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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 RESPONDENT

MEMORIAL ON BEHALF OF THE RESPONDENT

-Table of Comments -

- Respondent TABLE OF CONTENTS

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


LIST OF ABBREVIATIONS ................................................................................................... II
INDEX OF AUTHORITIES ................................................................................................. IV
STATEMENT OF FACTS ....................................................................................................... X
ARGUMENTS PRESENTED ................................................................................................XII
SUMMARY OF ARGUMENTS ........................................................................................ XIII
ARGUMENTS ADVANCED ............................................................................................. XIII
1. THAT THE PROVISIONS OF REGULATION 23 OF THE NEW TAKEOVER
REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER COULD NOT BE
APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 TAKEOVER REGULATIONS.
.................................................................................................................................................... 1
1.1. That the provisions of Regulation 23 of the New Takeover Regulations relating to
withdrawal of open offer cannot be given a retrospective operation.................................. 1
1.2. Arguendo: That Regulation 23(1)(d) of 2011 Takeover Regulations is to be
interpreted in light of Regulation 27(1)(d) of 1997 Takeover Regulations. ....................... 5
2. THAT IT CAN BE SAID THAT THE APPELLANT FAILED TO EXERCIESE DUE
DILIGENCE AND THE FACTS RELATING TO THE FRAUD WERE NOT KNOWN OR
COULD HAVE BEEN KNOWN BY DREAMSELLERS, IF DREAMSELLERS HAD
EXERCISED PROPER DUE DILIGENCE. ........................................................................... 6
2.1. The Due Diligence Requirement ................................................................................. 7
2.2. Appellants failure to conduct due diligence cannot be allowed as an excuse to
prejudice the interests of Artemiss shareholders ............................................................... 9
2.3. Insider Trading Regulations do not restrict the scope of Due Diligence for Open
Offer under the Takeover Regulations ............................................................................. 11
3. THAT NO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE HAS BEEN DONE
BY SEBI IN THE PRESENT CASE WHILE PASSING ITS ORDER REJECTING THE
APPLICATION TO WITHDRAW THE OPEN OFFER. ....................................................... 11
3.1. That SEBI while passing its order rejecting the application to withdraw the open
offer has acted in accordance with the principles of natural justice. ................................ 11
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-Table of Comments -

- Respondent -

3.2. That no prejudice has been caused to the appellants and there is no case for remand
.......................................................................................................................................... 14
4. THAT REGULATION 27 (1) (D) OF THE 1997 TAKEOVER REGULATIONS IS TO
BE GIVEN AN INTERPRETATION WHEREBY, THE WORDS SUCH
CIRCUMSTANCES AS IN THE OPINION OF THE BOARD MERIT WITHDRAWAL ARE
TO BE READ EJUSDEM GENERIS WITH THE OTHER PROVISIONS OF
REGULATION 27 (1) OF THE SAID CODE I.E. AS CIRCUMSTANCES WHERE IT IS
IMPOSSIBLE TO PERFORM THE OPEN OFFER? ............................................................. 15
4.1. Legislative History of Reg. 27 (1) ............................................................................. 17
4.2. Object, Purpose and Scheme of the Takeover Regulations ....................................... 18
4.3. Sans the application of Ejusdem Generis, open offer made in the present case still
does not merit withdrawal ................................................................................................ 19
PRAYER .............................................................................................................................. XIII

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-List of Abbreviations -

- Respondent -

LIST OF ABBREVIATIONS
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.

Ltd.

Limited

28.

M&A

Mergers and Acquisitions

29.

MAC

Material Adverse Change

30.

MB

Merchant Banker

31.

Mfg.

Manufacturing
II | P a g e

-List of Abbreviations -

- Respondent -

32.

Mum

Mumbai

33.

Ors.

Others

34.

P&H

Punjab and Haryana

35.

PA

Public Announcement

36.

PIPE

Private Investment in Public Equity

37.

PIT

SEBI (Prohibition of Insider Trading) Regulations, 1992.

38.

PNB

Punjab National Bank

39.

Pvt./(P)

Private

40.

Reg.

Regulation

41.

SAST

Substantial Acquisition of Shares and Takeovers

42.

SAT

Securities and Appellate Tribunal

43.

S.C.C.

Supreme Court Cases

44.

S.C.

Supreme Court

45.

SCL

SEBI and Corporate Law

46.

SCR

Supreme Court Reporter

47.

SEBI

Securities and Exchange Board of India

48.

TRAC

Takeover Regulations Advisory Committee

49.

UoI

Union of India

50.

U.P.

Uttar Pradesh

51.

U.S.

United States

52.

U.K.

United Kingdom

53.

v.

Versus

54.

viz.

Namely

55.

Vol.

Volume

56.

WTM

Whole Time Member

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-Index of Authorities -

- Respondents INDEX OF AUTHORITIES

Cases
Akshya Infrastructure (P) Ltd v. SEBI, [2014] 44 taxmann.com 444 (SC)............................. 10
Amar Chandra Chakraborty v. Collector of Excise, (1972) 2 SCC 442, 447. ......................... 16
Assistant Collector of Central Excise, Guntur v. Ramdev Tobacco Company, (1991) 2 SCC
119, 125. ............................................................................................................................... 16
Banarasi Debi v. ITO, AIR 1964 SC 1742, 1745. ..................................................................... 5
Bhagat Raja v. Union of India, AIR 1967 SC 1606................................................................. 13
Bipinchandra Parshottamdas Patel v. State of Gujarat (2003) 4 SCC 642, 657-658............... 18
Canara Bank v.VK Awasthy, (2005) 6 SCC 321, 335............................................................. 13
Carborundum Universal Limited v. Central Board of Direct Taxes, 1989 Supp (2) SCC 462.
.............................................................................................................................................. 12
Chander Kanta Bansal v. Rajinder Singh Anand, [(2008) 5 SCC 117]. .................................... 8
Chandravathi PK v. CK Saji, (2004) 3 SCC 734, 749. .............................................................. 2
GL Sultania v. Securities & Exchange Board of India, (2007) 5 SCC 133, 152-153.............. 14
Grasim Industries Ltd v. Collector of Customs, Bombay, (2002) 4 SCC 297, 304. ............... 16
Harinarayan G Bajaj v. Union of India, (2008) 2 Bom CR 780, 818. ....................................... 3
Hasan Nurani Malad v. SM Ismail, Assistant Charity Commissioner, [1967] 1 SCR 110. ...... 4
Hukam Chand v. Union of India, (1972) 2 SCC 601, 604......................................................... 1
Income Tax Officer, Alleppey v. MC Ponnoose, (1969) 2 SCC 351. ....................................... 1
India Sugar Refineries Ltd v. State of Mysore, AIR 1960 Mys 326. ........................................ 1
Iridium India Telecom Ltd v. Motorola Inc, (2005) 2 SCC 145.............................................. 17
Jai Prakash v. State of UP, (2004) 13 SCC 390, 398. .............................................................. 17
Kanwar Natwar Singh v. Director of Enforcement, [2010] 104 SCL 88. ............................... 14
Keshav v. State of Bombay, AIR 1951 SC 128. ........................................................................ 2
Land Acquistion Officer and Mandal Revenue Officer v. JT 2001 (3) SC 157, 161. ............. 18
Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal, (2010) 3 SCC
786, 791. ............................................................................................................................... 15
Management Committee v. Jt Director of Education, Kanpur, AIR 1999 AII 49. .................. 14
Maniklal Majumdar v. Guaranga Chandra Dey, (2005) 2 SCC 400, 407. .............................. 18
Maya Devi v. Raj Kumar Batra, (2010) 9 SCC 486. ............................................................... 15
MC Mehta v. Union of India, (1999) 6 SCC 237. ................................................................... 15
Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95. ..................................................... 2
IV | P a g e

-Index of Authorities -

- Respondents -

MJ Sivani v. State of Karnataka, (1995) 6 SCC 289. .............................................................. 13


Mukesh K Tripathi v. Senior Divisional Manager, (2004) SCC 387, 401. ............................. 18
Nandaram Hunatram v. Union of India, AIR 1966 SC 1922................................................... 13
National Insurance Co Ltd v. Anjana Shyam, (2007) 7 SCC 445, 451. .................................. 18
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 48. ........................................................ 15, 17
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 49-50.......................................................... 16
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 51. .............................................................. 20
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20. ................................................ 6, 7, 10, 12, 16
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20. 45-47.......................................................... 19
Oriental Insurance Co Ltd v. Hansrajbhai v. Kodala, (2001) 5 SCC 175, 184........................ 17
Panchi Devi v. State of Rajasthan, (2009) 2 SCC 589, 591....................................................... 1
Pramod Jain v. SEBI, [2014] 48 taxmann.com 226 (SAT - Mumbai)....................................... 9
Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230, 245. ................................ 3
Ram Parkash v. Savitri Devi, ILR (1957) 2 P&H 1859, 1872. .................................................. 2
RS Das v. Union of India, AIR 1987 SC 593. ......................................................................... 12
Sahara India, Lucknow v. CIT, Central-I, (2008) 14 SCC 151, 167. ..................................... 13
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 127. .................................... 14, 17
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 128. .......................................... 20
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112. ........................................ 6, 10, 16
SEBI v. Indiabulls Securities Ltd., [2011] 105 SCL 7 (SAT). .................................................. 8
Secretary Andhra Pradesh v. Pindiga Sridhar, (2007) 13 SCC 352......................................... 14
Shri Ram Labhaya v. Municipal Corp of Delhi, (1974) 4 SCC 491, 493. ............................... 17
Siemens Engg & Mfg v. Union of India, AIR 1976 SC 1785. ................................................ 13
SL Kapoor v. Jagmohan, AIR 1981 SC 136. ........................................................................... 14
SMS Holdings Pvt Ltd v. Securities and Exchange Board of India, [2003] SAT 10. ........... 2, 4
Southern Railway Officers Association v. Union of India, (2009) 9 SCC 24. ........................ 13
State of Jharkhand v. Shiv Karampal Sahu, (2009) 11 SCC 453, 459. ..................................... 1
State of Punjab v. Mohar Singh Pratap Singh, AIR 1955 SC 84, 88. ........................................ 4
State of UP v. Pradhan Sangh Kshetra Samiti, AIR 1995 SC 1512. ....................................... 13
State of Uttar Pradesh v. Van Organic Chemicals Limited, (2010) 6 SCC 222, 229. ............... 2
Sudhir Gupta v. State, (2013) 204 DLT 249............................................................................ 12
Union of India v. Jesus Sale Corp, AIR 1996 SC 1509. .......................................................... 12
United Planters Association of Southern India v. KG Sangmeswaran, (1997) 4 SCC 741. .... 13
Universal Imports Agency v. Chief Controller of Imports and Exports, [1961] 1 SCR 305..... 4
V |Page

-Index of Authorities -

- Respondents -

Vijay Mallya v. Chairman Securities & Exchange Board of India, [2003] SAT 19. ................ 4
Vishesh Kumar v. Shanti Prasad, (1980) 2 SCC 378, 384. ..................................................... 17
Statutes/Regulations
SEBI ([PROHIBITION OF] INSIDER TRADING) REGULATIONS, 1992. ......................................... 11
SEBI (M ERCHANT BANKERS) REGULATIONS, 1992, 13........................................................... 7
SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER) REGULATIONS, 1997, 24(2).
.......................................................................................................................................... 7, 11
SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVER) REGULATIONS, 1997,
27(1)(d)................................................................................................................................. 16
THE MOTOR VEHICLES ACT, 1988, 163-A.............................................................................. 17
Internet Resources
Aparna Ravi, Insider Trading and the Risks of Due Diligence Access, INDIA CORP LAW BLOG,
(July 15, 2016), http://indiacorplaw.blogspot.in/2015/01/insider-trading-and-risks-ofdue.html. ............................................................................................................................... 11
Association of Investment Bankers Of India, Due Diligence Manual, (Aug. 2012),
http://www.aibi.org.in/AIBI%20Due%20Diligence%20Manual.pdf. ................................... 8
JEFFREY M. WEINER, DUE DILIGENCE IN M&A TRANSACTIONS: A CONCEPTUAL FRAMEWORK,
12-30 (Thomson Reuters/Aspatore, U.S.A) (2010), available at
http://www.steptoe.com/assets/htmldocuments/Jeffrey%20Weiner%20Chapter%20Busines
s%20Due%20Diligence%20Strategies%202010.pdf............................................................. 9
Umakanth Varotill, Overhauling the Insider Trading Regulations: Part 1, INDIA CORP LAW
BLOG (Dec. 21, 2013),
http://indiacorplaw.blogspot.in/search?q=insider+trading+due+diligence. ......................... 11
Circulars and Reports
Report of the Reconvened Committee on Substantial Acquisitions of Shares and Takeovers,
(May 2002), available at http://www.sebi.gov.in/takeover/takeoverreport.pdf. ................. 10
Report of the Takeover Regulations Advisory Committee Regulations, (July 19, 2010),
available at ....................................................................................................................... 5, 10
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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-Index of Authorities -

- Respondents -

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 ... 7
SEBI Order In the Matter of Brooks Laboratories Limited, WTM/SR/IVD/ID-4/06/2014,
available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1402402106617.pdf............. 9
SEBI Order In the Matter of HSBC Securities and Capital Markets (India) Private Limited,
WTMO/14/CFD/12/03, available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1293009715417.pdf. ............................. 11
SEBI Order In the Matter of Open Offer of M/s Jyoti Limited, WTM/SR/CFD/39/08/2016,
available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1470054168949.pdf, 4.5. .. 5
Journals
Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An
analysis, (2011) P.L. (CL) March S-24.................................................................................. 8
Sambhav Sogani, Pledging of Shares and The Managements Appetite - Fall Outs and
Desired Changes in Takeover Code, [2010] 104 SCL 1 (MAG). .......................................... 6
Tarun M. Stewart & Cyril S. Shroff, Investing in Indian PIPEs, (2007) 10 Journal of Private
Equity 87. ............................................................................................................................... 6
Umakanth Varotill, Due Diligence in Share Acquisitions: Navigating The Insider Trading
Regime, NUS Working Paper 2016/004, 9. ......................................................................... 11
Umakanth Varottil, The Nature Of The Market For Corporate Control In India, NUS Law
Working Paper Series Dec. 2015, 17. .................................................................................... 8
V. Keshavdev, Till Pledge Do Us Apart, BUSINESS OUTLOOK, June 09, 2012, at 3.................. 6
Vikrant Pachnanda & Vineet Unnikrishnan, Due Diligence Issues That Face M&As, (2011)
PL November S-2. .................................................................................................................. 8
SAT Cases
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. .. 6, 8, 9
Books
G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 119 (12th ed., LexisNexis
Butterworths Wadhwa Nagpur 2011). ................................................................................. 18

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-Index of Authorities -

- Respondents -

G.P. SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 35 (12th ed., LexisNexis


Butterworths Wadhwa Nagpur 2011). ................................................................................. 18
Dictionary
BLACK S LAW DICIONARY 594 (9th ed. 2009). ......................................................................... 16

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-Statement of Jurisdiction -

- Respondents -

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 Respondent has the honour to submit before the Honble Supreme Court the
memorandum for respondent 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 RESPONDENT HUMBLY AND RESPECTFULLY SUBMITS TO THE


JURISDICTION OF THIS HONBLE COURT

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-Statement of Facts -

- Respondents -

STATEMENT 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 Takeover 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
X |Page

-Statement of Facts -

- Respondents -

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 (hereinafter, Respondent) 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 Takeover
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 Takeover 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 -

- Respondents -

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 TAKEOVER
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 TAKEOVER REGULATIONS IS


NOT TO BE GIVEN AN INTERPRETATION WHEREBY, THE WORDS SUCH
CIRCUMSTANCES

AS

IN

THE

OPINION

OF

THE

BOARD

MERIT

WITHDRAWAL ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER


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

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-Summary of Arguments -

- Respondents -

SUMMARY OF ARGUMENTS

1. That the provisions of Regulation 23 of the new takeover regulations relating to


withdrawal of open offer cannot be applied to an open offer made under the 1997
takeover regulationsa) SEBI has not been empowered to make regulations with retrospective effect and in the
absence of clear specific power empowering to make regulations with retrospective
effect, regulations cannot be brought in to force with retrospective effect.
b) It is a cardinal principle of construction that every statute prima facie is prospective
unless it is expressly or by necessary implication made to have retrospective operation.
c) Regulation 35(2)(c) of the 2011 Takeover Regulations 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, therefore
withdrawal of the open offer in the present case ought to be done under 1997 Takeover
Regulations.
d) It is the date of the cause of action, not the date on which SEBI passes the order, that
decides the applicability of the Regulations, and cause of action in this case offer of
Dreamsellers to acquire shares of Artemis Regulation, which was done under the 1997
Takeover Regulations.
2. That the appellant failed to exerciese due diligence and the facts relating to the fraud
were not known or could have been known if it had exercised proper due diligence.
a) The appellant failed to fulfill the due diligence requirement. Due Diligence does not mean
passively reporting the facts as represented. It is based on the caveat emptor principal. The
scope of due diligence is to carry out review of information and an independent examination
of facts and documents such that there are no material omissions or misstatements.
b) Appellants failure to conduct due diligence cannot be allowed as an excuse to allow
prejudice the interests of innocent shareholders of Artemis. The appellant should have done
due diligence before deciding to invoke the pledge and refrained themselves from invoking
their pledge if circumstances so required
c) Insider Trading Regulations cannot be cited as an excuse to not doing due diligence. The
argument that the appellant was not in a position to exercise due diligence regarding the

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-Summary of Arguments -

- Respondents -

financial status of the target company due to interplay of insider trading regulations cannot be
sustained.
3. That no violation of principles of natural justice has been done by SEBI in the present
case while passing its order rejecting the application to withdraw the open offer.
a) The correspondence between Dreamsellers and SEBI, and the discussions between
Dreamsellers merchant banker and SEBI addressed all necessary issues.
b) Not being given the opportunity of oral hearing cannot always be equated to a
situation where no opportunity is given to a party to submit an explanation at all.
c) The plea of the appellants that no opportunity has been provided to them is to be
rejected where the appellate authority has considered the entire fact situation.
d) It satisfies the requirement of giving reasons if relevant reasons have been given for
the order, though some of the reasons which were argued before the court had not
been expressly considered by the authority.
e) The appellants have failed to place on the record the prejudice that has been caused by
non-observance of Rules of Natural Justice and thus their case cannot be sustained.
4. That Regulation 27(1)(d) of the 1997 Takeover Regulations is to be given an
interpretation whereby, words such circumstances as in the opinion of the board merit
withdrawal are to be read ejusdem generis with other provisions of regulation 27(1) a) Reg. 27 (1) (b) and (c) enlist a condition for withdrawal if there has been a refusal of
statutory approval, and the sole acquirer has died, thus, constituting a genus of
impossibility. So, 27 (1) (d) should also be understood to be a part of the same genus of
impossibility.
b) The legislative history of Reg. 27 (1) also suggests that 27 (1) (d) should be read ejusdem
generis with 27 (1) (b) and (c). The omission of clause (a) solidifies the conclusion that an
open offer once made can only be withdrawn if it is impossible to complete it.
c) The object, purpose and scheme of the takeover regulations as evinced by its provisions
and judicial decisions illustrate that Reg. 27 (1) (d) should be given a strict interpretation,
so as to safeguard the interests of the shareholders.
d) Arguendo, sans that application of ejusdem generis, open offer in the present case cant
be withdrawn. Withdrawal of an offer on the ground of economic losses would give rise
to unscrupulous and speculative practices in the securities market.

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-Respondents ARGUMENTS ADVANCED

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


REGULATIONS RELATING TO WITHDRAWAL OF OPEN OFFER COULD NOT
BE APPLIED TO AN OPEN OFFER MADE UNDER THE 1997 TAKEOVER
REGULATIONS.
1.1. That the provisions of Regulation 23 of the New Takeover Regulations relating to
withdrawal of open offer cannot be given a retrospective operation.
1.1.1. That ordinarily a subordinate or delegated legislation is prospective in nature 1 and it
should not be construed to be retrospective in operation. 2 The underlying principle is that
unlike Sovereign Legislature which has power to enact laws with retrospective operation,
authority vested with the power of making subordinate legislation has to act within the limits
of its power and cannot transgress the same. The initial difference between subordinate
legislation and the statute laws lies in the fact that a subordinate law-making body is bound
by the terms of its delegated or derived authority and that Court of law, as a general rule, will
not give effect to the rules, thus made, unless satisfied that all the conditions precedent to the
validity of the rules have been fulfilled.3 Thus, where any rule or regulation is made by any
person or authority to whom such powers have been delegated by the Legislature it may not
be possible to make the same so as to give retrospective operation unless the respective
statutory provision in express terms or by necessary implication empowers the authority
concerned to make a rule or regulation with retrospective effect. 4 In the absence, however, of
an express or necessarily implied power to that effect, subordinate legislation, be it a rule, a
bye-law, or a notification, cannot have retrospective operation. 5
1.1.2. That while Section 30 of the Act empowers SEBI to make regulations, and whilst
Section 21 of the General Clauses empowers the SEBI to amend Takeover regulations from
time to time, no power is conferred on it either expressly necessary implication, to make
regulations with retrospective effect. Consequently, the SEBI Regulations cannot be
retrospectively applied, as SEBI has not been empowered to make regulations with
retrospective effect and in the absence of clear specific power empowering to make

Panchi Devi v. State of Rajasthan, (2009) 2 SCC 589, 591.


State of Jharkhand v. Shiv Karampal Sahu, (2009) 11 SCC 453, 459.
3
Hukam Chand v. Union of India, (1972) 2 SCC 601, 604.
4
Income Tax Officer, Alleppey v. MC Ponnoose, (1969) 2 SCC 351.
5
India Sugar Refineries Ltd v. State of Mysore, AIR 1960 Mys 326.
2

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regulations with retrospective effect, regulations cannot be brought in to force with


retrospective effect.6
1.1.3. That even when there is power to make a retrospective rule or notification, in absence
of express words or necessary implication a rule or notification takes effect from the date it is
issued and not from any prior date, 7 since it is a cardinal principle of construction that every
statute prima facie is prospective unless it is expressly or by necessary implication made to
have retrospective operation.8
1.1.4. That this presumption against retrospective operation is strong in cases in which the
statute, if operated retrospectively, would prejudicially affect vested rights, or interfere with
an existing contract, or impose new duty or attach new disability in respect of past
transactions or consideration already passed. 9 Moreover, neither a right or a liability which
was created for the first time can be given a retrospective effect nor a benefit already given
can be withdrawn retrospectively.10 It is humbly submitted that the Regulation 23 of the New
Takeover Regulations with the introduction of Regulation 23(1)(c) impairs the vested rights
of the shareholders of an exit-opportunity by providing the acquirer an right of withdrawal of
the open offer in cases of non-attainment of any condition stipulated in the agreement that
attracted the open offer obligation.
1.1.5. That a statute should not be given retrospective operation unless its words are so clear,
strong and imperative that no other meaning can be annexed to them, or unless the intention
of the Legislature could not be otherwise satisfied. 11 In the instant case, the 2011 Takeover
Regulations neither expressly nor by necessary implication provide that they are to be applied
retrospectively, rather there exists a contrary intention. Report of the Takeover Regulations
Advisory Committee12 which includes the draft text of the 2011 Takeover Regulations
unmistakably shows that these regulations were purported to be applied prospectively.
Regulation 1(2) of the draft text that says These regulations shall come into force on 1[] is
followed by a footnote:

SMS Holdings Pvt Ltd v. Securities and Exchange Board of India, [2003] SAT 10.
Chandravathi PK v. CK Saji, (2004) 3 SCC 734, 749.
8
Keshav v. State of Bombay, AIR 1951 SC 128.
9
Mithilesh Kumari v. Prem Behari Khare, (1989) 2 SCC 95.
10
State of Uttar Pradesh v. Van Organic Chemicals Limited, (2010) 6 SCC 222, 229.
11
Ram Parkash v. Savitri Devi, ILR (1957) 2 P&H 1859, 1872.
12
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.
7

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It is recommended that these regulations be given effect from a prospective date to avoid
any inadvertent breaches and to ensure clarity on the date of effect.
In the actual 2011 Takeover Regulations, Regulation 1(2) reads:
These regulations shall come into force on the thirtieth day from the date of their publication
in the Official Gazette.
Thus in light of the recommendations of the Mr C. Achuthan Committees report, it must be
construed that the 2011 Takeover regulations shall prospectively come into force on the
thirtieth day from the date of their publication in the Official Gazette, i.e. from October 22,
2011.
1.1.6. That the Regulation 35(2)(c) of the 2011 Takeover Regulations in clear and
unambiguous term 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.
It is humbly submitted that the rules of interpretation other than the literal rule would come
into play only if there is any doubt with regard to the express language used and where the
words are unequivocal, there is no scope for importing any rule of interpretation. 13 In the
instant case, Dreamsellers made a Public Announcement dated October 1, 2010 for the
proposed Open Offer to acquire upto 37.6 per cent equity shares of Artemis Regulation under
the 1997 Takeover Regulations and thus by the virtue of Regulations 32(2)(c) of the 2011
Takeover Regulations the open offer can be withdrawn only under the repealed regulations.
1.1.7. Where the petitioner contended that since the there was a lacunae in the 1994 Takeover
Regulations which after been recognized by Bhagwati Committee has been removed in the
1997 Takeover Regulations, the 1997 Takeover Regulations are to be applied to a transaction
made under 1994 Takeover Regulations, Supreme Court rejected the submission and held
that Regulation 47 (identical wording to that of the Regulation 35(1)&(2)(a) of the 2011
Takeover Regulations) of the 1997 Regualtions nowhere provide for retrospective application
of those Regulations.14 Similarly, where an inquiry was pending at the time of repeal of the
1994 Regulations, it was held that under regulation 47 of the 1997 Takeover Regulations
SEBI is empowered to continue and complete the said inquiry and pass necessary orders in
13
14

Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230, 245.
Harinarayan G Bajaj v. Union of India, (2008) 2 Bom CR 780, 818.

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respect thereof under the 1997 Takeover Regulations.15 It has also been held that Regulation
23 of the SEBI Amendment Regulations, 2002 (identical wording to that of Regulation
35(2)(a) of the 2011 Takeover Regulations) does not even purport to make the amendment
regulations retrospective and the effect of this provision in the saving clause in the
Amendment Regulations, 2002 does not affect the liabilities incurred before the amendment
became effective; such liabilities are kept alive by the virtue of the Section 6 of the General
Clauses Act, 1897.16
1.1.8. That unless a different intention appears in the repealing Act, any legal proceeding, by
virtue of Section 6 of the General Clauses Act, can be instituted and continued in respect of
any matter pending under the repealed Act as if that Act was in force at the time of repeal. 17
There is no contrary intention in the 2011 Takeover Regulations, and rather Saving Clause in
the form of Regulation 35(2)(b) is in consonance of the Section 6 of the General Clauses Act.
Therefore, by virtue of Regulation 35(2)(b) withdrawal proceedings for an open offer made
under 1997 Takeover Regulations are to be continued under those Regulations only.
1.1.9. That the words things done have been interpreted by the Supreme Court to mean not
only things done but also the legal consequences flowing therefrom since otherwise the
saving clause would become unnecessary.18 Thus, the result of a saving clause is that the preexisting law continues to govern the things done before a particular date from which the
repeal of such a pre-existing law takes effect.19 Thus, since the Public Announcement for the
offer was made under the 1997 Takeover Regulations, the application for withdrawal of this
offer is to be understood as a legal consequences flowing therefrom.
1.1.10. That merely because the application for the withdraw of the open offer was made after
the 2011 Takeover Regulations came into force doesnt mean that those regulations would be
applicable to an offer made under 1997 Takeover Regulations. It is the date of the cause of
action, not the date on which SEBI passes the order, that decides the applicability of the
Regulations,20 and cause of action in this case offer of Dreamsellers to acquire shares of
Artemis Regulation, which was done under the 1997 Takeover Regulations.

15

Vijay Mallya v. Chairman Securities & Exchange Board of India, [2003] SAT 19.
SMS Holdings Pvt Ltd v. Securities and Exchange Board of India, [2003] SAT 10.
17
State of Punjab v. Mohar Singh Pratap Singh, AIR 1955 SC 84, 88.
18
Universal Imports Agency v. Chief Controller of Imports and Exports, [1961] 1 SCR 305.
19
Hasan Nurani Malad v. SM Ismail, Assistant Charity Commissioner, [1967] 1 SCR 110.
20
SMS Holdings Pvt Ltd v. Securities and Exchange Board of India, [2003] SAT 10.
16

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1.2. Arguendo: That Regulation 23(1)(d) of 2011 Takeover Regulations is to be


interpreted in light of Regulation 27(1)(d) of 1997 Takeover Regulations.
1.2.1. That even if it is accepted that the provisions of regulation 23 of the new takeover
regulations relating to withdrawal of open offer could not be applied to an open offer made
under the 1997 takeover regulations, the Regulation 23(1)(d) of 2011 Takeover Regulations
is to be given the same interpretation as provided to Regulation 27(1)(d) of 1997 Takeover
Regulations. It is a well settled rule of construction that when once certain words in an Act of
Parliament have received a judicial construction in one of the superior courts, and the
Legislature has repeated them without alteration in a subsequent statute, the Legislature must
be taken to have used them according to the meaning which a court of competent jurisdiction
has given to them.21
1.2.2. Report of the Takeover Regulations Advisory Committee 22 further shows that there is
no change in legislative intent in this regard:
Committee Deliberations: 6.2 Ordinarily, once an open offer is made, its inexorable
conclusion ought to be the completion of the open offer. However, there could be
circumstances where the open offer cannot be completed. These circumstances can be
classified into two types viz. (a) where it is rendered impossible for the open offer to continue
for example, death of an acquirer who is an individual, or rejection of any statutory
approval required for the offer; and (b) non-attainment of any condition stipulated in the
agreement that attracted the open offer obligation for reasons beyond the control of the
acquirer, resulting in the agreement itself not being acted upon.
It is crystal clear from these deliberations that under 2011 Takeover Regulations an offer can
be withdrawn in only abovementioned circumstances or other similar circumstances.
1.2.3. In the Matter of Open Offer of M/s Jyoti Limited 23 where the Acquirers had sought to
withdraw the Open Offer on the grounds that the proceedings before the Honble BIFR were
long drawn along with the inability of SEBI to clear the draft Letter of Offer, SEBI, while
noting that the provisions of Regulation 23(1) of the Takeover Regulations, 2011, are similar
to the provisions of Regulation 27(1) of the Takeovers Regulations, 1997 and consequently,

21

Banarasi Debi v. ITO, AIR 1964 SC 1742, 1745.


Report of the Takeover Regulations Advisory Committee Regulations, (July 19, 2010), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.
23
SEBI Order In the Matter of Open Offer of M/s Jyoti Limited, WTM/SR/CFD/39/08/2016, available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1470054168949.pdf, 4.5.
22

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the ratio laid down by in the matters of Nirma Industries Limited24 and Akshya Infrastructure
Private Limited25 with respect to Regulations 27(1) of the Takeover Regulations, 1997 are
squarely applicable to the provisions of Regulation 23(1) of the Takeover Regulations, 2011,
held that an Open Offer can be withdrawn only in circumstances where it is rendered
impossible for such Open Offer to continue, or in cases of Nonattainment of any condition
stipulated in the Agreement that attracted the Open Offer obligation, or other such
circumstances, which has to be read in accordance with the first two conditions. Therefore,
even the scheme of things under the Takeover Regulations, 2011 is such that application of
the petitioner for the withdrawal of open offer on grounds of economic unviability, delay by
SEBI, and denial of natural justice, etc. cannot be accepted.
2. THAT IT CAN BE SAID THAT THE APPELLANT FAILED TO EXERCIESE DUE
DILIGENCE AND THE FACTS RELATING TO THE FRAUD WERE NOT KNOWN
OR COULD HAVE BEEN KNOWN BY DREAMSELLERS, IF DREAMSELLERS
HAD EXERCISED PROPER DUE DILIGENCE.
It is our submission that in the present case, no fraud has been played on the appellants as
such. On the following grounds:
A) The appellant chose to enter into a pledge agreement26 , invoke the pledge and make a
voluntary public announcement for takeover on the basis of an informed business decision. 27
It cannot be permitted to wriggle out of its commitments just because the offer is not
economically viable/is a bad bargain for it.28
B) Facts relating to the fraud were known or could be known in the exercise of due
diligence. The appellant had been dealing with Artemis since 2009. 29 Artemis was a party to
the pledge agreement30 entered in 2009 along with its promoters and the appellant. Notably,
the fraud perpetrated in Artemis between 2005 and 2008. The appellant was in a good
position to do due diligence in matters of the target. 31 In other words, the appellant had the

24

Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.


SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112.
26
V Keshavdev, Till Pledge Do Us Apart, BUSINESS OUT LOOK, June 09, 2012, at 3.
27
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.
28
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112.
29
Moot Proposition 1.
30
Sambhav Sogani, Pledging of Shares and The Managements Appetite - Fall Outs and Desired Changes in
Takeover Code, [2010] 104 SCL 1 (MAG).
31
Tarun M. Stewart & Cyril S. Shroff, Investing in Indian PIPEs, (2007) 10 Journal o f Private Equity 87.
25

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capacity to verify the veracity and adequacy of representations by the promoters of Artemis.32
In the like manner in 2010, at the time of voluntary public announcement, if not the fraud
itself, but at the very least facts relating to it could have been known in exercise of proper due
diligence.33
C) The appellant cannot be permitted to take advantage of its own inability to justify seeking
withdrawal of the public offer. If allowed to withdraw its offer, it would be unfairly
prejudicial to the interests of the small shareholders and investors of Artemis who were
neither fraudulent nor lax in their conduct.34
Therefore, respondent hereby pleads that the acquirer cannot be allowed to withdraw the offer
under regulation 27 (2) of the Takeover Regulations, 1997 because, A. The appellant failed to
fulfill the due diligence requirement. B. Appellants failure to conduct due diligence cannot
be allowed as an excuse to allow prejudice the interests of Artemiss shareholders C. Insider
Trading Regulations cannot be cited as an excuse to not doing due diligence.
2.1. The Due Diligence Requirement
In the Takeover Regulations35 , Regulation 24(2) provides that the merchant banker shall do
submit due diligence certificate to the SEBI for the acquirer. It was therefore the duty of the
appellants merchant banker [Hereinafter, MB] to do due diligence. Regulation 13 of
Merchant Banker Regulations36 lays down code of conduct for merchant bankers.
In the present case, the appellant had full knowledge about the poor state of financials of
target, nevertheless, it chose to invoke the pledge and further make a voluntary public
announcement for takeover. Appellants made hostile takeover bid knowing fully the past
conduct of promoters of Target Company and were not innocent investors and should have
known consequences of their public offer; is to construed as meaning that entities who make
bids for hostile takeover of other companies do this at then own peril and should not expect
any assistance from Respondent.
Due Diligence is derived from the caveat emptor principle; let the buyer beware.37 It is the
buyer's responsibility to collect all information from the seller that a prudent man would need
32

Imperial Corporate Finance and Services Private Limited v. SEBI [2005] 61 SCL 197 (SAT).
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.
34
Id.
35
SEBI (SUBST ANT IAL A CQUISITION OF SHARES AND TAKEOVER) REGULAT IONS, 1997, 24(2).
36
SEBI (M ERCHANT BANKERS) REGULAT IONS, 1992, 13.
37
Umakanth Varottil, The Nature Of The Market For Corporate Control In India , NUS Law Working Paper
Series Dec. 2015, 17.
33

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to make an informed choice about the article being bought. 38 If the buyer fails in this
responsibility he faces the risk of loss.39
In the absence of any statutory definition of Due Diligence and reasonable due diligence 40 ,
Honble Supreme Court held in Chander Kanta Bansal v. Rajender Singh Anand41 and
further affirmed in following judgments is that due diligence in law means reasonable
diligence and doing everything reasonable, not everything possible 42 . The appellant herein
cannot be said to have done reasonable due diligence in the given meaning. There is no
material to show that the appellant had taken any proactive step at all to find out the correct
information or to independently verify the information available, it relied on representations
presented by the target
In JM Mutual Fund and JM Capital Management Pvt. Ltd. v. SEBI43 , Due diligence had been
taken as such a measure of prudence, activity or assiduity, as is properly to be expected, and
ordinarily exercised by, a reasonable and prudent man 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. In Keynote44 , and subsequently it was held and is a settled
law that better standards of performance of due diligence is expected from professionals, and
this standard of professionalism should be higher than a reasonable man with ordinary
prudence.
Extracts pertaining to Due Diligence as mentioned in the Due Diligence Manual of AIBI 45 , it
is stated that.`the scope of due diligence is to carry out review of information and an
independent examination of facts and documents.such that there are no material omissions
or misstatements.46 Had the appellant cannot be said to have conducted a review or
independent review of information; it merely relied on representations of the target. If not the
fraud, facts in connection to the inconsistencies could be known by the appellant.

38

Ashwin Mathew, Anshuman Sakle and Arunadhri Iyer, Non-Disclosure by a Seller An analysis, (2011) P.L.
(CL) March S-24.
39
Vikrant Pachnanda & Vineet Unnikrishnan, Due Diligence Issues That Face M&As, (2011) PL November S2.
40
Chander Kanta Bansal v. Rajinder Singh Anand, [(2008) 5 SCC 117].
41
Ibid.
42
SEBI v. Indiabulls Securities Ltd., [2011] 105 SCL 7 (SAT).
43
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.
44
Ibid.
45
Association of Investment Bankers Of India, Due Diligence Manual, (Aug. 2012),
http://www.aibi.org.in/AIBI%20Due%20Diligence%20Manual.pdf.
46
Ibid.

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Due diligence does not mean passively reporting whatever is reported to but to carry out
review of information and an independent examination of facts and documents furnished by
the issuer.47 Object of due diligence is that the buyer should also be aware and acquaint
himself with all the existing and potential liabilities that it would get into. 48
In the instant case, the Appellant only relied only on the representations made by the
company and thus failed to adopt reasonable care and due diligence. 49 Merely referring to
Public information, without satisfying itself about all aspects of the company it was to
acquire, checking the veracity and adequacy of disclosures is a failure on the appellants
part.50
In present case Appellant had failed to exercise due diligence. 51 The appellant understood
well about the financial health and prospects of the target company. Clearly, the appellants
decided on invoking the pledge on the shares of the target company with open eyes and
sufficient knowledge about the affairs of the target company. Or otherwise were lax in their
conduct to have not known it.
2.2. Appellants failure to conduct due diligence cannot be allowed as an excuse to
prejudice the interests of Artemiss shareholders
The appellant should have done due diligence before deciding to invoke the pledge and
refrained themselves from invoking their pledge if circumstances so required, or that the
appellants should have partially invoked the pledge. They did not stop here, the appellant
made a voluntary public offer52 knowing fully well the poor state of financials of the target,
which was an informed business decision. 53 Circumstances arising out of omission on the part
of the acquirers to have taken due precaution or business misfortunes are not reasons
sufficient enough to merit withdrawal of the open offer. 54
The appellant took no proactive step to check the veracity and authenticity of warranties and
representations by the target to enter into the pledge agreement in 2009, invoke the pledge in
47

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.
48
JEFFREY M. W EINER, DUE DILIGENCE IN M&A TRANSACT IONS: A CONCEPT UAL FRAMEWORK, 12-30
(Thomson Reuters/Aspatore, U.S.A) (2010), available at
http://www.steptoe.com/assets/htmldocuments/Jeffrey%20Weiner%20Chapter%20Business%20Due%20Dilige
nce%20Strategies%202010.pdf.
49
SEBI Order In the Matter of Brooks Laboratories Limited, WTM/SR/IVD/ID-4/06/2014, available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1402402106617.pdf
50
Imperial Corporate Finance and Services Private Limited v. SEBI [2005] 61 SCL 197 (SAT).
51
Supra note 12 at 20.
52
Moot Proposition 5.
53
Pramod Jain v. SEBI, [2014] 48 taxmann.com 226 (SAT - Mumbai).
54
Akshya Infrastructure (P) Ltd v. SEBI, [2014] 44 taxmann.com 444 (SC).

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2010 and subsequently for public announcement in 2011. The above facts would seem to be
enough to provide the appellants had knowledge regarding the financial health and prospects
of the target company. Clearly, the appellants decided on invoking the pledge on the shares of
the target company with open eyes and sufficient knowledge about the affairs of the target
company.
The argument of the appellants that they had no prior clue about the adverse financial
information relating to the target company and were contained in the later investigative audit
report cannot be accepted.55 In this view, Regulation 24(2) mandates that the merchant
banker shall furnish to the Board a due diligence certificate which shall accompany the draft
letter of offer. The aforesaid regulation clearly indicates that any enquiries and any due
diligence that has to be made by the acquirer have to be made prior to the public
announcement.
It is, therefore, not possible to accept the contention of the appellant. This court in
Nirma56 was correct in holding that the appellants are faced with as the result of lack of due
diligence and/or sheer business misfortune. They are only trying to wriggle out of a bad
bargain which is not permissible under Regulation 27(1)(d) of the Takeover Regulations.57
That the appellants cannot be permitted to wriggle out of the obligation of a public offer
under the Takeover Regulation. Permitting them to do so would deprive the ordinary
shareholders of their valuable right to have an exit option under the takeover regulations. 58
The SEBI Regulations are designed to ensure that public announcement is not made by way
of speculation and to protect the interest of the ordinary, innocent shareholders. A conspectus
of the Takeover Regulations59 would show that the scheme of the Takeover Regulations is (a) to ensure that in the process of the substantial acquisition or takeover, the security market
is not distorted or manipulated and (b) to ensure that the small investors are given an option
to exit, that is, they are offered a choice to either offload their shares at a price as determined
in accordance with the Takeover Regulations or to continue as shareholders under the new

55

Moot Proposition 17.


Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.
57
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112.
58
Report of the Takeover Regulations Advisory Committee Regulations, (July 19, 2010), available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf.
59
Report of the Reconvened Committee on Substantial Acquisitions of Shares and Takeovers, (May 2002),
available at http://www.sebi.gov.in/takeover/takeoverreport.pdf.
56

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dispensation. In other words, the Takeover Regulations is meant to ensure fair and equal
treatment of all shareholders in relation to substantial acquisition of shares and takeovers. 60
2.3. Insider Trading Regulations do not restrict the scope of Due Diligence for Open
Offer under the Takeover Regulations
The argument that the appellant was not in a position to exercise due diligence regarding the
financial status of the target company due to interplay of insider trading regulations 61 cannot
be sustained. Regulation 3B (2)of the PIT Regulations provides for defence to a company
which is in possession of unpublished price sensitive information for acquisitions of shares of
a listed company for SEBI (SAST) Regulations, 1997. 62 Meaning that, the appellant had the
liberty to verify the adequacy and veracity of representations presented by promoters of the
target.63
Also, general practice has been such that for due diligence purposes parties enter into nondisclosure agreement to bind the other against publishing such information. 64 SEBI does not
appear to have initiated legal action against any company for violation of insider trading
regulations merely on account of facilitating a due diligence. 65
The appellant cannot be permitted to take the garb of Insider Trading Regulations as its
inability to conduct reasonable due diligence.
3. THAT NO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE HAS BEEN
DONE BY SEBI IN THE PRESENT CASE WHILE PASSING ITS ORDER
REJECTING THE APPLICATION TO WITHDRAW THE OPEN OFFER.
3.1. That SEBI while passing its order rejecting the application to withdraw the open
offer has acted in accordance with the principles of natural justice.
3.1.1. That there was no violation of the principles of natural justice in the present case. The
correspondence between Dreamsellers and SEBI, and the discussions between Dreamsellers
merchant banker and SEBI addressed all necessary issues. Since all the necessary information
60

SEBI Order In the Matter of HSBC Securities and Capital Markets (India) Private Limited,
WTMO/14/CFD/12/03, available at http://www.sebi.gov.in/cms/sebi_data/attachdocs/1293009715417.pdf.
61
SEBI ([PROHIBIT ION OF] INSIDER TRADING) REGULAT IONS, 1992. [Hereinafter, PIT Regulations].
62
SEBI (SUBST ANT IAL A CQUISITION OF SHARES AND TAKEOVER) REGULAT IONS, 1997, 24(2).
63
Umakanth Varotill, Due Diligence in Share Acquisitions: Navigating The Insider Trading Regime , NUS
Working Paper 2016/004, 9.
64
Aparna Ravi, Insider Trading and the Risks of Due Diligence Access, INDIA CORP LAW BLOG, (July 15, 2016),
http://indiacorplaw.blogspot.in/2015/01/insider-trading-and-risks-of-due.html.
65
Umakanth Varotill, Overhauling the Insider Trading Regulations: Part 1 , INDIA CORP LAW BLOG (Dec. 21,
2013), http://indiacorplaw.blogspot.in/search?q=insider+trading+due+diligence.

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was available before SEBI for taking a decision as to whether the withdrawal of the Letter of
Offer would fall within the purview of Regulation 27(1) (d), the submission that substantial
justice has not been done in the case of the appellants cannot be accepted. 66
3.1.2. That the rules of natural justice are not rigid rules, they are flexible and their
application depends upon the facts and circumstances of each case.67 When principles of
natural justice require an opportunity to be heard before an adverse order is passed on any
appeal or application, it does not in all circumstances mean a personal hearing. The
requirement is complied with by affording an opportunity to the person concerned to present
his case before such quasi-judicial authority.68 Where the opportunity to make written
representation is available and the decision is taken after considering such representation,
personal hearing can be dispensed with.69 Thus, not being given the opportunity of oral
hearing cannot always be equated to a situation where no opportunity is given to a party to
submit an explanation at all70 and any order passed after taking into consideration the points
raised in the application shall not be held to be invalid merely on the ground that no personal
hearing had been afforded.71
3.1.3. That violation of principles of natural justice on account of not providing personal
hearing cannot possibly vitiate SEBIs order because appellants had never themselves sought
personal hearing while writing to SEBI.72 Also, it cannot be said that the appellants had been
condemned unheard as the entire material on which the appellants were relying was placed
before SEBI. It is upon consideration of the entire matter that the offer of the appellants was
rejected. Therefore, it cannot be said that the appellants have been in any manner prejudiced
by the non-grant of the opportunity of personal hearing.
3.1.4. That the Securities Appellate Tribunal while dealing with the appeal against SEBIs
order under Section 15 T of the SEBI Act, had passed a speaking order only after providing
the appellants a proper opportunity of being heard on every issue raised by them. Hence, the
plea of the appellants that no opportunity has been provided to them is to be rejected where
the appellate authority has considered the entire fact situation. 73 In a proceeding where an

66

Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.


RS Das v. Union of India, AIR 1987 SC 593.
68
Union of India v. Jesus Sale Corp, AIR 1996 SC 1509.
69
Carborundum Universal Limited v. Central Board of Direct Taxes, 1989 Supp (2) SCC 462.
70
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.
71
Union of India v. Jesus Sale Corp, AIR 1996 SC 1509.
72
Sudhir Gupta v. State, (2013) 204 DLT 249.
73
Southern Railway Officers Association v. Union of India, (2009) 9 SCC 24.
67

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employee adduced evidence before the appellate authority the opportunity of hearing
provided to the employee at the appellate stage was held to sufficiently meet his demands for
a just and proper inquiry.74 Also, in urgent matters, a post-decisional hearing is regarded as a
sufficient compliance of the audi alteram partem rule 75 and the principles can even be
excluded when a statute contemplates a post-decisional hearing amounting to full review of
the original order on merit.76 Lastly, it is humbly submitted that post-decisional hearing is
held to be adequate in cases where no prejudice can be shown from a lack of pre-decisional
hearing.77
3.1.5. That it satisfies the requirement of giving reasons if relevant reasons have been given
for the order, though the authority has not set out all the reasons or some of the reasons which
were argued before the court had not been expressly considered by the authority. 78 When the
rule prescribes recording of reasons, it is not suggested that the authority shall make an
elaborate order discussing the arguments of the appellants in the manner of a court of law,79
rather appropriate brief reasons are adequate for a valid order. 80 Also, where the facts are so
notorious that the reasons for the decision are too obvious the fact that no reasons were given
by the authority may not vitiate action.81 It is humbly submitted that the submission of the
appellants for the repricing of the open offer price cannot be accepted since the determination
of the open offer price is to be done at a stage prior to the making of the public announcement
and not thereafter. Thus, SEBI's order cannot vitiated on the mere ground that it was silent on
the issue of repricing. Moreover, it has been categorically held that:
There is nothing in the Regulations which requires the Board to pass a reasoned order for all
it does as a regulator. Being a regulator the Board has to take various steps, issue directions
from time to time and pass appropriate orders If there is material on record to show that the
Board applied its mind to the offer made and considered it in the light of the relevant
provisions of the Regulations and all factors enumerated therein, its decision to approve the

74

United Planters Association of Southern India v. KG Sangmeswaran, (1997) 4 SCC 741.


State of UP v. Pradhan Sangh Kshetra Samiti, AIR 1995 SC 1512.
76
Sahara India, Lucknow v. CIT, Central-I, (2008) 14 SCC 151, 167.
77
Canara Bank v.VK Awasthy, (2005) 6 SCC 321, 335.
78
Bhagat Raja v. Union of India, AIR 1967 SC 1606.
79
Siemens Engg & Mfg v. Union of India, AIR 1976 SC 1785.
80
MJ Sivani v. State of Karnataka, (1995) 6 SCC 289.
81
Nandaram Hunatram v. Union of India, AIR 1966 SC 1922.
75

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offer price to be incorporated in the letter of offer cannot be faulted on the ground that it has
not passed a reasoned order.82
3.2. That no prejudice has been caused to the appellants and there is no case for remand
3.2.1. That the appellants have failed to place on the record the prejudice that has been caused
by non-observance of Rules of Natural Justice, if any. It is by now settled proposition of law
that to sustain the complaint of the violation of natural justice one must establish that he was
prejudiced for non-observance of the principles of natural justice83 since there is no such
thing as a merely technical infringement of natural justice. 84 Therefore, where the respondent
had asked for an opportunity of hearing but none was granted, Supreme Court 85 observed:
But the question that arises is as to whether this is sufficient to nullify the decision of SEBI.
In our opinion, the respondent has failed to place on the record either before SAT or before
this Court the prejudice that has been caused by not observing rules of natural justice. It is by
now settled proposition of law that mere breach of rules of natural justice is not sufficient.
Such breach of rules of natural justice must also entail avoidable prejudice to the
respondent.
3.2.2. That in matters where observance of principles of natural justice would have made no
difference and the admitted or indisputable or irrefutable facts speaking for themselves lead
to a situation where only one conclusion is possible under the law, the issuance of writ to
compel observance of natural justice is not at all called for. 86 The court does not compel the
observance of natural justice in such cases, not because it approves the non-observance of
natural justice but because courts do not issue futile writs. 87
3.2.3. That though the Supreme Court has followed the principle that once natural justice
was violated no other prejudice need be proved" in several cases earlier, yet the Court has
not committed itself to this principle irrevocably and has not laid down any absolute rule. It is
therefore clear that if on the admitted or indisputable factual position, only one conclusion is
possible and permissible, the court need not issue a writ merely because there is violation of
the principle of natural justice.88

82

GL Sultania v. Securities & Exchange Board of India, (2007) 5 SCC 133, 152-153.
Secretary Andhra Pradesh v. Pindiga Sridhar, (2007) 13 SCC 352.
84
Kanwar Natwar Singh v. Director of Enforcement, [2010] 104 SCL 88.
85
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 127.
86
Management Committee v. Jt Director of Education, Kanpur, AIR 1999 AII 49.
87
SL Kapoor v. Jagmohan, AIR 1981 SC 136.
88
MC Mehta v. Union of India, (1999) 6 SCC 237.
83

14 | P a g e

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3.2.4. That an appellate court while deciding an appeal can examine the matter on merits and
finally decide the same at the appellate stage. Whether or not the appellate court should remit
the matter is discretionary with the appellate court and would largely depend upon whether
remand is going to result in avoidable prolongations of the litigation between the parties.
Remands are usually avoided if the appellate court is of the view that it will prolong the
litigation.89
4. THAT REGULATION 27 (1) (D) OF THE 1997 TAKEOVER REGULATIONS IS
TO BE GIVEN AN INTERPRETATION WHEREBY, THE WORDS SUCH
CIRCUMSTANCES AS IN THE OPINION OF THE BOARD MERIT WITHDRAWAL
ARE TO BE READ EJUSDEM GENERIS WITH THE OTHER PROVISIONS OF
REGULATION 27 (1) OF THE SAID CODE I.E. AS CIRCUMSTANCES WHERE IT
IS IMPOSSIBLE TO PERFORM THE OPEN OFFER?
The Respondent most respectfully submits that Reg. 27 (1) (d) should be read ejusdem
generis with sub-clauses (b) and (c) of Reg. 27 (1). The object, purpose and scheme of the
takeover regulations as evinced by its provisions and judicial decisions illustrate that Reg. 27
(1) (d) should be given a strict interpretation, so as to safeguard the interests of the
shareholders. The three sub-clauses of Reg. 27 (1) are exceptions to the general rule (that an
open offer made cannot be withdrawn), and therefore, have to be construed very strictly. 90
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. This is a principle which arises from the
linguistic implication by which words having literally a wide meaning (when taken in
isolation) are treated as reduced in scope by the verbal context. 91 Blacks Law Dictionary
defines this term 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.92

89

Maya Devi v. Raj Kumar Batra, (2010) 9 SCC 486.


Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 48.
91
Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal, (2010) 3 SCC 786, 791.
92
BLACKS LAW DICIONARY 594 (9th ed. 2009).
90

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In Assistant Collector of Central Excise, Guntur v. Ramdev Tobacco Company, 93 the


question before this court was that whether the departmental action by the Appellant should
be covered under the expression other legal proceeding as used in Sec. 40 (2) in the Central
Excises and Salt Act, 1944. It was held that since this term, is succeeded by the terms suit
and prosecution, it should be read ejusdem generis with these terms, and since the specific
words denote an action which has been lodged only before a court of law, departmental
action being an executive action would not be covered under the term other legal
proceeding. The ejusdem generis rule strives to reconcile the incompatibility between
specific and general words.94 This doctrine applies when (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.95
This court in Nirma case,96 made it clear that: Applying the aforesaid tests, we have no
hesitation in accepting the conclusion that.....the term such circumstances in clause (d)
would also be restricted in situation which would make it impossible for the acquirer to
perform the public offer. This decision has also been approved by the Honble Court in the
case of Akshya v. SEBI.97 It is undisputed that Reg. 27 (1) (b) and 27 (1) (c) contain an
enumeration of specific words (i.e. refusal of statutory approval and death of the acquirer)
which constitute a genus of impossibility to consummate the open offer, 98 this genus of
impossibility is not exhausted by enumeration, since there can be a number of circumstances
which may arise making it impossible to complete a public offer. 99 The general term i.e.
such circumstances as in the opinion of the Board, 100 follows the aforementioned specific
terms. Lastly, there isnt any indication of a different legislative intent, and this can be
deduced from a number of factors viz. legislative history; object, purpose and scheme of the
takeover regulation, etc.

93

Assistant Collector of Central Excise, Guntur v. Ramdev Tobacco Company , (1991) 2 SCC 119, 125.
Amar Chandra Chakraborty v. Collector of Excise, (1972) 2 SCC 442, 447.
95
Grasim Industries Ltd v. Collector of Customs, Bombay, (2002) 4 SCC 297, 304.
96
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20.
97
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112.
98
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 49-50.
99
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 49-50.
100
SEBI (SUBST ANT IAL A CQUISITION OF SHARES AND TAKEOVER) REGULAT IONS, 1997, 27(1)(d).
94

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4.1. Legislative History of Reg. 27 (1)


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.101 In a
number of cases such as, Shri Ram Labhaya v. Municipal Co. of Delhi, 102 Vishesh Kumar v.
Shanti Prasad,103 Iridium India Telecom Ltd. v. Motorola Inc,104 this court delved into the
legislative history of the statutes. In Oriental Insurance Co. Ltd. v. Hansrajbhai v. Kodala,105
while interpreting Sec 163-A106 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.
The Appellant may contend that prior to the amendment of Reg. 27 (1) in 2002, it also
incorporated clause (a) which read as: the withdrawal is consequent upon any competitive
bid. Since this clause permitted for withdrawal of an offer even when it is not impossible to
consummate it, there was no genus of impossibility between all the clauses of Reg. 27, and
therefore the rule of ejusdem generis cannot be applied. However, this contention of the
Appellant would be devoid any substance, since in the Nirma case, 107 this court made it clear
that: Since clause (a) has been omitted, we are required to interpret only the scope and ambit
of clauses (b), (c) and (d). Further, it would also be pertinent to note the reasons for which
clause (a) was omitted, as legislative history can be a relevant means for inferring the
intention of the legislature (as has already been submitted above). In Akshya case, 108 this
court observed that: The very purpose for deleting Reg. 27 (1) (a) was to remove any
misapprehension that an offer once made can be withdrawn, if it becomes economically not
viable. It was also held that, the deletion of clause (a) reinforces the conclusion that an open
offer once made can only be withdrawn in circumstances stipulated under Reg. 27 (1) (b), (c)
and (d).
Therefore, in view of the legislative history of Reg. 27 (1), it is amply clear that an open offer
once made can only be withdrawn in exceptional circumstances. Thus, the application of
ejusdem generis for the purpose of interpreting Reg. 27 (1) (d) as adopted by this court in its
earlier decisions needs no reconsideration.
101

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


Shri Ram Labhaya v. Municipal Corp of Delhi, (1974) 4 SCC 491, 493.
103
Vishesh Kumar v. Shanti Prasad, (1980) 2 SCC 378, 384.
104
Iridium India Telecom Ltd v. Motorola Inc, (2005) 2 SCC 145.
105
Oriental Insurance Co Ltd v. Hansrajbhai v. Kodala, (2001) 5 SCC 175, 184.
106
THE M OT OR VEHICLES A CT , 1988, 163-A.
107
Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 48.
108
SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 127.
102

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4.2. Object, Purpose and Scheme of the Takeover Regulations


The words of a statute, when there is a doubt about their meaning, are to be understood in the
sense in which they best harmonise with the subject of the enactment and the object which
the Legislature has in view. The meaning is found not so much in a strict grammatical or
etymological propriety of language, nor even in its popular use, as in the subject or in the
occasion on which they are to be used, and the object to be attained. 109 The courts have
declined to be bound by the letter, when it frustrates the patent purposes of the statute. 110 It is
a recognised rule of interpretation of statutes that expressions used therein should ordinarily
be understood in a sense in which they best harmonise with the object of the statute, and
which effectuate the object of the legislature. 111 Therefore, when two approaches are feasible
the court will prefer that which advances the remedy and suppresses the mischief as the
Legislature envisioned.112
Further, it is also submitted that when question arises as to the meaning of a certain provision
in a statute, it is not only legitimate but proper to read that provision in its context.113 To
ascertain the meaning of a clause in a statute, the court must look at the whole statute, at what
precedes and at what succeeds and not merely at the clause itself. 114 The court must ascertain
the intention of the legislature by directing its attention not merely to the clauses to be
construed but to the entire statute; it must compare the clauses with the other parts of the law,
and the setting in which the clause to be interpreted occurs. 115
This Court in Nirma case rightly construed the object and purpose of the Takeover
Regulations, by reading the Regulations as a whole and referring to a number of provisions.
The court observed that under the SEBI Act, Board has been entrusted with the fundamental
duties of ensuring orderly development of the securities market as a whole and to protect the
integrity of the securities market. The court examined various provisions in the takeover
regulations viz. Reg. 7, 8, 8-A, 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 21, 24, etc. and took the
view that, a conspectus of the aforesaid Regulations would show that the scheme of the
Takeover Regulations is
109

Mukesh K Tripathi v. Senior Divisional Manager, (2004) SCC 387, 401.


G.P. SINGH, PRINCIPLES OF ST AT UTORY INT ERPRETATION 119 (12th ed., LexisNexis Butterworths Wadhwa
Nagpur 2011).
111
Land Acquistion Officer and Mandal Revenue Officer v. JT 2001 (3) SC 157, 161.
112
Bipinchandra Parshottamdas Patel v. State of Gujarat (2003) 4 SCC 642, 657-658.
113
G.P. SINGH, PRINCIPLES OF ST AT UTORY INT ERPRETATION 35 (12th ed., LexisNexis Butterworths Wadhwa
Nagpur 2011).
114
National Insurance Co Ltd v. Anjana Shyam, (2007) 7 SCC 445, 451.
115
Maniklal Majumdar v. Guaranga Chandra Dey, (2005) 2 SCC 400, 407.
110

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(a) To ensure that the target company is aware of the substantial acquisition; (b) To ensure
that in the process of the substantial acquisition or takeover, the security market is not
distorted or manipulated, and (c) To ensure that the small investors are given an option to
exit, that is, they are offered a choice to either offload their shares at a price as determined in
accordance with the Takeover Regulations or to continue as shareholders under the new
dispensation.
In other words, the Takeover Regulations is meant to ensure fair and equal treatment of all
shareholders in relation to substantial acquisition of shares and takeovers and that the process
does not take place in a clandestine manner without protecting the interest of the
shareholders. It is keeping in view the aforesaid aims and objects of the Takeover
Regulations that we shall have to interpret Regulations 27(1). 116 Therefore, by reading the
Takeover Regulations as a whole, we can safely conclude that object, purpose and scheme the
Takeover Regulations, necessitate that an open offer made should only be withdrawn in
exceptional circumstances, or otherwise the security market maybe distorted and the interests
of the small shareholders may be compromised.
4.3. Sans the application of Ejusdem Generis, open offer made in the present case still
does not merit withdrawal
Arguendo, the Respondent most respectfully submits that even if it be assumed that Reg. 27
(1) (d) should not be read ejusdem generis with the other provisions of Reg. 27 (1), then also
open offer made in the present case does not merit withdrawal. It is because the ground on
which the Appellant seeks to withdraw the open offer is sharp decline in the share prices of
Artemis,117 i.e. it is economically unviable to consummate the open offer. However, as has
already been submitted, a conspectus of the takeover regulations and the decision of this
court in the Nirma Case, lucidly illustrates the viewpoint that the purpose, object and scheme
of these Regulations is to ensure the integrity of the securities market and to protect the
interests of the small shareholders. The orderly development of the securities market as a
whole requires that public offers once made ought not to be allowed to be withdrawn on the
ground of fall in share price of the target company, which is essentially a business misfortune
or a financial decision of the acquirer having gone wrong. In essence, the submission made
by the Appellant is that unless they are allowed to walk away from the public offer they
would have to bear losses which would otherwise have been shared by the erstwhile
116
117

Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20. 45-47.


Moot Proposition, 9.

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shareholders of the target company. Accepting such a proposition would be contrary to the
aims and objectives of the Takeover Regulations which is to ensure transparency in
acquisition of a large percentage of shares in the target company. It would also encourage
undesirable and speculative practices in the stock market.118
Accepting such a submission, would give a field day to unscrupulous elements in the
securities market to make Public Announcement for acquiring shares in the Target Company,
knowing perfectly well that they can pull out when the prices of the shares have been
inflated, due to the public offer. Such speculative practices are sought to be prevented by
Regulation 27(1) (b), (c) and (d).119 The Appellant may contend that since the open offer has
been voluntarily made in the present case, no prejudice has been caused to the shareholders of
Artemis. However, in Akshya case, the Honble Court held that there can be no distinction
between a triggered public offer and a voluntary public offer. Both have to be considered on
an equal footing. The consequences of both kinds of offers to acquire shares in the Target
Company, at a particular price, are the same. 120
Thus, the Respondent humbly submits that an open offer once made can only be withdrawn if
it is impossible to complete it. Arguendo, economic losses or commercial unreasonableness
of the acquirer is not a factor which merits withdrawal of an open offer.

118

Nirma Industries Ltd v. SEBI, (2013) 8 SCC 20, 51.


SEBI v. Akshya Infrastructure (P) Ltd, (2014) 11 SCC 112, 128.
120
Ibid.
119

20 | P a g e

-Prayer-

-Respondents 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 SAT WERE RIGHT IN DISMISSING THE APPELLANTS
REQUEST FOR WITHDRAWAL OF PUBLIC ANNOUNCEMENT.
B. REGULATION 23 OF THE 2011 TAKEOVER REGULATIONS CANNOT BE
APPLIED

TO

AN

OFFER

MADE

UNDER

THE

1997

TAKEOVER

REGULATIONS.
C. THE WORDS SUCH CIRCUMSTANCES AS IN THE OPINION OF THE BOARD
MERITS WITHDRAWAL AS USED IN REGULATION 27 (1) (D) OF THE 1997
TAKEOVER REGULATIONS ARE TO BE READ EJUSDEM GENERIS WITH
THE OTHER PROVISIONS OF REGULATION 27(1).
D. THE 1997 TAKEOVER REGULATIONS HAVE BEEN WELL INTERPRETED
BY THIS COURT IN ITS PREVIOUS RULINGS.
E. FACTS RELATING TO EMBEZZLEMENT IN THE TARGET COULD HAVE
BEEN KNOWN HAD THE APPELLANT CONDUCTED DUE DILIGENCE.
F. THAT THERE WAS NO VIOLATION OF NATURAL JUSTICE IN THE
PRESENT CASE.
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 SECURITIES AND EXHCHANGE BOARD OF INDIA
COUNSELS FOR THE RESPONDENT

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