NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

BANGALORE

MBL PART II ANNUAL EXAMINATION (JUNE) 2016

INVESTMENT LAW
Answer Key

Answer No. 1: Write short note on any four of the following:

a. Lead Manager:
Issuers desirous of making initial public offerings are required to appoint at least one
merchant banker, before filing of the draft offer document with SEBI. A Merchant
Banker is defined under Regulation 2(cb) of SEBI (Merchant Banker) Regulations,
1992. In case more than one merchant banker is appointed to manage the issue, at
least one of them should be appointed as lead merchant banker to the IPO.

Merchant bankers play a crucial role in the entire IPO process by action as managers
to IPOs and guide issuer companies throughout the entire lifecycle of IPO.

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Important decisions concerning the IPO, like appointment of intermediaries like the
registrar, syndicate members, pricing of the securities etc. are taken by the issuer
companies in consultation with appointed lead managers. Schedule I of ICDR
Regulation provides an indicative outline for activities to be conducted by Merchant
Banker
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b. Syndicate Member:
Syndicate Members are financial intermediaries registered with SEBI who assist the
issuer in accepting bids or applications for subscriptions in IPOs from potential
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investors. Syndicate members are appointed by the issuers company in consultation

with the lead managers to collect bids from investors in an IPO. Syndicate members
may collect fees from the issuer for the services rendered by them, however, they are
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prohibited from accepting fees from the investors for collecting and uploading of
their bids in IPO.

Syndicate members or their agents acting as sub-syndicate members, are generally

stock brokers and depository participants registered with SEBI. They carry out the
bids made by public investors in the IPO. Syndicate members after collecting bids
from various centres across the country, upload the data of the bids collected from
them on the network of the stock exchange to enable assessment of the demand for
the issue at various prices within the price band.

c. IPO Grading:
IPO grading is a relative comparison of the assessed fundamentals of the graded
issue and does not take cognizance of the price of the security, its valuation
compared to peers or the possible gains over a specified time period. Rather, it is
designed to be only an additional input to the investor in his decision making
process.

The Grade assigned to any individual IPO is a symbolic representation of ICRA’s

assessment of the “fundamentals” of the issuer concerned relative to other listed
 securities. IPO Grades are assigned on a five-point point scale, where IPO Grade 5
indicates the highest grading and IPO Grade 1 indicates the lowest grading, i.e. a
higher score indicates stronger fundamentals. An IPO Grade is not an opinion on
the price of the issue, pre- or post-listing.

d. Book Building:
‘Book Building’ means a process undertaken by which a demand for the securities
proposed to be issued by a body corporate is elicited and built up and the price for
such securities to be issued by means of a notice, circular, advertisement, document
or information memoranda or offer document.

It is a mechanism where, during the period for which the book for the IPO is open,
bids are collected from investors at various prices, which are above or equal to the
floor price. The process aims at tapping both wholesale and retail investors. The
offer/issue price is then determined after the bid closing date based on certain
evaluation criteria.

There are two types of book building: 75% and 100%. In the 75% process, 75% of

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the shares are sold through the book building process to institutional investors while
the remaining 25% is sold, at the price set during book building, later on through a
normal open offer to the retail market. The 100% process relies solely on the book
building process.

e. Underwriting:
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Underwriting means an agreement with or without conditions to subscribe to the
securities of a body corporate when the existing shareholders of such body corporate
or the public do not subscribe to the securities offered to them. The person who
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enters into agreement is called underwriter. The underwriter shall not derive any
direct or indirect benefit from underwriting the issue other than the commission or
brokerage payable under an agreement for underwriting. SEBI (Underwriting)
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Regulations, 1993 regulate the issues concerning the registration of underwriters,

capital norms and adequacy, and obligations and responsibilities of underwriters.
(4 x 5 = 20 Marks)

Answer No. 2
Explain the role of following enactments and regulations in Securities dealing and
transactions:
1. Security Contract (Regulation) Act, 1956:
- An Act to prevent undesirable transactions in securities by regulating the
business of dealing therein, by providing for certain other matters connected
therewith.
- SCRA has laid down several definitions in Section 2 and some of them bear
fundamental importance to understand the basic structure of the Act. Certain
definitions like ‘contract’; ‘Securities’ ‘Stock exchange’ is wide importance.
- The Act provides a mechanism for recognition of stock exchanges. No stock
exchange will be recognised until permitted by the SEBI.
- The Act also makes provisions for Corporatisation and demutualisation of
stock exchanges.
 - The Securities Contract Regulation Act, 1956 has further conferred powers on
every stock exchange to formulate bye-laws for the purpose of efficient
functioning of its business.
- Act deals with various types of contracts in the security market and
circumstances where such dealings will be declared void or valid.

2. Securities and Exchange Board of India Act, 1992

- An Act to provide for the establishment of a Board to protect the interests of
investors in securities and to promote the development of, and to regulate, the
securities market and for matters connected therewith or incidental thereto.
- Constitution of Securities Exchange Board of India, which is a body corporate
with a perpetual common seal.
- The SEBI Act, 1992 confers upon the Board the obligation to provide for
various aspects relating to the securities market and their regulation and
control thereof. It relates to:
o business in stock exchanges and other securities outlets;
o regulating the working of stock brokers, sub-brokers, bankers, registrars
and portfolio managers for an issue. They also relate to the working of
intermediaries who are associated with the working of the securities
market;
o detecting and prohibiting any form of insider trading;

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o prohibiting and regulating fraud and unfair trade practice in the
market;
o trying to acquire information from the stock exchange and conducting
inquiries on them including the intermediate self regulatory
organisation of the market; and
o also performing all necessary functions as may be required and
prescribed in order to maintain smooth and fair transactions in the
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securities market.
o In respect of certain other matters in the Securities Contract
(Regulation) Act, 1956, the SEBI is called upon to play an important
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role.

3. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

- The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
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are applicable for public issue; rights issue, preferential issue; an issue of
bonus shares by a listed issuer; qualified institutions placement by a listed
issuer and issue of Indian Depository Receipts.
- Said Regulations regulated following items specifically:
o Qualifications to enter capital market (Entry Norms)
o Pricing
o Promoters Quota (Qty Regulations)
o Promoters Quota (Lock-in Period)
o Minimum Public Float + Green Shoe Option (GSO)

4. SEBI (Foreign Portfolio Investment) Regulations, 2015

- Defines Foreign portfolio investor a defined as a person who satisfies the
eligibility Criteria prescribed under regulation 4 and has been registered under
Chapter II of these regulations.
- Eligibility criteria of foreign portfolio investor
- Categories of Foreign Portfolio Investor
- Eligibility for the Designated Depository Participant
- Investment Conditions and Restrictions
 (4 x 5 = 20 Marks)
Answer No. 3
a. What do you understand by Listing of Securities and what are its objectives?
 Listing means admission of the securities of a company to trading privileges on a
recognised stock exchange.
 Section 40 of the Companies Act, 2013 which provides that every company
intending to offer shares or debentures to the public for subscription by the issue
of a prospectus shall before such issue make an application to one or more
recognized Stock Exchanges for permission for the shares or debentures intending
to be so offered to be dealt with in that Stock Exchange.
 Any allotment made in pursuance of prospectus issued shall be void if the above
permission is not granted before the expiry of ten weeks from the date of closing
of the subscription lists unless an appeal is sought against this decision with SAT
under Section 22A of SCRA, 1956.
 Listing of securities by a company on a recognized Stock exchange has the
following objectives:
1. It provides ‘Liquidity’ and ‘Free Transferability’ to the securities
2. It affords certain tax benefits to companies under Income Tax Act
3. Institutional Investment in shares of the company becomes possible
4. It mobilises savings for economic Development

investors
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5. The company has more credibility and better standing with the

6. It protects interests of the investors by ensuring full disclosures about

half yearly results, new issues, dividends etc.

b. What are the various kinds of Listing of Securities? Explain.

a. Kinds of Listing
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i. Initial Listing: If the shares or securities are to be listed for the first
time by a company on stock exchange is called listing.
ii. Listing of public issues: When a company whose shares are listed
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on a stock exchange comes out with a public issue of securities, it

has to list such issue with stock exchange.
iii. Listing of rights issue: When Companies whose securities are listed
on the stock exchange issue securities to existing shareholders on
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right basis, it has to list such right issue on the concerned stock
exchange.
iv. Listing of bonus issues: Shares issued as a result of capitalization of
profit through bonus issue shall list such issues also on the
concerned stock exchange.
v. Listing for merger or amalgamation: When new shares are issues
by an amalgamated company to the shareholders of the
amalgamating company such shares are also required to be listed
on the concerned stock exchange.

c. What are the various listing requirements mandated under Securities Contract
(Regulation) Rules?

 Detailed listing requirement are provided under Rule 19 of SCR Rules,

1957. It provide that a company intending to list its shares in recognised
stock exchange has should along with the application of listing should also
certain details as provided in the said rule.

 Company’s article of association provide for the following among other –

i. That the company shall use a common form of transfer;
 ii. That the fully paid shares will be free from all lien, while the case of
partly laid shares, the company’s lien, if any will be restricted to
moneys called or payable at a fixed time in respect of such shares;
iii. That any amount paid-up in advance of calls in any shares may carry
interest but shall not entitle the holder of the shares to participate in
respect thereof, in a dividend subsequently declared;
iv. There will be no forfeiture of unclaimed dividends before the claim
becomes barred by law;
v. That option or right to call of shares shall not be given to any person
except with the sanctions of the company in general meeting.

 At least 10% of each class or kind of securities issues by a company was

offered to the public for subscription through advertisement in newspaper
for a period not less than two days and that applications received in
pursuance of such offer were allotted subject to the following conditions:
i. minimum 20 lakhs securities (excluding reservations, firm
allotment and promoters contribution) was offered to public;
ii. the size of the offer to public i.e. the offer price multiplied by the
number of securities offered to the public was minimum Rs. 100
Crores; and

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The issue was made only through book building method with allocation of
60% of the issue size to the qualified institutional buyers as specified by
SEBI.
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Answer No. 4
a. Compliances under FEMA Regulations:
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Acquisition of Share by a person not residing in India falls in the capital account
transactions, which are not per se allowed in all circumstances. Rather
government through its press notes, suggest policy changes which are in turn
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adopted by RBI.

As per the FDI policy, Contained in the “consolidated FDI Policy 2015 as
amended from time to time, FDI upto 100% under the automatice route is
permitted in Business to Business ecommerce. No FDI is permitted in Business
to Consumer. However in B2C ecommerce is permitted in through Market based
model via Press Note no. 3 of DIPP. Market Based model of e-commerce means
providing of an information technology platform by an e-commerce entity on a
digital & electronic network to act as a facilitator between buyer and seller. To
prevent the abuse the of market power it is further provided, an e0commerce
entity will not permit more than 25% of the sales affected through its marketplace
from one vendor or their group companies. All conditions as provided in press
note 3 has to be followed.

b. Compliances under Competition Law:

 Section 5 and 6 of the Competition Act, 2002 – proposed transaction falls
in the definition of combination. (Analysis of Section 5 and Obligation to
File notice under Section 6)
  Regulation 5 – Since the market share post acquisition will be 15% -
Form II notice must be filed.
 Notice has to be filed within 30 days from the date of agreeing to enter
into share purchase agreement.

c. Compliances under SEBI Regulations

SEBI (SAST) Regulations, 2011
 Regulation 3 – Acquisition of 25% of the share will attract Compulsory
mandatory offer
 Regulation 7 & 8 -as to offer size and other conditions

Answer No. 5
Explain the process and conditions for raising funds through Depository Receipts in
following two cases:
a. Foreign company wants to raise funds from India –
Through Indian Depository Receipts – Write detail procedure of the same

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b. Indian Company wants to raise funds from abroad –
Through American Depository receipts and Global Depository Receipt’s -
Write detail procedure of the same

Answer No. 6
What are the various circumstances which triggers the mandatory open offer as per
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SEBI (SAST) Regulations, 2011?

Regulation 3 of the SEBI (SAST) Regulations – Detailed explanation

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 Direct Acquisition
o Acquisition of 25% shares
o Acquisition of more than 5% in a financial year, when
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already holding 25%

 Indirect Acquisition
o Acquisition of Control

Explain: Voluntary open offer

Answer: Explain Regulation 6 of SEBI (SAST) Regulations, 2011

Explain: Competing offer

Answer: Explain Regulation 20 of SEBI (SAST) Regulations, 2011

Answer No. 7: Distinguish between:

Foreign Direct Investment and External Commercial Borrowing
FDI – For long term – intend to have ownership control in the assets and management –
in form of equity – sectoral cap for investment
ECB – for short term – intend to have loan for the specific specific purpose – no direct
control over the assets or managements – in form of convertible debenture – sectoral cap
on ECB on conversion

Primary Market and Secondary Market

In the primary market, securities are offered to public for subscription for the purpose of
raising capital or fund. Secondary market is an equity trading avenue in which already
existing/pre- issued securities are traded amongst investors. Secondary market could be
either auction or dealer market. While stock exchange is the part of an auction market,
Over-the-Counter (OTC) is a part of the dealer market.

Secondary Market are meant for the market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock Exchange.
Majority of the trading is done in the secondary market. Secondary market comprises of
equity markets and the debt markets.

Rights Issue and Preferential Issue

already held.
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Right Issue: The issue of new securities to existing shareholders at a ratio to those

Preference Issue: Owners of these kinds of shares are entitled to a fixed dividend or
dividend calculated at a fixed rate to be paid regularly before dividend can be paid in
respect of equity share. They also enjoy priority over the equity shareholders in payment
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of surplus. But in the event of liquidation, their claims rank below the claims of the
company’s creditors, bondholders / debenture holders.
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Book Building and Fixed Price Process

Fixed Price Issue: When the issuer at the outset decides the issue price and mentions it in
the Offer Document, it is commonly known as “Fixed price issue”. The proportionate
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allotment of securities to the different investor categories in a fixed price issue is as

described below:
1. A minimum 50% of the net offer of securities to the public shall initially be
made available for allotment to retail individual investors.
2. The balance net offer of securities to the public shall be made available for
allotment to:
a. a. Individual applicants other than retail individual investors, and
b. Other investors including corporate bodies/ institutions irrespective of
the number of securities applied for

Book built Issue: When the price of an issue is discovered on the basis of demand
received from the prospective investors at various price levels, it is called “Book Built
issue”. SEE ANSWER No. 1 for other details.
 NATIONAL LAW SCHOOL OF INDIA UNIVERSITY
BENGALURU

II YEAR MBL ANNUAL EXAMINATION- JUNE 2016

INSURANCE LAWS

Marks: 100
Time: 3 hours
Instructions
1. No clarifications can be sought on the Question Paper;
2. Electronic gadgets of any kind are not permitted inside the
Examination Hall.
3. Bare Acts, notes, articles, books or any other material are not
permitted inside the Examination Hall.
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Answer must be brief but covering all points on issue. Additional weight-age
will be given to bring-in relevant case law on the point. Please develop your
answer by making visible paragraphs.

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Answer to question no.7 is compulsory and any four from questions 1-6
All questions carry equal marks

1. Define Contract of Insurance? Discuss the fundamental principles of

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Insurance with decided cases
Answer: A contract of insurance as a contract whereby one person
called the insurer undertakes in return for the agreed consideration
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called the premium to pay to another person called the assured a sum
of money or its equivalent on the happening of a specified event. The
term contract used was the subject matter of litigation in Home
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Insurance Co and St. Paul Fire & Marine Insurance Co v. Administration

Asigurarilor de Shat. The award of the arbitrators or the umpire shall
be final and binding upon all parties without appeal. (Reading
material pg 14- 16)

2. What is premium? What is the effect of non payment of premium on

the policy? What reliefs are provided against the forfeiture of the policy
for non-payment of premium.
Answer: An insurance premium is the amount of money that an
individual or business must pay for an insurance policy. The
insurance premium is considered income by the insurance company
once it is earned, and also represents a liability in that the insurer
must provide coverage for claims being made against the policy. Non-
payment & late payment of premium

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 In case the premium is not paid on the due date, the policy is
considered as lapsed and the policyholder loses its benefits.

3. Explain different types of losses covered by the fire policy? With

decided cases
Answer: A contract of fire insurance arises when a person seeking
insurance protection enters in to a contract with the insurer to
indemnify him against loss of property by or incidental to the risk of
fire, it also offers cover against lightning, explosion/implosion, aircraft
damage, riot, strike and malicious damage , storm , cyclone , typhoon,
hurricane, flood and inundation, impact damage, subsidence and
landslide including rockslide, bursting and/or overflowing of water
tanks, apparatus and pipes, missile testing operations, accidental
leakage from automatic sprinkler installations, bush fire etc. Austin v.
Drew, (1815) 4 Camp 360 and Everett v. London Assurance (1865) 19
CBNS 126) (Reading material 183- 185)

(Amendment) Act 2015. I.U

4. Discuss the important amendments under the Insurance Laws

Answer: Section 38, 39, 45, Foreign Direct Investment, Re insurance

etc.
5. Explain the about the Integrated Grievance Management System
under the Insurance Regulatory and Development Authority of India
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Answer: The Integrated Grievance Management System (IGMS)
facilitates online registration of policyholders’ complaints and helps
track their status. A policyholder can make optimum use of this
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system by giving accurate information about the complaint like the

policy number, name of the insurer, complainant’s contact details etc.
It would be useful to keep the policy document ready while registering
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the complaint online. The Insurance Ombudsman aim to resolving

complaints relating to the settlement of disputes with insurance
companies in a cost effective, efficient and impartial manner.
(Readying material 320)

6. Write a short on
a. Doctrine of Causa Proxima
Answer: The general rule of calculation of damages is injure non
remota cause sed proxmia spectator in law the immediate and not the
remote cause is to be considered in measuring the damages. The loss
must be proximately caused by the peril insured against. One of the
earliest classical examples in determination of proximate cause is Pink
v. Flemming (Reading material 39-40)
b. Doctrine of Reinstatement

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 Answer: It is been explained by Lord Anderson in the case of
Sutherland v. Sun Fire office (1852) as the replacement of the stock informa
specifica. Once a loss or damage is occurred, indemnity of the loss could be
made either by payment of the loss could be made either by payment of the
loss suffered by the insured or by payment of the market value of the foods
lost or destroyed or by replacement of the thing destroyed. (Reading
material pg. 221)
7. Solve the problems
a. A co-operative society entered in to an agreement with one of its
members to do life insurance business on the condition that he
should pay half of his commission to the society. The member paid the
commission to the society for sometime and then stopped paying it.
Examine the enforceability of the agreement by the society in a court
of law.
Answer: If the Society permits its member to do business there can
not be any agreement of payment of any portion of Commission by the

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member to society, it can be treated as rebate which is forbidden. It is
the individual effort of the Agent through which he earns reward by
way of commission. Such an agreement is not enforceable in a court of
law.
b. Kumar shipped the goods at his own risk. The goods were washed
away, the ship owner disclaimed liability on the ground that they were
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booked at the owner's risk. Whether insurer is liable for the loss of
goods
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Answer: Even though the goods where shipped at the owners risk, the vessel
does have some duty towards the goods aboard to take proper care of them. If
can be proved that the ship or any members of the crew are at fault in
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conducting due diligence toward the ship and its cargo the claim can be
enforced.

c. Ankur obtained Mediclaim Policy for him. Within one month of the
policy obtained he admitted to the hospital. Company issued the
certificate to Guru that he is entitled to receive the benefits under the
policy, but subsequently repudiates to claim the amount on the
ground that illness occurred within a month from commencement of
the policy. Whether company estopped from raising objection?
Answer: The company has no right to raise an objection after entitling
Ankur to the benefits of the mediclaim policy . Ankur after obtaining
Mediclaim policy in his name though fell ill within one month that
does not stop company from giving the benefits of such policy. In this
case there is no mention of any kind non-disclosure or
misrepresentation on the part of Ankur has not hide anything and

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simply fell ill after a month of obtaining policy. The Insurance
company is not liable to any objection after entitling the applicant or
the insured to the benefits of such policy.

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 Law relating to foreign Trade

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 NATIONAL LAW SCHOOL OF INDIA 3UNIVERSITY
BANGALORE

MBL PART II ANNUAL EXAMINATION (JUN) 2016

TAXATION OF CORPORATIONS & COMMODITIES
Key Hint Answers

PART A
Answer ANY 4 Questions: 4 X 10 = 40 Marks
1. Refer Module No. II of Course No. V at Page nos.70 &71 onwards - topic 1.1 of Vol. I
2. Refer Module No. I of Course No. V at Page nos.18, 19 topic 2.2 of Vol. I
3. Refer Module No. VII of Course No. V at Page nos. 76 &77 of Vol. II
4. Refer Module No.VI of Course No. V at Page no.33&34 of Vol. II
5. Refer Module No. V of Course No. V at Page nos.364 topic 4 of Vol. II
6. Refer Module No. IX of Course No. V at Page no.322 of Vol. II

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PART B
Answer ANY 4 Questions: 4 X 10 = 40 Marks
7. Refer Module No. VI of Course No. V at Page no.16 of Vol. II
8. Refer Module No. IX of Course No. V at Page no.383 topic 9.3 of Vol. II
9. Refer Module No. IX of Course No. V at Page no.366 topic 1.5 of Vol. I
10. Refer Module No. IV of Course No. V at Page no.335 of Vol. 1 & Refer Module No. IX of
Course No. V at Page no.365 of Vol. II
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11. Refer Module No. VIII of Course No. V at Page no.180 of Vol. II
12. Refer Module No. IX of Course No. V at Page no.338 topic 4.7 of Vol. II

PART C
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Answer BOTH Questions: 2 X 10 = 20 Marks

13. Refer Module No.6 of Course No. V at Page no.50 Question 1 of Vol. II - related notes in this
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module
14. Refer Module No.3 of Course No. V at Page no.257 Problem 7 of Vol. I - related notes from this
module

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