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CODE: 104

2ND GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2016

BEFORE

THE HONOURABLE SUPREME COURT OF INDIA

CIVIL APPEAL FILED UNDER 15Z OF THE SEBI ACT, 1992

DREAMSELLERS LIMITED
(APPELLANT)

V.

SECURITIES AND EXCHANGE BOARD OF INDIA


(RESPONDENT)

COUNSEL APPEARING ON BEHALF OF THE APPELLANT

MEMORIAL ON BEHALF OF THE APPELLANT

-Table of Contents -

- Appellant TABLE OF CONTENTS

TABLE OF CONTENTS ........................................................................................................ I


LIST OF ABBREVIATION................................................................................................... II
INDEX OF AUTHORITIES .................................................................................................IV
STATEMENT OF JURISDICTION ..................................................................................... X
STATEMENT OF FACTS ....................................................................................................XI
ARGUMENTS PRESENTED............................................................................................XIII
SUMMARY OF ARGUMENTS........................................................................................ XIV
ARGUMENTS ADVANCED .................................................................................................. 1
1. THAT THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER
REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER CAN BE
APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 R EGULATIONS . ............... 1
1.1. That the Regulation 23 of the New Takeover Regulations is to be applied to the
present case. ....................................................................................................................... 1
1.2. That the rule of Ejusdem Generis cannot be applied to the Regulation 23 of the 2011
Regulations......................................................................................................................... 5
2. THAT IT CANNOT BE SAID THAT DREAMSELLERS HAD FAILED TO
EXERCISE DUE DILIGENCE AND THE FACTS RELATING TO THE FRAUD
WERE KNOWN OR COULD HAVE BEEN KNOWN BY DREAMSELLERS IF
DREAMSELLERS HAD EXERCISED PROPER DUE DILIGENCE. .......................... 5
2.1 That The Steps Were Taken By The Appellant Towards Due Diligence Exercise
Were Reasonable and Sufficient In Law............................................................................ 6
2.2. Upon Due Diligence, The Appellant Could Not Possibly Detect The Fraud ............. 8
2.3. Due Diligence Cannot Be Seen As A Substitute For Representations And
Warranties .......................................................................................................................... 9
3. THAT SEBI HAD VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN
THE PRESENT CASE WHILE PASSING ITS ORDER REJECTING THE
APPLICATION TO WITHDRAW THE OPEN OFFER WITHOUT HEARING
DREAMSELLERS. ........................................................................................................... 11
3.1. That SEBI is required to follow the principles of Natural Justice. ........................... 11
3.2. That SEBI has violated the principles of natural justice while passing its order
rejecting the application to withdraw the open offer. ...................................................... 12

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-Table of Contents -

- Appellant -

3.3. That SEBIs order is to be quashed and the matter ought to be remanded to SEBI so
that a ruling on merits could become available................................................................ 13
4. THAT REGULATION 27 (1) (D) OF THE 1997 Regulations IS NOT TO BE GIVEN
AN INTERPRETATION WHEREBY, THE WORDS SUCH CIRCUMSTANCES AS
IN THE OPINION OF THE BOARD MERIT WITHDRAWAL ARE NOT TO BE
READ EJUSDEM GENERIS WITH THE OTHER PROVISIONS OF REGULATION
27 (1) OF THE SAID CODE. ................................................................................................ 15
4.1. Intention of the Legislature can be inferred by having regard to the Legislative
History.............................................................................................................................. 16
4.2. Assistance of 2011 Regulations in ascertaining the 1997 Regulations..................... 17
4.3. Takeover Regulations Advisory Committee Report and Takeover Regulations in
other Jurisdictions ............................................................................................................ 18
4.4. Inordinate Delay by SEBI in approving the Draft Letter of Offer............................ 19
PRAYER ..............................................................................................................................XIII

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-List of Abbrevation -

- Appellant LIST OF ABBREVIATION

1. &

And

2. / S.

Section

3.

Paragraph

4. A.I.R.

All India Reporter

5. Adv.

Advocate

6. All E.R.

All England Reports

7. Anr.

Another

8. Art.

Article

9. BOD

Board of Directors

10. Bom

Bombay

11. BSE

Bombay Stock Exchange

12. Cal.

Calcutta

13. CCI

Competition Commission of India

14. CIT

Commissioner of Income Tax

15. Cl.

Clause

16. Co.

Company

17. Comp LJ

Company Law Journal

18. DD

Due Diligence

19. Del.

Delaware

20. Ed.

Edition

21. Engg.

Engineering

22. Gen.

General

23. H.C.

High Court

24. ILR

Indian Law Reporter

25. Inc.

Incorporation

26. Ker.

Kerala

27. KB

Kings Bench

28. Ltd.

Limited

29. M&A

Mergers and Acquisitions

30. MAC

Material Adverse Change

31. MB

Merchant Banker
II | P a g e

-List of Abbrevation 32. Mfg.

- Appellant Manufacturing

33. Mum

Mumbai

34. Ors.

Others

35. P&H

Punjab and Haryana

36. PA

Public Announcement

37. PIPE

Private Investment in Public Equity

38. PIT

Prevention of Insider Trading

39. PNB

Punjab National Bank

40. Pvt./(P)

Private

41. Reg.

Regulation

42. SAST

Substantial Acquisition of Shares and Takeovers

43. SAT

Securities and Appellate Tribunal

44. S.C.C.

Supreme Court Cases

45. S.C.

Supreme Court

46. SCL

SEBI and Corporate Law

47. SCR

Supreme Court Reporter

48. SEBI

Securities and Exchange Board of India

49. TRAC

Takeover Regulations Advisory Committee

50. UoI

Union of India

51. U.P.

Uttar Pradesh

52. U.S.

United States

53. U.K.

United Kingdom

54. v.

Versus

55. viz.

Namely

56. Vol.

Volume

57. WTM

Whole Time Member

58. Del. Ch.

Court of Chancery of Delaware.

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-Index of Authorities-

- AppellantsINDEX OF AUTHORITIES

CASES
Amadhi Investments Limited v. Securities and Exchange Board of India, [2011] SAT 97. ... 13
AR Antulay v. RS Nayak, (1988) 2 SCC 602.......................................................................... 13
Automotive Tyre Manufacturers Association v. Designated Authority, (2011) 2 SCC 258. .. 11
Bhagat Raja v. Union of India, AIR 1967 SC 1606................................................................. 14
Bhagat Raja v. UOI, AIR 1967 SC 1606, 1613. ...................................................................... 14
Bhagat Raja v. UOI, AIR 1967 SC 1606. ................................................................................ 13
BHEL v. Globe Hi-Fabs Ltd, (2015) 5 SCC 718, 722............................................................. 16
Bibi Shahnaz v. State of Bihar, (1998) 3 PLJR 932, 942. ....................................................... 17
Bishambhernath Kohli v. State of Uttar Pradesh, AIR 1966 SC 573, 579. ............................... 3
CCI v. Steel Authority of India Ltd, (2010) 10 SCC 744, 777. ............................................... 11
Central Bureau of Investigation v. VK Sehgal, JT 1999 (8) SC 170, 176-177. ........................ 3
Chander Kanta Bansal v. Rajinder Singh Anand, [(2008) 5 SCC 117]. .................................... 6
CIT v. MCdowell and Co Ltd, (2009) 10 SCC 755, 763. ........................................................ 16
CIT v. Shelly Products, (2003) 5 SCC 461, 478........................................................................ 4
CIT v. Vatika Township (P) Ltd, (2015) 1 SCC 1, 22. .............................................................. 1
Dilip v. Mohd Azizul Haq, AIR 2000 SC 1976, 1979............................................................... 1
Dinesh Roller Flour Mills v. UOI, AIR 1983 Pat 293. ............................................................ 12
Director ESI Scheme v. Sabita Mohanty, (1995) SCC (L&S) 865. ........................................ 13
Golak Patel Volkart Ltd v. Dundayya Gurushiddaiah Hiremath, (1991) 2 SCC 141, 145. ....... 4
Grasim Industries Ltd v. Collector of Customs, Bombay, (2002) 4 S.C.C. 297, 304. ............ 15
HL Trehan v. UOI, (1989) 1 SCC 764, 770............................................................................. 14
HSBC Securities & Capital Markets (India) (P.) Ltd. v. Whole Time Member, SEBI [2008]
87 SCL 174 (SAT - MUM.)................................................................................................... 6
Imperial Corporate Finance and Services Private Limited v. SEBI [2005] 61 SCL 197 (SAT).
................................................................................................................................................ 8
Indira Sohanlal v. Custodian of EP, (1955) 2 SCR 1117, 1133. ................................................ 3
Indira Sohanlal v. Custodian of EP, AIR 1956 SC 77. .............................................................. 3
Indramani Pyarelala v. WR Natu, AIR 1963 SC 274. ............................................................... 5
Iridium India Telecom Ltd v. Motorola Inc, (2005) 2 SCC 145.............................................. 16
Jagannath v. UOI, AIR 1967 Del 121. ..................................................................................... 14
IV | P a g e

-Index of Authorities-

- Appellants-

Jai Prakash v. State of UP, (2004) 13 SCC 390, 398. .............................................................. 16


John Minas Apcar v. Louis Caird Malchus, AIR 1939 Cal 473. ............................................... 6
Karam Singh v. Pratap Singh, AIR 1964 SC 1305, 1309. ......................................................... 4
Kavalappara Kottarathil Kochuni v. State of Madras, AIR 1960 SC 1080, 1115. .................. 15
KI Shephard v. UOI, AIR 1988 SC 686, 691. ......................................................................... 14
Kishore Rajaram Chhabria v. Chairman Securities & Exchange Board of India, 2003 SCC
OnLine SAT 23. ................................................................................................................... 11
Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal, (2010) 3 SCC
786, 791................................................................................................................................ 15
Maya Devi v. Raj Kumar Batra, (2010) 9 SCC 486, 495. ....................................................... 14
Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95, 106. ............................................. 2
Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95. ..................................................... 1
Nar Bahadur Bhandari v. State of Sikkim, AIR 1998 SC 2203, 2205....................................... 3
OP Gupta v. UOI, AIR 1987 SC 2257. .................................................................................... 11
Oramco Chemical Pvt Ltd v. Gwalior Rayon Silk Mfg Co Ltd, AIR 1987 SC 1564.............. 12
Oriental Insurance Co Ltd v. Hansrajbhai v. Kodala, (2001) 5 SCC 175, 184........................ 16
PL Lakhanpal v. UOI, AIR 1967 SC 1507. ............................................................................. 11
PV Mohammad Barmay Sons v. Director of Enforcement, AIR 1993 SC 1188, 1192............. 2
Ram Parkash v. Savitri Devi, ILR (1957) 2 P&H 1859, 1872. .................................................. 1
Rambhai v. Dayabhai, AIR 1967 SC 162. ................................................................................. 3
Sahara India, Lucknow v. CIT, Central-I, (2008) 14 SCC 151, 167. ...................................... 15
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 125. .......................................... 20
Shri Ram Labhaya v. Municipal Corp of Delhi, (1974) 4 SCC 491, 493. ............................... 16
SL Kapoor v. Jagmohan, AIR 1981 SC 136. ........................................................................... 13
Sohan Lal v. State of Punjab, AIR 1983 P&H 63.................................................................... 12
Sone Valley Portland Cement v. General Mining Syndicate Pvt Ltd, (1976) 3 SCC 852, 862.
.............................................................................................................................................. 18
State of Bihar v. SK Roy, AIR 1966 SC 1995. ........................................................................ 18
State of Bombay v. Ali Gulshan, AIR 1955 SC 810. ................................................................ 5
State of UP v. Maharaja Dharmendra Pratap Singh, (1989) 2 SCC 505. ................................ 13
tate of Bihar v. SK Roy, AIR 1966 SC 1995. .......................................................................... 18
Tranvancore Rayons v. UOI, AIR 1971 SC 862; Mayer Simon v. Adv Gen Kerala, AIR 1975
Ker 57................................................................................................................................... 13
Travancore Rayons v. UOI, AIR 1971 SC 862. ...................................................................... 13
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-Index of Authorities-

- Appellants-

Union of India v. Steel Stock Holders' Syndicate, (1976) 3 SCC 108, 114............................... 5
Vijay Mallya v. Chairman Securities & Exchange Board of India, [2003] SAT 19. .............. 12
Vishesh Kumar v. Shanti Prasad, (1980) 2 SCC 378, 384. ..................................................... 16
VK Verma v. Radhey Shyam, AIR 1964 SC 1317. ................................................................... 4
Yogendra Nath Naskar v. CIT Calcutta, (1969) 1 SCC 555, 562. ........................................... 18
Zile Singh v. State of Haryana, (2004) 8 SCC 1, 8.................................................................... 1

FOREIGN CASES
Cape Brandy Syndicate v. Inland Revenue Commissioners, (1921) 2 KB 403. ..................... 18
Gardner v. Blaxill, [1960] 2 AII ER 457, 460. .......................................................................... 3
Gardner v. Blaxill, [1960] 2 AII ER 457, 460. .......................................................................... 3
In re IBP Inc Shareholders Litigation, 789 A.2d 14 (Del. Ch. 2001). ..................................... 19
Loffice Cherifien v. Yamashita Shinnihon, (1994) 1 AII ER 20, p. 29. .................................. 1
Marfani & Co. Ltd. v. Midland Bank Ltd. [1968] 2 All E.R. 573. ............................................ 7

REPORTS AND CIRCULARS


Report of the High Level Committee to Review the SEBI (Prohibition of Insider Trading
Regulations 1992), (Dec. 7, 2013), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf. ............................. 11
Report of the Takeover Regulations Advisory Committee under the Chairmanship of Mr. C.
Achuthan, (July 19, 2010) available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf. ................... 1, 17, 18

BOOKS
G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 315 (12th ed., LexisNexis
Butterworths Wadhwa Nagpur 2011). ................................................................................. 18
G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 463 (12th ed., LexisNexis
Butterworths Wadhwa Nagpur 2011). ................................................................................. 15

VI | P a g e

-Index of Authorities-

- Appellants-

G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 712 (12th ed, Lexis Nexis
Butterworths Wadhwa Nagpur, 2011). .................................................................................. 2
JEFFREY M. WEINER, DUE DILIGENCE IN M&A TRANSACTIONS: A CONCEPTUAL FRAMEWORK,
12-30 (Thomson Reuters/Aspatore, U.S.A 2010). ................................................................. 6
SHISHIR VAYTTADEN, SEBI'S TAKEOVER REGULATIONS: COMMENTARY ON THE SEBI
(SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS 1997, 665
(LexisNexis Butterworths Wadhwa Nagpur, 2010)......................................................... 5, 10

DICTIONARIES
10 J.A. SIMPSON & ESC WEINER, OXFORD ENGLISH DICTIONARY 450 (2d ed., Calrendon
Press, Oxford, 1991). ............................................................................................................. 4
2 J.A. SIMPSON & ESC WEINER, OXFORD ENGLISH DICTIONARY 829 (2d ed., Calrendon Press,
Oxford, 1991)......................................................................................................................... 4
BLACK S LAW DICTIONARY 1739 (9th ed. 2009). ...................................................................... 4
BLACK S LAW DICTIONARY 594 (9th ed. 2009). ....................................................................... 15
P. RAMANATHA AIYAR, LAW LEXICON 403 (2nd ed., Lexis Nexis Butterworths Wadhwa
Nagpur, 2006). ....................................................................................................................... 4
P. RAMANATHA AIYAR, LAW LEXICON 371 (2d ed., Lexis Nexis Butterworths Wadhwa
Nagpur, 2006). ....................................................................................................................... 4

JOURNALS
Afra Afsharipour, Corporate Governance and the Indian Private Equity Model, 27 NLSI
Rev. 17 (2015)........................................................................................................................ 9
Afra Afsharipour, Corporate Governance Convergence: Lessons from the Indian Experience,
29 Northwestern Journal of International Law & Business, 335, 362-63 (2009). ................. 9
Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An
analysis, (2011) P.L. (CL) March S-24. ............................................................................ 6, 9
Jim Woods, Due Diligence or Audit: Its All in a Name, The Hong Kong Accountant, 3032
(Feb. 2002). ........................................................................................................................ 6, 8
Sambhav Sogani, Pledging of Shares and The Managements Appetite - Fall Outs and
Desired Changes in Takeover Regulations, [2010] 104 SCL 1 (MAG). ............................. 10
VII | P a g e

-Index of Authorities-

- Appellants-

Tarun M. Stewart & Cyril S. Shroff, Investing in Indian PIPE, Journal of Private Equity, Vol.
10, No. 3 (Summer 2007), 87-95. ........................................................................................ 10
Tarun M. Stewart & Cyril S. Shroff, Investing in Indian PIPEs, (2007) 10 Journal of Private
Equity 87. ............................................................................................................................... 7
Umakanth Varottil, Comparative Takeover Regulation and the Concept of Control,
Singapore Journal of Legal Studies [2015] 208231............................................................. 9
Umankanth Varotill, Due Diligence in Share Acquisitions: Navigating The Insider Trading
Regime,............................................................................................................................. 9, 10

SAT CASES
Almondz Global Securities Ltd. & Ors. v. SEBI, SAT Appeal No. 275 of 2014, (13/05/2016),
available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1393857624351.pdf. ..... 7, 10
M/s. Keynote Corporate Services Ltd. v. SEBI, SAT Appeal No. 84 of 2012, (19/02/2014),
available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1392868424104.pdf. ......... 7

SEBI ORDERS
SEBI Order In the Matter of Brooks Laboratories Limited, WTM/SR/IVD/ID-4/06/2014,
11.9 available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1402402106617.pdf. 10
SEBI Order In the Matter of PNB Investment Services Limited, WTM/RKA/ID-8/96/2014
available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407235951353.pdf........ 7, 8
STATUTES
SEBI (Merchant Banker Regulations), 1992, ............................................................................ 5
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997. ............................ 3
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, ............................ 1
SEBI [(Prohibition of) Insider Trading] Regulations, 1992 .................................................... 10
SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, . ....................................................... 7

FOREIGN STATUTES
The City Code on Takeovers and Mergers, 2008. ................................................................... 19
VIII | P a g e

-Index of Authorities-

- Appellants-

The Singapore Code on Takeovers and Mergers, 2012. .......................................................... 19

OTHER AUTHORITIES
BSE Equity Listing Agreement ................................................................................................. 7

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-Statement of Jurisdiction-

-Appellant-

STATEMENT OF JURISDICTION

CASE CONCERNING WITHDRAWAL OF OPEN OFFER UNDER THE SEBI


TAKEOVER REGULATIONS, 1997.

Petitioner

DREAMSELLERS LTD.
V.

SECURITIES AND EXCHANGE BOARD OF INDIA

Respondent

The Appellant has the honour to submit before the Honble Supreme Court the memorandum
for Appellant in the present case under Section 15Z of the Securities and Exchange Board of
India Act, 1992. The appeal has been filed against the decision of the Securities Appellate
Tribunal disallowing the appellant to withdraw its open offer under Regulation 27(1) (d) of
Securities and Exchange Board (Substantial Acquisition of Shares and Takeover)
Regulations, 1997.

IN THE SUPREME COURT OF INDIA

THE APPELLANT HUMBLY AND RESPECTFULLY SUBMITS TO THE


JURISDICTION OF THIS HONBLE COURT

X|P a ge

-Statement of Facts-

-AppellantSTATEMENT OF FACTS

INTRODUCTION

Pledge Agreement: On January 30, 2009, the Promoters of Artemis Ltd (hereinafter,
Artemis), a company listed on the BSE, borrowed a sum of Rs.100 Crore from
Dreamsellers Ltd. (hereinafter, Appellant) and pledged the equity shares of Artemis
Limited as security. A Pledge agreement was entered into in this regard.

Default: On June 10, 2010, appellant, in terms of the enforcement provisions contained in
the agreement, issued a letter calling upon them to repay the debt within a period of 30
days, failing which the appellant would be constrained to invoke the pledge.

Invocation of Pledge: The debt was not repaid in the given time limit. Upon default by
the Promoters of Artemis to repay the debt, the pledge was invoked by appellant on July
22, 2010, which made latter entitled to 12.5 per cent equity shares in Artemis.

Inability to service debt: Even after the invocation of the pledge, Dreamsellers had
reservations about Artemiss ability to pay back the debt unless it had a say in the
decision making of Artemis. The Promoters of Artemis kept promising to the appellant
about servicing their debt obligation but in vain.

OPEN OFFER

Voluntary Offer: Along with the invocation of pledge, which got only 12.5 per cent
equity shares, appellant decided to voluntarily make an open offer under Regulation 10
SEBI (SAST Regulations), 1997 (hereinafter 1997 Regulations) to acquire upto 37.6
per cent equity shares in Artemis.

Public Announcement: Appellant made a Public Announcement dated October 1, 2010,


for the proposed Open Offer to acquire upto 37.6 per cent equity shares of Artemis in the
requisite newspapers. The associated formalities were duly complied with along with the
Draft Letter of Offer being sent to the Board by appellants merchant banker.

FRAUD IN TARGET COMPANY

Special Investigative Audit: Meanwhile, on continuous demands of the creditor of


Artemis, the independent directors of the co. directed an internal audit of Artemis
operations and financials. Certain irregularities between 2005 and 2008 were discovered.
Thereafter, the Audit committee directed a special investigative audit.

Fraud and Syphoning of Funds: An independent Audit firm so appointed submitted in


its report on September 30, 2011, that through fraudulent transactions, Rs. 300 crores had
XI | P a g e

-Statement of Facts-

-Appellant-

been siphoned off and embezzled by the Promoters of Artemis Limited. After
deliberations by the board of directors, on Oct 25, 2011, the investigative report was
made public. Public dissemination of the contents of the report resulted in sharp decline
in market price of shares of Artemis.

Request to Withdrawal of Open Offer: Quite promptly, the appellant wrote through its
merchant bankers to SEBI seeking to withdraw the open offer that it had voluntarily
made. It was argued by it that it had only made an open offer voluntarily and
extraordinary facts have since emerged and therefore, it should be permitted to withdraw
the open offer. As an alternative and without-prejudice argument, it sought that SEBI
should pass an order permitting re-pricing of the open offer price in view of the new facts
that have become known, which the market did not know earlier, and because of which
the market price had been much higher than what it would have been had the price
become known.

ORDER OF SEBIS ADJUDICATING OFFICER AND APPEALS THEREOF

Boards Response: To this the SEBI responded, issuing its observations on Draft Letter
of Offer (after a very long delay) stating that acquirers should conduct their due diligence
before deciding on whether to make an open offer. Having made it once, they cannot
withdraw it, since only circumstances similar to the death of the acquirer or statutory
approvals not being provided, could be grounds for withdrawal. Meanwhile, the SEBI
SAST Regulations, 2011 had been notified and thereafter made applicable. SEBI also
stated that Regulation 23 of the New Takeover Regulations would not be applicable at all
since the open offer had been made under the provisions of the 1997 Regulations.

Appeal to SAT: Being aggrieved by the SEBI Order, Dreamsellers filed an appeal before
the Securities Appellate Tribunal under Section 15T of the SEBI Act, 1992. The SAT
after hearing both the parties passed an order dismissing the appeal filed.

Reasoning issued by SAT: The SAT inter alia held that the 2011 Regulations cannot be
extended to the present case. Giving a restrictive interpretation to Regulation 27(1)(d) of
SAST, 1997, an offer once made cannot be withdrawn. That the appellant ought to do
proper due diligence before making the open offer.

Appeal to the Supreme Court: Being aggrieved by the Order of the SAT, Dreamsellers
filed an appeal before the Honble Supreme Court under Section 15Z of the SEBI Act,
1992. The matter is under consideration by a larger bench.

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-Arguments Presented-

-Appellant-

ARGUMENTS PRESENTED
I.

THAT THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER


REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER CAN BE
APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 Regulations.

II.

THAT IT CANNOT BE SAID THAT DREAMSELLERS HAD FAILED TO


EXERCISE DUE DILIGENCE AND THE FACTS RELATING TO THE FRAUD
WERE KNOWN OR COULD HAVE BEEN KNOWN BY DREAMSELLERS,
IF DREAMSELLERS HAD EXERCISED PROPER DUE DILIGENCE.

III.

THAT SEBI HAD VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN


THE PRESENT CASE WHILE PASSING ITS ORDER REJECTING THE
APPLICATION TO WITHDRAW THE OPEN OFFER WITHOUT HEARING
DREAMSELLERS.

IV.

THAT REGULATION 27 (1) (D) OF THE 1997 REGULATIONS IS NOT TO BE


GIVEN

AN

INTERPRETATION

CIRCUMSTANCES

AS

IN

THE

WHEREBY,
OPINION

THE
OF

THE

WORDS
BOARD

SUCH
MERIT

WITHDRAWAL ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER


PROVISIONS OF REGULATION 27 (1) OF THE SAID CODE I.E. AS
CIRCUMSTANCES WHERE IT IS IMPOSSIBLE TO PERFORM THE OPEN
OFFER.

XIII | P a g e

-Summary of Arguments-

-AppellantSUMMARY OF ARGUMENTS

1. That the provisions of Regulation 23 of the New Takeover Regulations relating to


withdrawal of open offer could be applied to an open offer made under the 1997
Regulations.: a) The rule against retrospective construction in general is applicable where the object of the
statute is to affect vested rights or to impair existing obligations, and the Regulation 23 of
the 2011 Regulations neither impairs any vested right nor imposes any new liability.
b) The amendment in the form of Regulation 23(1)(c) merely provides a new remedy for
enforcement of an existing right. Statutes providing new remedies for enforcement of an
existing right are treated as procedural and apply to future as well past causes of action.
c) Regulation 23(1)(c) is a beneficial provision that would not only help the acquirers but
also strengthen the securities market as a whole and thus is to given retrospective effect.
d) The withdrawal of an open offer made under 1997 Regulations can be be done under
2011 Regulations by virtue of deeming provision contained under Regulation 35(2)(a).
e) Regulation 23(1)(c) is in the nature of clarification and that it is well settled that the
clarification are to be applied retrospectively.
2. That the Board and SAT were wrong in holding that the facts relating to
embezzlement in Artemis were "known" or "could have been known" by the appellants
on conducting "due diligence". The above holdings disturb the crystallised jurisprudence on
what constitutes due diligence. As a matter of fact, frauds of complex nature such as that in
the present case were discovered by forensic audit and cannot be uncovered by due diligence
by a third party. Therefore, the appellant hereby pleads before that honorable court that:
a) That the steps were taken by the appellant towards due diligence exercise were
reasonable and sufficient in law.
b) That the Board and SAT did not appreciate that the fraudulent transactions, systematic
embezzlement and

syphoning of funds was revealed pursuant to a special

investigative audit and could not have been found by an outside third party like
appellant.
c) Due Diligence cannot be seen as a substitute for representations and warranties since
the seller/target company provides information on which the due diligence is based,
which may not be complete, and the purchaser is not in control of the target company.

XIV | P a g e

-Summary of Arguments-

-Appellant-

Further, Insider Trading Regulations of the Board restrict scope of independent


verification of such information.
3. That SEBI had violated the principles of natural justice in the present case while
passing its order rejecting the application to withdraw the open offer without hearing
Dreamsellersa) SEBI has not provided adequate reasons for rejecting the appellants application and
merely stated that the request for withdrawal of the open offer was not being considered
favourably. The board passed its order without providing any reasonable opportunity to
the appellants to represent their case.
b) SEBI had made no observations regarding the embezzlement of funds and it was
completely silent on the alternative request for re-pricing of the open offer price.
c) SEBI did not conduct any hearing for taking such a vital decision and Dreamsellers was
given no opportunity to consider what was weighing with SEBI.
d) SEBIs order is to be quashed on grounds of violation of natural justice and matter is to
be remanded back to SEBI.
4. That Regulation 27(1)(d) of the 1997 Regulations is not to be given an interpretation
whereby, the words such circumstances as in the opinion of the board merit
withdrawal are not to be read ejusdem generis with the other provisions of regulation
27 (1) of the said code because:
a) Prior to 2002, Reg. 27(1) also incorporated clause (a) which permitted withdrawal of an
open offer in case of a competitive bid. Thus, there was no genus of impossibility at that
time. But merely because, 27(1)(a) has been omitted, it would not mean that the nature of
27 (1)(d) has also changed, as the amendment didnt affect this clause.
b) The provisions of the 1997 Regulations can be interpreted by having regard to the 2011
Regulations. Ejusdem Generis is not applicable in Reg. 23(1)(d) of the new regulations,
because 23 (1) (c) gives validity to an MAC clause.
c) The Takeover Regulations in other jurisdictions as well as the TRAC Report are
suggestive of the fact that an open offer can be withdrawn if the underlying purpose for
making that offer has been rendered frustrated.
d) There has been an inordinate, inexcusable and unjustified delay of 13 months on the part
of the Respondent to issue observations on the draft letter of offer.

XV | P a g e

-Arguments Advanced-

-Appellants ARGUMENTS ADVANCED

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


REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER CAN BE
APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 REGULATIONS.
1.1. That the Regulation 23 of the New Takeover Regulations is to be applied to the
present case.
1.1.1. That it cannot be said to be a rigid rule that a statute could not be retrospective unless
so expressed in the very terms of the section which had to be construed. 1 The rule in general is
applicable where the object of the statute is to affect vested rights or to impair existing
obligations,2 to impose an unexpected liability that if known might have caused those
concerned to avoid it.3 The Regulation 23 of the SEBI (SAST Regulations), 20114
(Hereinafter, 2011 Regulations) neither impairs any vested right or existing obligation nor
imposes any new liability. It is humbly submitted that the right of withdrawal of an open
offer existed even before the 2011 Regulations, and Regulation 23(1)(c) merely provides a
new remedy for enforcement of an existing right, which is to be treated as procedural change
and apply to future as well past causes of action.5
1.1.2. That the basis of the rule is no more than simple fairness which ought to be the basis of
every legal rule.6 It is not simply a question of classifying an enactment as retrospective or
not retrospective and rather it may well be a question of fairness. In the instant case, the test
of fairness is in favor of the appellants because if Regulation 23 is not given a retrospective
effect the appellants might be unfairly compelled to compensate for the fraud and
embezzlement done by the promoters of Artemis Ltd.
1.1.3. That if legislation confers a benefit on some persons, and where to confer such benefit
appears to have been the legislators' object, then the presumption would be that such a
legislation, giving it a purposive construction, would warrant it to be given a retrospective
effect.7 Report of the Takeover Regulations Advisory Committee 8 that led to the enactment of
the Takeover Regulations, 2011 makes it clear that there was a gap in the Takeover
1

Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95.


Zile Singh v. State of Haryana, (2004) 8 SCC 1, 8.
3
Ram Parkash v. Savitri Devi, ILR (1957) 2 P&H 1859, 1872.
4
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, Regulation 23(1) (c).
5
Dilip v. Mohd Azizul Haq, AIR 2000 SC 1976, 1979.
6
Loffice Cherifien v. Yamashita Shinnihon, (1994) 1 AII ER 20, p. 29.
7
CIT v. Vatika Township (P) Ltd, (2015) 1 SCC 1, 22.
8
Report of the Takeover Regulations Advisory Committee under the Chairmanship of Mr. C. Achuthan, (July
19, 2010) available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf.
2

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-Appellants -

Regulations as far as provisions regarding withdrawal of open offer are concerned, and with
the introduction of the Regulation 23(1)(c) SEBI attempts to fill this gap:
Committee Deliberations: 6.3 There was extensive debate within the Committee about
whether non-attainment of conditions other than regulatory approvals should be permitted as
a reason for withdrawal of the offer. The Committee examined regulations in other
jurisdictions and found that in certain jurisdictions such as Australia, Singapore, Germany,
US and UK, the acquirers are allowed to clearly specify conditions to the offer, and to
withdraw the offer if these conditions are not met, and if the triggering agreement was not
acted upon. 6.4 The Committee believes that it is important to permit withdrawal of the open
offer in such circumstances.
Thus, Regulation 23(1)(c) is a beneficial provision that would not only help the acquirers but
also strengthen the securities market as a whole. It has been added keeping in view the object
and purpose of the SEBI Act and Takeover Regulations and therefore, it is humbly submitted
that Regulation 23 of 2011 Regulations is required to be interpreted and given retrospective
effect keeping in view the aforementioned.
1.1.4. Without prejudice to the submission No. 1.1.4. it is submitted that a statute cannot be
called a retrospective statute merely because a part of the requisites for its action is drawn
from a time antecedent to its passing.9 In the instant case, the newly added benefit under
Regulation 23(1)(c) ought to cover all applications for withdrawal of open offer irrespective
of whether the open offer was made under the repealed regulations or repealing regulations,
and such application of Regulation 23(1)(c) doesnt make the 2011 Regulations retrospective.
1.1.5. That while interpreting Section 81 of the Foreigner Exchange Regulation Act, 1973
that provided a similar deeming provision as contained in Regulation 35(2)(a) of 2011
Regulations, it was held that Section 81(2) empowers to effectuate the liabilities, penalties,
etc. incurred during the period when the repealed Act was in force, as if they have been in
existence and amenable to be pursued under the new Act.10 Thus, the effect of deeming
provisions like Regulation 35(2)(a) would be to apply the remedial and procedural provisions
of the new Act for enforcing the rights and liabilities accrued and incurred under the repealed
Act.11 Therefore, while construing Section 30(2) of the Prevention of Corruption Act, 1988
Act (a deeming provision) it was held that a special judge, appointed under section 3 of the
1988 Act to try offences punishable under the said Act, could also take cognizance of an
9

Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95, 106.


PV Mohammad Barmay Sons v. Director of Enforcement, AIR 1993 SC 1188, 1192.
11
GP SINGH, PRINCIPLES OF ST AT UTORY INTERPRETATION 712 (12th ed, Lexis Nexis Butterworths Wadhwa
Nagpur, 2011).
10

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offence committed under the 1947 Act on a report filed after repeal of that Act for the legal
fiction contained in last part of the Section 30(2) expresses a different intention to that in
Section 6(e) of the General Clauses Act. 12 In another case where also the offence was
committed when the 1947 Act was in force but the conviction of the accused by the special
judge was entered after repeal of the 1947 Act, it was held that the provisions relating to
appeal and revisions in the 1988 Act would apply. 13 Similarly, while interpreting a deeming
provision of the Bombay Agricultural Debtors Relief Act, 1947 it was held that the new Act
applied both, the substantive as well as the procedural provisions to pending proceedings. 14
Therefore, the withdrawal of an open offer made under 1997 Regulations15 is to be done
under 2011 Regulations by virtue of Regulation 35(2)(a).
1.1.6. That Regulation 35(2)(b) of 2011 Regulations doesnt create any difficulty in the
application of 2011 Regulations to the open offer. While interpreting Section 58(3) of Central
Act 31 of 1950 that provided that the repeal shall not affect the previous operation of repealed
law, as well as that anything done under the repealed law is to be deemed to have been done
under the repealing law, Supreme Court has pointed out:
The saving of the previous operation of the repealed law is not to be read, as saving the
future operation of the previous law. The previous law stands repealed, and it has not for the
future the partial operation as is prescribed by Section 6 of the General Clauses Act. The
previous operation of the statute repealed was affirmed expressly but things done or actions
taken under the repealed statute are to be deemed by fiction to have been done or taken under
the repealing Act, as if that Act were in force on the day on which that thing was done or
action was taken.16
The above view was later approved by a constitution bench decision,17 where it was held that
a revision against an order passed by the Deputy custodian under the repealed ordinance
could be entertained and decided by the custodian general under the new act.
1.1.8. That Regulation 35(2)(c) merely provides that any open offer for which a public
announcement has been made under the repealed regulations shall be required to be
continued and completed under the repealed regulations. The plain meaning of 'continuing' is
'carrying on' and 'not ceasing to be', 18 or not terminating by a single act or fact. 19 To
12

Nar Bahadur Bhandari v. State of Sikkim, AIR 1998 SC 2203, 2205.


Central Bureau of Investigation v. VK Sehgal, JT 1999 (8) SC 170, 176-177.
14
Rambhai v. Dayabhai, AIR 1967 SC 162.
15
SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
16
Indira Sohanlal v. Custodian of EP, (1955) 2 SCR 1117, 1133.
17
Bishambhernath Kohli v. State of Uttar Pradesh, AIR 1966 SC 573, 579.
18
Gardner v. Blaxill, [1960] 2 AII ER 457, 460.
13

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-Appellants -

continue is to go on with an action20 and something that is continued is carried on without


cessation.21 Similarly, to complete is to bring to an end or finish an action 22 or to
accomplish or finish that which one starts out to do.23 On the other hand, to withdraw means
to retract, revoke or rescind24 or to refrain from proceeding with an action.25 Hence, the
continuation and completion of an open offer and withdrawal of the offer are completely
different, and rather opposite processes, and therefore Regulation 35(2)(c) is inapplicable to
an application for withdrawal of the open offer.
1.1.9. That the amendment made in 2011 through Regulation 23(1)(c) is in the nature of
clarification and that it is well settled that the presumption against retrospective operation is
not applicable to declaratory statutes.26 The legislature passes a declaratory Act to clarify the
law so as to remove doubts, or to supply an obvious omission and to set aside what the
legislature deems to have been a judicial error in the interpretation of statute,27 whose
retrospective operation is generally intended.28
1.1.10. In cases where the new Act had slightly modified or clarified the previous provisions,
these modifications were to be applied retrospectively. 29 Thus, where the repealing Act
clearly provided that all suits and other proceedings under the repealed Act pending at the
commencement of repealing Act shall be continued and disposed of in accordance with the
provisions of the repealed Act, it was held that the change introduced in the new act which
conferred discretion in the matter of striking of a defense was a slight modification and the
benefit of the new provision was available to the defendant who instituted a proceeding under
the repealed Act.30
1.1.11. That without prejudice to aforementioned submissions, it is submitted that the
application for withdrawal of the open offer is a new legal transaction that has resulted under
the 2011 Regulations. Where a contract of carriage of goods was made under the Railways
Act, 1890 but the breach of contract took place when the Act 39 of 1961 had come into force;
it was held that the liability of the railway administration would be governed by Act 39 of
19

Golak Patel Volkart Ltd v. Dundayya Gurushiddaiah Hiremath, (1991) 2 SCC 141, 145.
P. RAMANAT HA A IYAR, LAW LEXICON 403 (2nd ed., Lexis Nexis Butterworths Wadhwa Nagpur, 2006).
21
2 J.A. SIMPSON & ESC W EINER, OXFORD ENGLISH DICT IONARY 829 (2d ed., Calrendon Press, Oxford, 1991).
22
Ibid.
23
P. RAMANAT HA A IYAR, LAW LEXICON 371 (2d ed., Lexis Nexis Butterworths Wadhwa Nagpur, 2006).
24
10 J.A. SIMPSON & ESC W EINER, OXFORD ENGLISH DICT IONARY 450 (2d ed., Calrendon Press, Oxford, 1991).
25
BLACKS LAW DICT IONARY 1739 (9th ed. 2009).
26
Zile Singh v. State of Haryana, (2004) 8 SCC 1, 9.
27
CIT v. Shelly Products, (2003) 5 SCC 461, 478.
28
Zile Singh v. State of Haryana, (2004) 8 SCC 1, 9.
29
Karam Singh v. Pratap Singh, AIR 1964 SC 1305, 1309.
30
V K Verma v. Radhey Shyam, AIR 1964 SC 1317.
20

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-Appellants -

1961.31 Similarly, though the public announcement of open offer was made under the 1997
Regulations, the application for withdrawal of open offer has been made after the 2011
Regulations came into force.
1.2. That the rule of Ejusdem Generis cannot be applied to the Regulation 23 of the 2011
Regulations.
1.2.1. That it is essential for the application of the ejusdem generis rule that enumerated
things before the general words must constitute a category or a genus or a family which
admits of a number of species or members. 32 If the specified things preceding general words
belong to different categories, this principle of construction will not apply.33 With the
introduction of the Regulation 23(1)(c), Regulation 23(1)(d) cannot be read ejusdem generis
with the Regulation 23(1)(a)(b)&(c) since they dont constitute a common genus of cases
where it is impossible to do an open offer. Thus, it is humbly submitted that the application of
withdrawal of the open offer shall be considered under the Regulation 23(1)(d) in the light of
the discovery of fraud embezzlement committed by the Promoters of the target company.
2. THAT IT CANNOT BE SAID THAT DREAMSELLERS HAD FAILED TO
EXERCISE DUE DILIGENCE AND THE FACTS RELATING TO THE FRAUD
WERE KNOWN OR COULD HAVE BEEN KNOWN BY DREAMSELLERS IF
DREAMSELLERS HAD EXERCISED PROPER DUE DILIGENCE.
It is our submission that the Board and SAT were wrong in holding that the facts relating to
embezzlement in Artemis were "known" or "could have been known" by the appellants on
conducting "due diligence".34 The above holdings disturb the crystallised jurisprudence on
what constitutes due diligence. As a matter of fact, frauds of complex nature such as that in
the present case were discovered by forensic audit and cannot be uncovered by due diligence
by a third party35 . Therefore, the appellant hereby pleads before that honourable court that:
d) That the steps were taken by the appellant towards due diligence exercise were
reasonable and sufficient in law.36

31

Union of India v. Steel Stock Holders' Syndicate, (1976) 3 SCC 108, 114.
State of Bombay v. Ali Gulshan, AIR 1955 SC 810.
33
Indramani Pyarelala v. WR Natu, AIR 1963 SC 274.
34
Moot Propostition 15.
35
SHISHIR VAYT T ADEN, SEBI'S TAKEOVER REGULAT IONS: COMMENT ARY ON T HE SEBI (SUBST ANT IAL
A CQUISIT ION OF SHARES AND TAKEOVERS) REGULAT IONS 1997 665 (LexisNexis Butterworths Wadhwa Nagpur,
2010).
36
SEBI (Merchant Banker Regulations), 1992, Regulation 13(4) [Hereinafter, Merchant Banker Regulations];
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, Regulation 24 (2). [Hereinafter,
Takeover Regulations]
32

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-Appellants -

e) That the Board and SAT did not appreciate that the fraudulent transactions, systematic
embezzlement and

syphoning of funds was revealed pursuant to a special

investigative audit and could not have been found by an outside third party like
appellant.37
f) Due Diligence cannot be seen as a substitute for representations and warranties 38 since
the seller/target company provides information on which the due diligence is based,
which may not be complete,39 and the purchaser is not in control of the target
company.40 Further, Insider Trading Regulations of the Board restrict scope of
independent verification of such information.
2.1 That Steps Taken Due Diligence Were Reasonable and Sufficient In Law.
2.1.1. The Reasonable Due Diligence Requirement: The task of Due Diligence under SEBI
(SAST) Regulations, 1997 under regulation 24 (2) is on the acquirers Merchant Banker 41
(Hereinafter, MB) to perform. It is hereby pleaded that the appellants MB had done such
reasonable due diligence as is sufficient in law for the purpose of public announcement as
per the Takeover Regulations.
The appellant assessed all such information and disclosures of the target, which it, as an
outsider could have access to: its audited financial statements, audited annual and quarterly
reports, charge on assets, etc. Any due diligence that could have been conducted could only
have been on such public financial information and other information in the public domain as
have been relied upon by the appellant.
Meaning of Due Diligence: In the absence of any statutory definition of Due Diligence and
reasonable due diligence42 , this Honble Court in Chander Kanta Bansal v. Rajender Singh
Anand43 held that due diligence in law means reasonable diligence and doing everything
reasonable, not everything possible.

37

Jim Woods, Due Diligence or Audit: Its All in a Name, The Hong Kong Accountant, 3032 (Feb 2002).
John Minas Apcar v. Louis Caird Malchus, AIR 1939 Cal 473.
39
JEFFREY M. W EINER, DUE DILIGENCE IN M&A TRANSACT IONS: A CONCEPT UAL FRAMEWORK, 12-30
(Thomson Reuters/Aspatore, U.S.A 2010).
40
Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An analysis, (2011) P.L.
(CL) March S-24.
41
HSBC Securities & Capital Markets (India) (P) Ltd v. Whole Time Member, SEBI [2008] 87 SCL 174 (SAT MUM.)
42
Chander Kanta Bansal v. Rajinder Singh Anand, [(2008) 5 SCC 117].
43
Ibid.
38

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-Appellants -

In JM Mutual Fund & Anr. v. SEBI44 , it had been taken as such a measure of prudence,
activity or assiduity, as is properly to be expected, and ordinarily exercised by, a reasonable
under the particular circumstances; not measured by any absolute standard, but depending on
the relative facts of the special case- as defined in Blacks Law Dictionary.
It is, therefore, a settled law that due diligence means reasonable diligence 45 is expected from
a Merchant Banker.46 Further, MB cannot be expected to start a due diligence exercise with a
presumption of fraud or mischief to be committed by a company47 A Merchant Banker cannot
be expected to act like an investigating agency and start with a note of suspicion as regards
the bona fides of a company.48 Further, the expression "due diligence" does not mean that the
party has to assume the role of amateur detective.49
2.1.2. Due Diligence by the appellants is sufficient in law
It is humbly submitted that proper due diligence was done by the appellant at the time of
pledge agreement and at the time of the public announcement the appellants MB had done
such due diligence as required under regulation 24 (2) of the Takeover Regulations and The
Merchant Banker Regulations50 . Therefore, the appellant had conducted such due diligence as
was required by the rules, regulations and general practices in place. 51 Fraud was played upon
the appellant by promoters of Artemis. In such circumstances, the appellant should not be
held at fault if representations made by Artemis were fudged. 52
Any due diligence that could be conducted could only have been done on published financial
information in the public domain, which has now been found to be fraudulent in character. 53
The appellant relied on Financial Statements and other such publicly accessible information
as a Listed company has to disclose under its Listing Agreement54 with Stock Exchange
(herein BSE)55 ,and these documents were verified as far as practicable.

44

M/s Keynote Corporate Services Ltd v. SEBI, SAT Appeal No 84 of 2012, (19/02/2014), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1392868424104.pdf.
45
Tarun M Stewart & Cyril S Shroff, Investing in Indian PIPEs, (2007) 10 Journal of Private Equity 87.
46
S M Rakshithaa, Due Diligence in Mergers and Acquisitions (2008) 1 Comp LJ 150-159.
47
SECURIT IES AND EXCHANGE BOARD OF INDIA A CT , 1992, 11C.
48
Almondz Global Securities Ltd v. SEBI, SAT Appeal No. 275 of 2014, (13/05/2016), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1393857624351.pdf.
49
Marfani & Co Ltd v. Midland Bank Ltd [1968] 2 All E.R. 573.
50
SEBI (Merchant Banker Regulations), 1992, Regulation 13(4).
51
Almondz Global Securities Ltd & Ors v. SEBI, SAT Appeal No 275 of 2014, (13/05/2016), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1393857624351.pdf.
52
SEBI Order In the Matter of PNB Investment Services Limited, WTM/RKA/ID-8/96/2014 available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407235951353.pdf.
53
Nirma Industries Ltd v. SEBI, [2013] 33 taxmann.com 333 (SC).
54
BSE Equity Listing Agreement Clause 32.
55
Moot Propositions 1.

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-Appellants -

Nirma is Distinguishable:56 In Nirma, a winding up petition was pending in the CLB, net
worth was negative and a number of petitions for debt recovery were pending. Circumstances
are not similar in the present case, whatever issues that cropped up were only after the
discovery of fraud when Public Announcement was already made.
2.2. Upon Due Diligence, the Appellant Could Not Possibly Detect the Fraud
The appellant hereby claim that the Board and SAT did not appreciate that the fraudulent
transactions, systematic embezzlement and syphoning of funds was revealed pursuant to a
special investigative audit and could not have been found by an outside third party like
appellants before invoking the pledge57 .
Even SEBI with all its compliance requirements58 under and investigative powers59 was
unable to unearth these instances of fraud perpetrated by promoters of Artemis, it is too much
to expect from a third party to be able to detect a fraud of such complex nature. Even if they
could exercise due diligence, the appellant could not possibly unearth any of the financial
irregularities in the target company before the public announcement since even the Directors
of the target company became aware of these irregularities much later.60 As a matter of fact,
as per the listing agreement, directors are to be informed of certain minimum information. 61
The entire basis and/or the special circumstances in which the appellants made an application
for permission to withdraw the public offer was on the basis of certain facts which came to
light subsequently i.e. facts which came in the public domain and/or the knowledge of the
appellants, only after the appellants exercised its right of pledge and after the appellants made
consequential public announcement.62
Due diligence could not be initiated with the presumption of fraud: SAT in the Imperial
Finance63 case held that a merchant banker for due diligence is required to employ reasonable
skill and care but he is not required, to begin with, suspicion and to proceed in a manner of
trying to detect a fraud or lie unless such information excites his suspicion or ought to excite
his suspicion."64

56

Nirma Industries Ltd v. SEBI, [2013] 33 taxmann.com 333 (SC).


Jim Woods, Due Diligence or Audit: Its All in a Name, The Hong Kong Accountant, 3032 (Feb. 2002).
58
BSE Equity Listing Agreement Clause 49.
59
SECURIT IES AND EXCHANGE BOARD OF INDIA A CT , 1992 (15 OF 1992), 11C.
60
Moot Proposition 7.
61
BSE Equity Listing Agreement, Clause 49C, Annexure I A.
62
Moot Proposition 10.
63
Imperial Corporate Finance and Services Private Limited v. SEBI [2005] 61 SCL 197 (SAT).
64
SEBI Order In the Matter of PNB Investment Services Limited, WTM/RKA/ID-8/96/2014 available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1407235951353.pdf.
57

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John Minas Apcar v. Louis Caird Malchus65 , the facts involved the respondent sought to
avoid a contract of purchase of a part of a property which the appellant had falsely claimed to
be valued at a greater rate than it actually was. Further, the appellant caused his friend to
write letters to the solicitors of the appellant quoting high prices, which the property was
actually not worth, merely to give it a fictitiously high value. Upholding the decision of the
trial court granting rescission in favour of the respondent, the Court, observed that there was
deliberate fraud and of such a nature as a person with ordinary diligence could not be
expected to discover.
Due Diligence in PIPE transactions: Principally too, the justification for due diligence
becomes less compelling or, at least, its scope limited when the target is a listed company.66
As such a target is subject to strict disclosure norms imposed by securities regulation67 that
require it to keep the market informed of all material developments 68 , the purchaser is not in
control of the target company,69 the acquirer could make the acquisition decision based simply
on publicly available information. Hence, unless there are compelling at reasons for the
targets non-disclosure of material information to the public, an acquirer (an outsider) cannot
be able to unearth inside information during due diligence.70
2.3. Due Diligence Cannot Be Seen As a Substitute for Representations And Warranties
Since the seller/target company provides information on which the due diligence is based,
which may not be complete71 and the purchaser is not in control of the target company. 72
Due Diligence cannot be seen as a substitute for representations and warranties. 73
The due diligence report provides the purchaser with the basic facts to enable him to make an
informed choice about the transaction, while the representations and warranties act as an
assurance that these facts are true. It is pertinent to mention here that the MB conducts due

65

John Minas Apcar v. Louis Caird Malchus, AIR 1939 Cal 473.
Afra Afsharipour, Corporate Governance and the Indian Private Equity Model, 27 NLSI Rev. 17 (2015).
67
BSE Equity Listing Agreement, Clause 49 (IV).
68
BSE Equity Listing Agreement, Clause 32.
69
Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An analysis, (2011) P.L.
(CL) March S-24.
70
Umankanth Varotill, Due Diligence in Share Acquisitions: Navigating The Insider Trading Regime,
N.U.S. W.P 2016/004.
71
Afra Afsharipour, Corporate Governance Convergence: Lessons from the Indian Experience , 29 Northwestern
Journal of International Law & Business, at 335, 332-63 (2009).
72
Umakanth Varottil, Comparative Takeover Regulation and the Concept of Control, Singapore Journal of
Legal Studies [2015] 208231.
73
John Minas Apcar v. Louis Caird Malchus, AIR 1939 Cal 473.
66

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diligence based on the material issued by the target company, but it cannot be expected to
perform this duty in a vacuum when information is deliberately concealed 74 .
As a practical matter, even in a friendly acquisition, due diligence exercises are seldom able
to uncover fraud.75 In an acquisition not on friendly terms such as this, where the acquirer
receives no cooperation from the controlling shareholders, it is out of the question. 76
It is impossible for a Merchant Banker to investigate into the authenticity and veracity of
various books of accounts and the corporate records as all records and documents are the
property of the company and effective control in respect thereto is with the BoD of the target
Company.77 There is no legal entitlement for an acquirer if the target company chooses to
conceal or camouflage or misrepresent such facts to Merchant Banker, The code of conduct
for merchant bankers under Schedule III of the MB Regulations, 1992 or Reg. 24(2) or any
other regulations do not set out any formal or specific guidelines for the process of Due
Diligence and specific nature of the disclosures to be ensured. The guidelines are generic in
nature.78 It is hereby pleaded that the fraud could not been known in exercise of due
diligence.79 Since the seller/target company provides information on which the due diligence
is based, which may not be complete,80 and the acquirer is not in control of the target
company.81
Insider Trading Regulations restrict the scope of Due Diligence: SEBIs insider trading
regulations penalize access to UPSI82 and dealing in securities based on such information by
an outsider83 . Under such circumstances, when entering into a transaction such as share
pledge agreement or its invocation, the other party as per the legal framework could only rely
on publicly accessible information, hence curtailing the scope of any verification. SEBIs
own insider trading regulations would hardly allow the acquisition to proceed if a due
74

Ibid.
SHISHIR VAYT T ADEN, SEBI'S TAKEOVER REGULAT IONS: COMMENT ARY ON T HE SEBI (SUBST ANT IAL
A CQUISIT ION OF SHARES AND TAKEOVERS) REGULAT IONS 1997 8.33 (LexisNexis Butterworths Wadhwa
Nagpur, 2010).
76
Sambhav Sogani, Pledging of Shares and The Managements Appetite - Fall Outs and Desired Changes in
Takeover Regulations, [2010] 104 SCL 1 (MAG).
77
Tarun M Stewart & Cyril S Shroff, Investing in Indian PIPE, Journal of Private Equity, Vol. 10, No. 3
(Summer 2007), 87-95.
78
SEBI Order In the Matter of Brooks Laboratories Limited, WTM/SR/IVD/ID-4/06/2014, 11.9 available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1402402106617.pdf.
79
Almondz Global Securities Ltd & Ors v. SEBI, SAT Appeal No. 275 of 2014, (13/05/2016), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1393857624351.pdf.
80
Umankanth Varotill, Due Diligence in Share Acquisitions: Navigating The Insider Trading Regime,
N.U.S. W.P. 2016/004.
81
Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An analysis, (2011) P.L.
(CL) March S-24.
82
SEBI [(Prohibition of) Insider Trading] Regulations, 1992, Regulation 3A.
83
SEBI [(Prohibition of) Insider Trading] Regulations, 1992, Regulation 4.
75

10 | P a g e

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-Appellants -

diligence exercise had uncovered the fraud. More to the point, SEBIs insider trading
regulations criminalize the selective sharing of unpublished price sensitive information. The
acquirer has no statutory right to be provided with information by the target company. 84
3. THAT SEBI HAD VIOLATED THE PRINCIPLES OF NATURAL JUSTICE IN THE
PRESENT CASE WHILE PASSING ITS ORDER REJECTING THE APPLICATION
TO WITHDRAW THE OPEN OFFER WITHOUT HEARING DREAMSELLERS.
3.1. That SEBI is required to follow the principles of Natural Justice .
3.1.1. That it is a fundamental rule of law that no decision must be taken to which will affect
the rights of any person without first giving him an opportunity of putting forward his case. 85
3.1.1. That SEBI discharges quasi-judicial functions in passing orders or directions for
alleged breach of the Takeover Regulations86 , and every quasi-judicial order would require
the authority concerned to act in conformity with the principles of natural justice. 87
3.1.2. That unless a statutory provision, either specifically or by necessary implication
excludes the applications of principle of natural justice the requirement of giving reasonable
opportunity of being heard before an order is made is generally read into the provisions of a
statute.88 The basic principle is that natural justice is implied by the court and therefore the
omission to mention the right of hearing in the statutory provision under which the action is
being taken, does not ipso facto exclude hearing. 89
3.1.3. That Regulation 5 of the 1997 Regulations requires SEBI to provide a reasonable
opportunity to the concerned parties and to record reasons where any direction is issued by
the Board in a specific case relating to interpretation or application of those regulations.
Regulation 4(6) requires the board to pass a reasoned order on the application for exemption
from the application of Regulation 10, 11 and 12 only after affording reasonable opportunity
to the concerned parties and after considering all the relevant facts. Section 15I of the SEBI
Act for the purpose of adjudging under Section 15H of the Act, requires the adjudicating
officer to provide the concerned person a reasonable opportunity of being heard before
imposing any penalty. Section 15U (1) of the Act provides that the Securities Appellate

84

Report of the High Level Committee to Review the SEBI (Prohibition of Insider Trading Regulations 1992),
(Dec. 7, 2013), available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.
85
OP Gupta v. Union of India, AIR 1987 SC 2257.
86
Kishore Rajaram Chhabria v. Chairman Securities & Exchange Board of India, 2003 SCC OnLine SAT 23.
87
CCI v. Steel Authority of India Ltd, (2010) 10 SCC 744, 777.
88
Automotive Tyre Manufacturers Association v. Designated Authority, (2011) 2 SCC 258.
89
PL Lakhanpal v. Union of India, AIR 1967 SC 1507.

11 | P a g e

-Arguments Advanced-

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Tribunal shall be guided by the principles of natural justice. Also, in Vijay Mallya v.
Chairman Securities & Exchange Board of India,90 it was held in clear words:
As no strict procedure is prescribed for holding an inquiry under the Act or regulations in
respect of substantial acquisition of shares and takeover of companies, the principles of
natural justice are followed.
3.1.4. That there is no implied or express bar on the application of natural justice either in the
SEBI Act or in the 1997 Regulations and rather the aforementioned provisions clearly show
that the scheme of things in the SEBI Act and the Regulations require the board to act in
conformity with the principles of natural justice.
3.2. That SEBI has violated the principles of natural justice while passing its order
rejecting the application to withdraw the open offer.
3.2.1. That the rule requiring reasons to be given in support of an order is a basic principle of
natural justice which must inform the quasi-judicial process, which should be observed in its
proper spirit and mere pretense of compliance with it would not satisfy the requirements of
the law.91 In the instant case, SEBI has not provided adequate reasons for rejecting the
appellants application and merely stated that the request for withdrawal of the open offer
was not being considered favourably. It is also humbly submitted that the board passed its
order without providing any reasonable opportunity to the appellants to represent their case.
3.2.1. That SEBI had made no observations regarding the falling price or the embezzlement
of funds and it was completely silent on the alternative request for re-pricing of the open offer
price. Where all the objections raised by the appellants were not considered by the
Government, and only some of them were mentioned in the order, the Supreme Court
quashed the order and insisted that the Governments order must have good reasons in its
support and not merely state its conclusion. 92 Similarly, an impugned order revoking a license
passed under S. 12(1) of the Industries (Development and Regulation) Act which failed to
mention the grounds relied upon by the subject and the reasons for not accepting those
grounds, was held to be vitiated.93 Where the petitioner contended that the order of the
authority did not contain reasons for rejecting some of his contentions, the court called for the
file to check whether his explanation has been fully considered.94

90

Vijay Mallya v. Chairman Securities & Exchange Board of India, [2003] SAT 19.
Siemens Engg & Mfg. v. Union of India, AIR 1976 SC 1785.
92
Oramco Chemical Pvt. Ltd. v. Gwalior Rayon Silk Mfg Co Ltd, AIR 1987 SC 1564.
93
Dinesh Roller Flour Mills v. Union of India, AIR 1983 Pat 293.
94
Sohan Lal v. State of Punjab, AIR 1983 P&H 63.
91

12 | P a g e

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-Appellants -

3.2.2. That where complex and difficult questions requiring familiarity with technical
problems are raised, if personal hearing is given it would conduce to more satisfactory
disposal of the grievances of the appellant. 95 Also, where stakes are high such as involving
large sum of money already invested by a person and where determination of factual matters
of some complexity is required, the statutory authority should afford a personal hearing. 96 It
is humbly submitted that questions of application of 2011 Regulations, and application of
ejusdem generis for the interpretation of Regulation 27(1)(d) of 1997 Regulations are fairly
technical questions of law, and the issue related to due diligence deals with complex
questions of law and fact, and thus an oral hearing was indispensable in the instant case.
3.3. That SEBIs order is to be quashed and the matter ought to be remanded to SEBI
so that a ruling on merits could become available.
3.3.1. That a quasi-judicial order made without following the principles of natural justice is
void and nullity.97 The non-observance of natural justice itself prejudice to any man and
proof of prejudice independently of proof of denial of natural justice is unnecessary. 98 Thus,
it is immaterial whether the same decision would have been arrived at in the absence of
departure from the essential principles of justice. The decision must be declared to be no
decision.99
3.3.2. That when an order is quashed for the breach of natural justice, the concerned party is
relegated to its original position and the authority ought to start the proceedings afresh. 100
Where adequate reasons were not given for the order, the courts have quashed the order,
remanded the case back to the authority and directed them to deal with the matter afresh with
expedition.101 Similarly, where it was found that there has been violation of the principles of
natural justice, SAT held that it was not necessary for them to examine other contentions
raised by the parties; the impugned order was set aside and the case was remanded back to
the Board with a direction that the matter shall be proceeded further in accordance with
law.102

95

Travancore Rayons v. Union of India, AIR 1971 SC 862.


State of UP v. Maharaja Dharmendra Pratap Singh, (1989) 2 SCC 505.
97
AR Antulay v. RS Nayak, (1988) 2 SCC 602.
98
SL Kapoor v. Jagmohan, AIR 1981 SC 136.
99
Director ESI Scheme v. Sabita Mohanty, (1995) SCC (L&S) 865.
100
Bhagat Raja v. Union of India, AIR 1967 SC 1606.
101
Tranvancore Rayons v. Union of India, AIR 1971 SC 862; Mayer Simon v. Adv. Gen. Kerala, AIR 1975 Ker
57.
102
Amadhi Investments Limited v. Securities and Exchange Board of India, [2011] SAT 97.
96

13 | P a g e

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-Appellants -

3.3.3. That the proceedings before SAT dont compensate for the breach of natural justice by
SEBI. It is humbly submitted that there is no justification to take a decision and then give the
affected parties an opportunity of representation when the requirement is that they should
have the opportunity referred to above as a condition precedent to action. It is a common
tendency that once a decision has been taken there is a tendency to uphold it and a
representation may not really yield any fruitful result. 103 The post-decisional opportunity of
hearing, as that has been provided to the appellants, does not subserve the rules of natural
justice. The authority which embarks upon a post-decisional hearing will naturally proceed
with a closed mind and there is hardly any chance of getting a proper consideration of the
representation at such a post-decisional opportunity.104 Moreover, where the lower authority
itself fails to give any reason, or may give nebulous or scrappy reasons and the appellate
authority merely affirms such an order without giving any reasons, the order of the appellate
authority will be bad.105 In the instant case, even SAT in its order has been silent on the
alternative request for re-pricing of the open offer price.
3.3.4. That if the lower authority does not make a speaking order the party affected is at a loss
to effectively exercise its right to approach the higher authority. Summary orders by lower
authorities reduce the provisions of appeal to the higher authority to silence. Failure to give
reason amounts, in substance, to depriving the party of the right to appeal or revision. 106 In
such a case, the appellate court can probably only exercise its appellate jurisdiction
satisfactorily by examining the entire record of the case and after giving a hearing come to its
conclusion on the merits of the appeal. This will certainly be a very unsatisfactory method of
dealing with the appeal.107 An appellate court ought to have the advantage of examining the
reasons that prevailed with the court making the order. Conversely, absence of reasons in an
appealable order deprives the appellate court of that advantage and casts an onerous
responsibility upon it to examine and determine the question on its own. An appellate court
can in a given case decline to undertake any such exercise and remit the matter back to the
lower court for a fresh and reasoned order. 108
3.3.5. That the present appeal has been filed under Section 15 Z of the SEBI Act, which
allows an appeal to the Supreme Court of any decision or order of SAT on any question of
law arising out of such order. It is humbly submitted that the issue of due diligence deals with
103

KI Shephard v. Union of India, AIR 1988 SC 686, 691.


HL Trehan v. Union of India, (1989) 1 SCC 764, 770.
105
Bhagat Raja v. Union of India, AIR 1967 SC 1606, 1613.
106
Jagannath v. Union of India, AIR 1967 Del 121.
107
Bhagat Raja v. Union of India, AIR 1967 SC 1606.
108
Maya Devi v. Raj Kumar Batra, (2010) 9 SCC 486, 495.
104

14 | P a g e

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complex questions of both fact and law. The principle of audi alteram partem can be excluded
only when a statute contemplates a post-decisional hearing amounting to full review of the
original order on merit.109 In the instant case, Supreme Court cannot review the original order
on merit and thus the matter ought to be remanded back to SEBI so that a ruling on merits
could become available and the appellants are not deprived of their right to appeal.
4. THAT REGULATION 27 (1) (D) OF THE 1997 REGULATIONS IS NOT TO BE
GIVEN

AN

INTERPRETATION

CIRCUMSTANCES

AS

IN

THE

WHEREBY,
OPINION

OF

THE
THE

WORDS

SUCH

BOARD

MERIT

WITHDRAWAL ARE NOT TO BE READ EJUSDEM GENERIS WITH THE


OTHER PROVISIONS OF REGULATION 27 (1) OF THE SAID CODE.
The Appellant most respectfully submits that the principle of Ejusdem Generis is not
applicable for the purpose of interpreting Regulation 27 (1) (d) of the 1997 Regulations, as it
gives it a narrow and restrictive interpretation, thereby curtailing the wide powers vested in
the Respondent to regulate the securities market. Regulation 27 (1) (d) should be construed to
confer wide powers on SEBI to allow withdrawal of an open offer in cases where although it
is not impossible to complete the open offer, but such an offer, in its opinion, merits
withdrawal.
Ejusdem Generis: The expression ejusdem generis which means of the same kind or
nature is a principle of construction, meaning thereby when general words in a statutory text
are flanked by restricted words, the meaning of general words are taken to be restricted by
implication with the meaning of restricted words. 110 Blacks Law Dictionary defines it as: A
cannon of construction holding that when a general word or phrase follows a list of specifics,
the general word or phrase will be interpreted to include only items of the same class as
listed.111 But it is clearly laid down by decided cases of the Honble Court that the specific
words must form a distinct genus or category. 112 The rule of ejusdem generis has to be
applied with care and caution113 . It is not an inviolable rule of law, but it is only permissible
in the absence of an indication to the contrary, 114 and where context and the object and
mischief of the enactment do not require restricted meaning to be attached to words of

109

Sahara India, Lucknow v. CIT, Central-I, (2008) 14 SCC 151, 167.


Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal, (2010) 3 SCC 786, 791.
111
BLACKS LAW DICT IONARY 594 (9th ed. 2009).
112
Kavalappara Kottarathil Kochuni v. State of Madras, AIR 1960 SC 1080, 1115.
113
G.P. SINGH, PRINCIPLES OF ST AT UT ORY INT ERPRET AT ION 463 (12th ed., LexisNexis Butterworths Wadhwa
Nagpur 2011).
114
Grasim Industries Ltd v. Collector of Customs, Bombay, (2002) 4 S.C.C. 297, 304.
110

15 | P a g e

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general import, it becomes the duty of the courts to give those words their plain and ordinary
meaning.115
This rule can only be applied when the following requirements are satisfied: (i) the statute
contains an enumeration of specific words; (ii) the subjects of the enumeration constitute a
class or category; (iii) that class or category is not exhausted by the enumeration; (iv) the
general term follows the enumeration; and (v) there is no indication of a different legislative
intent.116 In the context of regulation 27 (1) (d), even if the first 4 requirements are satisfied,
the fifth condition i.e. there should not be any indication of a different legislative history, is
not satisfied. The intention of the legislature to confer wide powers on the respondent to
allow withdrawal of an open offer can be inferred, owing to the following:
4.1. Intention of the Legislature can be inferred by having regard to the Legislative
History
The legislative history of a statutory enactment may be looked into for the purpose of
interpreting an expression in any statute, if the statutory provision is ambiguous. 117 In a
number of cases such as Shri Ram Labhaya v. Municipal Co. of Delhi, 118 Vishesh Kumar v.
Shanti Prasad,119 Iridium India Telecom Ltd. v. Motorola Inc,120 delved into the legislative
history to crack the intention of the legislature. In Oriental Insurance Co. Ltd. v. Hansrajbhai
v. Kodala,121 while interpreting Sec 163-A122 the court observed that: .for arriving at the
proper conclusion, it would be necessary to cull out legislative intent by referring to the
legislative history as well as objects and reasons for inserting the said provision.
4.1.1. Amendment of 2002 left 27 (1) (d) Untouched
The legislative history of Regulation 27 (1) would clearly show that ejusdem generis was not
the appropriate rule of interpretation to be applied while construing regulation 27 (1) (d).
Prior to the amendment of the 1997 Regulations in 2002, Reg. 27 (1) along-with sub-clauses
(b), (c) and (d), also incorporated sub-clause (a) which read as: the withdrawal is consequent
upon any competitive bid.123 Sub-clauses (b) and (c) of Reg. 27 (1) deal with refusal of
statutory approval and death of the acquirer, respectively, and therefore, it may appear that
115

BHEL v. Globe Hi-Fabs Ltd, (2015) 5 SCC 718, 722.


CIT v. MCdowell and Co Ltd, (2009) 10 SCC 755, 763.
117
Jai Prakash v. State of UP, (2004) 13 SCC 390, 398.
118
Shri Ram Labhaya v. Municipal Corp of Delhi, (1974) 4 SCC 491, 493.
119
Vishesh Kumar v. Shanti Prasad, (1980) 2 SCC 378, 384.
120
Iridium India Telecom Ltd v Motorola Inc, (2005) 2 SCC 145.
121
Oriental Insurance Co Ltd v. Hansrajbhai v. Kodala, (2001) 5 SCC 175, 184.
122
THE M OT OR VEHICLES A CT , 1988, (59 OF 1988) 163-A.
123
Securities and Exchange Board of India (Substantial Acquisition Of Shares And Takeovers)
Regulations 1997, Regulation 27 (1) (A).
116

16 | P a g e

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they form a common genus of impossibility. However, a perusal of the omitted sub-clause (a)
of Reg. 27 (1) would illustrate that the above approach for interpreting Reg. 27 (1) (d) is
flawed. This is because, if the facts of the present case date back prior to 2002, then principle
of ejusdem generis couldnt be applied to Reg. 27 (1) (d) for want of a common genus, as 27
(1) (a) doesnt incorporate a condition for withdrawal which is based on the ground that the
open offer is impossible to consummate. In other words, there would have been no common
genus of impossibility between sub-clauses (a), (b) and (c), and for this reason Reg. 27 (1) (d)
would be construed to confer wide powers on the Respondent Board to permit withdrawal of
an open offer.
The case of Luxottica Group SpA v. SEBI demonstrates that prior to the amendment of 2002,
it was undisputed that SEBI has been conferred wide powers by way of Reg. 27 (1) (d) to
permit withdrawal of an open offer. Now, even though by way of an amendment, 27 (1) (a)
has been omitted, it cannot be said that the nature of 27 (1) (d) has changed, as the
amendment has left sub-clause (d) untouched.
4.1.2. Purpose behind the omission of 27 (1) (a)
It would also be pertinent to note that 27 (1) (a) was omitted to ensure that shareholders of
Target Company should have an option to decide from both offers, not to restrict or change
the meaning of Reg. 27 (1) (d). The Takeover Regulations Advisory Committee Report,
2010, which became the basis of the 2011 Regulations, may be relied upon to manifest the
purpose of the omission of 27 (1) (d). Para 7.7 of the TRAC Report, 2010 states that it would
be in the best interests of the shareholders of the target company that they get to decide the
controlling acquirer from amongst the competing acquirers. 124 Therefore, it can be inferred
that the purpose of the legislature in omitting Reg. 27 (1) (a) wasnt to restrict the powers
vested in SEBI under 27 (1) (d) to allow withdrawal of an open offer.
4.2. Assistance of 2011 Regulations in ascertaining the 1997 Regulations
It is humbly submitted that Reg. 27 (1) (d) of the 1997 Regulations can be interpreted by
having regard to Reg. 23 (1) of the 2011 Regulations. It is within the authority of the
legislature to amend an earlier act or to declare its meaning by enacting a new Act as and
when needed.125 When an earlier Act is truly ambiguous a later Act may in certain

124

Report of the Takeover Regulations Advisory Committee under the Chairmanship of Mr. C. Achuthan, (July
19, 2010) available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf.
125
Bibi Shahnaz v. State of Bihar, (1998) 3 PLJR 932, 942.

17 | P a g e

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circumstances serve as a parliamentary exposition of the former. 126 We cannot disregard the
well settled cannon that sometimes light may be thrown upon the meaning of an Act by
taking into consideration parliamentary expositions as revealed by the later Act which
amends the earlier one to clear up any doubt or ambiguity. 127
This rule of construction can be best stated in the Cape Brandy Syndicate case 128 where it was
held that: Subsequent legislation on the same subject may be looked to in order to see what
is the proper construction to be put upon an earlier Act where that earlier Act is
ambiguous.... subsequent legislation may fix the proper interpretation which is to be put upon
the earlier. This rule was also referred in Yogendra Nath Naskar case. 129 When there was
difficulty in interpreting the definition of Coal Mine as defined in the Coal Mines Provident
Fund and Bonus Schemes Act, 1948, this court showed no hesitation in deriving assistance
from the definition of Coal Mine as introduced by the amending Act of 1965. 130
The relevant provision which deals with withdrawal of an open offer in the new Takeover
Regulations is 23 (1). The rule of ejusdem generis is not applicable in Reg. 23 (1) (d),
because Reg. 23 (1) (c) enlists a condition where an open offer can be withdrawn even if it is
not impossible to complete it, if a condition stipulated in the agreement for acquisition is not
met. Taking into account Reg. 23 (1) (c) of the 2011 Regulations, it can be deduced that the
intention of the Legislature was not to restrict the ambit of Reg. 27 (1) (d) of the 1997
Regulations, and an open offer can be withdrawn even if it is not impossible to complete it;
but certain circumstances exist in the opinion of the Respondent Board whereby it can be
withdrawn, as the purpose of making the open offer has become frustrated.
4.3. Takeover Regulations Advisory Committee Report and Takeover Regulations in
other Jurisdictions
The TRAC examined regulations in other jurisdictions and found that in certain jurisdictions
the acquirers are allowed to clearly specify conditions to the offer, and to withdraw the offer
if these conditions are not met. It concluded that, it is important to permit withdrawal of the
open offer in such circumstances.131

126

G.P. SINGH, PRINCIPLES OF ST AT UT ORY INT ERPRET AT ION 315 (12th ed., LexisNexis Butterworths Wadhwa
Nagpur 2011).
127
Sone Valley Portland Cement v. General Mining Syndicate Pvt Ltd, (1976) 3 SCC 852, 862.
128
Cape Brandy Syndicate v. Inland Revenue Commissioners , (1921) 2 KB 403.
129
Yogendra Nath Naskar v. CIT Calcutta, (1969) 1 SCC 555, 562.
130
State of Bihar v. S.K. Roy, AIR 1966 SC 1995.
131
Report of the Takeover Regulations Advisory Committee under the Chairmanship of Mr. C. Achuthan, (July
19, 2010) available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1287826537018.pdf.

18 | P a g e

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Material Adverse Change Clause: The material adverse change clause, typically granting
an acquiring party a right to refuse to complete an M&A transaction if there is a materially
adverse change at the target prior to closing, is a standard feature in U.S. acquisition
agreements.132 In re IBP Inc. Shareholders Litigation133 , the Delaware Chancery Court
recognised the validity of an MAC clause. In the United Kingdom, Rule 13.5 (a) of the City
Code on Takeovers and Mergers, 2009 states that an offeror can invoke conditions or preconditions for withdrawing an offer the circumstances which give rise to the right to invoke
the condition or pre-condition are of material significance to the offeror in the context of the
offer.134 The Australian Takeovers Panel has also recognized the validity of an MAC clause:
Conditions like the FM Condition and the MAC Condition are common in bids and, if
properly drafted, are not unacceptable. Similarly, the Rule 4 of the Singapore Code on
Takeover and Mergers also provides that an offer can be withdrawn if it was made subject to
the prior fulfillment of a specific condition and that condition has not been met.135
It is further submitted, that Reg. 27 (1) (d) ought to be interpreted, taking into account the
provisions for the withdrawal of an open offer in jurisdictions, such as those mentioned
above. Reg. 23 (1) (c) was only introduced to remove any doubt regarding the fact that it is
permissible for an open offer to be withdrawn, even if it is not impossible to complete it; if
circumstances exist which show that the purpose of making the offer has become frustrated.
The 2011 Regulations merely made explicit what was previously implicit in the 1997
Regulations. In a recent decision, where though SAT didn't reject Appellant's argument that
because of the fraud and siphoning of funds by the target company, the purpose of making
the offer have been frustrated, the issue could not be decided upon since the dispute was
already settled by offeror with the target company. However, the present case can be
distinguished from the above case, as there has been no settlement between the Appellant and
Artemis.136
4.4. Inordinate Delay by SEBI in approving the Draft Letter of Offer
SEBI has time and again adopted a lackadaisical approach in issuing observations on the draft
letter of offer. The time frame stipulated by the Act and the Takeover Regulations for
performing certain functions is required to be maintained to establish the transparency in the

132

Scott I. Sonnenblick, Contrast In MAC Clauses, New York Law Journal, (October 25, 2010).
In re IBP Inc Shareholders Litigation, 789 A.2d 14 (Del. Ch. 2001).
134
The City Code on Takeovers and Mergers, 2008.
135
The Singapore Code on Takeovers and Mergers, 2012.
136
Pramod Jain v. Securities and Exchange Board of India, 2014 SCC OnLine SAT 128.
133

19 | P a g e

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-Appellants -

functioning of SEBI.137 Reg. 18 provides that the letter of offer has to be dispatched to the
shareholders not earlier than 21 days from its submission to the Board.138 In the present case,
after a long delay, SEBI issued its observations on the draft letter of offer. 139 The draft
letter of offer was filed with the SEBI in October, 2010; but the Board cared to issue its
observations only on November 1, 2011. Thus, there was a delay of 13 months by the
Respondent in performing its statutory obligations. Such a reckless disregard of its statutory
obligations not only defeats the Takeover Regulations, but also renders the public offers
made by the acquirers infructuous. In Akshya case 140 too, there was a delay of 13 months by
the Respondent Board, and this court did not shy away from admitting that: Such kind of
delay is wholly inexcusable and needs to be avoided..By adopting such a lackadaisical, if
not callous attitude, the very object for which the regulations have been framed is diluted, if
not frustrated.
It would be pertinent to note that delay by the Respondent Board didnt come to aid of the
Acquirers in earlier case laws because the Acquirers were themselves held responsible for it.
However, the present case can be distinguished from those because the facts of the case
nowhere state that the Appellant was responsible for the delay, the Respondent is solely
responsible for it. In Pramod Jain case, the SAT also observed that: delay on part of SEBI in
approving the draft letter of offer has made mockery of provisions contained in SAST
Regulations, 1997.141 However, in view of the decisions by this court in Nirma and Akshya
case, SAT couldnt entertain this argument.
Thus, the Honble Court should reconsider its earlier decisions, and allow the withdrawal of
the public offer in the present case under Reg. 27 (1) (d), as the inordinate delay by the
Respondent should be considered as a circumstance which merits withdrawal of the offer.
The minority judgment in Pramod Jain case held that: legislature, while making these
regulations, made it clear that every player has to play its part with due solemnness,
promptness, efficiency and dedication, so that public offers go through within timelines and
nobody acts callously and without meeting timelines.This understanding of adhering to
timelines is most important, if public offers have to succeed. 142

137

SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 125.


Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations
1997, 18.
139
Moot Proposition, 11.
140
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 125.
141
Pramod Jain v. Securities and Exchange Board of India, 2014 SCC OnLine SAT 128.
142
Ibid.
138

20 | P a g e

-Prayer-

-Appellants PRAYER

IN THE LIGHT OF ARGUMENTS ADVANCED AND AUTHORITIES CITED, THE


APPELLANTS

HUMBLY

SUBMIT

THAT

THE

HONBLE

COURT

MAY

BE

PLEASED TO ADJUDGE AND DECLARE THAT:


A. THE BOARD AND SATS ORDERS ARE TO BE QUASHED ON THE
GROUND OF NON-COMPLAINCE WITH THE PRINCIPLES OF NATURAL
JUSTICE AND MATTER IS TO BE REMANDED BACK TO SEBI.
B. REGULATION 23 OF THE 2011 TAKEOVER REGULATIONS IS TO BE
APPLIED TO THE OPEN OFFER AND APPELLANTS SHALL BE ALOWED
TO WITHDRAW THE OPEN OFFER UNDER THE NEW REGULATIONS.
C. THE WORDS SUCH CIRCUMSTANCESAS IN THE OPINION OF THE BOARD
MERITS WITHDRAWAL AS USED IN REGULATION 27 (1) (D) OF THE 1997
TAKEOVER REGULATIONS CANNOT BE READ EJUSDEM GENERIS WITH
THE OTHER PROVISIONS OF REGULATION 27(1) AND THEREFORE THE
APPELLANTS SHALL BE ALLOWED TO WITHDRAW THE OPEN OFFER
UNDER REGULATION 27(1)(D).
D. IN LIGHT OF THE NEWLY DISCOVERED FRAUD AND EMBEZLEMENT,
OPEN OFFER SHALL BE ALLOWED TO BE REPRICED.
E. DREAMSELLERS HAS EXERCISED DUE DILIGENCE AND THE FACTS
RELATING TO THE FRAUD COULD NOT HAVE BEEN KNOWN AT THE
TIME OF MAKING OF OPEN OFFER.
AND ANY OTHER RELIEF THAT THIS HONBLE COURT MAY BE PLEASED TO
GRANT IN THE INTERESTS OF EQUITY, JUSTICE AND GOOD CONSCIENCE.

ALL OF WHICH IS RESPECTFULLY SUBMITTED


Sd/ON BEHALF OF DREAMSELLERS LTD.
COUNSELS FOR THE APPELLANT

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