~T ABLE OF C ONTENTS ~ ~M EMORANDUM FOR THE APPELLANTS ~

TEA CODE - 108

M
4TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2018

IN THE SUPREME COURT OF INDIA

CASE NO . 283/2018

APPELLATE J URISDICTION UNDER 15Z OF THE SEBI ACT, 1992 & SECTION 423OF
C OMPANIES ACT , 2013

APPEAL NO. 1

T HE SECURITIES AND E XCHANGE BOARD OF I NDIA … APPELLANT

Versus

Z ERO -C UBED F IN T ECH L IMITE

D
DIRECTORS OF Z ERO -C UBED F IN T ECH L IMITE
D
SKYLIGHT C APITAL P ARTNERS
J ACK D’SOUZA
M OSES SUARES
J ANESH SHAH …. R ESPONDENTS

APPEAL NO. 2

I NVESTOR P ROTECTION ASSOCIATION OF I NDIA

105 I NVESTORS OF Z ERO -C UBED F IN T ECH L IMITED … PPELLANTS
A
Versus

Z ERO -C UBED F IN T ECH L IMITE

D
DIRECTORS OF Z ERO -C UBED F IN T ECH L IMITE
D
SKYLIGHT C APITAL P ARTNERS
J ACK D’SOUZA
M OSES SUARES
J ANESH SHAH
G RANT STANLEY I NVESTMENT BANK C OMPANY …. R ESPONDENTS

MEMORANDUM for THE APPELLANTS

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~ T ABLE OF CONTENTS ~ ~ M EMORANDUM FOR THE APPELLANTS ~

TABL OF CONTENTS
E
L IST OF ABBREVIATIONS ___________________________________________________
III
I NDEX OF AUTHORITIES _____________________________________________________ V

STATEMENT OF F ACTS _____________________________________________________

XII
I SSUES RAISED ___________________________________________________________
XIV
SUMMARY OF ARGUMENTS _________________________________________________ XV

ARGUMENTS ADVANCED _____________________________________________________ 1

1. SKYLIGHT’S ACQUISITION OF TOEHOLD IN VIOLATION OF THE SEBI

ACT, 1992, SEBI (PIT) REGULATIONS, 1992, AND SEBI (PFUTP) REGULATIONS,
2003 _____________________________________________________________________1

1.1 Skylight’s acquisition of Toehold is in violation of SEBI (PIT) Regulations, 1992 1

1.1.1 PIPE deal is Unpublished Price Sensitive Information __________________ 1

1.1.2 Skylight is an Insider ____________________________________________ 3

1.1.3 Trading was done while in the possession of UPSI ____________________ 3

1.2 Skylight’s acquisition of shares is in violation of SEBI(PFUTP) regulations ____ 3

1.2.1 Skylight had scienter for the price manipulation ______________________ 4

1.2.2 The acquisition of toehold manipulated the price of securities ____________ 5

2 DUE DILIGENCE CONDUCTED BY ZCFL IS IN VIOLATION OF PIT REGULATIONS 2015

____________________________________________________________________7

2.1 Information about Raider contract is UPSI _______________________________ 7

2.2 UPSI cannot be shared in due diligence _________________________________ 8

2.3 Due Diligence was not conducted in the best interest of the company __________ 8

3. M OSES AND J ANESH HAVE ACTED IN VIOLATION OF R EGULATION 3 & 4OF SEBI
(PIT) R EGULATIONS , 2015 ____________________________________________________ 9

3.1 Information pertaining to Raider contract is Price Sensitive in nature _________ 9

3.2 Moses and Janesh are insiders ________________________________________ 11

3.2.1 Moses and Janesh are connected persons ___________________________ 11

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~ L IST OF ABBREVIATIONS ~ ~ M EMORANDUM FOR THE APPELLANTS ~

LIST OF ABBREVIATIONS

AO Adjudication officer

Adv. Advocate

BOD Board of Directors

Cir. Circuit

Bom. Bombay

Cl. Clause

Corp. Corporation

CA Companies Act

Comp. LJ Company Law Journal

Ed. Edition

GSIBC Grant Stanley Investment Bank Company

GM General Meeting

H.C. High Court

IM Investment Memorandum

INR Indian National Rupees

IPAI Investor Protection Association of India

Ltd. Limited

MD Managing Director

Mum. Mumbai

II
~ L IST OF ABBREVIATIONS ~ ~ M EMORANDUM FOR THE APPELLANTS ~

NCLT National Company law tribunal

NCLAT National Company law Appellate tribunal

Ors. Others

PIPE Private Placement in Public Equity

PIT Prohibition of Insider trading

PFUTP Prohibition of Fraudulent Unfair Trade Practice

Reg. Regulation

SAT Securities Appellate tribunal

SCC Supreme Court Cases

SC Supreme Court

SEBI Security Exchange Board of India

SEC Security Exchange Commission

Supp. Supplementary

UPSI Unpublished Price Sensitive Information

ZCFL Zero Cube FinTech Ltd.

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~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

INDEX OF AUTHORITIES

ARTICLES

C ONTENT P AGE NO .

Allan Horwich, The Mosaic Theory of Materiality- Does the Illusion have a 19
future?, 43 SEC. REG. L.J. 129, 137 (2015).

Douglas J. Hoffer, Quagmire: Is the SEC Stuck in a Misguided War Against 8

PIPE Financing?, 12 TENN.J .BUS .L . 9, 13 (2010-2011).

Michael J. Aitken, Trade-Based Manipulation and Market Efficiency: A Cross- 6

Market Comparison (Jan., 2009).

https://www.researchgate.net/publication/242684749_TradeBased_Manipulati
on_and_Market_Efficiency_A_Cross-Market_Comparison

Umakanth Varottil, Due Diligence in Share Acquisitions: Navigating The 8

Insider Trading Regime, NUJS L.REV ., Apr. 2013, at 9.

Walkling Ralph A, Predicting tender offer Success: A logistic analysis, 20 J.FIN . 4

QUANTITATIVE ANALYSI , 461 (1985).
S

BOOKS

C ONTENT P AGE NO .

BHUWNESHWAR MISHRA, LAW RELATING TO INSIDER TRADING 76 (2015). 8

DR. K CHANDRATRE , L AW & PRACTICE RELATING TO OPPRESSION AND 18

R
MISMANAGEMENT120 (2 nded. 2016).

KAUSHIK LAI , UNFAIR TRADE PRACTICES IN SECURITIES MARKET 133 4, 14

K
(2013).

LINDLE , A TREATISE ON THE LAW OF COMPANIES 394 (5 thed.1889). 18

Y

V
~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

SUMIT AGRAWAL & ROBIN JOSEPH BAB , SEBI ACT :A LEGAL COMMENTARY 5
Y
ON SECURITIES &EXCHANGE BOARD OF INDIA ACT , 1992 (Amit Agarwal eds.
2011).

SANDEEP PAREKH, F RAUD, MANIPULATION AND INSIDER TRADING IN THE 5

INDIAN SECURITIESM ARKE (2 nded., Wolters Kluwer, 2016).
T

DICTIONAR
Y
C ONTENT P AGE NO .

BLAC ’S LAW DICTIONARY (7thed., 1999). 3,4,17

K

BLOOMSBURY ENGLISH DICTIONARY (2nd ed. 2004). 11

P RAMANATHA AIYA , ADVANCED LAW LEXICON( 3 rded., 2007). 11

R

O THERS

C ONTENT R EF . I N

Raiders of The Lost Ark, https://www.imdb.com/title/tt0082971/. 9

R EPORT

C ONTENT P AGE NO .

Securities and Exchange Board of India, Report of the High Level Committee 8, 11, 12
to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992 Under
the Chairmanship of N.K. Sodhi 49 (Dec. 7, 2013)
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf,.

O THER CASES

C ONTENT P AGE NO .

Pramod Premchand Shah v. Ratan Tata, [2017] taxmann.com 169 (Bom.) 15

V
~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

VS Krishnan v. Westfort Hi-tech Hospital Ltd., (2008) 142 Comp. Case 235 17
(India).

SAT C ASES

C ONTENT P AGE NO .

Chintalapati Srinivasa Raju v. SEBI [2018] 148 SCL 1 (SC) (India). 12

Deepak Mehra v. SEBI, SAT Appeal No. 140 of 2009 (SAT). 18

Dilip S. Pendse v. SEBI, [2009] 90 SCL 302 (SAT). 13

DLF Ltd. v. SEBI, SAT Appeal No. 33 0f 2014 (Mar. 13, 2015), 14
https://www.sebi.gov.in/sebi_data/attachdocs/1426241669079.pdf, ¶ 23.

DSQ Holdings Ltd. v. SEBI, [2005] 60 SCL 156 (SAT). 1

Ess Ess Intermediaries v. SEBI, [2013] 121 SCL 22 (SAT- MUM). 4

Hasmukh Parekh & Ors. v. SEBI, SAT Appeal No. 120 of 2014 (Nov. 30, 3
2016), http://sat.gov.in/ENGLISH/PDF/E2016_JO2014143.PDF.

Jayantilal Khandwala & Sons. Pvt. Ltd. v. SEBI, SAT Appeal No. 63 of 2007 5
(Nov. 23, 2010), https://www.sebi.gov.in/satorders/jayantilalsat.pdf.

st
Kemefs Specialities Pvt. Ltd. v SEBI, SAT Appeal no. 54 of 2011 (July 21 , 10
2011).

M/s Jagruti Securities Ltd. v. SEBI, SAT Appeal No. 143 of 2008 (Nov. 23, 5
2010), https://www.sebi.gov.in/satorders/jayantilalkhandwala.pdf.

Mayfair Paper & Board ltd. v. SEBI, SAT Appeal No. 95 of 2004 (SAT). 14

Rajeev Gandhi v. SEBI, [2008] 84 SCL 192 (SAT). 7, 13

VI
~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

SRSR Holdings Private Limited and Ors. v. Securities and Exchange Board of 12
India, SAT Appeal No. 463 of 2015 (Aug. 11, 2017),
http://sat.gov.in/english/pdf/E2017_JO2015463.PDF.

TVC Shares stock & Inc. ltd v. SEBI, SAT Appeal No. 45 of 2004, (Dec. 14, 14
2005), https://www.sebi.gov.in/satorders/tvc.html.

Ujala finstock P. Ltd. v. SEBI, SAT Appeal no. 10 of 2001 (May. 25, 14
2001), https://www.sebi.gov.in/satorders/Ujala.html.

SEBI C ASES

C ONTENT P AGE NO .

Adjudication Order In the Matter of PVP Venture Ltd., ASK/AO/172- 2

73/2014-15,

https://www.sebi.gov.in/sebi_data/attachdocs/1427451086607.pdf.

SEBI Order In the Matter of in the Multi Commodity Exchange Ltd, 12

WTM/MPB/EFD/116/2018,

https://www.sebi.gov.in/sebi_data/attachdocs/jan
2018/1515169797491.pdf.

SEBI Order In the Matter of Insider Trading in the Scrip of Deep Industries 7
Ltd., SEBI/WTM/MPB/IVD/ID–6/162/2018,

https://www.sebi.gov.in/sebi_data/attachdocs/apr-
2018/1523966098348.pdf.

SEBI Order in the matter of Insider trading in the scrip of Multi commodity 13
Exchange, WTM/MPB/EFD/129/2018,

https://www.sebi.gov.in/sebi_data/attachdocs/jan2018/1517410480985.p
df

VII
~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

SEBI Order In the Matter of Pyramid Saimira Theatre Ltd., 5

WTM/GM/EFD/108/2018,
https://www.sebi.gov.in/sebi_data/attachdocs/mar-
2018/1521732697171.pdf.

SUPREME C OURT C ASES

C ONTENT P AGE NO .

SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368 (India). 14

Mousam Singha Roy v. State of West Bengal, (2003) 12 SCC 377 (India); 13

N. Narayanan v. SEBI, (2013) 12 SCC 152 (India). 18, 20

SC Advocates-on Record Association of India v. Union of India, AIR 1994 12

SC 268 (India);

US C ASES

C ONTENT P AGE NO .

Basic Inc. v. Levinson, 485 U.S. 224, 232-36 (1988). 1, 10

Burley v. City of New York, 2005 WL 668789, at *8–9, 2005 U.S. Dist. 17
LEXIS 4439, 25-28 (S.D.N.Y. Mar. 23, 2005).

Bynum v. District of Columbia, 214 F.R.D. 27, 32 (D.D.C. 2003). 16

Carpenter v. U.S., 484 U.S. 19 (1987). 10

Dukes v. Bedford, H.L. (E) A.C (1900). 15

Elkind v. Liggett & Myers, Inc., 635 F.2d 123, 156 (2d Cir. 1980). 9

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). 4

Garrish v. UAW, 149 F. Supp. 2d 326 (E.D. Mich. 2001). 17

I
~ I NDEX OF AUTHORITIES ~ ~ M EMORANDUM FOR THE APPELLANTS ~

In re Pagel, Inc., 33 S.E.C. Docket 1003. 5

Lightfoot, 246 F.R.D. at 337; 16

Prado-Steiman v. Bush, 221 F.3d 1266, 1278-79 (11th Cir. 2000). 16

SEC. v. Materia, 745 F.2d 197 (2d Cir. 1984). 10

SEC v. Mayhew, 121 F.3d 44, 52 (2d Cir. 1997) 9

Salman v. United States, 196 L. Ed. 2d 351. 12

SEC v. Steffes, 805 F. Supp. 2d 601 (N.D. I.11. 2011). 12

SEC v. Texas Gulf Sulphur Co., 258 F. Supp. 262, 1966 U.S. Dist. LEXIS 1
8334, Fed. Sec. L. Rep. (CCH) P91, 805 (S.D.N.Y.1966)

SEC v. U.S. Environmental, Inc., 929 F. Supp. 168 (S.D.N.Y. 1996). 4

Smith v. Van Gorkam, 488 A.2d 858 (Del. 1985). 19

State Teachers Retirement Board v. Fluor Corporation, 654 F.2d 843 (2d Cir. 10
1981).

TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449 (1976). 1

U.S. v. Carpenter, 791 F.2d 1024, 1034 (2d Cir. 1986). 3

Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338. 16

York and North-Midland Railway Co v. Hudson [1845] Eng. Rep. 482. 19

STATUTES & R EGULATIONS

C ONTENT P AGE NO .

Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India). 15,16,17

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SEBI (Merchant Bankers) Regulations, 2015, Gazette of India, pt. III sec. 4 ( 18
Dec. 22, 992)

Security and Exchange Board of India (Prohibition of Fraudulent and Unfair 5

Trade Practices Relating to Securities Market), 2003, Gazette of India, pt. II §
3(ii) (July 17th, 2003).

Security and Exchange Board of India (Prohibition of Insider Trading 2, 3, 7, 8, 9,

Regulations), 2015, Gazette of India, pt. III sec. 4 (Jan. 15, 2015) 11, 12,
18,19

The Security & Exchange Board of India, 1992, No. 15, Acts of Parliament, 20.
1992 (India).

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~ STATEMENT OF FACTS ~ ~ M EMORANDUM FOR THE APPELLANTS ~

STATEMENT OF FACTS

Inception of ZCFL- In 2011, ZCFL was established by Ram, Girija and Jack with a paid
up capital of INR 10 crores whose principal business was to provide technological solutions
to the banking industry.

Initial Public Offering- By 2012-13, ZCFL had an exponential growth with annual
revenue reaching to INR 150 crores. This culminated into need of further capital infusion,
resulting in company’s decision to undertake an IPO of 25% equity shares totalling an
amount of INR 250 crores.

Decision for PIPE deal- After getting listed on NSE, ZCFL continued to grow, which gave
rise to need of further capital infusion. The company decided to embark on a PIPE deal for
which it appointed GSIBC as its merchant banker.

Issuance of IM- In April 2015, GSIBC prepared IM for PIPE deal and distributed to 20
potential investors. Information in IM was already in public domain and hence, its
recipients were not required to sign confidentiality agreement.

Informal Guidance Received- SEBI issued a ‘no action letter’ regarding the process of
PIPE. However, issue of ‘no confidentiality clause’ was neither in the request of informal
guidance by GSIBC nor in SEBI’s response. In contrast, SEBI necessitated confidentiality
clause in informal guidance issued to ABL Ltd.

Toehold Acquired- In the excitement to bag the deal, Kamil, M.D of Skylight, one of the
recipients of IM called up Girija and had a brief conversation about the deal. Following
this, he bought 0.1% shares of ZCFL from 1 May, 2015 to 14 May, 2015 at an average
price of INR 290 and this was informed to her.

Due Diligence Conducted- Further, potential investors were shortlisted by ZCFL for
conducting further due diligence. Both the parties and their banks signed confidentiality as
well as standstill agreements prior to due diligence. ZCFL disclosed draft agreement of
Raider deal which would constitute 60% of ZCFL’s future business although without
disclosing the tenure and price of the contract.

Disclosure of UPSI & Issuance of Shares- On 15 June 2015, Raider deal was disclosed
as well as the bidders made a formal bid for 5% shares. On 30 June, 2015, company decided
to invite Skylight as the investor. On 15 July, 2015, investment agreement was signed and
resolution in general meeting was passed on 17 August, 2015. Further, on 25 August, 2015,

XI
~ STATEMENT OF FACTS ~ ~ M EMORANDUM FOR THE APPELLANTS ~

issue of shares by ZCFL to Skylight was completed. Following this, SEBI issued first SCN
to Skylight, ZCFL and its Directors for violations of SEBI regulations.

Jack’s Conversation- Jack attended a family function on 11 June, 2015 where he discussed
material facts regarding Raider deal on call with Girija, while referring to Raider as “The
Lost Ark”. However Moses, brother in law of Jack and an employee of Goreman Bushing,
merchant banker of Threecent (one of the potential investors), heard Jack’s conversation.

Confrontation- Moses later confronted Jack and tried to fetch more details which he
refused to provide, but became suspicious of Moses’ knowledge of it. He didn’t disclose
such suspicion to the company keeping in mind sensitivity of negotiations with Raider.

Analysis by Janesh & Moses- SEBI alleges that Moses took Janesh’s help to analyse
Jack’s conversation. After research, they came to conclusion that Raider could be possible
future customer of ZCFL with their deal amounting to INR150-175 crores approximately.
This reminded Moses of hearing 1.6 and 20 qua periods which they took as INR 160 crores
and 5 years. Later on, they created a “Whatsapp” group titled ‘Goldmine’ with 7 other
people and disclosed the same information there.

Trading by Moses & Janesh- Based on this information, members of group engaged in
fervent purchase of ZCFL shares from 12 June, 2015 to 14 June, 2015 at an average price
of INR 300, while liquidating all of the shares by mid- July at an average of INR 375 and
thereby profiting to the tune of INR 25 lakhs. However, Moses who wasn’t trading for the
first time in ZCFL’s stock didn’t liquidate all his shares.

Investigation- SEBI became aware of the matter as Janesh inadvertently forwarded one of
the messages to Jayesh, an active member of IPAI. SEBI’s second SCN was thus served to
Janesh, Moses, Jack, ZCFL and its Directors. During investigation, SEBI seized phones of
Moses and Janesh who refused to unlock them.

Proceedings- AO held the recipients of 1 stand 2 ndSCN guilty and imposed penalty, while
also debarring them from stock market. SAT however, reversed the order of AO. IPAI, on
the other hand, filed a suit and succeeded in claiming compensation before NCLT.
However, NCLAT reversed the order of NCLT. Hence, SEBI and IPAI are in appeal to the
Supreme Court of India

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~ I SSUES RAISED ~ ~ M EMORANDUM FOR THE APPELLANTS ~

ISSUES RAISED

W HETHER SKYLIGH ’S ACQUISITION OF TOEHOLD IS IN VIOLATION OF THE SEBI AC , 1992,

T T
SEBI (PIT) R EGULATIONS 1992,AND SEBI (PFUTP) REGULATIONS , 2003.

II

W HETHER DUE DILIGENCE CONDUCTED BY ZCFL IS IN VIOLATION OF SEBI (PIT)

REGULATIONS 2015.

III

W HETHER M OSES AND J ANESH HAVE ACTED IN VIOLATION OF SEBI PIT R EGULATIONS
2015

IV

W HETHER T HE CLASS ACTION SUIT FILED UNDER SECTION 245OF COMPANIES ACT IS
MAINTAINABL .
E

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 ~ SUMMARY OF ARGUMENTS ~ ~ M EMORANDUM FOR THE APPELLANTS

SUMMARY OF ARGUMENTS

I. SKYLIGHT’S ACQUISITION OF TOEHOLD IS IN VIOLATION OF THE SEBI

ACT, 1992, SEBI (PIT) REGULATIONS 1992, AND SEBI (PFUTP)
REGULATIONS, 2003.
Skylight’s acquisition of toehold is in violation of the SEBI act, SEBI (PIT) Regulations,
1992 and SEBI (FUPTP) Regulations 2003. Kamil Merchant, MD of Skylight purchased
toehold based on the information of a possible PIPE deal, which in itself is price sensitive
information. In absence of the information of PIPE in the public domain, trading on the basis
of such information would be Insider Trading.

Moreover, Kamil also intended to manipulate the price of ZCFL’s securities. By buying
shares in bulk and at a higher price than the prevailing market price, he wanted to create
pressure on other potential investors. Moreover, his acquisition of toehold resulted in the
artificial increase and decrease of the price of ZCFL’s securities.

II. DUE DILIGENCE CONDUCTED BY ZCFL IS IN VIOLATION OF SEBI (PIT)

REGULATIONS 2015.
Due diligence conducted by ZCFL is in violation of SEBI (PIT) regulations. Raider deal
was a UPSI and thus, cannot be selectively disclosed by the company to anyone. On the
same line it cannot be shared in the due diligence process pertaining to PIPE transaction.
Even if UPSI is communicated on the decision of the Board of Directors, the same was not
done in the best interest of the shareholders.

The interest of the shareholders was compromised by setting the same date for disclosure of
UPSI as well as making the bid for potential investment. The investors were allowed to bid,
which almost decided the rate of shares to be issued, while in possession of UPSI. Thus, the
entire procedure of due diligence was done in violation of SEBI (PIT) Regulations, 1992.

III. MOSES AND JANESH HAVE ACTED IN VIOLATION OF REGULATION 3 & 4 OF

SEBI PIT REGULATIONS 2015.
Moses Suares and Janesh Shah are liable for Insider Trading, as they have used selective
information obtained from Jack and collated that with the publicly available information
forming a mosaic of nonpublic material information. The information regarding Raider
contract was used by them to derive unfair profits from the market. Since, they have traded
while in the possession of material nonpublic information, they are liable for the violation of
of SEBI (PIT) 2015.

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 ~ SUMMARY OF ARGUMENTS ~ ~ M EMORANDUM FOR THE APPELLANTS

Moreover, Moses and Janesh are not complying with the SEBI’s investigation process by
refusing to unlock their phones. They are not just evading from their duty to cooperate with
SEBI’s Investigating Authority but also acting in a way that puts them under further suspicion
for violation of SEBI PIT regulations.

IV. THE CLASS ACTION SUIT FILED UNDER SECTION 245 OF COMPANIES ACT
IS MAINTAINABLE.
Class action suit filed under Section 245 of Companies act is maintainable as IPAI and 105
investors of ZCFL have the same interest and the right against the company and its directors.
With same rights and interest, the investors constitute a class as contemplated under Section
245 of Companies Act. Also, it fulfills the criteria of the composition of the class.

GSIBC, ZCFL, its Directors and Skylight have acted in the manner prejudicial to the interest
of the company. ZCFL and GSIBC must have added confidentiality clause in the IM issued
to potential investors. The informal guidance issued to ABL was of significant relevance to
ZCFL as it clarified SEBI’s stance with respect to IM. Thus, ZCFL should have either
followed ABL’s informal guidance or sought a separate one from SEBI.

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

ARGUMENTS ADVANCED

1. SKYLIGHT’S ACQUISITION OF TOEHOLD IN VIOLATION OF THE SEBI

ACT, 1992, SEBI (PIT) REGULATIONS, 1992, AND SEBI (PFUTP)
REGULATIONS, 2003.

1. The Appellants humbly submit that the acquisition of 30,000 shares by Skylight Capital
Partners (for brevity ‘Skylight’) is inconsistent with the SEBI Act (for brevity ‘the Act’),
1992, SEBI (Prohibition of Insider Trading regulations) (for brevity ‘PIT’), Regulations
1992, SEBI (Prohibition of Fraudulent and unfair trade practice) (for brevity ‘PFUTP’)
Regulations, 2003. This argument is in two folds. First, Skylight’s acquisition of Toehold
is in violation of SEBI (PIT) Regulations, 1992 [1.1]; and secondly, Skylight acquisition of
shares is in violation of SEBI (PFUTP) Regulations, 2003 [1.2].

1.1 SKYLIGH ’S ACQUISITION OF T OEHOLD IS IN VIOLATION OF SEBI (PIT)

T
R EGULATIONS , 1992

2. Skylight’s acquisition of toehold is in violation of SEBI (PIT) Regulations, 1992. The

present argument is in three folds. PIPE deal is unpublished price sensitive information (for
brevity ‘UPSI’) [1.1.1]; Skylight is an Insider [1.1.2]; and Trading was done while the
possession of UPSI [1.1.3].

1.1.1 PIPE deal is Unpublished Price Sensitive Information.

3. Private Placement in Public Equity (for brevity ‘PIPE’) deal is an unpublished price
sensitive information on account of the information being price sensitive in nature and not
generally available. According to SEBI (PIT) Regulations, 1992, UPSI is defined as
information related to a company or its securities, directly or indirectly, that is not generally
available but upon becoming generally available, is likely to materially affect the price of
the securities of the company. 1PIPE deal is a UPSI, as the information of issue of capital
is material, 2even in the earlier stage 3or a possibility of it. 4Therefore, the issuance if IM,
marking the beginning of a PIPE investment is UPSI.

4. Furthermore, the issuance of IM with respect to PIPE deal is about some possible future

1
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2 (n).
2
DSQ Holdings Ltd. v. SEBI, [2005] 60 SCL 156 (SAT); SEC v. Texas Gulf Sulphur Co., 258 F. Supp. 262, 1966
U.S. Dist. LEXIS 8334, Fed. Sec. L. Rep. (CCH) P91, 805 (S.D.N.Y.1966) (hereinafter ‘Texas Sulphur’).
3
Texas Sulphur, supra note 2, at 266; Basic Inc. v. Levinson, 485 U.S. 224, 232-36 (1988) (hereinafter ‘Basic
Inc.’).
4
TSC Industries Inc. v. Northway Inc., 426 U.S. 438, 449 (1976).

1
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

5
investment in the company and thus the same should be treated as material.The materiality
of any event is dependent upon the balancing of both the indicated probability that the event
will occur and the anticipated magnitude of the event in light of the totality of the
company’s activity. 6In the present case, Girija’s statements during the press briefing
indicate the probability of PIPE to occur, therefore, it is material information and the same
should be treated as price sensitive information.
5. The generally available information is that which is available to the public on a non-
discriminatory basis and is specific in nature. 7Here, during the press briefing, Girija had
8
stated that ZCFL was exploring potential options for further capital injection. However,
specific information regarding the medium of injection of capital through PIPE means was
unavailable to the public at large. Also, even though the content of Investment
Memorandum (for brevity ‘IM’) was already in public domain, the same should have been
specifically disclosed to the public 9to satisfy the requirement of sec 2(e) of SEBI (PIT)
Regulations, 2015.
6. Additionally, IM may have contained particulars of the company in a concrete format which
were unavailable to the public at large. The PIPE deal, therefore, cannot be said to have
been delivered on a non-discriminatory and specifically to the public at large. Therefore,
information about PIPE is unpublished. Hence, as the information regarding the PIPE deal
is material and unpublished, it is UPSI.
7. Moreover, the conversation between Kamil and Girija has assured the communication of
additional information regarding the PIPE deal. Girija has inadvertently disclosed that
10
GSIBC has set out the strict process in choosing the ultimate investor and thereby, assured
the certainty of the issue of possible shares.
8. Furthermore, even when IM was already filed in the stock exchange it cannot be argued
that IM was made public. The reason is that if it was published, neither would SEBI want
a confidentiality clause to be added in it nor would a company want it to remain
confidential.11

5
Basic Inc., supra note 3, at 230.
6
Id.
7
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(e).
8
Moot Problem, ¶ 6.
9
Adjudication Order In the Matter of PVP Venture Ltd., ASK/AO/172-73/2014-15,
https://www.sebi.gov.in/sebi_data/attachdocs/1427451086607.pdf, ¶ 22.
10
Moot Problem, ¶ 8.
11
Moot Problem, ¶ 11.

2
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

1.1.2 Skylight is an Insider.

9. According to SEBI (PIT) Regulations, 1992, an insider is a person who is either connected
to the company or has access to UPSI. Also, according to SEBI (PIT), Regulations, 1992,
a connected person is defined as a person who shares a business relationship with the
12
company whether temporary or permanent and has reasonable access to UPSI. In the
present case, as Skylight is one of the potential investors, and also a recipient of IM it
definitely shares a business relationship with ZCFL. Additionally, by virtue of its frequent
communication with the directors of the company via calls and emails, 13it has reasonable
access to UPSI.14
10. Moreover, Skylight had access to particulars of IM and information of PIPE deal, 15which
was not known in the market thereby qualifying as UPSI. Thus, Skylight is an insider.

1.1.3 Trading was done while in the possession of UPSI.

11. Skylight’s acquisition of toehold is in violation of SEBI (PIT) Regulations, 1992.

Regulation 3 of SEBI (PIT) 1992 prohibits any person from trading while in possession of
16
UPSI. In the instant case, Skylight is an insider as it is in possession of UPSI. Skylight
traded in the shares of ZCFL while being in possession of UPSI.
12. Skylight misused the information, meant for corporate purposes, by using it to trade as well
as manipulate the market. Insider must not use any UPSI received through or arising out of
the confidential relationship.17 Skylight misused the information regarding PIPE to
purchase toehold and to cut competition. Therefore, Skylight’s action is an act of insider
trading prohibited under PIT Regulations, 1992.

1.2 SKYLIGH ’S ACQUISITION OF SHARES IS IN VIOLATION OF SEBI (PFUTP)

T
REGULATIONS .

13. Skylight’s acquisition of 30,000 shares from the several hundred investors would amount
to price manipulation of ZCFL’s securities. Price manipulation means ‘an illegal practice
18
of raising or lowering a security’s price by creating the appearance of active trading’.

12
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(d).
13
Moot Problem, ¶¶ 8, 9.
14
Hasmukh Parekh & Ors. v. SEBI, SAT Appeal No. 120 of 2014 (Nov. 30, 2016),
http://sat.gov.in/ENGLISH/PDF/E2016_JO2014143.PDF, ¶ 37.
15
Moot Problem, ¶ 8.
16
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(g).
17
U.S. v. Carpenter, 791 F.2d 1024, 1034 (2d Cir. 1986).
18
Price Manipulation, B LAC ’S LAW DICTIONARY (7thed., 1999).
K

3
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

Therefore, Skylight is in violation of PFUTP. This argument is in two folds: First, Skylight
had “scienter” for the price manipulation. [1.2.1.]. Secondly, The acquisition of toehold
manipulated the price of securities. [1.2.2]. Therefore, the acquisition of shares is violative
of PFUTP, 2003.

1.2.1 Skylight had scienter for the price manipulation

12. Manipulation is a fraud which requires intentional or wilful conduct designed to deceive or
defraud the investors by controlling or artificially affecting the price or volume of
securities.19Skylight has scienter to manipulate the price of ZCFL’s securities. ‘Scienter’
refers to the degree of knowledge a person possesses to make him liable for engaging in an
act or omission.20In the present case, Kamil Merchant, MD of Skylight had an intention to
manipulate the market price of securities so as to put significant pressure upon the other
competitors as wells as ZCFL to tender the offer of securities to him.
13. Additionally, the mere negligent act is not enough to hold a person guilty of market
manipulation.21However, a reckless participation in the commission of securities fraud by
22
a person would constitute sufficient scienter to establish the charge of insider trading.
Kamil’s acquisition of toehold, by purchasing ZCFL shares in bulk, that too at a higher rate
and in a considerable volume shows that he had the intention to manipulate the stock price.
Also, his reckless actions towards the operation transparency in the transaction pertaining
to PIPE deal are sufficient to hold him guilty of stock manipulation. 23
14. Moreover, SEBI has to prove the allegation on the basis of a preponderance of
probabilities.24Although in a situation of takeovers, purchase of toehold reduces the
premium on future shares to be acquired. 25Therefore with the same intention of reducing
the premium before the actual acquisition would amount to a violation of fraudulent
activity.

19
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (hereinafter ‘Ernst’).
20
BLAC ’S LAW DICTIONARY 1347 (7thed., 1999).
21 K
Ernst, supra note 19, at 192.
22
SEC v. U.S. Environmental, Inc., 929 F. Supp. 168 (S.D.N.Y. 1996).
23
KAUSHIK LAI , UNFAIR TRADE PRACTICES IN SECURITIES MARKET 133 (2013).
24 K
Ess Ess Intermediaries v. SEBI, [2013] 121 SCL 22 (SAT- MUM), ¶ 12.
25
Walkling Ralph A, Predicting tender offer Success: A logistic analysis, 20 J. FIN . QUANTITATIVE ANALYSI ,
461, 473 (1985). S

4
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

1.2.2 The acquisition of toehold manipulated the price of securities.

15. Market manipulation, one of the species of fraud, is the intentional interference in the price
of securities of a company.26The trading pattern of an individual coupled with his intention
27
to deceive the market is fundamental to establish market manipulation. Unusual trading
patterns lead to an abnormal increase or decrease in the price of securities.28

16. Market manipulation of securities comes within the purview of SEBI (PFUTP)
Regulations, 2003.29Kamil acquired the toehold at an average of INR 290, while the actual
market price of ZCFL’s shares was INR 250. Apart from this, the stock of ZCFL shot up
30
to INR 350 during the term in which toehold was acquired by Kamil. This rise was
possible only because shares acquired in each small trade were consecutively at a higher
rate than their last traded value.31

17. SEBI, in a considerable number of cases, has filed complaints regarding this form of market
manipulation.32Although, in this form of market manipulation there is an absence of a
nexus between buyer and seller, 33yet one shouldn’t be exempted from the charge on mere
absence of a nexus. No reasonable investor would like to pay more than what is the actual
value of a company’s securities. Thus, a higher price is paid only with the motive to inflate
the price of securities of the company. 34
18. Kamil purchased shares at an average of INR 290 while their market value was INR 250
and so at a rate higher than the prevailing market price. In addition to this, he purchased
35
shares in bulk quantity. Large investors with deep pockets possess enough power to
manipulate the stock price by purchasing or selling securities in bulk and at an inflated or

26
In re Pagel, Inc., 33 S.E.C. Docket 1003.
27
SANDEEP PAREKH, FRAUD, MANIPULATION AND INSIDER TRADING IN THE INDIAN SECURITIESM ARKE 91 (2 nd
ed., Wolters Kluwer, 2016) (hereinafter ‘Parekh’). T
28
Id., at 102.
29
Security and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market), 2003, Gazette of India, pt. II § 3(ii) (July 17th, 2003), Reg. 4.
30
Moot Problem, ¶ 9.
31
M/s Jagruti Securities Ltd. v. SEBI, SAT Appeal No. 143 of 2008 (Nov. 23, 2010),
https://www.sebi.gov.in/satorders/jayantilalkhandwala.pdf , ¶ 4.
32
SEBI Order In the Matter of Pyramid Saimira Theatre Ltd., WTM/GM/EFD/108/2018,
https://www.sebi.gov.in/sebi_data/attachdocs/mar-2018/1521732697171.pdf, ¶ 27.
33
Jayantilal Khandwala & Sons. Pvt. Ltd. v. SEBI, SAT Appeal No. 63 of 2007 (Nov. 23, 2010),
https://www.sebi.gov.in/satorders/jayantilalsat.pdf, ¶ 3.
34
SUMIT AGRAWAL & ROBIN JOSEPH BAB , SEBI ACT :A LEGAL COMMENTARY ON SECURITIES &EXCHANGE
Y
BOARD OF INDIA ACT , 1992 294 (Amit Agarwal eds. 2011).
35
Moot Problem, ¶ 9.

5
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

deflated rate. 36Such activities either increase or decrease liquidity in the market thereby
affecting the price of securities and hence result in market manipulation. 37
19. Moreover, shares of ZCFL peaked to INR 350 during Kamil’s trading period and came
38
down to INR 300 at the end of his trading period. This clearly reflects the effect of Kamil’s
purchase of toehold on the price of ZCFL’s stock. Hence, it can be concluded that it was
Kamil’s purchase of toehold that manipulated the price of ZCFL’s shares.

36
Parekh, supra note 27, at 96.
37
Michael J. Aitken, Trade-Based Manipulation and Market Efficiency: A Cross-Market Comparison (Jan.,
2009),
https://www.researchgate.net/publication/242684749_TradeBased_Manipulation_and_Market_Efficiency_A_
Cross-Market_Comparison.
38
Moot Problem, ¶ 9.

6
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

2 DUE DILIGENCE CONDUCTED BY ZCFL IS IN VIOLATION OF PIT

REGULATIONS 2015.
20. Due diligence conducted by ZCFL is in violation of Reg. 3 of SEBI (PIT) Regulations,
2015. This argument is twofold; first, Information about Raider contract is UPSI [2.1.]; and
secondly, UPSI cannot be shared in due diligence. [2.2.]; and thirdly, Due diligence was
not conducted in the best interest of the company [2.3.].

2.1 I NFORMATION ABOUT R AIDER CONTRACT IS UPSI.

21. Unpublished information with respect to the turnover of a business can constitute UPSI, if
the same is likely to enable a reasonable shareholder to come to a conclusive trading
decision.39Raider contract is UPSI, as ZCFL’s contract with Raider was to constitute 60%
of the total business of ZCFL,40and it can in all probable circumstances enable a reasonable
shareholder to come to a conclusive trading decision. Therefore, information related to
Raider contract is UPSI.
22. Raider contract was to constitute 60 percent of ZCFL’s future business and therefore was
a major expansion of ZCFL’s business. Thus, it would constitute price sensitive
information.41Beside this, when Raider came into the market, it considerably increased the
price of securities of ZCFL and was received favorably by the market. 42Thus information
regarding Raider affected the price of the securities and therefore, it is price sensitive
information.43
23. Unpublished information is the information that is not generally available or is available
on a discriminatory basis. 44The information regarding Raider deal came into the market
45
only on the day ZCFL informed about it to the stock exchange. However, ZCFL shared
information regarding Raider with the potential investors in the process of due diligence.46
ZCFL’s disclosure of the Raider deal in the market happened on the same date on which
47
potential bidders were to give their bid. This made it impossible for the market to have

39
SEBI Order In the Matter of Insider Trading in the Scrip of Deep Industries Ltd., SEBI/WTM/MPB/IVD/ID–
6/162/2018, https://www.sebi.gov.in/sebi_data/attachdocs/apr-2018/1523966098348.pdf, ¶ 11.
40
Moot Problem, ¶ 12.
41
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(n).
42
Moot Problem, ¶ 12.
43
Rajeev Gandhi v. SEBI, [2008] 84 SCL 192 (SAT).
44
SEBI (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt. III sec. 4 (Jan. 15, 2015), § 2(1)
(e), 2(1)(n).
45
Moot Problem, ¶ 12.
46
Moot Problem, ¶ 12.
47
Moot Problem, ¶¶ 11, 12.

7
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

adequate time to disseminate the information as well as react to it. Thus, the bidders acted
on information that was not yet published in the market and available only on
discriminatory basis.48 Therefore, bidding while in possession of UPSI and the
communication of UPSI is a violation of Regulation 4 of SEBI (PIT), Regulations, 1992.

2.2 UPSI CANNOT BE SHARED IN DUE DILIGENCE

24. Due diligence is conducted in the transactions related to Mergers and Takeovers, to allow
49
the acquirer to make an informed decision. However, in PIPE the acquirer doesn’t take
control over the target but only makes a significant investment in the company. 50Thus the
position regarding conduction of due diligence and sharing of UPSI is much clear in the
former transaction than the later one.
25. This is because sharing UPSI in PIPE deal can lead to a violation of the concept of parity
of information, while not giving existing shareholders any opportunity to exit. 51Therefore,
information obtained in due diligence has to be made public before the acquirer proceeds
with the transaction.52

2.3 DUE DILIGENCE WAS NOT CONDUCTED IN THE BEST INTEREST OF THE COMPANY

26. Even if, UPSI can be delivered in the due diligence of proposed deal, the same would entail
no offer obligation and therefore, has to comply with the threshold that the proposed
53
transaction is the best interest of the company. The Board of Directors has to be of an
informed opinion that the due diligence is conducted in the best interest of the company. 54
In addition to this, the information shared has to be in the public domain at least two trading
days prior to the proposed trading.55

27. The date of disclosing the Raider contract was kept on the same date as the date of bidding.
Thus, bidding, which almost decided the price on which the shares shall be issued to

48
BHUWNESHWAR MISHRA, LAW RELATING TO INSIDER TRADING 76 (2015).
49
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), Sch. A, Model Code of Conduct Cl. 3.3.1.
50
Douglas J. Hoffer, Quagmire: Is the SEC Stuck in a Misguided War Against PIPE Financing?, 12 TENN.J .BUS .
L. 9, 13 (2010-2011).
51
Umakanth Varottil, Due Diligence in Share Acquisitions: Navigating The Insider Trading Regime, NUJS L.REV .,
Apr. 2013, at 9.
52
EU (Market Abuse Regulations) recital 33.
53
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 3(3) (ii).
54
Securities and Exchange Board of India, Report of the High Level Committee to Review the SEBI (Prohibition
of Insider Trading) Regulations, 1992 Under the Chairmanship of N.K. Sodhi 49 (Dec. 7, 2013)
,http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf, ¶ 21.
55
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 3(3) (ii).

8
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

Skylight, happened before the information of RAIDER could appropriately disseminate in

the market. This gave bidders an advantageous edge as the bidding didn’t take place on the
basis of publicly available information. Had there been a considerable gap between the day
of bidding and the day, on which information regarding Raider was disseminated, bidding
could’ve happened on publicly available information as well as the value of shares. This
underestimated the principle of shareholders wealth maximization.

3. MOSES AND JANESH HAVE ACTED IN VIOLATION OF REGULATION 3 & 4

OF SEBI (PIT) REGULATIONS, 2015

28. Moses’ and Janesh’s actions are in violation of Regulation 3 of PIT 2015. This argument is
fourfold. First, Information pertaining to Raider contract is Price Sensitive in nature [3.1];
secondly, Moses and Janesh are insiders [3.2]; thirdly, Trade was done while in the
possession of UPSI [3.3]; and fourthly, Moses and Janesh are not complying with the SEBI
Investigation process [3.4].

3.1 I NFORMATION PERTAINING TO R AIDER CONTRACT IS P RICE SENSITIVE IN NATURE

29. According to SEBI (PIT) Regulations, 2015, price sensitive information is one which if
56
published is likely to materially affect the price of the securities of a company. The
information which has been revealed by Jack to Moses Suarez is likely to materially affect
the price of ZCFL’s securities. While conversing on phone with Girija regarding Raider
contract, Jack has communicated the price sensitive information in the code ‘The Lost Ark’
which can be easily decoded, as this phrase is part of a movie titled ‘Raider – The Lost
Ark’.57The code is not clothed with adequate secrecy and which if communicated is likely
to be decoded by a rational individual.
30. Moreover, the disclosed information pertaining to the Raider deal also implicates specific
information like 1.6 and 20 qua , which if collated with the publicly available information
will create a mosaic or matrix of material non-public information. 58If any part of the non-
material information is collated with the publicly available information and then used to
trade it shall be unlawful.59
31. A skilled analyst with knowledge of the company and the industry may assemble together
seemingly insignificant data together with public information into a mosaic which shall

56
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(1)(n).
57
Raiders of The Lost Ark, https://www.imdb.com/title/tt0082971/.
58
S.E.C. v. Mayhew, 121 F.3d 44, 52 (2d Cir. 1997).
59
Elkind v. Liggett & Myers, Inc., 635 F.2d 123, 156 (2d Cir. 1980).

9
 ~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

reveal material non-public information. Whenever insider and analysts meet elsewhere than
in public, there is a risk that the analysts will emerge with knowledge of material information
60
which is not publicly available. In the present case, Moses met Jack during a family
gathering on June 11 th, 2015, which signifies the reasonable expectation of communication
of UPSI.
32. Moses and Janesh have exploited the selective information provided by Jack for their own
personal benefit. A person is not free to exploit the selectively disclosed price sensitive
information for his personal benefit.61Even if it is presumed that the facts provided were still
raw and not yet crystallized still price sensitive information is not only limited to concrete
decisions but it covers a wide array of events surrounding Raider contract.62

33. In the present case, information like ‘The Lost Ark’ along with ‘1.6’ and ‘20qua periods’
create a mosaic of non-public material information because there is substantial likelihood
that a reasonable man would view this information as having significantly altered the total
63
mix of the information made available. Although the information may be seemingly
insignificant and in some instances speculative, if it completes the mosaic, or “the matrix”,
and it is non-public, it may be material if “there is a substantial likelihood that disclosure of
the omitted fact would have been viewed by the reasonable investor as having significantly
altered the ‘total mix’ of information made available.” 64

34. A person would be liable for insider trading if he obtains or acts on the pieces of information
which when collaborated with the publicly available information will constitute material
non-public information. 65Even though there is no market movement with the selective
disclosure of UPSI, the court must consider whether such information would construct the
66
matrix/mosaic or not. In the present case, Moses and Janesh came to the conclusive
decision of trading in ZCFL’ securities after collating the part of non-public material
information with publicly available information
35. Additionally, the information does not correspond to ZCFL’s ordinary course of business.
Although Raider is a consumer contract and ZCFL is into providing e-payment background
software to the banking industry, the same should be treated as unpublished because the deal

60
Id., at 165.
61
Carpenter v. U.S., 484 U.S. 19 (1987).
62
Kemefs specialities Pvt. Ltd. v. SEBI, SAT Appeal no. 54 of 2011 (July 21st, 2011),
http://www.watchoutinvestors.com/Press_release/sat/ST1333.PDF.
63
Basic Inc, supra note 3, at 231-32.
64
State Teachers Retirement Board v. Fluor Corporation, 654 F.2d 843, 849 (2d Cir. 1981) (hereinafter ‘Fluor’).
65
S.E.C. v. Materia, 745 F.2d 197 (2d Cir. 1984).
66
Fluor, supra note 64, at 849.

10
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

67
was subject to great speculations and details were sparsely present in the public domain.
Therefore, due to the aforementioned submissions Raider is a UPSI.

3.2 M OSES AND J ANESH ARE INSIDERS .

36. According to the definition of Insider contemplated under SEBI (PIT) Regulations, 2015,
a person must either be a connected person or deemed to be connected person or has/had
access to UPSI. 68Moses and Janesh are insiders on the account that they are connected
persons [3.2.1.] and had access to UPSI [3.2.2.].

3.2.1 Moses and Janesh are connected persons

37. As stipulated in SEBI (PIT) Regulations, 2015, a connected person is defined as a person
who is or has during the six months of the concerned act been associated with a company,
directly or indirectly by the reasons of frequent communication etc, whether temporary or
permanent that allows such person, direct or indirect access to unpublished price sensitive
information or reasonably expected to allow such access.69

38. Here, Moses who is brother-in-law of Jack’ D Souza has been associated with the company
by reasons of frequent communication with Jack D Souza, who by virtue of being a Director
is inseparable part of the company. Moses’ confrontation with Jack after the UPSI was
disclosed establishes that reasons of the frequent communication with Jack, as frequent
70
communication points towards consultation with an insider. Consultation as understood
in ordinary sense is to seek views of a person on any given subject.71Moses after the dinner
that night confronted72Jack as to seek his views on Raider deal. Therefore, he is a connected
person.
39. Moreover, Moses also falls under the category of deemed to a connected person. According
to SEBI (PIT) Regulations, 2015, deemed to be connected person includes an immediate

67
Moot Problem, ¶ 12.
68
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(1) (g).
69
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(1) (d).
70
Securities and Exchange Board of India, Report of the High Level Committee to Review the SEBI (Prohibition
of Insider Trading) Regulations, 1992 Under the Chairmanship of N.K. Sodhi 49 (Dec. 7, 2013)
,http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf, ¶ 21.
71
SC Advocates-on Record Association of India v. Union of India, AIR 1994 SC 268, 382 (India); 1 P
RAMANATHA AIYA , ADVANCED LAW LEXICON 997 (3rded., 2007).
72
Confrontation, B R LOOMSBURY ENGLISH DICTIONARY (2nd ed. 2004).

11
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

73 74
relative of an insider. An immediate relative covers a brother-in-law too, and also, a
close family relationship suffices the threshold of Insider trading. 75The immediate relative
would be presumed as a connected person unless he establishes contrary, 76irrespective of
proving he is financially independent. The immediate relative must presumably be
considered as having reasonable possession of UPSI.77
40. Additionally, Moses is reasonably expected to have access to UPSI, as, during a family
gathering on 11thJune 2015, selective disclosure regarding Raider deal was made to Moses.
The incident of confrontation reveals that Moses was trying to extract specific information
78
pertaining to the Raider deal, after getting hints of the deal and therefore, he had
reasonable access to UPSI.
41. Moreover, Janesh is reasonably expected to have UPSI as Moses being an insider has
communicated the UPSI to Janesh in order to suss out specific details pertaining to Raider
deal.79Also, Janesh is a close friend of Moses which signifies reasonable access to UPSI
in all probable circumstances.

3.2.2. Moses and Janesh had access to UPSI.

42. Moses and Janesh had access to UPSI pertaining to Raider deal. By deliberating upon the
part of the non-public information which was material and assembling it together with
80
publicly available information, the same should be treated as UPSI. In the present case,
information such as ‘The Lost Ark’, ‘1.6’ and ‘20 qua periods’ should be treated as material
as when it is assembled together with the sparse information available to the public at large
it becomes UPSI. Since Moses and Janesh had access to UPSI, therefore, they are insiders
as per the definition of Insider contemplated under PIT, 2015.

73
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(1) (d) (ii).
74
Security and Exchange Board of India (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt.
III sec. 4 (Jan. 15, 2015), § 2(1) (f).
75
Salman v. United States, 196 L. Ed. 2d 351.
76
SRSR Holdings Private Limited and Ors. v. Securities and Exchange Board of India, SAT Appeal No. 463 of
2015 (Aug. 11, 2017), http://sat.gov.in/english/pdf/E2017_JO2015463.PDF, ¶ 21.
77
Securities and Exchange Board of India, Report of the High Level Committee to Review the SEBI (Prohibition
of Insider Trading) Regulations, 1992 Under the Chairmanship of N.K. Sodhi 49 (Dec. 7, 2013) available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf, ¶ 21.; Chintalapati Srinivasa Raju v.
SEBI [2018] 148 SCL 1 (SC); SEBI Order In the Matter of in the Multi Commodity Exchange Ltd,
WTM/MPB/EFD/116/2018, https://www.sebi.gov.in/sebi_data/attachdocs/jan-2018/1515169797491.pdf., ¶ 6.
78
Moot Problem, ¶ 16.
79
Moot Problem, ¶ 17.
80
SEC v. Steffes, 805 F. Supp. 2d 601 (N.D. I.11. 2011).

12
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

3.3. T RADING PATTERN R EVEALS POSSESSION OF UPSI

43. Any insider having access to UPSI will be presumed to have traded while in the possession
81
of UPSI until the contrary is established. Moses and Janesh are insiders by virtue of
reasonable access to UPSI and therefore Moses’ and Janesh’s action are violative of Insider
Trading regulations 2015.

44. Moreover, the trading patterns of Moses and Janesh significantly demonstrate that they are
guilty of insider trading. If the trading pattern is incompatible with SEBI (PIT) Regulations,
82
2015, the same shall be presumed to have done while in the possession of UPSI. The
trading pattern denotes that if a person who is in possession of UPSI has reason to believe
that information will have a positive impact on the price of securities will buy the securities
and sell the securities in a vice versa situation.83In the present case, Moses and Janesh along
with 7 other persons, who were the members of Goldmine group on Whatsapp, had
fervently purchased shares from the market from 12 thJune to 14 thJune 2015 which is the
period when Raider contract was unpublished and sold the entire shares after the
information has been made public except Moses.
45. Moses’ trading pattern also signifies that the trade was motivated by the UPSI as he
purchased shares right a day after attending family function while selling most of them after
UPSI became public. Merely not selling some of the shares after the information has been
made public cannot be accepted as a defense because Moses was bullish about the
investment and possessed half of the shares with him as no adverse UPSI had been
published.84Since no rebuttable presumption arises; Moses is also liable under Regulation
3 & 4 of SEBI (PIT) Regulations, 2015.
46. Moreover, to prove the charge of insider trading, the preponderance of probabilities must
be established.85Since Moses and Janesh have refused to open their Whatsapp account, thus
there is no direct evidence flowing from them.86In such cases, the court should take the note
of immediate actions and circumstances surrounding the concerned event and come to a

81
Rajeev B. Gandhi v. SEBI, [2008] 4 SCL 192 (SAT).
82
Id.
83
SEBI Order in the matter of Insider trading in the scrip of Multi commodity Exchange,
WTM/MPB/EFD/129/2018, https: //www.sebi.gov.in/sebi_data/attachdocs/jan-2018/1517410480985.pdf., ¶
23.
84
Moot Problem, ¶ 18.
85
Mousam Singha Roy v. State of West Bengal, (2003) 12 SCC 377 (India); Dilip S. Pendse v. SEBI, [2009] 90
SCL 302 (SAT).
86
Moot Problem, ¶ 19.

13
~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

reasonable conclusion.87The test of inference should be applied from the perception of the
88
reasonable and prudent man. In the present case, the factual matrix corresponds to the
circumstances which solicit the involvement of the act of insider trading.89
47. Therefore, the trading pattern of Moses and Janesh is in violation of PIT 2015.

3.4. M OSES AND J ANESH ARE LIABLE FOR NOT COMPLYING WITH THE SEBI
I NVESTIGATION PROCESS .

48. SEBI has the power to conduct an investigation if it has reasonable ground to believe that
the transactions in securities are being conducted in a manner detrimental to the securities
market.90The investigating authority has the power to call for information from any person
and hold direct inquiries. It is the duty of intermediaries and persons associated with the
securities market to cooperate with SEBI’s investigation process. 91
49. SEBI in this matter has initiated the investigation into a complaint by IPAI. Janesh had
forwarded some of the relevant messages meant for goldmine group to Jayesh Joshi, who
92
is an active member of the IPAI brought this to the notice of association. Thus, there exists
reasonable suspicion on part of SEBI, which is enough to hold an investigation.93
50. Moses and Janesh, while refusing to cooperate with Investigating Authorities have violated
94
section 15A of the SEBI act and shall be penalized under it. It has been held that given
the regulatory and statutory duty to cooperate, one cannot contend that SEBI is required to
investigate in a matter without seeking the assistance or cooperation of the suspected
person95.
51. Thus, Moses and Janesh shall be compelled to unlock their phones in order to ensure that
the investigation takes place. This shall be done because the efficient functioning of the
96
authorities is more or less dependent on assistance from notices. Moreover, they shall
also be penalized for not cooperating with the Investigating Authorities.

87
SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368, 383 (India).
88
Id.
89
Moot problem, ¶ 17.
90
The Security & Exchange Board of India, 1992, § 11(c), No. 15, Acts of Parliament, 1992 (India).
91
KAUSHIK LAI , UNFAIR TRADE PRACTICES IN SECURITIES MARKET 356 (2013).
92
Moot Problem,K ¶ 19.
93
DLF Ltd. v. SEBI, SAT Appeal No. 33 0f 2014 (Mar. 13, 2015),
https://www.sebi.gov.in/sebi_data/attachdocs/1426241669079.pdf, ¶ 23.
94
Mayfair Paper & Board ltd. v. SEBI, SAT Appeal No. 95 of 2004 (SAT).
95
TVC Shares stock & Inc. ltd v. SEBI, SAT Appeal No. 45 of 2004, (Dec. 14,
2005), https://www.sebi.gov.in/satorders/tvc.html, ¶ 5.
96
Ujala finstock P. Ltd. v. SEBI, SAT Appeal no. 10 of 2001 (May. 25,
2001), https://www.sebi.gov.in/satorders/Ujala.html, ¶15.

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

4. THE CLASS ACTION SUIT FILED UNDER SECTION 245 OF COMPANIES

ACT, 2013 IS MAINTAINABLE.

55. The appeal filed by IPAI and 105 investors of ZCFL under Section 245 of Companies Act
(for brevity ‘CA’), 2013 is maintainable. The argument is twofold. First, the IPAI and 105
investors of ZCFL constitute a class under Section 245 of CA, 2013 [4.1.], and secondly,
there is mismanagement and oppression in the conduct of affairs of ZCFL. [4.2.]

4.1 IPA AND 105INVESTORS OF ZCFL CONSTITUTE A CLASS UNDER SECTION 245OF
I
CA, 2013.

56. According to Section 245 of CA, 2013, a class action suit is maintainable only if there is a
97
class having the same interest which is arising out of the same cause of action. In the
present case, IPAI and 105 investors constitute a class for the purpose of Section 245 of
CA, 2013. This argument is fourfold. There is a commonality in parties [4.1.1.]; there is
typicality [4.1.2.]; Class is numerous [4.1.3.]; Class is ascertainable [4.1.4]. 98

4.1.1. There is a commonality in parties

54. Commonality ensues that the right to relief to each of the appellant arising out of the same
act or the transaction and having a common or same interest shared between them.99Same
interest necessarily does not imply a same cause of action it there must be same interest too
in one suit. 100In every suit, there are three components involved first, right or liability
alleged, secondly, grievance or injury occurred and thirdly, a relief sought that is beneficial
to class as a whole.101
55. In the present case, liability is incurred due to negligence and misconduct of ZCFL’s
directors. Both Jack and Girija have been grossly negligent in their acts and failed
immensely in keeping the operational transparency of ZCFL. Secondly, injury has arisen
owing to the disclosure of UPSI to Skylight and Moses. Thirdly, a relief claimed in the
present suit covers a compensation of INR 2 crores, which will be beneficial to the whole
class, as parties don’t have specific claims but a general grievance extending uniformly to
all the members of the class. Therefore, there exists a commonality between the parties.

97
Companies Act, 2013, § 245., No. 18, Acts of Parliament, 2013 (India)
98
Dukes v. Bedford, H.L. (E) A.C (1900).
99
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338.
100
Pramod Premchand Shah v. Ratan tata, [2017] taxmann.com 169 (Bom.), ¶ 8.
101
Id., at 13.

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

56. Moreover, India’s class action jurisprudence has derived its essence from its counterpart in
U.S.A; thereby U.S.A’s jurisprudence holds significant value and authority for Indian
context. Corresponding provision of class action suit in US, Rule 23 of Federal rules does
not require that every question of law and the question of fact must be in common to all.102
However, a single important question of law or fact common to the whole class suffices the
criteria of commonality in the class.103
57. In the present case, the most important question of law is whether ZCFL could have
avoided the losses averred to its shareholders by strictly complying with the corporate
governance norms and SEBI (PIT) Regulations, 2015. Therefore, by virtue of this question
of law, all members of the class share a common interest from the suit.
58. Further, some factual difference among the 105 investors do not defeat the requirement of
commonality, as the prominent question of law in conflict covers a wide perspective,
common to all the investors and is sufficient to prove commonality. 104In the present case,
a mere factual difference of time frame of the alleged transactions cannot defeat the purpose
of the common question as it all has a common thread of negligence of the company’s
management.

4.1.2. The claims are typical.

59. The class action suit holds typicality in claims. There should be sufficient nexus between
the claims sought by a class representative on behalf of the appellants and the loss averred
by the appellants. 105In the present case, IPAI is a class representative and has filed on
behalf of 105 investors of ZCFL who have averred loss due to mismanagement by ZCFL..
IPAI’s claims of INR 2 crores has a sufficient nexus with the loss incurred by the appellants,
as the computation of loss aggregates to INR 2 crores.106
60. IPAI has a locus standi as the CA 2013 provides that any group or association of person
can file an application if the company has acted prejudicially.107SEBI has well-recognised
investor protection associations and such associations can initiate class action suits on
behalf of the aggrieved investors.
61. Therefore, IPAI is a proper class representative for the present appeal.

102
Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338.
103
Id.
104
Lightfoot, 246, 337 F.R.D; Bynum v. District of Columbia, 214 F.R.D. 27, 32 (D.D.C. 2003).
105
Prado-Steiman v. Bush, 221 F.3d 1266, 1278-79 (11th Cir. 2000).
106
Moot Problem, ¶ 23.
107
Companies Act, 2013, § 245(10), No. 18, Acts of Parliament, 2013 (India).

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

4.1.3. The class is numerous

108
62. For instituting class action suits, the threshold is 100 members at least. In the present
case, the class action suit which has been instituted by IPAI carries along with it 105
investors of ZCFL investors who has incurred severe loss due to the disclosure of UPSI.
Therefore, the numerosity has been succinctly fulfilled.

4.1.4. The class is defined and ascertainable

63. The class must be defined with objective criteria and must be ascertainable in terms of their
identity. 109In the present case, investors are members of the company and can be identified
in an objective pattern in terms of their holdings and profiles. There is no vague or
110
subjectivity involves in question which tends to decline the ascertainablity of the class.
Since the distinction of the class is proper and objective, therefore the class is defined and
ascertainable.
64. Due to aforesaid reasons, the IPAI and 105 investors can constitute ‘the class’ for the
purpose of an appeal under Section 245 of Companies act as all the objective criteria have
been duly fulfilled. Therefore, the appeal should be allowed.

4.2. T HERE ARE MISMANAGEMENT AND OPPRESSION IN THE CONDUCT OF AFFAIRS OF

ZCFL

65. ZCFL and its directors have involved in mismanagement and oppression in the conduct of
affairs of the company. Oppression is defined as the unjust treatment of minority
shareholder by the corporation or its manager.111 Oppression and mismanagement have not
been explicitly defined under any section, and it is fundamentally a question of fact. 112 In
present case, ZCFL and its directors Girija and Jack D’Souza have mismanaged and
oppressed the minority shareholders by disclosing UPSI to only selected investors.

4.2.1. ZCFL and GSIBC are responsible for mismanagement and oppression.

66. ZCFL and its merchant bankers by not requiring the recipients of IM to sign any
confidentiality agreement in the process of Private Placement have acted in a manner
113
detrimental to the interest of shareholders. In N, Narayan v SEBI, it was reiterated that

108
Companies Act, 2013, § 245, No. 18, Acts of Parliament, 2013 (India).
109
Garrish v. UAW, 149 F. Supp. 2d 326 (E.D. Mich. 2001).
110
Burley v. City of New York, 2005 WL 668789, at *8–9, 2005 U.S. Dist. LEXIS 4439, 25-28 (S.D.N.Y. Mar.
23, 2005).
111
BLAC ’S LAW DICTIONARY 1126 (7thed., 1999).
112 K
VS Krishnan v. Westfort Hi-tech Hospital Ltd., (2008) 142 Comp. Cas 235 (India).
113
N. Narayanan v. SEBI, (2013) 12 SCC 152 (India).

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of
this country and 'market security' is our motto.
67. Moreover, ZCFL didn’t mention the absence of confidentiality clause in IM in its request
for informal guidance. Hence, SEBI is under no obligation to answer latent and unasked
questions. ‘No action’ letter does not represent the view of the Board but just of a particular
department and therefore, any informal guidance issued to ZCFL cannot bind the Board.
68. No action letter issued to ABL Pvt. Ltd is binding on ZCFL’s transaction, as the transaction
was of the similar nature. 114 ZCFL has disregarded ABL’s no action letter, in which SEBI
made the addition of ‘appropriate confidentiality and standstill agreement’ mandatory in an
IM.

69. Moreover, GSIBC, a merchant banker of ZCFL has also acted in prejudicial to the interest
of shareholders, as the merchant banker has a duty not to suppress any material
information.115 In the present case, GSIBC suppressed the material information in their no-
116
action letter request which is the absence of confidentiality and standstill agreement.
Therefore, the GSIBC too has acted in violation of SEBI (Merchant banker’s regulations).

70. Thus, by issuing IM and disclosing additional information without adding proper
confidentiality and standstill agreement, ZCFL has acted prejudicially to the interest of the
investors of the company. 117 Therefore, this amounts to oppression and mismanagement in
the conduct of affairs of the company. Moreover, ZCFL’s directors have a pivotal duty as
118
they stand in the relation to trust with investors and shareholders. They have miserably
failed to exercise due diligence and proper care. Moreover, Girija while talking on the
phone has affirmed and ratified the conduct of Skylight acquisition of toehold. 119

4.2.2. Jack is responsible for oppression and mismanagement.

71. Jack has violated Regulation 3 along with the Model Code of Conduct of SEBI (PIT)
Regulations, 2015. Jack is the director of ZCFL and by virtue of being a director, he shall
120
be presumed to have reasonable access to UPSI. According to Regulation 3 of SEBI
(PIT) Regulations, 2015, no insider shall communicate or counsel any other person

114
Deepak Mehra v. SEBI, SAT Appeal No. 140 of 2009 (SAT).
115
SEBI (Merchant Bankers) Regulations, 2015, Gazette of India, pt. III sec. 4 (Dec. 22, 1992) Cl. 20.
116
Moot Problem, ¶ 7.
117
DR. K CHANDRATRE , LAW & PRACTICE RELATING TO OPPRESSION AND MISMANAGEMENT120 (2 nded. 2016).
118
R , A TREATISE ON THE LAW OF COMPANIES 394 (5 thed.1889).
LINDLE
119 Y
Moot Problem ¶ 9.
120
SEBI (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt. III sec. 4 (Jan. 15, 2015), § 2(d).

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

121
regarding the UPSI of the company. In circumstances where a part of UPSI has been
communicated, which if assembled together with publicly available information, can have
122
a material affect the same shall be treated as a communication of UPSI. In the present
case, selective disclosure by Jack to Moses during family gathering while talking on the
phone would amount to the communication of UPSI.

72. Jack has acted in breach of the Model Code of Conduct embodied under SEBI (PIT)
Regulations, 2015. According to Cl. 4 of Sch. A of SEBI (PIT) Regulations, insider trading,
a prompt disclosure is to be made when the UPSI has been selectively disclosed to anyone.
In the present case, Jack, however, had strong inklings that some part of UPSI has been
inadvertently and selectively disclosed to Moses,123still, he did not inform about the same
to Compliance officer of ZCFL. Therefore, Jack has acted in breach of the Model Code of
Conduct under SEBI (PIT) 2015.
73. Additionally, the alleged decision of Jack, of not informing the management about selective
disclosure cannot have a backing of business judgment rule, as business judgment rule does
124
not exonerate director when the act has been committed under gross negligence. Since
the act of Jack does not conform to the Model Code of Conduct, he has violated SEBI PIT
Regulations.
74. Moreover, confrontation between them signifies that certainly UPSI had been revealed, as
125
Moses was maneuvering for more specific details pertaining to Raider deal. Therefore,
Jack was under prime obligation to inform the management that selective information had
been revealed irrespective of any intention involved.126
75. Furthermore, the communication of UPSI cannot be said in furtherance of legitimate
purpose, discharge of legal obligations and performance of duties, as communication of
UPSI to a stranger is strictly prohibited under SEBI (PIT), 2015. Also, Jack’s decision
cannot be said to be in the best interest of the shareholders, as the director stands in the
127
relation of cestui queue trust with the shareholders of the company. Jack has breached
the trust of shareholders of ZCFL who sold their shares during the period of June 12th,2018

121
SEBI (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt. III sec. 4 (Jan. 15, 2015) § Reg.3.
122
Allan Horwich, The Mosaic Theory of Materiality- Does the Illusion have a future?, 43 S EC. REG. L.J. 129,
137 (2015).
123
Moot Problem, ¶ 16.
124
Smith v. Van Gorkam, 488 A.2d 858 (Del. 1985).
125
Moot Problem, ¶ 17.
126
SEBI (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt. III sec. 3 (Jan. 15, 2015) § Reg.
3(4) § Sch. A ,Model Code of Conduct Cl. 4.
127
York and North-Midland Railway Co v. Hudson [1845] Eng. Rep. 482.

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~ ARGUMENTS ADVANCED ~ ~ M EMORANDUM FOR THE APPELLANTS

to June 14th,2018 by selectively and wilfully disclosing UPSI to a skilled analyst which in
turn caused severe loss to the investors.128

76. Moses and Janesh conduct was an act of insider trading and therefore, it is detrimental to
the interest of the shareholder who has sold their shares without the access of
information.129Trading is done while in the possession of UPSI is against the investor’s
protection.130Therefore, they are liable to pay off the compensation.
77. Since, ZCFL and its directors, GSIBC, Moses, and Janesh all have acted in prejudice to the
interest of the shareholders ,they are liable for compensation.

128
Moot Problem, ¶ 16.
129
N. Narayanan v. SEBI, (2013) 12 SCC 152 (India).
130
The Security & Exchange Board of India, 1992, § 11, No. 15, Acts of Parliament, 1992 (India).

20
 ~ P RAYER ~ ~ M EMORANDUM FOR THE APPELLANTS

PRAYER

Wherefore, in the light of the facts stated, issues raised, arguments advanced and authorities
cited, the Appellants most humbly prayed before the Hon’ble Supreme Court of India to
adjudge and declare that:

1. The board was right in debarring the ZCFL, its directors and skylight from the capital
market for 3 years under the first show-cause notice.
2. The board was right in debarring the ZCFL, Moses, Janesh from the capital market for
3 years under the second show-cause notice.
3. Adjudication officer’s order imposing penalty inr 1 crore for first show-cause notice
and INR 50 lakhs for second show-cause notice should be upheld.
4. Compensation of INR 2 crores in the class action suit under section 245 should be
awarded to IPAI and 105 investors of ZCFL.

Grant any other order in favor of Appellants that the Hon’ble Court may deem fit in the
eyes of equity, justice, and good conscience.

All of which respectfully submitted

Sd/-
Counsels on behalf of Security Exchange Board of India, and
IPAI and 105 investors

XVI