BEFORE SECURITIES AND EXCHANGE BOARD OF INDIA

(SEBI)

Benny (Multinational Company) ​ ​PETITIONER

V.

Akash(Managing Director of SFL)​ ​RESPONDENT

Memorandum on behalf of the Petitioner

Submitted by
S. Sinduja
Reg No: 131401096
B. Muthukumaran
Reg no: 131401076
P. Nivedha
Reg no: 131401133
Faculty:​ Ms.V. Nivetha
 INDEX OF AUTHORITY

Indian Cases
1. Rakesh Agarwal vs SEBI
2. Hindustan Lever Limited vs SEBI
3. Tisco case (1992)
4. Dsq holding Ltd vs SEBI (1994)
5. Needle Industries (India) Ltd. and Ors. Vs. Needle Industries Newey (India) Holders
Ltd., & Ors. AIR 1981 SC 129
6. Dirks v. US SEC 403 (646)
7. US v. O'Hagan
8. Chiarella v. US 455 US 222
9. SEBI Vs. Hindustan Lever Ltd

Website
● https://www.sebi.gov.in/legal/regulations/jan-2015/sebi-prohibition-of-insider-trading-re
gulations-2015-issued-on-15-jan-2015-_28884.html
● https://blog.ipleaders.in/sebi-insider-trading-offences/
● https://www.bloombergquint.com/opinion/sebi-insider-trading-regulations-what-the-new-
regime-does-for-india-inc
● https://www.bseindia.com/corporates/Insider_Trading.aspx
● https://corporate.cyrilamarchandblogs.com/2017/10/insider-trading-hindustan-lever-limit
ed-v-sebi/
 STATEMENT OF JURISDICTION

The Petitioner humbly submits this memorandum for the petition filed before this
Securities and Exchange Board of India. The petition invokes its jurisdiction under Section 11
and 11B of the Securities and Exchange Board of India Act, 1992( the SEBI Act) read with
regulation 11 of the Securities and Exchange Board of India(Insider trading) Regulation, 1992 .
It sets forth the facts and the laws on which the claims are based.
 STATEMENT OF FACTS

Akash is a managing director of Sai Finance Ltd.(SFL) for more than 24 years. Sai
Finance Ltd. (SFL) was incorporated under the companies act, 1993 in the name of Sai Finance
Ltd.(SFL) in August 2017. The price of the shares in SFL was around Rs.50/- which reached
around Rs.100/- by October 2017. Akash had financed the purchase of the shares of SFL through
his brother-in-law Mr. L.P.Kenny during the period August 2017 to October 2017. On the basis
of insider information available with the Akash relating to the merger of SFL with Benny.
1,82,500 share were purchased during the period 9th September to 8th October i.e after the
Akash returned to india from germany after having concluded an agreement with Benny and the
date of the open offer to be made by Benny respectively between July to September 2016. SFL
held discussions with monitor chemicals to explore the possibility of technical/financial
collaborations with SFL. SFL was also holding similar discussions with SRN, Rayon and Toyo
engineering. In January 2017 Benny made a global public announcement that benny had taken
over the business of monitor worldwide with effect from November 2017. In February 2017
Benny approached SFL for a possible tir up. In May 2017 Benny held discussions with SFL and
sent a questionnaire seeking various details relevant to the discussions. On 28th June,2017 board
of SFL considered the prospects of foreign collaborations. In July, 2017 Benny team visited SFL
for technical and financial evaluation of SFL and asked for further details which were furnished
by SFL. On 5th and 6th September 2017 Akash visited Germany and held meetings with Benny
officials and concluded an agreement. Benny insisted that Benny wanted to have a majority stake
of 52% but that and the Akash was to continue in management and in control of the merged
company etc. On 8th September 2017 Akash returned to India from Germany. On 20th
September 2017 the Board of SFL was informed of the Akash visit to Germany and the minutes
recorded the salient features of the agreement that were discussed with Benny. From the
available facts nothing has happened between 8th and 29th September 2017; therefore it can
safely be concluded that principle agreement was arrived at on the 5th and 6th of September
2017. On 29th September, 2017 the Akash once again visited Germany along with his legal
advisors and the Merchant Banker and the legal advisor for Benny in India. On 2nd and 3rd
October, 2017 Legal consultants of both companies worked out a draft subscription agreement
and shareholders agreement setting out the terms and conditions and obligations of the respective
parties. These agreements were approved by the respective Board of Directors of SFL and Benny
respectively on 5th October 2017. On 8th October, 2017 Benny made an open offer for purchase
of 20% shares of SFL at Rs.70/- per share, which was raised to Rs 80/- per share on 26th
December 2017. On 30th October, 2017 SFL held an Extra Ordinary General Meeting at which
resolutions are passed inter alia for allotting to Benny 55,88,000 equity shares and the Akash
4,20,000 shares on preferential basis @ Rs.70/- per share. Between 9th September and 8th
October 2017 the Akash himself and through his investment companies Tata Investment Pvt. Ltd
and prathisha Leasing and Financing Co. Ltd. Provided a sum of Rs.1.15 Crores., Rs 1.50Crores
and Rs.30 lakhs respectively to Mr. Kenny for financing purchase of shares of SFL by Mr.
Kenny had himself invested Rs one to two lakhs only for purchase of SFL shares.
 ISSUES FRAMED

Issue 1

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO PROHIBITION OF

INSIDER TRADING UNDER SEBI ?

Issue 2

WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER

SECTION 15G SEBI ACT, 1992 ?
 SUMMARY OF ARGUMENTS

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO

PROHIBITION OF INSIDER TRADING UNDER SEBI ?

According to Section 3 of the SEBI Act , 1992, No insider shall either on his own behalf
or on behalf of any other person, deal in securities of a company listed on any stock exchange
when in possession of] any unpublished price sensitive information; or communicate counsel or
procure directly or indirectly any unpublished price sensitive information to any person who
while in possession of such unpublished price sensitive information shall not deal in securities :
Provided that nothing contained above shall be applicable to any communication required in the
ordinary course of business or under any law. No company shall deal in the securities of another
company or associate of that other company while in possession of any unpublished price
sensitive information. It is clearly stated in the facts Aakash as an insider, purchased shares
through his brother-in-law, by pertaining to sensitive information, which is prohibited by SEBI.
Hence petition is maintainable.

WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER

SECTION 15G SEBI ACT, 1992 ?

According to Section 15 G of the Securities and Exchange Board of India Act, 1992, if
any insider who, either on his own behalf or on behalf of any other person, deals in securities of
a body corporate listed on any stock exchange on the basis of any unpublished price sensitive
information. In the facts it is clear that ​shall be liable to a penalty of twenty-five crore rupees or
three times the amount of profits made out of insider trading, whichever is higher. It is clear from
the facts that Aakash had financed the purchase of shares of SFL through his brother-in-law
Benny on the basis of information available to him. So there is violation of insider trading under
the SEBI Act. Hence he is liable under the ​section 15G of SEBI Act 1992.
 ARGUMENT ADVANCED

ISSUE 1

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO

PROHIBITION OF INSIDER TRADING

1. Yes, there is violation of regulation relating to prohibition of insider trading, ​the term
‘insider’ has been defined under Regulation 2(e) of SEBI (Prohibition of Insider Trading)
Regulations, 1992. Basically, the term ‘insider’ can be classified into three broad categories,
which are:

● Persons who are connected to the company,

​

● Persons who were connected with the company,

● Persons who are deemed to be connected to the company.

2. In order to become an insider a person has to fulfill three elements, such as the person
should be a natural person or legal entity; the person should be connected person or deemed to be
connected; acquisition of the unpublished price sensitive information by virtue of such
connection.

3. The SEBI Regulations on insider trading seek to prohibit persons who by virtue of their
connection with a company received unpublished sensitive information from using such
information/dealing in the securities of the company on the basis of such information to make
secret profits / person gains.

4. In this case. Akash (Respondent) is the managing director of the Sai Finance Ltd (SFL)
for past 24 years, he is very much associated with the company, directly or indirectly and has
capacity to have frequent communication with officials or to know about the contractual,
fiduciary, employment relationship and other confidential details of the company, which access
him to unpublished price sensitive information. ​Akash had financed the purchase of the shares of
SFL through his brother-in-law Mr. L.P.Kenny during the period August 2017 to October 2017.
On the basis of insider information available with the Akash relating to the merger of SFL with
Benny.

5. The act of the Respondent (Akash) have prohibited Regulation 3 of SEBI( Prohibition of
Insider trading), 2015 that no insiders shall communicate, provide, or allow access to any
unpublished price sensitive information, relating to company or securities of the company listed
or proposed to be listed.

6. According to Regulation 2(c) of SEBI(Prohibition of Insider Trading) 2015, the

Respondent (Akash) comes under the head of “compliance officer” means any senior officer,
designated so and reporting to board of directors or head of organisation and who shall be
responsible for compliance of policies, procedures, maintenance of records, monitoring trade,
preservation of unpublished price sensitive information and so on. In this case, the act of the
Respondent(Akash) amounts to the breach of his duty.

7. Based on the given fact, it clearly comes to know that the Respondent(Akash) have acted
for his personal gain and not for the welfare of the company. Akash visited Germany on 5th and
6th of September, 2017 held meeting with Benny and concluded the agreement. But, on 20th
September 2017 the Board of SFL informed officially to Akash visit to Germany and the minutes
recorded the salient features of the agreement that were discussed with Benny. The company
officially drafted the agreement on 2nd and 3rd October, 2017 with legal consultants and not
violating the terms and conditions and obligations of the respective parties. The company SFL
were not aware about the principal agreement made on 5th and 6th September by the Respondent
(Akash). This shows that the Entity SFL failed to ensure its key managerial personnel, directors
and other person dealing with the listed entities, complies with responsibility or obligation
assigned to them under the regulation as per Regulation 5 of SEBI(General Obligation of
Compliance).

8. The act of the Respondent(Akash) is also violating the Section 12A of SEBI, that it
prohibits the person directly or indirectly engaging in insider trading and dealing with securities
while in possession of material or non-public information or communication of such information
to any other person in a manner which is contravention to the provisions of this Act or rules or
regulation made thereunder.​.

9. The council on behalf of the petitioner request SEBI has extensively referred to the US
Law while interpreting the Insider Trading Regulations not only in the case of the Appellant but
also in the case of SEBI Vs. Hindustan Lever Ltd. Even upon perusal of the High Powered
Committee Report, it is apparent that the Committee has considered the US Law on insider
trading. The jurisprudential principles behind the prohibition of insider trading were enunciated
by the Securities and Exchange Commission (SEC) in its decision rendered in the matter of Cady
Roberts & Co., on November 8, 1961.(40 SEC 907 1961) The SEC while considering Section
1(a) of the Securities & Exchange Act and Rule 10(b-5) of the Rules thereunder inter alia of
particular acts or practices which constitute fraud but rather we designed to encompass the
infinite variety of devices by which undue advantage may be taken of investors and others. The
SEC went on to observe that an insider must disclose material fact known to them by virtue of
his position, but which are not known to persons with whom he deals and which if made known
could affect their investment/judgement.

ISSUE 2

WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER

SECTION 15G SEBI ACT, 1992

10. Using nonpublic information for making a trade violates transparency, which is the basis
of a capital market. Information in a transparent market is disseminated in a manner by which all
market participants receive it at more or less the same time. Under these conditions, one investor
can gain an advantage over another only through acquiring skill in analyzing and interpreting
available information. This skill is based on individual merit and awareness. If one person trades
with nonpublic information, he or she gains an advantage that is impossible for the rest of the
public. This is not only unfair but disruptive to a properly functioning market: if insider trading
were allowed, investors would lose confidence in their disadvantaged position (in comparison to
insiders) and would no longer invest.

11. In this case, Akash the managing director on the basis of insider information gathered by
him as key managerial person financed his brother-in-law to purchase certain shares from SFL,
that the price of shares will get increase, once there is merging of Benny with SFL. This
sensitive information was known only to Akash, manager of SFL, he utilised this sensitive
information for his personal benefit by financing in purchase of shares from SFL. This indirectly
affected the rights of other shareholders, that major shares acquired from Mr. Kenny with
non-competent consideration and only few share were open to public. This clearly amounts to
the insider trading because the information is not available to other investors, a person using
such knowledge is trying to gain an unfair advantage over the rest of the market.

12. The act of the Respondent (Akash) is violating various provisions of SEBI and to be held
liable for the penalty for insider trading under Section 15 G of SEBI Act, 1992.
Section 15G in The Securities and Exchange Board of India Act, 1992 states the penalty for
insider trading, if any insider,

(i) either on his own behalf or on behalf of any other person, deals in securities of a body
corporate listed on any stock exchange on the basis of any unpublished price sensitive
information; or

(ii) communicates any unpublished price sensitive informa​tion to any person, with or without
his request for such informa​tion except as required in the ordinary course of business or under
any law; or

(iii) counsels, or procures for any other person to deal in any securities of any body corporate
on the basis of unpub​lished price sensitive information, shall be liable to a penalty 1[of
 twenty-five crore rupees or three times the amount of profits made out of insider trading,
whichever is higher].

13. In this case, the Respondent (Akash) on his own behalf dealt with the securities of body
corporate listed on the basis of unpublished price sensitive information gathered by him as
insider and communicated the sensitive information that SFL is about to merge with Benny
multinational company and the share price of the company would increases rapidly which
results in immense profit to the shareholders of SFL shares to brother-in-law of the
Respondent(Akash), which were not required in the ordinary course of business or under any
legal provisions. The Respondent (Akash) funded his brother-in-law to purchase the shares
from SFL for their personal benefit by procuring Mr. Kenny to purchase the shares on basis of
unpublished price sensitive information.

14. Liability for insider trading violations cannot be avoided by passing on the information in
an "I scratch your back; you scratch mine" or quid pro quo arrangement as long as the person
receiving the information knew or should have known that the information was company
property. It should be noted that when allegations of a potential inside deal occur, all parties that
may have been involved are at risk of being found guilty. ​It is clear from the fact that the
Respondent(Akash) had financed the purchase of shares of SFL through his brother-in-law
Benny on the basis of information available to him. So there is violation of insider trading under
the SEBI Act. Hence he is liable under the ​section 15G of SEBI Act 1992.
 PRAYER

Wherefore it is prayed, in light of the issues raised, arguments advanced, and authorities cited,

that Securities and Exchange Board of India (SEBI) may be pleased to:

1. T
​ here is violation of regulation which prohibits insider trading by the Respondent

(Akash).

2. The Respondent (Akash), to be held liable under Section 15G of the SEBI Act,

1992.

And Pass any other Order, Direction, or Relief that it may deem fit in the Best Interest of Justice,

Fairness, Equity and Good Conscience

For this Act of Kindness, the Petitioner Shall Duty Bound Forever Pray.

ALL OF WHICH IS MOST RESPECTFULLY SUBMITTED,

____________________
COUNSEL FOR THE PETITIONER
 BEFORE SECURITIES AND EXCHANGE BOARD OF INDIA
(SEBI)

Benny (Multinational Company) ​ ​PETITIONER

V.

Akash(Managing Director of SFL)​ ​RESPONDENT

Memorandum on behalf of the Respondent

Submitted by
S. Sinduja
Reg No: 131401096
B. Muthukumaran
Reg no: 131401076
P. Nivedha
Reg no: 131401133
Faculty: Ms.V. Nivetha
 INDEX OF AUTHORITY

Indian Cases
10. Rakesh Agarwal vs SEBI
11. Hindustan Lever Limited vs SEBI
12. Tisco case (1992)
13. Dsq holding Ltd vs SEBI (1994)
14. Needle Industries (India) Ltd. and Ors. Vs. Needle Industries Newey (India) Holders
Ltd., & Ors. AIR 1981 SC 129
15. Dirks v. US SEC 403 (646)
16. US v. O'Hagan
17. Chiarella v. US 455 US 222
18. SEBI Vs. Hindustan Lever Ltd

Website
● https://www.sebi.gov.in/legal/regulations/jan-2015/sebi-prohibition-of-insider-trading-re
gulations-2015-issued-on-15-jan-2015-_28884.html
● https://blog.ipleaders.in/sebi-insider-trading-offences/
● https://www.bloombergquint.com/opinion/sebi-insider-trading-regulations-what-the-new-
regime-does-for-india-inc
● https://www.bseindia.com/corporates/Insider_Trading.aspx
● https://corporate.cyrilamarchandblogs.com/2017/10/insider-trading-hindustan-lever-limit
ed-v-sebi/
 STATEMENT OF JURISDICTION

The Respondent humbly submits this memorandum for the defence filed before this
Securities and Exchange Board of India. Under the jurisdiction Section 11 and 11B of the
Securities and Exchange Board of India Act, 1992( the SEBI Act) read with regulation 11 of the
Securities and Exchange Board of India(Insider trading) Regulation, 1992 . It sets forth the facts
and the laws on which the claims are based.
 STATEMENT OF FACTS

Akash is a managing director of Sai Finance Ltd.(SFL) for more than 24 years. Sai
Finance Ltd. (SFL) was incorporated under the companies act, 1993 in the name of Sai Finance
Ltd.(SFL) in August 2017. The price of the shares in SFL was around Rs.50/- which reached
around Rs.100/- by October 2017. Akash had financed the purchase of the shares of SFL through
his brother-in-law Mr. L.P.Kenny during the period August 2017 to October 2017. On the basis
of insider information available with the Akash relating to the merger of SFL with Benny.
1,82,500 share were purchased during the period 9th September to 8th October i.e after the
Akash returned to india from germany after having concluded an agreement with Benny and the
date of the open offer to be made by Benny respectively between July to September 2016. SFL
held discussions with monitor chemicals to explore the possibility of technical/financial
collaborations with SFL. SFL was also holding similar discussions with SRN, Rayon and Toyo
engineering. In January 2017 Benny made a global public announcement that benny had taken
over the business of monitor worldwide with effect from November 2017. In February 2017
Benny approached SFL for a possible tir up. In May 2017 Benny held discussions with SFL and
sent a questionnaire seeking various details relevant to the discussions. On 28th June,2017 board
of SFL considered the prospects of foreign collaborations. In July, 2017 Benny team visited SFL
for technical and financial evaluation of SFL and asked for further details which were furnished
by SFL. On 5th and 6th September 2017 Akash visited Germany and held meetings with Benny
officials and concluded an agreement. Benny insisted that Benny wanted to have a majority stake
of 52% but that and the Akash was to continue in management and in control of the merged
company etc. On 8th September 2017 Akash returned to India from Germany. On 20th
September 2017 the Board of SFL was informed of the Akash visit to Germany and the minutes
recorded the salient features of the agreement that were discussed with Benny. From the
available facts nothing has happened between 8th and 29th September 2017; therefore it can
safely be concluded that principle agreement was arrived at on the 5th and 6th of September
2017. On 29th September, 2017 the Akash once again visited Germany along with his legal
advisors and the Merchant Banker and the legal advisor for Benny in India. On 2nd and 3rd
October, 2017 Legal consultants of both companies worked out a draft subscription agreement
and shareholders agreement setting out the terms and conditions and obligations of the respective
parties. These agreements were approved by the respective Board of Directors of SFL and Benny
respectively on 5th October 2017. On 8th October, 2017 Benny made an open offer for purchase
of 20% shares of SFL at Rs.70/- per share, which was raised to Rs 80/- per share on 26th
December 2017. On 30th October, 2017 SFL held an Extra Ordinary General Meeting at which
resolutions are passed inter alia for allotting to Benny 55,88,000 equity shares and the Akash
4,20,000 shares on preferential basis @ Rs.70/- per share. Between 9th September and 8th
October 2017 the Akash himself and through his investment companies Tata Investment Pvt. Ltd
and prathisha Leasing and Financing Co. Ltd. Provided a sum of Rs.1.15 Crores., Rs 1.50Crores
and Rs.30 lakhs respectively to Mr. Kenny for financing purchase of shares of SFL by Mr.
Kenny had himself invested Rs one to two lakhs only for purchase of SFL shares.
 ISSUES FRAMED

Issue 1

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO PROHIBITION OF

INSIDER TRADING UNDER SEBI ?

Issue 2

WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER

SECTION 15G SEBI ACT, 1992 ?
 SUMMARY OF ARGUMENTS

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO

PROHIBITION OF INSIDER TRADING UNDER SEBI ?

The predominant purpose of the transaction was the corporate purpose. The object of the
transaction was not to secure personal benefits or secret profits. The position of SEBI that
absolute disclosure or complete abstention is the only option is not tenable. For example, SEBI
has in fact provided for creeping acquisitions under the Takeover Regulations, by inter alia
promoters and other existing shareholders who would qualify as insiders under the said
Regulations. Therefore, it is clear that transactions entered into even on the basis of unpublished
price sensitive information would not be in breach of the Regulations if they are undertaken for a
corporate purpose, hence there is no violation of regulation relating to prohibition on insider
trading under SEBI.

WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER

SECTION 15G SEBI ACT, 1992 ?
In the light of the underlying principles relating to the prohibition of insider trading as
well as the objects and reasons and intention behind the Regulations, it is abundantly clear that
what was intended to be prohibited under Regulation 3 was the dealing in securities which was
with a view to misuse information for obtaining unfair advantage. One of the indicia of that
unfair advantage was making of profit. Consequently if the dealing in securities was not with a
view to misuse the information or gain unfairly from the use of the information or to use
information to make profit, that dealing in securities was not prohibited or covered by
Regulation, therefore Akash can not be made liable under Section 15G of SEBI Act,1992.
 ARGUMENT ADVANCED

ISSUE 1

WHETHER THERE IS VIOLATION OF REGULATION RELATING TO

PROHIBITION OF INSIDER TRADING UNDER SEBI ?

1. The prohibition against Insider Trading in India is provided for in Regulation 3 of the
said Regulations which so far as relevant, reads :

Prohibition on dealing, communicating or counseling on matters relating to insider

trading. No insider shall either on his own behalf or on behalf of any other person, deal in
securities of a company listed on any stock exchange on the basis of any unpublished price
sensitive information.

2. Regulation 2(e) defines an insider :

Insider means any person who is or was connected with the company or is deemed to
have been connected with the company, and who is reasonably expected to have access, by virtue
of such connection, to unpublished price sensitive information in respect of securities of the
company or who has received or has had access to such unpublished price sensitive information.

3. Connected person is defined by a Regulation 2 (c ):

i) is a director, as defined in clause 13 of section 2 of the Companies Act, 1956 (1 of

​

1956) of a company, or is deemed to be director of that company by virtue of sub-clause (10) of

section 307 of that Act, or

ii) o​ ccupies the position as an officer or an employee of the company or holds a position
involving a professional or business relationship between himself and the company and who may
reasonably be expected to have an access to unpublished price sensitive information in relation
to that company.

4. Regulation 2(5) enumerates a class of persons who shall for the purpose of the Regulation
to be regarded to be deemed connected persons.
 The requirement for establishing a breach of fiduciary duty to successfully make out a
violation of insider trading under Regulation 4 is implicit in the provisions of Regulation 3, and
necessarily needs to be read into the same, that this requirement is imported into R 3, by the use
of the defined term insider, that an insider is necessarily a connected person or a person deemed
to be connected with the company. A connected person is a person who owes the company a
fiduciary duty (or a duty akin to a fiduciary duty) not to misappropriate or to divert unpublished
price sensitive information for the purpose of making secret profits or personal gains as is
apparent from the nature and class of persons enumerated in S. 2( c ) above. Section 2( h) (a
person deemed to be connected) is a deeming provision by which the said duty is extended to the
class of persons mentioned therein.

5. Regulation 3 merely aims to prohibit the insider from breaching this duty to the company.

The breach of this duty necessarily involves an element of manipulation or deceit, and
the making of some secret profits or personal gain / benefit by the insider.

6. The predominant purpose of the transaction was the corporate purpose. The object of the
transaction was not to secure personal benefits or secret profits. The position of SEBI that
absolute disclosure or complete abstention is the only option is not tenable. For example, SEBI
has in fact provided for creeping acquisitions under the Takeover Regulations, by inter alia
promoters and other existing shareholders who would qualify as insiders under the said
Regulations. Therefore, it is clear that transactions entered into even on the basis of unpublished
price sensitive information would not be in breach of the Regulations if they are undertaken for a
corporate purpose, that any other interpretation of Regulation 3 would render the same absurd for
inter alia the following reasons:

● All corporate activities on the basis of unpublished price sensitive information would
stand proscribed.
● Corporate insiders would be subject to a form of strict liability against dealing in
​

securities even if they act in furtherance of their duty to the Company.

● A corporate insider would be liable although he has committed no breach of his
​

fiduciary duties, to the Company.

 ● Promoters cannot consolidate their holdings in their company subject to limit prescribed
​

by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, on

basis of unpublished price sensitive information.

7. Chapter III of the SEBI Regulations on insider trading sets out SEBI’s powers to
investigate into suspected breaches of the said Regulation. Regulation 5 empowers SEBI to inter
alia investigate and inspect the books of account and other records and documents of the insider.
Regulation 6 prescribes the procedure to be followed for the purpose of investigation. Regulation
7 obliges of the insider to assist the said investigation. Regulation 8 provides for the submission
of an investigation report, by the investigating authority to SEBI upon the conclusion of the
investigation.

8. Regulation 9 provides inter alia for the communication of the findings of the
investigation to the insider. Regulation 9 provides that the insider shall be given an opportunity
of being heard before any action is taken by the Board on such findings. Further, that upon the
receipt of an explanation, if any, from the insider the Board may take such measures as it deems
fit to protect the interest of the investors and in the interest of the securities market and for due
compliance with the provisions of the Act, Rules and said Regulations.

9. Regulation 11 empowers the board to give directions only for the purposes enumerated
therein viz. to prevent the insider from dealing in securities in any particular manner, to prohibit
the insider from disposing of any securities acquired in violation of these Regulations and
restraining the insider from communicating or counseling any other person to deal in securities.
Regulation 11 does not empower the Board to pass any other wider directions. The power under
regulation 11 is only to pass necessary interim directions for the purpose of preserving the status
quo during or immediately after the investigation. Regulation 11 does not empower the Board to
make any final and/or conclusive determination as to whether the insider has acted in breach of
the Regulations. It is for that reason that advisedly the Regulation does not empower the Board
to call for any Documentary evidence or to summon any persons it considers necessary as
witnesses before passing the said directions provided for therein. It is significant to note that in
contrast, Section 15-I(Power to Adjudicate) of the said Act expressly confers upon the
Adjudication Officer the power to summon and enforce the attendance of any person acquainted
with the facts and circumstances of the case to give evidence or to produce any document which
in the opinion of the Adjudicating Officer may be useful for or relevant to the subject matter of
the inquiry.

10. From the scheme of the SEBI Act read with the Regulations it is apparent that a final and
conclusive determination as to whether an insider has breached the Regulations can only be done
by the Adjudicating Officer, pursuant to the provisions of Sections 15- G, 15-I and 15-J of the
said Act and not by the Board pursuant to Regulation 11 and it would be inoperative and
infructuous in the facts and circumstances, pursuant to section 11(1) Read with Section 11 B of
the SEBI Act. Therefore, there is no violation of the regulations relating to prohibition of insider
trading by Appellant (Akash).

ISSUE 2
WHETHER AKASH (MANAGING DIRECTOR) CAN BE HELD LIABLE UNDER
SECTION 15G SEBI ACT, 1992 ?

11. In the light of the underlying principles relating to the prohibition of insider trading as
well as the objects and reasons and intention behind the Regulations, it is abundantly clear that
what was intended to be prohibited under Regulation 3 was the dealing in securities which was
with a view to misuse information for obtaining unfair advantage. One of the indicia of that
unfair advantage was making of profit. Consequently if the dealing in securities was not with a
view to misuse the information or gain unfairly from the use of the information or to use
information to make profit, that dealing in securities was not prohibited or covered by Regulation
3.

12. The impugned transactions were undertaken by the Appellant in discharge of his
fiduciary obligations with a view to save the company and to ensure its survival as going
concern. The object of the transaction was clearly bonafide and to achieve the Corporate
purpose. The Hon'ble Supreme Court of India in ​Needle Industries (India) Ltd. and Ors. Vs.
 ​ IR 1981 SC 129, while dealing with
Needle Industries Newey (India) Holders Ltd., & Ors. A
directors fiduciary obligations and the discharge of such fiduciary obligations has held as under:
the fact that by the issue of shares the Directors succeed, also or incidentally, in maintaining
their control over the Company or in newly acquiring it, does not amount to an abuse of their
fiduciary power. What is considered objectionable is the use of such powers merely for an
extraneous purpose like maintenance or acquisition of control over the affairs of the Company.

13. Admittedly the intention of the transactions being to ensure the Benny acquires 52% and
there being no other intentions in undertaking transactions, none of the indicia set out above has
been satisfied. Such actions are proscribed because the information is given to such persons, by
virtue of their connection with company, for corporate purposes and not for personal benefit.
Further, that it is inherently unfair for such insiders to personally benefit from the use of such
information at the expense of other shareholders, who are disadvantaged by lack of such
information (Cady Robert & Company 40 SEC 907 1961).

14. Since the insiders receive unpublished price sensitive information by virtue of their
connection with the company and for corporate purposes only, such insiders owe a fiduciary duty
(or a duty akin to a fiduciary duty) to the company not to misuse or misappropriate such
information for an unlawful purpose i.e. to make secret profits or personal gains for themselves.
(Chiarella v. US 455 US 222). Such insiders are therefore either required to disclose the said
unpublished price sensitive information to other transacting parties or to abstain from acting on
the said information/dealing in such securities altogether. This requirement has come to be
known as the disclosure or abstain rule.

15. To establish the offence of insider taking, it is essential to establish a breach of such duty
owed to the company by the insider. This necessarily requires some manipulation or deception
by the insider (Dirks v. US SEC 403 (646), that proof of mens rea to manipulate or deceive is
therefore necessary. The clearest evidence of the manipulation or deception being perpetrated by
a corporate insider is when an insider uses the unpublished price sensitive information to make
secret profit/personal gains. The necessary circumstance for liability is to ascertain whether the
insider has made any secret profits or personal gains. If such benefit can be established, the
insider is liable for the offence for insider trading (Dirks v. SEC 406 US 646).

16. The duty to disclose or abstain is not an absolute duty. When the insider acts / uses
unpublished price sensitive information for a corporate purpose, he is not subject to such duty. In
any event, the failure to either to disclose or abstain cannot in such circumstances give rise to
liability. (Burger J while dissenting on the principle established in Chiarella’s case).

17. In US v. O'Hagan 521 US 642, the US Supreme Court, while holding that liability for
insider trading of a tipper/tippee was also based on the misappropriation theory, reiterated and
restated the aforesaid principles on the basis of which corporate insiders are liable. In the case of
SEC v. David E. Lipson (U.S.Court of appeal (7​th circuit) Docket No.01-1226) the facts of the
matter, if there is any motivation to make personal gains by the diversion of unpublished price
sensitive information to private ends, and not further to any corporate purpose insiders are held
liable.

18. Therefore, Akash, the managing director of Sai Finance Ltd, on the basis of insider
information financed the purchase of shares through his brother-in-law, Mr. kenny for corporate
purposes and for the benefit of company rather than his own secret profit or personal gains.
 PRAYER

Wherefore it is prayed, in light of the issues raised, arguments advanced, and authorities cited,

that Securities and Exchange Board of India (SEBI) may be pleased to:

1. There is no violation of regulation which prohibits insider trading by the

​

Respondent (Akash).

2. The Respondent (Akash), not to be held liable under Section 15G of the SEBI Act,

1992.

And Pass any other Order, Direction, or Relief that it may deem fit in the Best Interest of Justice,

Fairness, Equity and Good Conscience

For this Act of Kindness, the Respondent Shall Duty Bound Forever Pray.

ALL OF WHICH IS MOST RESPECTFULLY SUBMITTED,

____________________
COUNSEL FOR THE RESPONDENT