Securities Law

अभ्यास sheet 3
(Practice Questions)

Note from the teacher:

Do not worry about the time taken or length of the answer at this moment, Try and write the
answers in the best way even if it takes some extra time.
We will focus on time and length in further sheets once you are very comfortable with answer
writing in MCS.
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1. The adjudicating officer of theSEBI imposed penalty of Rs. 10 crores on ABC Ltd. for which the Recovery
Officer issued a certificate of recovery including interest on the penalty. The appellants have filed
appeals before the Securities Appellate Tribunal contending that interest cannot be levied by the
Recovery Officer and that a separate demand notice for the recovery is required to be issued.
Is this contention valid? Give reasons in support of your answer.

2. Where a public issue is undersubscribed, whether, the underwriters to the public issue are entitled to
discharge their obligation contained in regulation 106P of the Securities and Exchange Board of India (Issue
of Capital and Disclosure Requirements) Regulations, 2009 (‘ICDR Regulations’ for short) by procuring
applications from third parties.

Discuss with the help of decided case law on this matter.

3. ABC Ltd. mobilised funds from the general public by sponsoring a scheme which was in fact a Collective
Investment Scheme without obtaining registration from Securities and Exchange board of India. SEBI
conducted an investigation into the affairs of the company and eventually a show cause notice was issued
for violation of the SEBI (Collective Investment Schemes) Regulations, 1999 and section 12(1B).
The SEBI also passed an order against the company and its directors imposing a penalty of Rs. 5600 crores
to be paid jointly and severally by the company and its director. The Appellant being aggrieved by the said
order filed an appeal before SAT contending that he was director only for 50 days and he has not attended
any meeting of the Board and he has not played any role at all in connection with the CIS. SAT remitted the
matter back to the adjudicating officer with a direction to decide the matter afresh. Proceedings were
again initiated and after considering the reply of the appellant a fresh order was passed imposing a penalty
of Rs. 1 crore. The appellant being aggrieved by the said order had filed the instant appeal. The questions
involved here are-
1. Whether SEBI was justified in holding that the appellant had sponsored or carried out CIS?
2. Whether the impugned order passed by SEBI imposing penalty upon appellant was justified?

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 4. SRR Limited (Appellant) collected an amount of Rs. 20 lakhs during 2015-16 to 2017-18 through issuance of
redeemable preference shares to 26,000 investors. The adjudicating officer of SEBI passed an order
imposing a penalty of Rs. 1 crore on the appellant under Section 15HB of SEBI Act for violation of
Regulations 4(2) and 16 of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares)
Regulations, 2013.
Since the number of investors from whom money was collected by the appellant exceeded 49 in each of
the 3 years. It is held in the impugned order that the appellant has violated the said regulations and this act
is tantamount to a deemed public issue which has been done without following the procedure as
stipulated by the regulations for such public issue and listing, and hence the violations. The appellant has
filed an appeal challenging the order of the adjudicating officer. Will the appellant succeed?
5. SEBI issued an administrative circular for Depositories under Section 11(1) of the SEBI Act to protect the
interests of investors in securities and to promote the development of, and to regulate securities market.
Depositories were advised by the said circular to amend all relevant bye-laws, rules and regulations.

A preliminary objection was raised in an appeal filed by the Central Depository Services (India) Limited
before the Securities Appellate Tribunal. But it was urged that under the SEBI Act, SEBI has administrative,
legislative and quasi-judicial functions and appeals preferred to the Securities Appellate Tribunal can only
be from quasi-judicial orders and not administrative and legislative orders.

Discuss whether administrative circular issued by SEBI is appealable before the SAT.
6. Mr. A, Mr. B and Mr. C (acquirers/PAC’s) after acquiring shares/voting rights of Starlight Limited (“Target
Company”) beyond the threshold of initial/creeping acquisition have failed to make an open offer in terms
of Regulation 10 and 11(1) of SAST Regulations, 1997, on, May 10, 2008 and October 18, 2007,
respectively. As per Regulation 21(19) of SAST Regulations, 1997, the acquirer and the PAC’s were jointly
and severally liable for discharge of obligations under SAST Regulations, 1997.

SAST Regulations, 1997 has been repealed by Regulation 35(1) of SAST Regulations, 2011 and has been
replaced by SAST Regulations, 2011. Regulation 35(2)(b) of SAST Regulations, 2011,provides that all
obligations incurred under the SAST Regulations, 1997, including the obligation to make an open offer,
shall remain unaffected as if the repealed regulations has never been repealed.Therefore, the obligations
to make open offer, incurred by the acquirers/PAC’s under SAST Regulations, 1997, are saved and can be
enforced against them by virtue of Regulation 35 of SAST Regulations, 2011.

Analyze the problem with the help of decided case law on this matter.
7. On the basis of the material available on record, SEBI vide an ex-parte interim order dated June 03, 2015
(interim order), prima facie observed that Deewan Ltd. (Company) had offered and allotted Non-
Convertible Debentures (NCDs) to 415 persons during the Financial Year 2015-16 and mobilized Rs.7.49
crore. Considering the number of persons to whom the NCDs were offered and issued, it is clear that the
Company made a public issue of NCDs during the relevant period, in terms of the first proviso to section
67(3) of the Companies Act, 1956. Hence the company violated the provisions of Sections 56, 60, 73 and
117C of the Companies Act, 1956, which are required to be complied with by a company making a public
issue of securities, and the provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008
(ILDS Regulations).

The Company and its directors have challenged the allegation. Whether the company is liable for the
violations? Give reasons in support of your answer.

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 8. The scrips of Safari Limited were listed in the Ahmedabad Stock Exchange. The said Stock Exchange
surrendered its recognition due to non-fulfilment of the criteria stipulated by SEBI. As a result, the
Company’s share was placed in the Dissemination Board of the NSE. The next day Company issued a
circular to its shareholders intimating that they can avail the limited facility of buying and selling their
shares on the Dissemination Board of the NSE.
The appellant is a shareholder of Safari Limited. The appellant being aggrieved by the order dated March
20, 2020 passed by the National Stock Exchange of India Limited (‘NSE’), allowing Safari Limited, to be
removed from the Dissemination Board has filed the present appeal praying for the quashing of the order
dated March 20, 2020 passed by the NSE and further praying that a direction should be issued to bring
back the Safari Limited on the Dissemination Board of NSE.
Analyze the problem in the background of decided case laws.
9. Analyze the validity of the following statements in the background of decided case laws-

(i) The conditions stipulated in clauses (a), (b) and (c) of Section 15J of the Securities and Exchange Board of
India Act, 1992 (SEBI Act) are exhaustive to govern the discretion in the Adjudicating Officer to decide on
the quantum of penalty.

(ii) The power and discretion vested by Section 15J of the SEBI Act to decide on the quantum of penalty,
stands eclipsed (redundant) by the penalty provisions contained in Section 15A to Section 15HA of the SEBI
Act.
10. SMC stock broking had an outstanding obligation of Rs. 2 60 crores the towards Indo finance NBFC
(appellant). SMC violated certain clauses of the loan agreement and withdrawn beyond the sanctioned
amount. A Loan Recall Notice was issued to it seeking refund of the full outstanding loan along with
interest and charges. In the event of failure by SMC to refund the same the appellant was planning to
improve the pledge.
SMC was undergoing a separate issue where SEBI passed an order prohibiting SMC to transfer shares to
any person other than the respective beneficial owner. Because of this order of SEBI, the appellant was not
able to invoke the pledge and recover its money. Hence the Appellant has approached SAT. Will the
Appellant succeed? Give reasons in support of your answer.
11. Sun Ltd. entered into a MoU (share purchase agreement) on 14/02/2006 to acquire the entire equity share
capital of Moon Inc. On account of this transformation Sun Ltd. came to hold 27.45% of the share capital in
the Star Ltd. (target company) which were held by the Moon Inc. As the acquisition was beyond the
stipulated 15% of the equity share capital of the target company the Regulations got attracted making it
obligatory on the part of Sun Ltd. to make a public announcement.

On 14/02/2006, Sun Ltd. appointed two of its Directors on the board of Moon Inc. and on the same date
Moon Inc., which is a person acting in concert with Sun Ltd., appointed the same persons on the board of
directors of the target company. This, according to SEBI, amounted violation of Regulation 22(7) of the
Regulations as the said appointment was made during the offer period which had commenced on and from
14/02/2006 i.e. date of execution of the share purchase agreement.

The adjudicating authority imposed a penalty of Rs.25 lakhs which was set aside by the Securities Appellate
Tribunal. Hence an appeal has been made by SEBI. Will the SEBI succeed? Give reasons in support of your
answer.

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 12. The appellant is a member broker in the Capital Market (CM) and Currency Derivatives (CD) segments of
the NSE. During a regular inspection of the books and records of the appellant in February 2017, NSE
noticed that the appellant falsely reported margin amounting to Rs. 3,11,73,600/- in the CD segment in
respect of two clients. Accordingly, DAC in its meeting held on February 11, 2018, after considering the oral
and written submissions of the appellant, imposed a monetary penalty to the tune of Rs. 3,11,73,600/- and
suspension of 1 trading day in the CD segment after giving three weeks’ notice. This was communicated to
the appellant on March 5, 2018.

Whether the levy of such heavy penalty is correct? Give reasons in support of your answer.
13. The adjudicating officer by the impugned order dated 12th November, 2020 has imposed a penalty of Rs. 25
lakhs upon the appellant for violating the code of conduct to the Securities and Exchange board of India
(Credit Rating Agencies) Regulations, 1999 while granting credit rating to Infoline Ltd. for the financial year
2019-20.
SEBI issued a second show cause notice dated 17 December, 2020 by exercising powers under section 15-
I(3)of the SEBI Act directing the appellant to show cause as to why penalty should not be enhanced as in
their opinion the order of the Adjudicating officer was not in the interest of the securities market.
An appeal has been filed by the Appellant praying that proceedings initiated by SEBI pursuant to the
second show cause notice should be stayed. Will the appellant succeed? Give reasons in support of your
answer.
14. SEBI investigated in the matter of the IPO of Bharat Technology Ltd. and it was revealed that the shares
which were meant for RIIs had been cornered through hundreds of benami/fictitious demat account
holders.

It was found by the SEBI that M/s Neevi Stocks Ltd. (Respondent) had received 10,780 shares out of which
4,050 shares were transferred before the day of listing of shares of the company with the stock exchange,
2,785 shares on the day of listing and 3,945 shares after the day of listing.

The said shares were purchased through off market transactions from 486 demat account holders, who
had been allotted shares of the said company, at the rate of Rs. 1,390/- per share, though the market value
of the said shares was much more than Rs. 1,390/- per share. The said shares were thereafter sold by the
said respondent at a higher price. Upon investigation, it was also found that most of those 486 demat
account holders were not genuine persons.

The SEBI imposed penalty on the respondents concluding that the dealings of the respondents were not
fair and were in violation of the Act as well as the Regulations. On appeal, SAT set aside the order of the
SEBI. Hence, SEBI challenged the order of SAT before the Supreme Court.

Analyze the case whether the SEBI was correct in imposing fine on M/s Neevi Stocks Ltd.
15. National Stock Exchange limited (NSE) issued an order compulsorily delisting the securities of the appellant
company, Eva limited. The Appellant being aggrieved by the computation of the fair value of the shares has
filed an appeal under Section 23L of the Securities Contracts (Regulation) Act, 1956.
There is a delay of 58 days in filing the appeal. It has been urged that the reason for the delay is that the
appellant company has its registered office at Jaipur, in Rajasthan and it took them some time to find a
specialized lawyer dealing in securities market.It was contented that they are not aggrieved by the order of
delisting but are only aggrieved by the determination of the fair value as determined by the independent
valuer @ ₹8 6.95 per equity share for which purpose they approached the respondent to provide the

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 details with regard to the determination of the fair value. It was contended that since no information was
supplied the present appeal was filed along with an application for condoning the delay. Will the appellant
succeed? Give reasons in support of your answers.

16. What is the degree of proof required to hold brokers/sub-brokers liable for fraudulent/ manipulative
practices under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations and/or liable for violating the Code of Conduct specified in Schedule II read with
Regulation 9 of the SEBI (Stock – Brokers and Sub-Brokers) Regulations, 1992? (Conduct Regulations,
1992).
17. During the inspection of Mr. Amit Gupta, a registered stock broker(Noticee), it was observed that he had
received funds in the client and settlement bank account from third parties in cash and had made
payments to third parties on behalf of clients. It was further observed that the noticee had also made
withdrawal of cash from the client bank accounts.
Discuss with the help of decided case law the responsibility casted on the stockbrokers with regards to
such transactions on behalf of the clients.
18. Angel Broking Ltd. (ABL), a registered broker with NSE had paid a fee of Rs. 10,000 for a block of five years.
ABL operated in cash and spot market. SEBI specified a criteria stating that no company whose net worth
was less than rupees 3 crores would be allowed to trade as a broker in the derivative segment of the Stock
Exchange. To meet this net worth criteria, ABL and MCL merged under the Scheme of Amalgamation
sanctioned by the order of the High Court. Under that order, all rights, licenses, assets, properties and
registrations of ABL stood transferred by operation of law to MCL. On 30.9.2002 SEBI issued a circular
stating that in the case of merger carried out as a result of compulsion of law, fees would not have to be
paid afresh by a transferee entity provided that majority shareholders of transferor entity (ABL) continues
to hold majority shareholding in the transferee entity (MCL).

After the merger of ABL with MCL, a demand was made by SEBI for registration fees on turnover basis.
According to MCL, the concept of merger constitutes transfer by operation of law, hence the registration
fees once paid by ABL should be given the benefit of continuity vide para 7 of Circular dated 30.9.2002
issued by SEBI. In other words, MCL now claims that it is entitled to the benefit of registration fees which
ABL had paid from time to time as a broker in the cash and spot market. This claim of MCL has been
rejected by the SEBI.

The short question that arises for our consideration is whether the brokers were entitled to the benefit of
fee continuity under para 7 of Circular dated 30.9.2002 issued by SEBI. Give reasons in support of your
answer.
19. The appellant is aggrieved by the order of the Whole Time Member where under it was directed to make
public announcement to acquire shares of Zeal Ltd. (Target Company) within a period of 45 days from the
date of the order and to pay interest at the rate of ten percent per annum as detailed in the order.

The appellant is promoter of the Target Company consisting of a consortium of individual promoters. It
has appealed before the Securities Appellate Tribunal saying that the violation of the Takeover Regulation
is only to the extent of 0.03% and that too due to transfer of shares between the promoters via open
market, and thus the direction of the WTM to make public announcement to acquire shares would be
disproportionate. Will the appellant succeed?

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY

 20. An appeal has been preferred against the order passed by the adjudicating officer of SEBI . By the said
order dated April 11, 2020, a penalty of Rs. 5,00,000 each has been imposed on the Syndicate Bank for
violation of Close 36 of the listing agreement and regulation 12(2) of the PIT Regulations, 1992
The question raised in this appeal is, whether the information relating to signing of a Binding
Implementation Agreement on May 18, 2012 by an Authorized Executive Director of the Syndicate Bank
(appellant) with the dominant Shareholders of the Bank of Rajasthan was liable to be disclosed on an
immediate basis under Clause 36 of the Listing Agreement and Regulation 12(2) of the PIT Regulations,
1992. Hence, the appellant has challenged the order on the ground of undue delay in initiating the
proceedings by the SEBI. Will the appellant succeed?
21. It was alleged that the appellant had inside knowledge of the price sensitive information of the company
and, being a connected person add sold 40,000 shares of the company and thus made a notional gain or
averted a notional loss.
The present appeal has been filed against an ex parte order dated October 20, 2020 passed by the Whole
Time Member of SEBI directing the appellant to deposit a sum of Rs. 2,00,00,000 plus interest in an escrow
account towards notional loss allegedly avoided by him by using unpublished price sensitive information.
Determine the validity of the ex parte order passed by the Whole Time Member of SEBI in the background
of decided case laws.
22. Vedis Ltd. (Appellant)and Mr. Paras are Promoters of Ink Ltd. The target company Tan Ltd. is the Wholly
owned subsidiary of Ink Ltd.
In the year 2017, the Appellant acquired 17% equity shares in the target company @ Rs. 8.90 per share. In
the next year i.e. in 2018 the Appellant along with persons acting in concert, made a public announcement
under Regulation 15(1) of the SEBI Substantial Acquisition of Shares and Takeover Regulations, 2011 when
open offer was made @ Rs. 4.40 per share.
SEBI observed, by an order, that the exemption provisions contained in Regulation 10 would not apply to
this acquisition, as a result of which the price of Rs. 4.40 per share was not accepted and the higher price
of Rs. 8.90 was stated to be an amount that would have to be paid to the equity shareholders of the Target
Company.
Whether the appellant could be considered as the promoter of the target company also being the
promoter of the parent company so as to consider it as a promoter for more than 3 years in the target
company also by lifting the corporate veil of the parent company and the target company?

Shubhamm Sukhlecha (CA, CS, LLM) INSPIRE ACADEMY