3RD GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2017

MEMORIAL ON BEHALF OF APPELLANT

URN: 1265
CODE: 126

3RD GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2017

Before
SECURITIES APPELLATE TRIBUNAL

VICTOR MOLLY... ………………………………………………………..……..APPELLANT

v.

SECURITIES AND EXCHANGE BOARD OF INDIA…………..…………………..... RESPONDENT

[MEMORIAL ON BEHALF OF THE APPELLANT]

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TABLE OF CONTENTS
TABLE OF CONTENTS ..................................................................................................................ii

LIST OF ABBREVIATION ............................................................................................................. iv

TABLE OF AUTHORITIES ............................................................................................................. vi

STATUTES .......................................................................................................................... vi

CASES ................................................................................................................................ vi

BOOKS ............................................................................................................................... vi

ARTICLES ..........................................................................................................................vii

STATEMENT OF JURISDICTION ................................................................................................. viii

STATEMENT OF FACTS ............................................................................................................... ix

ISSUES RAISED ........................................................................................................................... xi

SUMMARY OF ARGUMENTS .......................................................................................................xii

WRITTEN PLEADINGS .................................................................................................................. 1

[1]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR THE VIOLATION OF SECTIONS 12A(C)
OF SEBI ACT, 1992 AND REGULATION 3(D); 4(1) ALONG WITH 4(2) (E), (F) AND (K) OF THE
SEBI (FRAUDULENT AND UNFAIR TRADE PRACTICES) REGULATIONS, 2003. ........................ 1

[1.1] There was no manipulation of price securities .......................................................... 1

[1.2] Victor Molly was not responsible for publication of false statements ...................... 2

[1.3] Victor Molly was not responsible for advertising information in a distorted manner.
............................................................................................................................................ 4

[2]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR INSIDER TRADING ............................ 4

[2.1] Victor Molly was not responsible for possession of Unpublished Price Sensitive
Information ........................................................................................................................ 5

[2.2] Victor Molly did not deal in Securities of the company within the meaning of the
regulation ........................................................................................................................... 6

[3]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR VIOLATION OF CLAUSE 36 OF THE

LISTING AGREEMENT FOR MAKING FALSE AND MISLEADING DISCLOSURES TO THE STOCK
EXCHANGES IN RELATION TO THE END USE OF LOAN OBTAINED BY FAL ........................... 7

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[3.1] Investigation authority has no jurisdiction to investigate in fal’s affairs .................. 7

[3.2] Victor Molly was not responsible for violation of Clause 36 ................................... 8

PRAYER....................................................................................................................................... 9

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LIST OF ABBREVIATION

1. & And

2. §/S. Section

3. ¶ Paragraph

4. AIR All India Report

5. BOM Bombay

6. BPL Burger Paints Limited

7. Cal Calcutta

8. Cl Clause

9. Co. Company

10. Cri Criminal

11. CSPL Calcutta Spices Private Limited

12. Ed. Edition

13. FAL Fancy Airlines Limited

14. FR (PLC) Ferrero Rocha Private ltd.

15. ILR Indian Law Reporter

16. LODR Listing Obligations and Disclosure Requirement Obligation

17. Ltd. Limited

18. Mah Maharashtra

19. No. Number

20. Ors. Others

21. PFUTP Prohibition of Fraudulent and Unfair Trade Practices

22. PIT Prohibition of Insider Trading

23. Pvt. Private

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24. Rs. Rupees

25. SAT Securities and Appellate Tribunal

26. SCC Supreme Court Cases

27. SCL SEBI and Corporate Law

28. SCR Supreme Court Reporter

29. SEBI Securities and Exchange Board of India

30. TCL Trivandrum Chemicals Limited

31. UPSI Unpublished Price Sensitive Information

32. v. Versus

33. VM Victor Molly

34. VMHPL VM Holding Private Limited

35. Vol. Whole Time Member

36. VSL Victor Spirits Limited

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TABLE OF AUTHORITIES

STATUTES

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

2. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
3. SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market), 2003.
4. SEBI (Prohibition of Insider Trading Regulations), 2015.
5. The Competition Act, 2002.

CASES
1. Deputy Secretary to the Government of India Ministry of Finance (Department of
Economic affairs) v. S.N. Das Gupta, AIR 1956 Cal 414 (India).
2. DLF limited v. SEBI, MANU/SB/0006/2015 (India).
3. Dr. Babulal K. Shah v. The New India Assurance Company Ltd. & another, 2014 SCC
OnLine Bom 1896 (India).
4. Gujarat NRE Mineral Resources Ltd v. SEBI [2011] SAT 185 (India).
5. P.G. Electroplast Ltd. and Ors. v. Securities and Exchange Board of India, [2016] 138
SCL 183 (SAT) (India).
6. National Thermal Power v. Singer Company & Ors, 1993 AIR 998 (India).
7. Rakesh Agarwal and Another v. SEBI, (2008) 8 SCC 205 (India).
8. Sim Trading Company, Mumbai v. Cream Creation, Mumbai and another, (1999) 2
Mah LJ 184 (India).
9. Vivek Gupta v. C.B.I., 2004 SCC (Cri) 51; P Nallamal v. State, 1999 Cri LJ 1591;
Ramesh Chand Jain v. State of Madhya Pradesh, ILR [1992] MP 812 (India).
10. Zee Telefilms Ltd. v. Adjudicating & Enquiry officer, SEBI, [2003] 42 SCL 484 (SAT)
(India).

BOOKS

1. Dr. J.N. Dhankhar, Pricing of Securities in Indian Stock Market with SEBI guidelines,
Circulars, Rules & Regulations(Bharat Publishing House, 1994).

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2. GP Singh, Principles of Statutory Interpretation 171 (10th ed. Wadhwa and Company
Nagpur 2006).
3. Sandeep Parekh, Fraud, Manipulation and Insider Trading in the Indian Securities
Market 169 (2nd Ed. Wolters Kluwer, 2016).
4. Sumit Agrawal and Robin joseph Baby, Agrawal & Baby on SEBI ACT A legal
commentary on securities and exchange board of India, 1992(Taxmann publications
Pvt. Ltd, 2011).
5. Vol. 1, A. Ramaiya, Guide to the Companies Act (18th ed. LexisNexis, 2015).
6. Vol. 2, Taxmann’s SEBI Manual (14th ed.Taxmann, 2009).

ARTICLES
1. Michael D. Hurd & Susann Rohwedder, Effects of the Financial Crisis and Great
Recession on American Households (September, 2010), available at
www.nber.org/papers/w16407.pdf.

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STATEMENT OF JURISDICTION

The Appellant most humbly and respectfully submits to the jurisdiction of this Honourable
Court under Section 15T of the SEBI Act, 1992.

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STATEMENT OF FACTS
BACKGROUND
Victor Molly was the promoter of a 60 year old company named Victor Spirits Limited and
held about 32% of the total equity share capital of VSL. He was also the owner of a private
equity company called VMHPL. Soon, Victor Molly took advantage of favourable conditions
to claim a substantial stake in Burger Paints Limited (BPL) and Trivandrum Chemicals Limited
(TCL). He also owned FAL, a company incorporated by him. Later, due to the market crash,
Victor Molly had to take a series of loans and also had to pledge his shares in various holdings
owned by him in order to keep surviving. Further, he was also alleged to divert funds for his
personal benefit and was charged under various provisions of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Regulations, 2003), Clause 36 of the Listing Agreement and SEBI
(Prohibition of Insider trading Regulations, 1992).

THE DOWNFALL
Loans and Pledge-Due to the market crash, the economic condition of the entities was
experiencing a low. FAL had to take a loan of Rs.2000 Crore from Stellar Bank to keep the
airline flying. Afterwards, another loan of Rs.3000 Crore was taken from the Aam Janta Bank
for purchasing Boeing and paying employees’ salaries. Around 5,00,00,000 shares of VSL
were also pledged. Meanwhile, Victor Molly was also keen on purchasing FR (PLC). There
was a surplus of funds in VSL which Victor Molly wanted to utilise. Therefore, he lent funds
to various distributors of VSL and also tried to utilise funds in TCL and BPL by following the
same modus operandi. In both of these cases, the funds were lent further to CSPL in London.
In order to purchase FR (PLC), he pledged around 3,00,00,000 shares of TCL and transferred
it to CSPL for the acquisition of FR (PLC). By 2011, FAL started facing critical condition
again and Victor Molly had to take a loan of Rs.2400 crores to keep the airlines flying. For this
transaction, around 8,00,00,000 shares of VSL were pledged.
Default-A series of default of payments led to Victor Molly’s shares being sold at a price lower
than the price at which it was pledged. As a result, he lost control of BPL and VSL to Hummus
Paints Limited and Jacky Runner respectively.

THE INVESTIGATION
Financial Discrepancies-The new management of VSL looked into the financial statements
of previous years and noticed several irregularities. A forensic audit helped them trace the

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amount to CSPL. Meanwhile, TCL and BPL were also alerted and they also noticed some
discrepancies related to repayment of loans. Alarmed by these allegations, SEBI swung into
action and appointed Mr. Sahoo as the investigative authority without providing opportunity to
Victor Molly to clarify.
Violations- After carrying our investigations, SEBI, in its ex-parte ad interim order, accused
Victor Molly of violating Regulation 3(i) of Prevention of Insider Trading Regulations, 1992
in TCL, BPL and VSL, Regulation 3(d) along with section 12A(c) of SEBI Act, 1992;
regulation 4(1), 4(2)(e), 4(2)(f) and 4(2)(k) of Prohibition of Fraudulent and Unfair Trade
Practices and violation of clause 36 of the Listing Agreement.
Penalty- Victor Molly was restrained from accessing the securities market and prohibited from
dealing in securities. He was also asked to disgorge all the wrongful gains while dealing with
shares at VSL, TCL and BPL. Further, an investigative authority was to be appointed to start
penalty proceedings.
Against this order of SEBI, Victor Molly has filed an appeal in Securities Appellate Tribunal,
Mumbai.

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ISSUES RAISED

I.
WHETHER VICTOR MOLLY WAS RESPONSIBLE FOR THE VIOLATION OF SECTIONS 12A(C)
OF SEBI ACT, 1992 AND REGULATION 3(D); 4(1) ALONGWITH 4(2) (E), (F) AND (K) OF

THE SEBI (FRAUDULENT AND UNFAIR TRADE PRACTICES) REGULATIONS, 2003?

II.
WHETHER VICTOR MOLLY WAS RESPONSIBLE FOR VIOLATION OF REGULATION 3(I) OF
THE SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992 IN TCL, BPL AND

VSL?

III.
WHETHER VICTOR MOLLY WAS RESPONSIBLE FOR VIOLATION OF CLAUSE 36 OF THE
LISTING AGREEMENT FOR MAKING FALSE AND MISLEADING DISCLOSURES TO THE STOCK
EXCHANGES IN RELATION TO THE END USE OF LOAN OBTAINED BY FAL?

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SUMMARY OF ARGUMENTS

[1]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR THE VIOLATION OF SECTIONS 12A(C) OF
SEBI ACT, 1992 AND REGULATION 3(D); 4(1) ALONG WITH 4(2) (E), (F) AND (K) OF THE
SEBI (FRAUDULENT AND UNFAIR TRADE PRACTICES) REGULATIONS, 2003
The global financial condition was bad and the corporate world was reeling from the effects of
the economic slowdown which was primarily the reason of a dip in the price of the shares of
VSL, TCL and BPL. Furthermore, there was no conclusive proof that Victor Molly had
malafide intention and he published false information because his conduct was perfectly in the
normal course of business and his conduct was not questioned by the authorities meant to keep
checks and balances. Therefore, it could also not be conclusively proved that the publication
of financial statement, which can reasonably be considered as an advertisement, was done in a
distorted or misleading manner.
[2]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR VIOLATION OF REGULATION 3(I) OF
THE SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992 IN TCL, BPL

AND VSL

Victor Molly was not in possession of Unpublished Price Sensitive Information as it was
specific and correct representation was done in the balance sheet. Also, the loans were given
in the normal course of business which could be inferred by the conduct of the parties and their
reaction after the revelation of discrepancies. Furthermore, there was no dealing in securities
by Victor Molly within the meaning of the Regulation as pledging had a restrictive definition
under the Regulations and could not be fit into that. Even if pledging were to be taken as
‘dealing in securities’, it came only in PIT, 2015 and retrospective effect is not valid for this
act.
[3]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR VIOLATION OF CLAUSE 36 OF THE
LISTING AGREEMENT FOR MAKING FALSE AND MISLEADING DISCLOSURES TO THE
STOCK EXCHANGES IN RELATION TO THE END USE OF LOAN OBTAINED BY FAL

Victor Molly could not be held liable for the violation of clause 36 of the Listing agreement as
the appointed investigative authority did not have the jurisdiction to investigate into the affairs
of the FAL as it was only authorised to investigate into the matters of VSL, BPL and TCL.
Furthermore, the violation of clause 36 could not be attributed to Victor Molly and it should be
the fault of the compliance officer as inspite of being given the correct information by the key
managerial personnel Victor Molly, he disclosed wrong information under the clause.

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WRITTEN PLEADINGS

[1]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR THE VIOLATION OF SECTIONS 12A(C)
OF SEBI ACT, 1992 AND REGULATION 3(D); 4(1) ALONG WITH 4(2) (E), (F) AND (K)
OF THE SEBI (FRAUDULENT AND UNFAIR TRADE PRACTICES) REGULATIONS, 2003.

1. The order of restraining Victor Molly from accessing and dealing in the market as well
banning him from holding any key managerial position should be quashed as Victor Molly was
not responsible for the violation of the abovementioned violations.
2. The economic slowdown was the primary reason of fluctuation of prices and pledging
was not the reason for the dip. The liability of false publication of loan information could not
be put on him because he lent the funds in the normal course of business and was able to do it
unopposed. A reasonable presumption of good intention can be made. Further, if there was no
publication of false information of financial statements, there could not be any advertisement
in a distorted manner.

[1.1] THERE WAS NO MANIPULATION OF PRICE SECURITIES

3. It is submitted that there was no act or omission by Victor Molly which had an impact
on the price of the securities while carrying on any trade practice. Regulation 4 of the Securities
and Exchange Board of India (hereinafter, SEBI) (Prohibition of Fraudulent and Unfair trade
practice Regulations, 2003) (hereinafter, PFUTP regulations) prohibits manipulative,
fraudulent and unfair trade practice and therefore primarily deals with trade. Regulation 4(1)
provides for prohibition of unfair and fraudulent trade practice.1 It can, therefore, be clearly
interpreted that any act will be violative of regulation 4(2) when a person is dealing in
securities. On a bare reading of the provision, it can be concluded that the present case does
not satisfy the definition of ‘dealing in securities’ defined under section 2(b) of PFUTP
Regulations as dealing in securities is primarily concerned with buying, selling or agreeing to
buy or sell or transacting in any security in any way. 2 The act of pledging cannot be identified
with any of the elements.

1
P.G. Electroplast Ltd. and Ors. v. Securities and Exchange Board of India, [2016] 138 SCL 183 (SAT) (India).
2
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market), 2003, Gazette of
India, pt. II § 2 (b), No. 15 of 1992 (India).

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4. Even if for the sake of the argument, Victor Molly is considered to be ‘dealing in
securities’, then also the act of Victor Molly’s act does not come under the realm of ‘trade
practice’. Under Competition Act, 2002, ‘trade’ is defined as ‘any trade, business, industry,
profession or occupation relating to the production, supply, distribution, storage or control of
goods and includes the provision of any services and ‘practice’ includes ‘any practice relating
to the carrying on or of any trade by a person or an enterprise.’3 The act of Victor Molly does
not fit in the realm of the above mentioned definitions as the elements of ‘trade’ i.e. production,
supply, distribution, storage or control and services do not fit the act of pledging. Hence, the
case under Regulation 4 does not arise.
5. Manipulation is defined as “altering or presenting so as to mislead”. In most of the
manipulation cases, it is always difficult to prove the intention and the same has to be inferred
from the mass of factual details, the sequence of events, circumstances, the behaviour or
conduct of the parties and the overall impact.4 Victor Molly pledged his own shares for the
survival of the companies and took loans in order to keep the entities going. Thus, it cannot be
proved conclusively that Victor Molly was involved in the manipulation of the price of
securities.
6. It is a general principle of economics that the prices of the stocks experience a general
dip during a recessionary phase.5 The whole world was under a financial meltdown in 2008
due to which banks stopped lending and millions of employees were laid off. The situation did
not improve till 2010 and the corporate world was still reeling under the effects of the economic
crisis. This recessionary phase played a major part in the falling of stock prices of VSL, BPL
and TCL.6 In the case of FAL, inspite of there being a slowdown, oil prices were too high. Both
these elements resulted in a dip in the prices of FAL securities. Also, if Victor Molly was not
responsible for the fluctuation, he should not be responsible for its effect on the financial
statements.

[1.2] VICTOR MOLLY WAS NOT RESPONSIBLE FOR PUBLICATION OF FALSE STATEMENTS
7. It is submitted that Victor Molly was not responsible for the publication of false
information and neither was he involved in causing to publish false information. Under proviso
to section 33(2) (a) of the Listing Obligations and Disclosure Requirement Obligations, 2015,

3
The Competition Act, 2002, § 2 (x), No. 12 of 2003, Act of Parliament, 2002 (India).
4
Zee Telefilms Ltd. v. Adjudicating & Enquiry officer, SEBI, [2003] 42 SCL 484 (SAT) (India).
5
Michael D. Hurd & Susann Rohwedder, Effects of the Financial Crisis and Great Recession on American
Households (September, 2010), available at www.nber.org/papers/w16407.pdf.
6
Ibid.

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(hereinafter ‘LODR’) it is given that the Chief Executive officer and the Chief Financial Officer
are required to certify that the financial results do not contain any false or misleading statement
or figures and do not omit any material fact which may make the statements or figures
contained therein misleading.7 Section 97(2) of the LODR states that the recognised stock
exchange shall also monitor the accuracy and adequacy of the disclosures made by the listed
entity with respect to provisions of these regulations. Additionally under LODR, one of the
essential duties of the audit committee is to scrutinize inter-corporate loans and investment
apart from reviewing the financial statements under regulation 24(2) of LODR, 2015. Here, the
auditors have to ascertain not only whether the balance sheet exhibits true state of the
company’s affairs as shown in the books of the company but also whether the books of the
company themselves exhibit the true state of the company’s affairs.8 Victor Molly, at the time
of carrying out the loan transaction must have gone through these checks and no objections on
the grounds of diversion leads one to a reasonable presumption that the loans were made with
the approval of all the authorities and that they were under the common practice of
advancement to distributors.
8. That there was no conclusive proof of malafide intention present on the part of Victor
Molly as in order to prove malafide intention, general circumstances of the case were to be
looked into.9 The circumstances were such that a series of loans were being advanced by Victor
Molly without any questioning by any authority. Further, the amount transferred needed to be
used for the purchase of FR (PLC) as only after that it could be conclusively claimed that Victor
Molly had diverted funds for his personal benefit. In this case, the consideration of the
transaction was not disclosed which casts a doubt on the claims of SEBI that the money was
surely used in order to purchase FR (PLC). As far as FAL is concerned, the allegations of false
publication of report are baseless as SEBI never ordered any probe into the affairs of FAL and
without any proof or evidence cannot put violation charges.10 Therefore, no wrong/misleading
information was publicised by Victor Molly.

7
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Gazette of India, pt. III sec. 4 (Sept.
2, 2015) (India).
8
Deputy Secretary to the Government of India Ministry of Finance (Department of Economic affairs) v. S.N. Das
Gupta, AIR 1956 Cal 414 (India).
9
National Thermal Power v. Singer Company & Ors, 1993 AIR 998 (India).
10
Factsheet, ¶23.

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[1.3] VICTOR MOLLY WAS NOT RESPONSIBLE FOR ADVERTISING INFORMATION IN A

DISTORTED MANNER.

9. It is submitted that Victor Molly was not involved in the publishing of the financial
statement and therefore, did not advertise false or distorted information which may have an
influence of investors. “Advertisement includes notices, brochures, pamphlets, show cards,
catalogues, hoardings, placards, posters, insertions in newspaper, cover pages of offer
documents, pictures and films in any print media or electronic media, radio, television
programme.”11
10. On a bare reading of the definition, financial statements can reasonably be included in
the definition of ‘advertisement’. Moreover, it is an inclusive definition.12 It is very well
understood that unaudited financial statements are required to be published by every listed
company on a quarterly basis and they do form the basis for the investing public to take
informed decisions. It is a settled law that imposing punishment under the PFUTP regulations
on the ground of commission of fraud requires clear and unambiguous evidence and a high
degree of probability.13 Here, there was ambiguity as to the use of funds transferred by Victor
Molly. It was not clear whether they were used for purchase of FR (PLC) or something else as
the consideration was never disclosed. Hence, it could not be conclusively proved that Victor
Molly published any false information in the financial statements whether intentionally or not.
Therefore, Victor Molly could not be held liable under regulation 4(2) (k) of PFUTP
regulations for advertisement of the said financial statement in a distorted manner.

[2]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR INSIDER TRADING

11. The charges of disgorgement of funds should be quashed against Victor Molly as he
was not responsible for possession of unpublished price sensitive information as he disclosed
the correct entries which were supposed to be disclosed in the books of accounts and was pretty
specific. He could not have done more than that in case of a loan given in the normal course of
business. Finally, when pledging does not come in the ambit of ‘dealing in securities’, then the
violations under regulation 4 do not stand. Thus-[2.1] Victor Molly was not responsible for

11
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, Gazette of India, pt. III sec. 4, § 2 (b),
No. 15 of 1992 (India).
12
GP Singh, Principles of Statutory Interpretation 171 (10th ed. Wadhwa and Company Nagpur 2006).
13
DLF limited v. SEBI, MANU/SB/0006/2015(India).

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Unpublished Price Sensitive Information, [2.2] Victor Molly did not deal in securities of the
company within the meaning of the regulation.

[2.1] VICTOR MOLLY WAS NOT RESPONSIBLE FOR POSSESSION OF UNPUBLISHED PRICE
SENSITIVE INFORMATION
12. Victor Molly was not in possession of price sensitive information because the books of
accounts are evident that money has been transferred to distributors. However, in the case of
Vivek Gupta v. Central Bureau of Investigation,14 it has been held that any person It is
submitted that as regards to VSL, TCL and BPL, it was clearly mentioned in the books of
accounts that the amount of Rs.1500 Crore, Rs.750 Crore and Rs.750 Crore from these three
entities respectively had been advanced to its distributors. According to the definition of
‘unpublished’ under the PIT Regulations, 1992, it is stated, “information which is not published
by the company or its agents and is not specific in nature.”
13. Balance sheet of a company can only describe the transactions of that company and in
some cases, the transactions of its subsidiaries (in case of consolidated financial statements)
but not its distributors. The maximum Victor Molly could do was to disclose the information
in the correct form in the balance sheet of his companies in a way in which it is to be entered
in a balance sheet. So, the information was correct according to the balance sheet and specific,
therefore it cannot be said to be unpublished.
14. It cannot be conclusively said that the money lent was never going to come back as Mr.
Volly, in the normal course of business, gave loans to the distributors of VSL,15 and used the
same modus operandi to lend funds to distributors of TCL and BPL.16 Also, it can be observed
that when the discrepancies were identified in the financial statements, no company questioned
the granting of loans to distributors which clearly gives an inference that the loans were given
as a matter of common practice and were not something unusual. Hence, there was an
expectation of the loan coming back.17
15. The advances given to distributors was in the form of a loan and distributors were free
to use the money in the way they desire. Victor Molly had contracted with Mr. Chaddha that

14
Vivek Gupta v. C.B.I., 2004 SCC (Cri) 51; P Nallamal v. State, 1999 Cri LJ 1591; Ramesh Chand Jain v. State
of Madhya Pradesh, ILR [1992] MP 812 (India).
15
Factsheet, ¶10.
16
Factsheet, ¶11.
17
Factsheet, ¶¶18, 19 and 20.

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the money was to be transferred from the distributors to CSPL,18 but that was a separate
contract between the distributors and CSPL and distributors were free to use the money the
way they wanted. Nowhere does the factsheet mentions that distributors were compelled to
transfer money to CSPL only.
16. The information given was not price sensitive information and thus did not fall within
regulation 2(ha) of PIT regulations as SAT has previously held that a company cannot be
reasonably be expected to disclose its normal business activity to stock exchanges and thus
mere advances cannot be said to be price sensitive information which could have materially
affected the price of the securities.19 SAT was of the view that “every decision by it to buy or
sell its investments would have no effect, much less material, on the price of its own
securities.”20

[2.2] VICTOR MOLLY DID NOT DEAL IN SECURITIES OF THE COMPANY WITHIN THE MEANING
OF THE REGULATION

17. After inferring that the information was not price sensitive, it will be conclusive proof
of innocence of Victor Molly if pledging of securities cannot be termed to be dealing in
securities. The definition of securities is quite exhaustive. It is stated as “Pledging means an
act of subscribing, buying, selling or agreeing, buy, sell or deal in any securities by any person
either as principal or agent”. Here, pledging ‘means’ which restricts the overall meaning of
the definition.21 Courts have also pointed out to the difficulty of Pledging having a restrictive
definition under the PIT Regulations, 1992 and hence also held that the pledging could not be
held to be ‘dealing in securities’.22
18. The state PIT Regulations, 2015 cannot be given a retrospective effect. PIT
Regulations, 2015 specifically include pledging as a term to be interpreted as dealing in
securities and the note to regulation 2(l) of PIT, 2015 clearly specify that. It says,
“Under the parliamentary mandate, since the Section 12A (e) and Section 15G
of the Act employs the term 'dealing in securities', it is intended to widely define
the term “trading” to include dealing. Such a construction is intended to curb
the activities based on unpublished price sensitive information which are

18
Factsheet, ¶10.
19
Gujarat NRE Mineral Resources Ltd v. SEBI [2011] SAT 185 (India).
20
Sandeep Parekh, Fraud, Manipulation and Insider Trading in the Indian Securities Market 169 (2nd Ed. Wolters
Kluwer, 2016).
21
GP Singh, Principles of Statutory Interpretation 171 (10th ed. Wadhwa and Company Nagpur 2006).
22
Dr. Babulal K. Shah v. The New India Assurance Company Ltd. & another, 2014 SCC OnLine Bom 1896
(India).

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MEMORIAL ON BEHALF OF APPELLANT

strictly not buying, selling or subscribing, such as pledging etc. when in the
possession of unpublished price sensitive information”.23
But retrospective effect of these regulations cannot be applied as was done in a case wherein
the amended regulation of the year 2002 were not applicable to it and the original regulation
of the year 1992 was applicable to it as the transactions related to the case had taken place in
the year 1996.24 Therefore, here as well there can be no retrospective effect and PIT
Regulations, 2015 cannot apply. The moot problem also points out violations as regards to the
original regulation of 1992 and has not taken into account the subsequent amendments to the
regulation which has modified it to a large extent.25

[3]. VICTOR MOLLY WAS NOT RESPONSIBLE FOR VIOLATION OF CLAUSE 36 OF THE
LISTING AGREEMENT FOR MAKING FALSE AND MISLEADING DISCLOSURES TO THE
STOCK EXCHANGES IN RELATION TO THE END USE OF LOAN OBTAINED BY FAL

19. Penalty proceedings should not be initiated against Victor Molly for the violation of
clause 36 of the Listing Agreement as he was not responsible for making false and misleading
disclosures.
20. Firstly, the jurisdiction of the Investigative authority was excessive26in the sense that it
was not authorised to deal with FAL. Furthermore, false disclosure was made by the
compliance officer inspite of being directed the correct disclosure information. Thus, quashing
of proceedings should be there as- [3.1] Investigation authority has no jurisdiction to
investigate in FAL’s affairs, [3.2] Victor Molly was not responsible for violation of clause 36.

[3.1] INVESTIGATION AUTHORITY HAS NO JURISDICTION TO INVESTIGATE IN FAL’S AFFAIRS

21. The Investigative authority Mr. Sahoo who was appointed by SEBI was exceeding his
jurisdiction by filing charges with respect to FAL.
22. It is submitted that SEBI had appointed Mr.Sahoo under section 11C of the SEBI Act
to investigate into the affairs of VSL, TCL and BPL. Also, Mr.Sahoo only checked the books
of the abovementioned three companies only and not of FAL which clearly showed that the
authority had no proof to put any penalty on Victor Molly.27 Also, SEBI conducted its

23
SEBI (Prohibition of Insider Trading Regulations), 2015, Gazette of India, pt. III sec. 4, No. 15 of 1992 (India).
24
Rakesh Agarwal and Another v. SEBI, (2008) 8 SCC 205 (India).
25
Factsheet, ¶23.
26
Ibid.
27
Factsheet, ¶21.

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MEMORIAL ON BEHALF OF APPELLANT

investigation with regards to the affairs of the three companies only. Therefore, it did not have
any locus to file any charges or put any penalty as regards FAL. 28 Also, according to section
23I (1) of the Securities Contract (Regulation) Act, 1956, before appointing an investigative
authority, a reasonable opportunity is to be given by SEBI to hear the other party. Here, there
was a direct appointment of investigative authority without providing any reasonable
opportunity to Victor Molly to present his side. Hence the investigation should be set aside on
account of exceeding of jurisdiction,29 and violation of article 23I should also be looked into
as he could not be held liable for clause 36 given these glaring discrepancies.

[3.2] VICTOR MOLLY WAS NOT RESPONSIBLE FOR VIOLATION OF CLAUSE 36

23. Victor Molly was never directly involved in the disclosure of utility of the loan taken
for FAL.30
24. It is submitted that even if the violation was to be assumed, Victor Molly could not be
held liable for the same as his direction was to disclose information in some other manner but
it was the fault of the compliance officer to disclose wrong and misleading information.31
Hence, the responsibility of the violation could not be put on Victor Molly.

28
Factsheet, ¶23.
29
Sim Trading Company, Mumbai v. Cream Creation, Mumbai and another, (1999) 2 Mah LJ 184(India).
30
Ibid.
31
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Gazette of India, pt. III sec. 4, cl.
30(5), (Sept. 2, 2015).

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MEMORIAL ON BEHALF OF APPELLANT

PRAYER
Wherefore in the light of the issues raised, arguments advanced and authorities cited, it is
humbly prayed that this Hon’ble Court may be pleased to adjudge and declare that:

1. Restriction on Victor Molly’s capacity to become a key managerial personnel,

accessing the securities market and dealing in securities should be revoked.

2. The charges for disgorgement of funds against Victor Molly should be revoked.

3. Penalty proceedings against Victor Molly under SCRA, 1956 should not be initiated.

And pass any other order, direction, or relief that this Hon’ble Court may deem fit in the
interests of justice, equity and good conscience.

All of which is humbly prayed

Sd/-
On behalf of Victor Molly
Counsels for the Appellant.