GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

TEAM CODE: 101

IN THE HONBLE SUPREME COURT OF INDIA

AT NEW DELHI
(FILED UNDER SECTION 15Z OF SEBI ACT 1992)

IN THE MATTER OF:

DREAMSELLERS
(APPELLANTS)

V.
SEBI
(RESPONDENT)

Memorial filed on behalf of the Respondents

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

TABLE OF CONTENTS

LIST OFABBREVIATIONS....................................................................... 3
INDEX OF AUTHORITIES ....................................................................... 4
STATEMENT OF JURISDICTION............................................................. 5
STATEMENT OF FACTS............................................................................ 6
ISSUES PRESENTED ................................................................................. 8
SUMMARY OF ARGUMENTS................................................................... 9
ARGUMENTS ADVANCED ...................................................................... 11
-

THAT THE PROVISIONS OF THE NEW TAKEOVER CODE COULD NOT BE

APPLIED TO AN OFFER MADE UNDER THE 1997 TAKEOVER CODE.

THAT DREAMSELLERS HAD NOT EXCERSIZED PROPER DUE DILIGENCE

THAT SEBI HAS NOT VIOLATED THE PRINCIPLES OF NATURAL JUSTICE

WHILE PASSING THE PREVIOUS ORDER

THAT REGULATION 27(1)(d) CAN BE READ EJUSDEM GENERIS WITH

OTHER PROVISIONS OF THE SAID REGULATION

PRAYER................................................................................................ 22

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

LIST OF ABBREVIATIONS
&

And

Honble

Honourable

Ed.

Edition

Co.

Company

UOI

Union of India

Ltd.

Limited

SEBI

Securities and Exchange Board of India

v./vs.

Versus

AIR

All India Reporter

SAT

Securities Appelate Tribunal

BCLC

Buttersworth Company Law Cases

SC

Supreme Court

SCC

Supreme Court Cases

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

INDEX OF AUTHORITIES

Statutes Referred:
Companies Act 2013, Act No.14 of 2013
The SEBI Act, 1992
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011
SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulation
2002.
The Constitution of India, 1949

Cases Cited:
Re Produce Marketing Consortium Ltd. (No. 2) 1989 BCLC 520 at 550
IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001)
CCI v. SAIL (2010) 10 SCC 744, 777,
Gouranga Chakrabarthy v. Tripura (1989) 3 SCC 1321
Nirma Ind. V.SEBI, (2013) 8 SCC 20
Ondal Coal Co. v. Sonepur Coalfields, AIR 1970 Cal. 391
J.M.A Ind. V. UOI, AIR 1980 DEL. 200
UOI v. Amrit Singh, AIR 1991 SC 564
Maya Devi v. Raj Kumar Batra (2010) 9 SCC 486
Board of Directors, Himachal Pradesh Transport Corp. v. K.C. Rahi, (2008) 11 SCC 502, 504
UOI v. Alok Kumar (2010) 5 SCC 349
Swadeshi Cotton Mills v. UOI, AIR 1981 SC 818
Para 62, R.V. Department for Constitutional Affairs, (2006) 2 All Er 99
Umarani v. Registrar Co-op Societies (2004) 7 SCC 112
Amar Chandra Chakraborty v Collector of Exercise (1972) 2 SCC 442
Health Sciences v Sutchikisa Prasarak Mandal (2010) 3 SCC 786

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

Books Referred:
M.P. Jain, Constitution of India, Lexis Nexis, 7th Edition, 2014
D.D. Basu Commentary on Const. of India, Justice S.S. Subramani, Vol. 2, Lexis Nexis, 9th
Edition, 2014
Gower And Davies, Principles of Modern Company Law, 9th Edition, 2012
Reinier H Kraakman, Anatomy of Corporate Law: A Comparative and Functional Approach,
2004

Dictionaries Referred:
Blacks Law Dictionary, Thompson Reuters, 9th Edition.
Websters Comprehensive Dictionary, Deluxe Encyclopedic Edition, Typhoon International,
2004.

Articles Referred:
Bill Maurer, Cultural Anthropology Vol. 20, No. 4 (Nov., 2005), pp. 474-505 Published
by: Wiley on behalf of the American Anthropological Association

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

STATEMENT OF JURISDICTION
It is humbly submitted that the Respondent submits to the jurisdiction of the Honble
Supreme Court of India under Section 15Z of the SEBI Act, 1992.

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

STATEMENT OF FACTS
Artemis Ltd. borrowed a sum of 100 Crore from Dreamsellers Ltd. and pledged equity
shares as security. The debt was not repaid within the prescribed time. Upon default of
payment, the pledge was invoked by the Dreamsellers Ltd. which entitles them to 12.5%
equity shares in Artemis. Along with the invocation of pledge, Dreamsellers Ltd. decided
to make a voluntary open offer under Regulation 10 of the SEBI 1997 Takeover
Regulations, which would help them acquire 37.6% equity shares in Artemis, this would
take up their holding upto 50.1% in Artemis.
Dreamsellers Ltd. made a public announcement on October 1, 2010 for the proposed open
offer, a draft letter of the same was filed with SEBI. In the mean time, lenders of Artemis
had been pushing the board to review their operations. An internal audit was called for,
which revealed certain irregularities in the financials of Artemis. They directed a special
audit into the financial affairs of the company. Through the report it has come to light that
a sum of 300 Crore was siphoned off and embezzled by the promoters of Artemis, which
resulted in a sharp decline in the prices of their shares.
On October 30,2011, Dreamsellers Ltd. wrote through its merchant bankers to SEBI
seeking top withdraw the open offer As an alternative and without-prejudice argument,
Dreamsellers Ltd. sought that SEBI should pass an order permitting re-pricing of the open
offer price in view of the new facts that have become known, which the market did not
know earlier, and because of which the market price had been much higher than what it
would have been had the price become known.
SEBI stated that acquirers should conduct their due diligence before deciding on whether
to make an open offer and ignored the re-pricing proposition. SEBI also stated that
Regulation 23 of the New Takeover Regulations would not be applicable at all since the
open offer had been made under the provisions of the 1997 Takeover Regulations. The
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (New Takeover Regulations) had been notified on
September 23, 2011 and the same came into force with effect from October 22, 2011.

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

Aggrieved by the SEBI Order, Dreamsellers Ltd. filed an appeal before the Securities
Appellate Tribunal (SAT) under Section 15T of the SEBI Act, 1992, challenging the
same. The SAT after hearing the parties passed an order dismissing the appeal filed by
Dreamsellers Ltd.. Being aggrieved by the Order of the SAT, Dreamsellers Ltd. filed an
appeal before the Honble Supreme Court under Section 15Z of the SEBI Act, 1992.

ISSUES PRESENTED
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

1. WHETHER THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER

REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER COULD BE
APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 TAKEOVER
REGULATIONS ?
2. WHETHER DREAMSELLERS HAD FAILED TO EXCERSISE DUS DILIGENCE
AND THE FACTS RELATING TO FRAUD WERE KNOWN OR COULD HAVE
BEEN KNOWN IF THEY EXCERCISED PROPER DUE DILIGENCE ?

3. WHETHER SEBI HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN

THE PRESENT CASE WHILE PASSING ITS ORDER WITHOUT HEARING
DREAMSELLERS ?

4. WHETHER REGULATION 27(1)(d) OF THE 1997 CODE IS TO BE GIVEN AN

INTERPRETATION WHEREBY, THE WORDS such circumstances as in the opinion
of the Board merit withdrawal ARE TO BE READ EJUSDEM GENERIS WITH THE
OTHER PROVISIONS OF REGULATION 27(1)(d) OF THE SAID CODE ?

SUMMARY OF ARGUMENTS

GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

1.WHETHER THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER
REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER COULD BE
APPLIED

TO

AN

OPEN

OFFER

MADE

UNDER

THE

1997

TAKEOVER

REGULATIONS?
It is humbly submitted that an open offer was made under the 1997 Regulations, pursuant to
new developments, the Appellants chose to withdraw their voluntary open offer under the
New 2011 Takeover Code inspite of a Savings Clause in the 2011 Code which states that
proceedings should continue in the 1997 Code itself even though it is not in existence.

2.WHETHER DREAMSELLERS HAD FAILED TO EXCERSISE DUS DILIGENCE AND

THE FACTS RELATING TO FRAUD WERE KNOWN OR COULD HAVE BEEN
KNOWN IF THEY EXCERCISED PROPER DUE DILIGENCE ?
It is submitted that the appellants have not exercised due diligence. Appellants have merely
relied on the information which was available to them rather than conducting any
investigation to verify the authenticity of the information. Appellants were grossly negligent
as there were clear indications of inconsistencies in finance as the fraud committed was huge
which could be discovered by investigation of financials of the company and there was
pending litigation in Delhi High Court which would lead to an inference that company was
not fulfilling its obligations and due to precarious financial position of Artemis there should
have been proper exercise of due diligence.
3.WHETHER SEBI HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN THE
PRESENT CASE WHILE PASSING ITS ORDER WITHOUT HEARING
DREAMSELLERS ?
It is humbly submitted that principles of natural justice were adhered to even though oral
hearing was not granted to the appellants. Courts have stated that there has to be not just mere
fulfillment of principles of natural justice or strict interpretation of principles of natural
justice but such objectives which would fulfill principles of natural justice have to be
followed. The later part has been given greater signifance. In the present case, objectives of
principles of natural justice have been fulfilled as decision was fair, was opportunity given to
the appellant to be heard, speaking order, lack of prejudice caused to appellant due to non
granting of oral hearing.

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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

4.WHETHER REGULATION 27(1)(d) OF THE 1997 CODE IS TO BE GIVEN AN

INTERPRETATION WHEREBY, THE WORDS such circumstances as in the opinion of the
Board merit withdrawal ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER
PROVISIONS OF REGULATION 27(1)(d) OF THE SAID CODE ?
It is humbly submitted that regulation 27(1)(d) of 1997 takeover code should be read ejusdem
generis with other provisions of the said regulation as the common thread that runs across the
regulation is that of impossibility to perform the public offer and the discretion granted to the
board under clause (d) must be read in light of clause (b) and (c) to further the objectives of
the takeover code.

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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

ARGUMENTS ADVANCED
1.WHETHER THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER
REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER COULD BE
APPLIED

TO

AN

OPEN

OFFER

MADE

UNDER

THE

1997

TAKEOVER

REGULATIONS?
It is humbly submitted that an open offer was made by the Appellants under Regulation 10 of
the 1997 Takeover Regulations1 which requires the acquirer to make a public announcement
for acquiring more than 15% shares of a company. Pursuant to new developments the
Appellants chose to withdraw their open offer under Regulation 23 of the New Takeover
Regulations2. Regulation 23 of the New Takeover Code talks about the withdrawal of an open
offer under certain circumstances. Certain circumstances which the Appellants believe to
deem fit their case.
It is submitted that Regulation 23 of the New Takeover Regulations 3 would not be applicable
under this situation since the open offer made by the Appellants was made under the 1997
Takeover Regulations.
The primary reason for not allowing the withdrawal of the open offer under the New
Takeover Regulations is the existence of Section 35 of the 2011 Takeover Regulations which
talk about Repeal and Savings. A savings clause in a statute is an exception of a special
thing out of general things mentioned in the statute; it is ordinarily a restriction in a
repealing Act, which is intended to save rights, pending proceedings, penalties etc., from the
annihilation which would result from an unrestricted repeal. 4 The 2011 Takeover Regulation
has a saving clause, Section 35 (2) c which states that notwithstanding the repeal of the 1997
Takeover Regulations any open offer for which a public announcement has been made under
the repealed regulations (herein the 1997 Takeover Regulations) shall be required to
continued and completed under the repealed regulations. The 2011 Regulations clearly put in
place a savings clause for such situations which clearly state that the proceedings should
continue under the 1997 Code even thought it is not in existence. This clause demolishes the
claims of the Appellants who want to withdraw their offer under the New Regulations. The
1 Regulation 10, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997
2 SEBI (Substantial Acquisition of Shares and Takeovers) 2011
3 ibid
4 Savings Clause, Blacks Law Dictionary, 9th Edition
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

Appellants have failed to conduct their due diligence before making such an offer. Such open
offers once made cannot be withdrawn lightly. Hence the Appellants are required to continue
the withdrawal proceedings under the 1997 Takeover Regulations and not under Regulation
23 of the 2011 Takeover Regulations.

2.WHETHER DREAMSELLERS HAD FAILED TO EXCERSISE DUE DILIGENCE AND

THE FACTS RELATING TO FRAUD WERE KNOWN OR COULD HAVE BEEN
KNOWN IF THEY EXCERCISED PROPER DUE DILIGENCE ?
It is humbly submitted that the directors have not exercised due diligence and if due diligence
was exercised by the appellants the fraud committed would have been discovered. Section
166 of Companies Act, 20135 states that: A director of a company shall exercise his duties
with due and reasonable care, skill and diligence and shall exercise independent judgment.
Due diligence does not operate under the sign of certainty. Rather, it proceeds via the legal
doctrine of reasonable care6, the care that is "due" in due diligence. Due means suitable,
lawful, sufficient, regular7. However, the diligence conducted by the appellants is not due in
the present case.
Scope of due diligence:
The main aim of conducting due diligence is to ensure that business is to conform that
business is what it appears to be. The scope of the due diligence to be exercised was
highlighted by the Court and it was stated that By focusing on the functions which an
individual undertakes or which are entrusted to him, the Court is able to calibrate the content
of the duty in the light of size and complexity of the business and the position of the
individual director.8 The scope of due diligence depends upon the facts and the
circumstances of the case. In the present case, due diligence was not adequately discharged
by the directors to the extent upon which it was bestowed upon them. In the present case the
target company i.e. Artemis was under financial stress 9 and the appellants still took a decision
to make an voluntary open offer to acquire up to 37.6% 10 of the equity shares in Artemis.
5 Act No.14 of 2013
6Bill Maurer, Cultural Anthropology Vol. 20, No. 4 (Nov., 2005), pp. 474-505 Published by: Wiley on behalf
of the American Anthropological Association
7 Webster Comprehensive Dictionary, Deluxe Encyclopedic Edition, Trident Press Intl., pg. 390
8 Re Produce Marketing Consortium Ltd. (No. 2) 1989 BCLC 520 at 550
9 Facts Sheet, Page 1, Para 4, Line 3
10 Facts Sheet, Page 1, Para 5, Line 4

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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

There is no denying the fact that risk is part of business and risky decisions have to be taken.
However, it is submitted that adequate due diligence has not been conducted before taking
such a major financial decision which will be proved by the following statements.
1. Mere reliance on Artemis representations:
In a similar case where the buyer merely relied on the sellers representation Court held that
Buyers who neglect this process, or who are less than diligent in their investigations, may
hope to rely on the sellers representations and warranties. Courts have found such reliance
to be unreasonable, and therefore denied a buyers claim of harm as a result of a breach of
those representations and warranties, where the buyer did not sufficiently investigate to
discover the sellers problems.11 In the present case the appellants merely relied on the
publicly available information and if thorough investigation has been considered on the
information rather than mere reliance, embezzlement would have known as there would be
irregularities in balance sheets or the audit as there was significant sum which was involved
i.e., 300 crores and there were clear irregularities in the financials of Artemis between 2005
and 2008.12
Directors should satisfy themselves that their due diligence committee has the right mix of
skills and expertise, and that the processes are adequate, robust and reliable, which includes
auditors. However, such an expert team was not comprised by the appellants. If such a
committee was comprised and all the accounts were thoroughly looked into fraud would have
been discovered, as fraud was discovered only through an audit committee which was
appointed by board of directors of Artemis. There has been negligence on part of the
appellants as there was no evaluation of financial risk as there was no qualitative assessment
on the information available to them. There would be unusual revenue recognition statements
which would have been discovered as the scam worth humongous amount of 300 crores and
there would be unusual or non-recurring items, inconsistencies, write offs etc.
While investing, it is not prudent for the buyer to rely on merely public information. Before
making such a substantial investment there must be reliance on much more than mere market
sentiment.
2. Caveat emptor:

11 Supra, note 8
12 Facts Sheet, Page 2, Para 8, Line 1
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

On a similar set of facts, Court also applied principle of caveat emptor: buyers reliance on
the sellers statements or projections was not reasonable, because the buyer was given the
opportunity to discover the accurate information. The Court noted that caveat emptor (buyer
beware) was still the rule, especially when sophisticated business entities were involved. 13
Failure by the appellants to verify the information, clearly indicates the negligence of the
appellants in conducting due diligence.
3. Litigation risks:
One of the constituent element of due diligence is to evaluate legal risks i.e., checking
whether there are any pending or threatening litigations against the target company. In the
present case, there were legal proceedings underway in Delhi High Court. 14 This litigation
was bought due to inability of the target i.e., Artemis to fulfill its obligation. If sufficient
investigation was conducted the risks involved would have known long before the public
announcement. However, the same was not done by the appellants.
It is submitted that public offer was announced without exercise of due diligence by the
appellants. There has been no investigation on the information which was available to them.
There is no denying the fact that business involves risks, however due diligence duty ensures
that there is evaluation of such risks which is absent in the present case. In the present case
the discrepancies were so obvious that the boards failure to detect it was grossly negligent.

3.WHETHER SEBI HAS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN THE

13 IBP, Inc. v. Tyson Foods, Inc., 789 A.2d 14 (Del. Ch. 2001)
14 Facts Sheet, Page 2, Para 9, Line 3
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

PRESENT

CASE

WHILE

PASSING

ITS

ORDER

WITHOUT

HEARING

DREAMSELLERS ?
It is submitted that principles of natural justice have not been infringed by SEBI while
rejecting the application to withdraw open offer without granting oral hearing to the
appellants.
There is no specific definition of principles of natural justice. Thus, application of principles
of natural justice depends and varies upon the facts and circumstances of each case. It is not
only difficult but also not advisable to spell out any straightjacket formula which can be
applied to all cases universally without variation.15 Oral or personal hearing is not
regarded as inevitable or indispensable ingredient of natural justice in all cases. Natural
justice does not necessarily predicate a personal hearing unless the context requires
otherwise.16 Whether an opportunity should be by written representation or personal hearing
depends upon the facts of each case.
It has been held that it would not be correct to say that for any infraction or violation of a
fact of natural justice or a rule incorporating such fact the order passed altogether is void
and has to be set aside. A substantive provision is normally to be complied with and the
theory of substantial compliances or the test of prejudices is not applicable to such cases.17 It
is submitted that in the present case principles of natural justice have been followed due to
the following reasons:
1. Opportunity granted to be heard:
Supreme Court held that merely because the party was not given oral hearing, an order cannot
be set aside. Not being given an opportunity of oral hearing cannot always be equated to
situation where no opportunity is given to a party to submit his explanation at all, before
an order is passed causing civil consequences, especially when there is no request for
personal hearing. The tribunal is not expected to suo moto request to have oral submission.18
In the present case there was no requirement to grant hearing as the discussions between
merchant banker were taken into consideration before passing of SEBI order, thus the matter
was decided on merits. SEBI has clearly addressed all the issues it has to be considered that
the appellants never requested for an oral hearing before SEBI, however it was taken as a
15 CCI v. SAIL (2010) 10 SCC 744, 777, Para 68
16 Gouranga Chakrabarthy v. Tripura (1989) 3 SCC 1321
17 D.D. Basu Commentary on Const. of India, Justice S.S. Subramani, Vol. 2, Lexis Nexis, 9th ed. , 2014
18 Nirma Industries. V. SEBI, (2013) 8 SCC 20
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

ground at the appellate stage. SEBI suo moto cannot be expected to grant an hearing without
the request of the appellant. What, however the courts insists upon is that the person affected
should have an opportunity of adequately meeting the case against him and presenting his
case, and this may be achieved through written memorandum and explanation and not
necessarily through an oral hearing. If this minimum does not take place, then principles of
natural justice are violated.19
When an appellate authority affirms the views of the lower authority in some cases, the
courts have considered it enough that the reasons were given in the records even though the
final order did not contain them.

20

In the present case SAT had given reasons after taking

into consideration all the circumstances, thus it cannot be contended that there was violation
of principles of natural justice. If after taking into account all relevant circumstances, a
bona fide action is taken the same cannot be set aside simply on the ground that opportunity
of oral hearing was not given.21
2. Speaking order:
Reasoned decision is not an inflexible rule, for an appellate court may notwithstanding the
absence of reasons in support of the order under appeal before it examine the matter on
merits and finally decides the same at appellate stage.22 The present day judicial strategy is
to decide from case to case whether the specific adjudicatory body involved in a specific case
is obligated to give reasons in the specific circumstances of the case.23 Thus, in the present
case though oral hearing has not been granted by SEBI, SAT has granted such an opportunity
and decided the matter on merits, it is thus fruitless in contending that principles of natural
justice have not been followed in setting aside the public offer.
3. Lack of prejudice due to non compliance of principles of natural justice:
To sustain a complaint of non compliance of principles of natural justice, one must establish
that one has been prejudiced thereby for non compliance with principles of natural justice.24
Therefore, it is necessary that non observance of principles of natural justice has prejudicially
affected the appellant. In UOI v. Alok Kumar25, Supreme Court stated earlier in some cases,
Supreme Court has taken the view that breach of natural justice was itself prejudice and no
19 Ondal Coal Co. v. Sonepur Coalfields, AIR 1970 Cal. 391
20 J.M.A Ind. V. UOI, AIR 1980 DEL. 200
21 UOI v. Amrit Singh, AIR 1991 SC 564
22 Maya Devi v. Raj Kumar Batra (2010) 9 SCC 486
23 Jain Admin Law 522
24 Board of Directors, Himachal Pradesh Transport Corp. v. K.C. Rahi, (2008) 11 SCC 502, 504 (para 7)
25 (2010) 5 SCC 349
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

other de facto prejudice needs to be proved. Where rules are merely directory, element of de
facto prejudice needs to be pleaded and shown. With development of law, these rules are
somewhat relaxed. The instance of de facto prejudice has been accepted as an essential
feature where there is violation of non mandatory rules or violation of natural justice as is
understood in common parlance. In the present case no prejudice has occurred to the
appellant as SEBI has taken into consideration the discussions of merchant banker, who were
acting on behalf of the appellant and oral hearing was granted by SAT.
4. Fair decision
It has been held that fairness in relation to administrative proceedings means only the
rudiments of procedural natural justice and not all the requirements 26. Therefore it is not
essential that all the elements of natural justice have to be followed or a strict interpretation of
principles of natural justice cannot be adhered to. Fair hearing does not necessarily mean
that there must be an opportunity to be heard orally. One is entitled to an oral hearing where
fairness requires that there should be such a hearing, but fairness alone does not require that
there should be fair hearing in every case. 27 In the present case the order passed by SEBI
has been passed after taking into consideration all the contentions raised by the appellants
merchant banker.
The principle of fair play would be satisfied of the administrative authority gives to the
person aggrieved a post decisional opportunity to make a representation. 28 The inference of
fairness may also not be drawn if the protection to be achieved another way. 29 Fairness has
been followed due to hearing conducted by SAT right of oral hearing has been granted.
5. Exception to principles of natural justice:
If importing the right to be heard has the effect of paralyzing the administrative process or
the need for promptitude or the urgency of the situation so demands, natural justice could
be avoided.30 Court has to mindful to realities, SEBI could not grant oral hearing because of
the large number of administrative decisions pending before it. If oral hearing is granted in all
cases it might result in hampering the administrative process. However, the contentions of the
appellants have been considered before decision has been taken by SEBI.

26 Swadeshi Cotton Mills v. UOI, AIR 1981 SC 818

27 Para 62, R.V. Department for Constitutional Affairs, (2006) 2 All Er 99
28 D.D. Basu 2012
29 D.D Basu 2019
30 Umarani v. Registrar Co-op Societies (2004) 7 SCC 112
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

It is thus clear that the object and purpose of the principles of natural justice have to be
considered and not mere following of principles of natural justice. In the present case though
oral hearing has not occurred all the principles of natural justice objectives have been
achieved. Therefore, it cannot be pleaded that principles of natural justice have not been
adhered to.
4.WHETHER REGULATION 27(1)(d) OF THE 1997 CODE IS TO BE GIVEN AN
INTERPRETATION WHEREBY, THE WORDS such circumstances as in the opinion of the
Board merit withdrawal ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER
PROVISIONS OF REGULATION 27(1)(d) OF THE SAID CODE ?

It is humbly submitted that clause (d) of regulation 27 (1) must be read ejusdem generis with
clause (b) and (c) of the said regulation to further the objectives of the takeover code.
The term Ejusdem Generis has been defined in Blacks Law Dictionary as a cannon if
construction holding that when a general word or phrase follows a list of specifics, the
general word or phrase will be interpreted to include only the items of same class as those
listed.31
The rule was considered by this Honble Court on a number of occasions. In Maharashtra
university of Health sciences v Sutchikisa Prasarak Mandal32 the court held the Latin
expression Ejusdem Generis which means the same kind or nature is a principle of
construction, meaning where by the general words in a statutory text are flanked by restricted
words, the meaning of the general words are taken to be restricted by implication with the
meaning of restricted words. This principle arises from the linguistic implication by which
words having literally wide meaning are treated as reduced in scope by verbal context.
In Amar Chandra Chakraborty v Collector of Exercise 33 the court while laying down the
conditions for the applicability of the rule of ejusdem generis held the doctrine applies when
(i) the statute contains an enumeration of specific words (ii) the subjects of enumeration
constitute a class or category (iii) that class or category is not exhausted by enumeration (iv)
the general term follows the enumeration and (v) there is no indication of a different
legislative intent
Regulation 27(1) of the 1997 takeover code reads as follows:
31 Ejusdem Generis, Blacks Law Dictionary, 9th Edition,
32 (2010) 3 SCC 786
33 (1972) 2 SCC 442.
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GNLU SECURITIES AND INVESTMENT LAW MOOT 2016

27 (1) No public offer, once made, shall be withdrawn except under the following
circumstances:
a)
b)
c)
d)

the withdrawal is consequent upon any competitive bid;

the statutory approval(s) required have been refused;
the sole acquirer, being a natural person, has died;
such circumstances as in the opinion of the Board merit withdrawal.34

It is submitted that clause (a) of the said regulation was omitted in the year 200235.
A general reading of the provision would lead to a conclusion that regulation 27 (1) states a
general rule in negative terms. It states that no public offer once made shall be withdrawn.
Clause (b), (c) and (d) are exceptions to the general rule and must be constructed strictly.
Since clause (a) is omitted only clause (b) and (c) must be considered for interpreting clause
(d). It is humbly submitted that clause (b) permits the withdrawal of offer in cases of legal
impossibility i.e. non grant of the statutory approvals. Clause (c) permits withdrawal on
account of natural circumstances i.e. in cases where the acquirer being a natural person has
died. Hence both clauses (b) and (c) deal with cases where the open offer is rendered
impossible of being performed and hence both belong to the same genus. Therefore clause (d)
also being an exception must be construed in terms of clause (b) and (c).
It is humbly submitted that the common thread that runs through clause (b) and (c) of
regulation 27 (1) is impossibility to perform the public offer. Therefore the term such
circumstances in clause (d) would also be restricted to the situation where it is impossible for
the acquirer to perform the public offer. The discretion has been left to SEBI as the legislature
could not possibly foresee all the circumstances which would render the performance of the
public offer impossible. Therefore certain discretion is left with the board to determine
whether the circumstances fall within the realm of impossibility as visualized under clause
(b) and (c).
A liberal interpretation would defeat the purpose of takeover code
It is humbly submitted that giving a wider interpretation to clause (d) would defeat the whole
purpose of the takeover code. This Honble court in Nirma industries v SEBI36 after analyzing
various provisions of the 1997 takeover code held that the objective of the takeover code is
a) To ensure that the company is aware of substantial acquisition.
b) To ensure that in the process of substantial acquisition or takeover, the securities
market is not distorted or manipulated.
34 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
35 See, SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002.
36 Supra, note 18
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c) To ensure that the shareholders are given a option to exit.
In other words the takeover code is meant to ensure fair and equal treatment of all the
shareholders and to see that the process does not take place in a clandestine manner without
protecting the interest of the shareholders.
It is submitted that the orderly development of the securities market as a whole requires that
the public offer ought not to be withdrawn on the ground of fall in share price of the target
company, which is a result of a financial decision going wrong. If clause (d) of Regulation 27
(1) is given a wider interpretation and if public offers are permitted to be withdrawn on the
basis of financial considerations, it would adversely affect the integrity of securities market
and the interest of the share holders of the target company. If such a ground is permitted it
would lead to frivolous offers being made and withdrawn and also manipulate the prices of
the shares in the securities market which would be contrary to the intent and purpose of the
takeover code.
It is humble submitted that in the light of the above arguments clause (d) of regulation 27 (1)
must be read Ejusdem Generis with clause (b) and (c) of the said regulation and the public
offer once made cannot be permitted to be withdrawn on the basis of economic
considerations.

PRAYER

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WHEREFORE, in the lights of the facts used, issues raised, arguments advanced and
authorities cited, it is most humbly and respectfully prayed that this Hon'ble court may be
pleased to adjudge and declare that:
1. Regulation 23 of the New Takeover Code is not applicable to the offer made under the Old
Takeover Code.
2.

Proper

due

diligence

has

not

been

conducted

by

the

Appellants.

3. Principles of Natural Justice have not been violated by the Respondents.

4. Regulation 27(1)(d) must be read Ejusdem Generis with other provisions of the said
regulations.
The court may also be please to pass any other order, which this Hon'ble Court may deem fit
in the light of justice, equity and good conscience.
All of which is most humbly prayed Counsel for the Respondents..

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