiency of the analysts, not the materiality of the information9.

Furthermore, the conversations between the drivers in the Driver's Club is nothing but
hearsay, on which reliance cannot be placed for conviction. The legitimacy of information is
questionable hence not concrete in nature. For instance, an individual who is sitting in a
restaurant or on an aircraft can overhear a conversation. It is at his disposal to believe the
information or to ignore it. This does not constitute insider's information. The same has been
iterated in Dirks v. SEC10. In this case Mr.Dirk was visited by former Equity Funding
employee, he did not know whether the information he received was authentic. Therefore, if
the authenticity of the information was never confirmed, he cannot be said to act on material
information.
Therefore, in light of the above proposition, it is most humbly prayed, that the Appellate
Security Tribunal committed grave injustice to the Appellants by misinterpreting the facts
and evidence available at their disposal. There was no exchange of any unpublished price
sensitive information which could be material enough to constitute insider trading. Mr.
Sanjay Bansal acted responsibly, fulfilling his fiduciary duty towards his company. Hence the
Hon'ble Court may graciously be pleased to allow the petition under Article 136, in order to
render justice to the Appellants.
9

Desari, Santhi, "Insider or Price Sensitive Information in Insider Trading of Securities: An analysis of English,
U.S, And Indian Laws", Indian Social Legal Journal, 39(1&2), 2013.
10
463 U.S 646(1983).
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ISSUE NO.2 - WHETHER

THE

TELEPHONIC CONVERSATION AMOUNTED

TO

INSIDE

INFORMATION?
It is most humbly submitted that, the telephonic conversation between Mr. Suresh Agarwal
and Mrs. Sushma was general in nature and no unpublished price sensitive information was
disclosed or shared amongst the two, as the discussion was merely restricted to price of the
Fortune. In this regard it is pertinent to note that stock brokers are professionals who buy and
sell stocks as well as other securities in the stock market. They know the trend of the stock
market and keep a check on the financial developments of various companies. Stock brokers
often render good tips which is usually beneficial in the investment process.

That, the above mentioned conversation between Mr. Suresh Agarwal & Mrs. Sushma
does not fall within the ambit of "price sensitive information" defined under S.2[(ha)]
of the SEBI regulations on Prohibition of Insiders Trading Act, 1992, which include :-

(i) Periodical financial results of the company;

(ii) Intended declaration of dividends (both interim and final);
(iii) Issue of securities or buy-back of securities;
(iv) Any major expansion plans or execution of new projects.
(v) Amalgamation, mergers or takeovers;
(vi) Disposal of the whole or substantial part of the undertaking;
(vii) and significant changes in policies, plans or operations of the company;

Therefore, the conversation between the two could not have possibly amounted to disclosure
of price sensitive information, as no further discussion took place between the two after that
point of time.

That, To substantiate the above preposition, reference maybe made to the celebrated
case of Texas Gulf Sulphur11, where it was discussed that it is important to determine
(i) when the information in question became material as it is to determine (ii)whether
the information was material. With reference to Texas Gulf Sulphur, the answer to
both the tests is negative. Telephonic conversation as previously discussed was not
material or immaterial in nature as far as insiders trading is concerned.

11

SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968), cert, denied, 394 U.S 976 (1969).
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That, the telephonic conversation was pertaining to "price of Fortune for the last
about a month". This information is not a non-public information, as it is generally
available to the investing public. For that matter, even the price sensitive information
should be unpublished in order to constitute insider trading as per Regulation 3 of
SEBI (Prohibition of Insider Trading Regulations) 1992. Merely asking the Price of
Shares for about a month does not even in the remotest of sense constitute
unpublished price sensitive information.

Therefore, in light of the above-mentioned proposition it is most humbly prayed the court to
consider the materiality of information which was discussed, which was nothing but a
professional communication between the two alleged accused.
ISSUE NO.3 - WHETHER SURESH AGARWAL ACTED

ON

THE SAID INFORMATION AND

MADE PROFIT THEREOF?

It is most humbly submitted that, Mr. Suresh Agarwal did not act on the said information, as
previously discussed. Apart from the non-material telephonic conversation, no further
discussion was done about Fortune.

That in this regard it is pertinent to observe that in India an insider trader is made
criminally liable by the virtue of section 24 of the Securities and Exchange Board of
India Act, 1992 read with Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2002 ('Insider Trading Regulations'). The insider
trading regulations in India prohibits dealing in securities of a listed public company
while in possession of unpublished price-sensitive information. Therefore if any
unpublished price sensitive information is leaked, the penetrator of such information
can be held liable. Therefore, the motive and intention should be established to
prosecute the alleged offenders as held by The Securities Appellate Tribunal in
Rakesh Agarwal v. SEBI12. It is pertinent to highlight the relevant ratio decidendi
which is read as "...looking from the gravity of the charge and penal consequences
that could visit the insider for indulging in insider trading, it is difficult to accept the
preposition that the intention or motive of the person indulging in insider trading is
irrelevant. It is true that regulation 3 and 4 perse are pure vanila sections without
specific mention of the requirement of motive or the intention but these regulations, if

12

(2004) 1 CompLJ 193 SAT, 2004

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read with the objective of Prohibiting the insider trading makes clear that motive is
built in and the insider trading without establishing the motive factor is not
punishable...".

That, from the above extract it is unambiguous that motive and intention also attains
importance if the guilt it to be established. Furthermore, under the facts and
circumstances of the instant case Agarwal Brothers were merely 2 of the board of
directors of a company who chose ONLY to acquire another company, in their
meeting. Had there been any conclusive conversation with Sushma, or leak of any
material information about Delta's intention to merge with Fortune, Sushma would
have only purchased Delta's share as the price of the target company's stock generally
increases during the takeover, while the acquiring company stock reduces. It was
merely the "guess work" on part of Sushma, as she was an expert.

Furthermore, being merely 2 of the board of directors of Delta, Agarwal brothers were not
solely in the position to change the company's idea of acquiring, but the company ended up
being acquired. This fact further clarifies that Agarwal brothers and especially Suresh
Agarwal restricted his conversation merely to official and legal talk.

That, Section 6 of the Indian Evidence Act which incorporates Doctrine of Res Gestae
which talks about facts forming the part of same transaction lays down that there
should be a proximate nexus between the events to prove the guilt. In the instant case
the actions and reactions of Mr. Suresh Agarwal are nothing but prudent and natural
in nature and hence has made no profit at all. The discussions in the meetings of the
company and the subsequent events which are completely different very
unambiguously exhibit that no possible insider information was ever exchanged
between anyone.

Therefore, in light of the above mentioned proposition it is most humbly prayed that Mr.
Suresh Agarwal did not act on inside information hence no profit was made either. He acted
well within his fiduciary duty by not disclosing any material fact to anybody.

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PRAYER
Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is
most humbly prayed that this Honorable Court may be pleased to:

TO HOLD

That the present petition under Article 136 of the Indian Constitution is maintainable.

That the telephonic conversation did not amount to inside information.

That Mr. Suresh Agarwal acted on the said information and made profits thereof.

TO SET ASIDE

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

MISCELLANEOUS

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

ALL OF WHICH IS RESPECTFULLY SUBMITTED

COUNSELS FOR APPELLANT

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