TEAM CODE: 106

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023

Before

SECURITIES APPELLATE TRIBUNAL

APPEAL UNDER SECTION 15T OF THE SEBI ACT 1992

AGLOW LIMITED…………………………………………………………...APPELLANT

V.

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

[ MEMORANDUM on BEHALF of APPELLANT ]

MEMORANDUM for PETITIONERS

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [TABLE OF CONTENTS]

TABLE OF CONTENTS

TABLE OF CONTENTS ------------------------------------------------------------------------------ II

LIST OF ABBREVIATIONS ------------------------------------------------------------------------ IV

INDEX OF AUTHORITIES ------------------------------------------------------------------------- VI

STATEMENT OF JURISDICTION ------------------------------------------------------------- XIII

STATEMENT OF FACTS ------------------------------------------------------------------------- XIV

STATEMENT OF ISSUES ------------------------------------------------------------------------- XVI

SUMMARY OF ARGUMENTS ----------------------------------------------------------------- XVII

ARGUMENTS ADVANCED -------------------------------------------------------------------------- 1

ISSUE I- WHETHER SEBI HAD JURISDICTION TO HOLD THAT AGLOW STILL

EXERCISES CONTROL OVER SUNDARYA AND TO CONSEQUENTLY IMPOSE
SANCTIONS IN THE FORM OF DISGORGEMENT AND PENALTIES? ----------------- 1

[1.1] THE DUTY TO MONITOR COMPLIANCE WITH THE PROVISIONS OF

INDAS FALLS UPON NFRA. -------------------------------------------------------------------- 1

[1.2] THE JURISDICTION OF NFRA IS EXCLUSIVE IN REGARDS TO

MISCONDUCT OF AN ACCOUNTANT. ------------------------------------------------------ 2

[1.3] NO CASE MAY BE INITIATED AGAINST THE PRESENT NOTICEES

WITHOUT ALSO IMPLICATING THE AUDITOR. ----------------------------------------- 3

ISSUE II- DOES AGLOW EXERCISE SUFFICIENT CONTROL OVER SUNDARYA TO

MANDATE A PARENT-SUBSIDIARY CLASSIFICATION? ---------------------------------- 4

[2.1] The standard for sufficient control must be given due regard to. ---------------------- 4

[2.2] THE DISTRIBUTION OF EQUITY AS WELL AS CONTROL BETWEEN

AGLOW AND AGARWAL GROUP IS EQUAL AND COMPLEMENTARY. --------- 6

ISSUE III- WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS.
ANJALI AMOUNTED TO UNFAIR TRADE PRACTICE? -----------------------------------10

MEMORANDUM on BEHALF of APPELLANT PAGE |

II
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [TABLE OF CONTENTS]

[3.1] THE RECLASSIFICATION OF SUNDARYA AS A JOINT VENTURE DID NOT

RESULT IN FRAUD SINCE THE ‘ESSENTIALS OF FRAUD’ UNDER PFUTP
REGULATIONS, 2003 WERE NOT FULFILLED -------------------------------------------10

[3.2] THERE WAS NO ASYMMETRY OF KNOWLEDGE FOR THE INVESTORS OF

AGLOW IN THE SECURITIES MARKET ---------------------------------------------------15

[3.3] NECESSARY DUE-DILIGENCE WAS CARRIED OUT AND REQUIRED

DUTIES OF DIRECTORS WERE FULFILLED. --------------------------------------------16

ISSUE IV- WHETHER THE QUANTUM OF PENALTY IMPOSED BY SEBI IS HARSH,

EXCESSIVE AND DISPROPORTIONATE TO THE ALLEGATIONS AGAINST
AGLOW? -----------------------------------------------------------------------------------------------19

[4.1] THE MITIGATING FACTORS CONTAINED IN SEC. 15J OF SEBI ACT, 1992
HAVE NOT BEEN CONSIDERED BY THE AO.--------------------------------------------19

[4.2] THERE WAS ABSENCE OF WILFUL DEFAULT BY AGLOW. -------------------20

PRAYER ------------------------------------------------------------------------------------------------ XV

ANNEXURE I ---------------------------------------------------------------------------------------- XVI

ANNEXURE 2 --------------------------------------------------------------------------------------- XVII

MEMORANDUM on BEHALF of APPELLANT PAGE |

III
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [ LIST OF ABBREVIATIONS]

LIST OF ABBREVIATIONS

ABBREVIATION CORRESPONDING EXPANSION

& And

¶ Paragraph

AIR All India Reporter

Anr. Another

Art. Article

Bom. Bombay

Co. Company

Govt. Government

Hon’ble Honourable

i.e. That is

IND AS Indian Accounting Standard

LODR Listing Obligations and Disclosure Requirement

Ltd. Limited

MEMORANDUM on BEHALF of APPELLANT PAGE | IV

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [ LIST OF ABBREVIATIONS]

Ors. Others

PFUTP Prohibition of Fraudulent and Unfair Trade Practices relating

to Securities Market

Pvt. Private

SAT Securities and Appellate Tribunal

SCC Supreme Court Cases

SCR Supreme Court Reports

SCRA Securities Contracts (Regulation) Act

SEBI Securities and Exchange Board of India

SEC Section

U/S Under Section

v. Versus

WTM Whole Time Member

MEMORANDUM on BEHALF of APPELLANT PAGE | V

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

INDEX OF AUTHORITIES

CASES

Merck Spares v. Collector of Central Excise & Customs, [1983] ELT 1261 --------------------20

ArcelorMittal (India) Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 ------------------------- 5

Arun Kumar v. Union of India, [2007] 1 SCC 732 --------------------------------------------------- 2

Balram Garg v. SEBI, [2022] 9 SCC 425. ------------------------------------------------------------- 2

Bishopgate Investment Management Ltd. v. Maxwell (No. 2) [1993] BCLC 814 (UK) ------18

Calesa Associates L.P. v. American Capital Ltd., C.A. No. 10557-VCG (Del. Ch. Feb. 29, 2016)
(USA) ---------------------------------------------------------------------------------------------------- 6

Carona Ltd. v. Parvathy Swaminathan & Sons, [2007] 8 SCC 559 -------------------------------- 2

Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253 -----------------------------------------20

In re Brazilian Rubber & Plantation Estates Ltd. [1911] 1 Ch. 425, 437 ------------------------16

Llyod Bank Ltd. v. E.B. Savory & Co. (1933) AC 201 (UK) --------------------------------------18

Madhusudhan Gordhandas & Co. v. Collector of Customs, [1987] 29 ELT 904 ---------------20

Madoff Securities International v. Raven [2013] EWHC 3147 (Comm) -------------------------16

Mansarovar Commercial Pvt. Ltd. v. Commissioner of Income Tax, Delhi, 2023 SCC OnLine
SC 386 --------------------------------------------------------------------------------------------------- 5

Marfani and Co. Ltd v. Midland Bank Ltd. (1968) 2 All ER 573 (UK) --------------------------18

N. Narayanan v. SEBI, (2013) 12 SCC 152 ----------------------------------------------------------15

Novartis Vaccines and Diagnostics Inc. v. Aventis Pharma Ltd., 2009 SCC Online (Bom) 1126
------------------------------------------------------------------------------------------------------------ 6

Pankaj v. State of Maharashtra, 2017 SCC OnLine Bom 215 -------------------------------------- 4

Price Waterhouse & Co. v. SEBI, 2010 SCC OnLine Bom 1197 ---------------------------------- 3

Ross v. London County (1929) 1 KB 40 (UK) -------------------------------------------------------17

Sandeep S. Metange v. State of Maharashtra, 2021 SCC OnLine Bom 5726 -------------------- 4

SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1--------------------------------------- 14, 15

SEBI v. Mega Corporation Ltd., Civil Appeal No. 2104 of 2009 ---------------------------------15

Shama Engine Valves Ltd. v. Collector of Customs, [1984] 18 ELT 533 ------------------------20

MEMORANDUM on BEHALF of APPELLANT PAGE | VI

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

State of Karnataka v. Vishwabharathi House Building Coop. Society, (2003) 2 SCC 412 ----- 4

Technip S.A. v. S.M.S. Holding Pvt. Ltd., (2005) 5 SCC 465 -------------------------------------- 7

Tri-Sure India Ltd. v. A.F. Ferguson And Co. And Others, 1987 61 CompCas 548 Bom ------ 3

Union of India v. Deloitte Haskins & Sells LLP, (2023) 8 SCC 56 -------------------------------- 2

Union of India v. Design Auto Systems Ltd., 2009 SCC OnLine CLB 61-----------------------13

STATUTES

Companies Act, 2013, §§ 132(2)(a)-(b), No. 18, Acts of Parliament, 2013 (India). ------------ 1

Companies Act, 2013, § 129(1), No. 18, Acts of Parliament, 2013 (India). ---------------------- 1

Companies Act, 2013, § 132(1), No. 18, Acts of Parliament, 2013 (India). ------------------- 2, 9

Companies Act, 2013, § 133, No. 18, Acts of Parliament, 2013 (India). -------------------------- 1

The Companies Act, 2013, § 149(2), No. 18, Acts of Parliament, 2013 (India) ----------------18

The Competition Act, 2002, § 2(x), No. 12 of 2003, Acts of Parliament, 2002 (India) --------13

The Securities Exchange Board of India, §15J, No. 15, Acts of Parliament, 1992, (2013)--- 18,
20

RULES

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110 ------------------------------ 4

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 12 ----------------------- 6

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 13 ----------------------- 5

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 5 ------------------------- 4

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶ B12 --------------------- 7

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶¶ 10-14 ------------------ 6

MEMORANDUM on BEHALF of APPELLANT PAGE | VII

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb.
16, 2015), Annexure, Indian Accounting Standards (Ind AS) 110, ¶¶ 4-6 --------------------- 5

National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov.
14, 2018), Rule 3 --------------------------------------------------------------------------------------- 2

National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov.
14, 2018), Rule 3(1) ------------------------------------------------------------------------------------ 2

National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov.
14, 2018), Rule 7 --------------------------------------------------------------------------------------- 2

National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov.
14, 2018), Rule 7(4) ------------------------------------------------------------------------------------ 2

SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, Rule 4(2) ------- 11

SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, Rule 5(1) ------- 11

REGULATIONS

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ------------- 11, 15

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 ----------------------------------------------------------------------- 10, 11, 13, 14

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003, Reg. 3,4--------------------------------------------------------------------------10

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003, Reg. 4(1).------------------------------------------------------------------------10

SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003, Reg. 4(2).------------------------------------------------------------------- 10, 13

DICTIONARY

COMPANY DIRECTORS DUTIES, LIABILITIES, AND REMEDIES (Simon Mortimore Q.C. ed., 3rd ed.
Oxford University Press 2017) ----------------------------------------------------------------------17

ADJUDICATION ORDERS

Adjudication Order In the Matter of Audit Report of ACIL Cotton Industries Ltd., Universal
Credit and Securities Ltd., Mindvision Capital Ltd. and RFL International Ltd.,

MEMORANDUM on BEHALF of APPELLANT PAGE | VIII

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

Order/GR/PU/2022-23/20625-20642, https://www.sebi.gov.in/enforcement/orders/oct-
2022/adjudication-order-in-the-matter-of-audit-report-of-acil-cotton-industries-ltd-
universal-credit-and-securities-ltd-mindvision-capital-ltd-and-rfl-international-
ltd_64387.html -----------------------------------------------------------------------------------------19

Adjudication Order In the Matter of Blue Blends (India) Ltd., Order/SR/SM/2020-2021/7697-

7698/7-8, https://www.sebi.gov.in/enforcement/orders/may-2020/adjudication-order-in-
respect-of-bp-fintrade-private-ltd-and-bp-comtrade-private-ltd-in-the-matter-of-blue-
blends-india-limited_46648.html -------------------------------------------------------------------13

Adjudication Order In the Matter of Chromatic India Ltd., Order/AA/AR/2020-21/8795,

https://www.sebi.gov.in/enforcement/orders/aug-2020/adjudication-order-in-respect-of-
vipin-sharma-in-the-matter-of-chromatic-india-ltd_47432.html -------------------------------21

Adjudication Order In the Matter of Fortis Healthcare Limited, Order/GR/KG/2021-22/13092,

https://www.sebi.gov.in/enforcement/orders/aug-2021/adjudication-order-in-respect-of-mr-
rashim-tandon-partner-deloitte-haskins-and-sells-llp-in-the-matter-of-fortis-healthcare-
limited_52115.html ------------------------------------------------------------------------------------ 3

Adjudication Order In the Matter of Laxmi Narayan Rawat, Order/MC/RM/2021-22/14560,

https://www.sebi.gov.in/enforcement/orders/dec-2021/adjudication-order-in-respect-of-
laxmi-narayan-rawat-huf-in-the-matter-of-illiquid-stock-options-at-bse-54941.html ------19

Adjudication Order In the Matter of National Highway Authority of India,

ORDER/PM/RR/2020-21/7744, https://www.sebi.gov.in/enforcement/orders/may-
2020/adjudication-order-in-respect-of-national-highway-authority-of-india_46713.html 19,
21

Adjudication Order In the Matter of Resurgere Mines & Minerals India Ltd.,
Order/GR/PU/2022-23/17202-17225, https://www.sebi.gov.in/enforcement/orders/jun-
2022/adjudication-order-in-the-matter-of-resurgere-mine-and-minerals-india-ltd-
_59890.html --------------------------------------------------------------------------------------------13

Adjudication Order In the Matter of Scanpoint Geomatics Limited, Order/PM/AB/2020-

21/8084, https://www.sebi.gov.in/enforcement/orders/jun-2020/adjudication-order-in-
respect-of-rakhi-trading-pvt-ltd-in-the-matter-of-scanpoint-geomatics-ltc-_46972.html---10

Adjudication Order In the Matter of SEBI v. Indiabulls Securities Ltd., BM/AO- 76/2012,
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1356705349130.pdf -----------------------17

Ashwin K. Doshi v. SEBI, (2002) 40 SCL 545 (SAT) ----------------------------------------------- 5

MEMORANDUM on BEHALF of APPELLANT PAGE | IX

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

Subhkam Ventures v. SEBI, (2010) 99 SCL 159 (SAT). --------------------------------------------- 5

SAT APPEALS

Cabot International Capital Corpn. v. Adjudicating Officer, SAT Appeal No. 24 of 2000 (Jan.
2021), https://www.sebi.gov.in/satorders/Cabot.html --------------------------------------------20

Ess Ess Intermediaries v. SEBI, SAT Appeal No. 13 of 2013 (June 19, 2013),
https://www.sebi.gov.in/enforcement/orders/jun-2013/in-the-matter-of-m-s-ess-ess-
intermediaries_24919.html---------------------------------------------------------------------------18

Hemant S. Sonawala v. SEBI, SAT Appeal No. 12 of 2002 (Oct. 2002),

https://www.sebi.gov.in/satorders/hemant.html ---------------------------------------------------20

J.M. Mutual Fund v. SEBI, (2005) 3 CompLJ 544 SAT --------------------------------------------19

KSL Industries Ltd v. SEBI, SAT Appeal no. 9 of 2003 (Sept. 30, 2003) -----------------------10

Manish Mathur v. SEBI, SAT Appeal No. 332 of 2014 (Oct. 3, 2016),
https://sat.gov.in/ENGLISH/PDF/E2016_JO2014332.PDF-------------------------------------20

Naresh Chand v. SEBI, SAT Appeal No. 28, 28A, 28B and 28C of 2005 (Dec. 8, 2005),
https://www.sebi.gov.in/satorders/naresh.html ----------------------------------------------------20

Prafull Anubhai Shah v. SEBI, SAT Appeal no. 389 of 2021 (June 28, 2021) ------------------17

Praveen Kurele v. SEBI, SAT Appeal No. 319 of 2020 (Oct. 26, 2021 --------------------------16

Price Waterhouse v. SEBI, SAT Appeal No. 8 of 2011 (June 6, 2011),

https://www.sebi.gov.in/satorders/pricewaterhouse2.pdf, , ¶ 3 ---------------------------------12

R.K. Global v. SEBI, SAT Appeal No. 158 of 2008 (Sept. 16, 2010),
https://www.sebi.gov.in/satorders/rkglobalord.pdf?QUERY -----------------------------------20

S. Gopalakrishnan v. SEBI, SAT Appeal No. 6 of 2018 (Sept. 9, 2019) -------------------------14

Samrat Holdings Ltd. v. SEBI, SAT Appeal No. 23 of 2000 (Jan 25, 2001),
https://www.sebi.gov.in/enforcement/orders/jan-2001/samrat-holdings-vs-adjudicating-
officer_17772.html ------------------------------------------------------------------------------------20

Sayanti Sen v. SEBI, SAT Appeal No. 163 of 2018 (Aug. 9, 2019) ------------------------------16

Subhkam Ventures v. SEBI, (2010) 99 SCL 159 (SAT) --------------------------------------------- 5

Sundaram Finance Ltd. v. SEBI, SAT Appeal No. Appeal No.37/2002 (Jan. 29, 2003),
https://www.sebi.gov.in/satorders/sundaram.html ------------------------------------------------16

MEMORANDUM on BEHALF of APPELLANT PAGE | X

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

Umang Dhanuka v. SEBI, SAT Appeal No. 102 of 2020 (June 8, 2021),
https://sat.gov.in/english/pdf/E2021_JO202044.PDF --------------------------------------------15

SEBI ORDERS

SEBI Order In the Matter of ARSS Infrastructure Projects Ltd.,

WTM/AB/IVD/ID19/14342/2021-22, https://www.sebi.gov.in/enforcement/orders/nov-
2021/final-order-in-the-matter-of-arss-infrastructure-projects-limited_54213.html---- 11, 12

SEBI Order In the Matter of falsification/ misstatement in financial statements of Arvind

Remedies Limited, WTM/SM/ CFID/ CFID/ 27506/ 2023-24,
https://www.sebi.gov.in/enforcement/orders/jun-2023/final-order-in-the-matter-of-
falsification-misstatement-in-financial-statements-of-arvind-remedies-limited_72779.html.
------------------------------------------------------------------------------------------------------------ 3

SEBI Order In the Matter of K-Lifestyle & Industries Ltd., WTM/AB/IVD/ID19/14495/2021-

22, https://www.sebi.gov.in/enforcement/orders/dec-2021/final-order-in-the-matter-of-k-
lifestyle-and-industries-limited_54851.html.------------------------------------------------------14

SEBI Order In the Matter of Landmarc Leisure Corpn. Ltd., WTM/AB/IVD/ID19/14750/2021-

22, https://www.sebi.gov.in/enforcement/orders/jan-2022/final-order-in-the-matter-of-
landmarc-leisure-corporation-ltd-_55462.html ---------------------------------------------------16

SEBI Order In the Matter of Newever TradeWings Ltd., WTM/AB/IVD/ID19/19360/2022-

23,https://www.sebi.gov.in/enforcement/orders/sep-2022/final-order-in-the-matter-of-ms-
newever-trade-wings-limited_62921.html; SEBI Order In the Matter of G.V. Films Ltd.,
WTM/AB/IVD/ID19/18570/2022-23,
https://www.bseindia.com/markets/MarketInfo/DownloadAttach.aspx?id=20220826-
23&attachedId=e93e37e7-1f6f-4213-8de6-7937c306b1c7 -------------------------------------- 3

SEBI Order In the Matter of Quest Financial Services Ltd., WTM/AB/IVD/ID19/15432/2021-

22, https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/mar-
2022/unserved-final-order-dated-march-21-2022-in-respect-of-jyoti-lohia-in-the-matter-of-
quest-financial-services-limited_58208.html------------------------------------------------------ 11

SEBI Order In the Matter of Quest Financial Services Ltd., WTM/AB/IVD/ID19/15432/2021-

22, https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/mar-
2022/unserved-final-order-dated-march-21-2022-in-respect-of-jyoti-lohia-in-the-matter-of-
quest-financial-services-limited_58208.html------------------------------------------------------ 11

MEMORANDUM on BEHALF of APPELLANT PAGE | XI

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [INDEX OF AUTHORITIES]

SEBI Order In the Matter of SGI Research & Analysis Ltd., AO/VKV/AS/AO-11/2017,
https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/nov-
2017/adjudication-order-in-the-matter-of-sgi-research-and-analysis-limited_36791.html -13

SEBI Order In the Matter of Svam Software Ltd., WTM/AB/IVD/ID19/13689/2021-22,

https://www.sebi.gov.in/enforcement/orders/oct-2021/final-order-in-the-matter-of-svam-
software-ltd-_53181.html ----------------------------------------------------------------------------18

OTHER AUTHORITIES

Philip Zanfagna, Molly Farber, and James Bamford, Decision Making in 50:50 Joint Ventures,
HARVARD LAW SCHOOL FORUM ON CORP. GOV. (Nov. 13, 2020),
https://corpgov.law.harvard.edu/2020/11/13/decision-making-in-5050-joint-ventures/. ----- 5

JOURNAL ARTICLES

Broberg, M.P., Commission's Jurisdiction over Mergers in the Financial Sector, 23 LEGAL
ISSUES OF EUR. INTEGRATION 35 (1996). ------------------------------------------------------------ 9

Tariq, N., 2012. A Comparative Study on Bank’s Profitability Before, During and After Crises,
6(1) SOUTH ASIAN JOURNAL OF MANAGEMENT ---------------------------------------------------- 9

BOOKS

Stulz, R.M., Rethinking Risk Management, in CORPORATE RISK MANAGEMENT 87 (Columbia

University Press 2008). -------------------------------------------------------------------------------- 9

MEMORANDUM on BEHALF of APPELLANT PAGE | XII

7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [STATEMENT OF JURISDICTION]

STATEMENT OF JURISDICTION

The Appellant humbly submits to the jurisdiction of the Hon’ble Securities Appellate Tribunal,
Mumbai in the matter of Aglow Limited v. Securities Exchange Board of India, in pursuance
of Section 15T of the Securities Exchange Board of India Act, 1992.

Section 15T of the Securities Exchange Board of India Act, 1992:

“15T. Appeal to the Securities Appellate Tribunal. —

[(1) Save as provided in sub-section (2), any person aggrieved, —

(a) by an order of the Board made, on and after the commencement of the Securities
Laws (Second Amendment) Act, 1999 (32 of 1999), under this Act, or the rules or
regulations made thereunder; or

(b) by an order made by an adjudicating officer [under this Act; or]

[(c) by an order of the Insurance Regulatory and Development Authority or the Pension
Fund Regulatory and Development Authority,]

may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the

matter.]”

MEMORANDUM on BEHALF of APPELLANT PAGE |

XIII
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [STATEMENT OF FACTS]

STATEMENT OF FACTS

[ BACKGROUND ]
Aglow Limited is a public listed company, engaged in operating beauty salons and providing
other related services. An MOU was signed for constructing three salons in Mumbai, currently
being owned and operated by Sundarya. The Agarwal Group and Aglow each hold 50% of the
total shareholding in Sundarya.
[ APPOINTMENT OF INDEPENDENT DIRECTORS ]
Pursuant to the appointment of 2 independent directors in an EGM of Sundarya, Aglow
reclassified Sundarya from its subsidiary to a joint venture. Simultaneously, Aglow’s CFS was
released. The scrip price of Aglow increased and Mr. Pulkit and Ms. Anjali (directors)
offloaded certain shared after the information about reclassification was released. Sebi received
a complaint againt aglow accusing it of overstating its profit by considering sundary a joint
venture. Aglow submitted that detailed research was conducted by Mr, Sameer Amal (CFO)
and 2 professional opinions were considered while reclassifying.
[ AGLOW’S SUBMISSIONS ]
The composition of the Board of Sundarya formed the basis of Holding-Subsidiary relationship
between Aglow and Sundarya. The appointment of IDs was the event which resulted in loss of
control by Aglow and accordingly, Aglow did not hold majority in the Board to direct the
relevant activities of Sundarya. Aglow was not in a position to enter/veto any decision as it did
not have the majority in Sundarya’s Board of Directors. Accordingly, it did not have rights to
direct Sundarya to enter into or veto any changes to, transactions for the benefit of Aglow.
Further all supervisory services were under the control of Aggarwal Group.
[ SEBI’S ORDER ]
SEBI initatied it’s investigation and an SCN was issued. The WTM of the SEBI, passed an
upholding against the charges of fraudulent misrepresentation and violations of LODR
provisions againt Aglow, Pulkit, Anjali and Sameer Amal. The were also asked to
disgorgement the alleged disproportionate gains and heavy penalty was imposed.

[ TIMELINE ]

September 04, 2008, MOU executed amongst Aglow, Sundarya

and Agarwal Group to build and operate
three salon centres.

MEMORANDUM on BEHALF of APPELLANT PAGE |

XIV
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [STATEMENT OF FACTS]

January 10, 2022 Notice of the EGM meeting from Sundarya

regarding proposal for appointment of two
Independent Directors
At the EGM, two Independent Directors
January 29, 2022,
were appointed
January 31, 2022, Aglow that Sundarya was no longer a
subsidiary of Aglow and was classified as a
joint venture/associate company.
February 4, 2022 Scrip price of Aglow increased from Rs. 40
to Rs. 53.70
June 30, 2022 SEBI received a complaint dated June
against Aglow
for wrongly reclassifying Sundarya and
overstating profits in CFS.
April 01, 2021, to March 31, 2022. BSE appointed Forensic Auditor to conduct
forensic audit of Aglow.
October 22, 2022 FAR was received by SEBI
November 01, 2022, SCN was issued by SEBI against
Aglow and its directors/KMP.
February- December 2022 Mr. Pulkit and Ms. Anjali offloaded
numerous shares.

Subsequently, the WTM of SEBI passed order against Aglow, Pulkit, Anjali and Sameer Amal
upholding charges of misstated financial statements. All the Noticees have, in compliance of
and under section 15T of the SEBI Act, preferred an appeal before the Securities Appellate
Tribunal, Mumbai (“SAT”). The SAT has agreed to hear the appeal.

MEMORANDUM on BEHALF of APPELLANT PAGE |

XV
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [SUMMARY OF ARGUMENTS]

STATEMENT OF ISSUES

[ ISSUE 1 ]

WHETHER SEBI HAD JURISDICTION TO HOLD THAT AGLOW STILL

EXERCISES CONTROL OVER SUNDARYA AND TO CONSEQUENTLY IMPOSE
SANCTIONS IN THE FORM OF DISGORGEMENT AND PENALTIES?

[ ISSUE 2 ]

WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS. ANJALI

AMOUNTS TO UNFAIR TRADE PRACTICE?

[ISSUE 3]

WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS. ANJALI

AMOUNTS TO UNFAIR TRADE PRACTICE?

[ISSUE 4]

WHETHER THE QUANTUM OF PENALTY IMPOSED BY SEBI IS HARSH,

EXCESSIVE AND DISPROPORTIONATE TO THE ALLEGATIONS AGAINST
AGLOW?

MEMORANDUM on BEHALF of APPELLANT PAGE |

XVI
7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [SUMMARY OF ARGUMENTS]

SUMMARY OF ARGUMENTS

[ISSUE 1] WHETHER SEBI HAD JURISDICTION TO HOLD THAT AGLOW STILL

EXERCISES CONTROL OVER SUNDARYA AND TO CONSEQUENTLY IMPOSE
SANCTIONS IN THE FORM OF DISGORGEMENT AND PENALTIES?

It is submitted that SEBI's authority to impose sanctions on Aglow, claiming control over
Sundarya, is based on NFRA's responsibility for monitoring IndAS compliance. NFRA,
established by the Central Government, shapes accounting and auditing standards, enforcing
compliance with accounting standards by companies and auditors. Auditors shouldn't be held
liable for securities market fraud unless mens rea (intent) is proven. SEBI lacks jurisdiction
over audit service quality, a domain exclusive to NFRA. SEBI can't initiate cases against
individuals without involving auditors, demanding concrete evidence for jurisdiction. In cases
of auditor negligence, SEBI forwards findings to ICAI and NFRA for appropriate action.

[ISSUE 2] WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS.

ANJALI AMOUNTS TO UNFAIR TRADE PRACTICE?

The submission argues that Aglow's control over Sundarya doesn't meet the criteria for parent-
subsidiary classification. It emphasizes that the language of Ind AS 110, which deals with
subsidiary accounting in consolidated financial statements, is inherently restrictive, requiring
satisfaction of all listed grounds to classify a company as a subsidiary. The document
underscores that achieving parent status is an exceptional position in Ind AS 110, while joint
arrangements under Ind AS 111 offer a more inclusive definition. It also highlights that control
means having a decisive and standalone influence over relevant activities. The equity and
control distribution between Aglow and Agarwal Group is equal and complementary, and their
returns are exposed to similar variables. Overall, the submission contests the parent-subsidiary
relationship between Aglow and Sundarya.

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[ISSUE 3] WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS.

ANJALI AMOUNTS TO UNFAIR TRADE PRACTICE?

It is contended that the reclassification of Sundarya as a Joint Venture did not involve fraud as
the essential elements of fraud under the PFUTP Regulations, 2003 were not met, emphasizing
the absence of market manipulation as a crucial factor. There was no asymmetry of knowledge
among Aglow's investors in the securities market, as the information about the reclassification
was publicly disclosed, and Mr. Pulkit and Ms. Anjali's trades occurred after this
announcement. Necessary due diligence was conducted by seeking professional advice and
complying with relevant regulations, and the duties of directors were fulfilled. There was no
intent to deceive or induce investors, and the profits made were not a result of fraudulent
activities. Further, Mr. Pulkit and Ms. Anjali exercised reasonable due diligence by relying on
expert advice. Lastly, Ms. Anjali should not be held responsible unless they had knowledge of
wrongdoing or acted negligently, which, according to the submission, was not the case.

[ISSUE 4] WHETHER THE QUANTUM OF PENALTY IMPOSED BY SEBI IS

HARSH, EXCESSIVE AND DISPROPORTIONATE TO THE ALLEGATIONS
AGAINST AGLOW?

It is submitted that the harsh penalty on Aglow for two reasons. Firstly, the adjudicating officer
failed to consider Section 15J of the SEBI Act, which mandates proportional penalties based
on offense gravity, citing a lack of disproportionate gain or quantifiable loss. Secondly,
Aglow's absence of willful default, distinguishing offenses from penalties and calling for
concrete evidence. The submission urges a penalty review, emphasizing the absence of
quantifiable gains, investor losses, and willful default in Aglow's actions.

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ARGUMENTS ADVANCED

ISSUE I- WHETHER SEBI HAD JURISDICTION TO HOLD THAT AGLOW STILL

EXERCISES CONTROL OVER SUNDARYA AND TO CONSEQUENTLY IMPOSE
SANCTIONS IN THE FORM OF DISGORGEMENT AND PENALTIES?

¶1. It is humbly submitted that SEBI did not have the jurisdiction to hold that Aglow still
exercises control over Sundarya and to consequently impose sanctions in the form of
disgorgement and penalties because [1.1] The duty to monitor compliance with the provisions
of IndAS falls upon NFRA and; [1.2] The jurisdiction of NFRA is exclusive in regards to
misconduct of an accountant.

[1.1] THE DUTY TO MONITOR COMPLIANCE WITH THE PROVISIONS OF

INDAS FALLS UPON NFRA.
¶1. The Companies Act, 2013 now mandates the constitution of a separate National Financial
Reporting Authority (NFRA) to review quality of services provided by the member of the ICAI;
and to monitor and enforce compliance with accounting standards and auditing standards.1 It
was observed that complaints against auditors could be considered by SEBI but professional
skepticism cannot be considered under SEBI Laws. Thus, a need was felt to have an authority
which could look into the quality of audit services performed by the auditors.
¶2. Every company is under an obligation to ensure that its financial statements give a true and
fair view of the state of affairs of the company2 and it complies with the accounting standards
notified in Section 133 of the Companies Act, 2013.3 The accounting standards are prescribed
by the Central Government as recommended by the Institute of Chartered Accountants of India
in consultation with and after examination of the recommendation by the National Financial
Reporting Authority (NFRA).4 NFRA is to be constituted by the Central Government to provide
for matters relating to accounting and auditing standards.5
¶3. Classes of companies and bodies corporate governed by the Authority. ─ (1) The Authority
shall have power to monitor and enforce compliance with accounting standards and auditing
standards, oversee the quality of service under sub-section (2) of section 132 or undertake
investigation under sub-section (4) of such section of the auditors of the following class of

1
Companies Act, 2013, §§ 132(2)(a)-(b), No. 18, Acts of Parliament, 2013 (India).
2
Companies Act, 2013, § 129(1), No. 18, Acts of Parliament, 2013 (India).
3
Companies Act, 2013, § 133, No. 18, Acts of Parliament, 2013 (India).
4
Id.
5
Companies Act, 2013, § 132(1), No. 18, Acts of Parliament, 2013 (India).
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companies and bodies corporate, namely:- (a) companies whose securities are listed on any
stock exchange in India or outside India6
¶4. The Authority has the power to monitor and enforce compliance with accounting of the
various classes of companies including the companies whose securities are listed on any stock
exchange in India or outside India.7 For the purpose of monitoring and enforcing compliance
with accounting standards under the Companies Act by a company, the Authority (i.e. NFRA)
may review the financial statements of such company, if so required, and direct such company
or its auditor to provide further information or explanation or any relevant documents relating
to such company within specified time period.8 For the purpose of monitoring and enforcing
compliance with accounting standards under the Companies Act by a company, NFRA may
review the financial statements of such company, if so required, and direct such company or its
auditor to provide further information or explanation or any relevant documents relating to
such company within specified time period.9
¶5. Further, in terms of, where the Authority finds or has reason to believe that any accounting
standard has been violated, it may decide on the further course of investigation or enforcement
action through its concerned Division.10 It is trite law that a "jurisdictional fact' is a sine qua
non or the condition precedent to the assumption of jurisdiction by a court. A court cannot
erroneously assume jurisdiction either by not deciding the jurisdictional fact or by erroneously
deciding it.11 A foundational fact must be established before a presumption is made. 12 NFRA
has been given ample power (including the power of civil court) under Section 132 to impose
penalty or punishment.13

[1.2] THE JURISDICTION OF NFRA IS EXCLUSIVE IN REGARDS TO

MISCONDUCT OF AN ACCOUNTANT.
¶1. It is humbly submitted that NFRA is to be constituted by the Central Government to provide
for matters relating to accounting and auditing standards.14 It is the NFRA that is to make
recommendations to the Central Government on the formulation of accounting and auditing

6
National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov. 14, 2018), Rule 3.
7
National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov. 14, 2018), Rule 3(1).
8
National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov. 14, 2018), Rule 7.
9
National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov. 14, 2018), Rule 7.
10
National Financial Reporting Authority Rules, 2018, Gazette of India, pt. II sec. 3(i) (Nov. 14, 2018), Rule 7(4).
11
Carona Ltd. v. Parvathy Swaminathan & Sons, [2007] 8 SCC 559; Arun Kumar v. Union of India, [2007] 1 SCC
732.
12
Balram Garg v. SEBI, [2022] 9 SCC 425.
13
Union of India v. Deloitte Haskins & Sells LLP, (2023) 8 SCC 56.
14
Companies Act, 2013, § 132(1), No. 18, Acts of Parliament, 2013 (India).
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policies and standards to be adopted by the auditors. NFRA is also entrusted with the duty to
monitor and enforce the compliance with the accounting standards by the Company and
auditors in such manner as may be prescribed by the Central Government.
¶2. It is sufficiently established that if an auditor had no ‘mens rea’ and did not connive with
the management for falsification of financial statements, it cannot be held liable under the SEBI
Act, 1992 or any Regulations framed there under.15 Merely because he failed to detect an act
of misstatement in the financial statement(s) of a company, he cannot be made adjudicated
before SEBI.
¶3. Mens rea, i.e., the ‘intent’ to commit an act knowing the same to be false, untrue or illegal,
needs to be established qua the auditor in order to bring him/it under the disciplinary/penal
jurisdiction of SEBI under the category of ‘fraud’.16

[1.3] NO CASE MAY BE INITIATED AGAINST THE PRESENT NOTICEES

WITHOUT ALSO IMPLICATING THE AUDITOR.
In the present case, professional advice was sought from Mr Nagarjuna and Legal Sense before
reclassifying Sundarya. Further, the Statutory Auditor and Internal Auditor also reviewed the
statements and certified it in accordance with the relevant provisions of the LODR. The
noticees did not recklessly act on their own accord in reclassifying Sundarya. Even if it is
presumed that the reclassification was wrong, such wrongfulness emanates from the
professional inefficiency and misconduct on the part of the above officers.

Thus, no case may be initiated in the present case, against the impugned noticees without also
first implicating the auditors and other officials. It is also imperative to note that no case for a
fraud or connivance is made against the auditors by the SEBI. Therefore, such prior implication
can be made only before the NFRA. It is clearly established that SEBI cannot regulate the
profession of CA and for SEBI to exercise jurisdiction over an auditor, it has to be shown that
the case pertains to an auditor who has concocted false accounts. 17

15
Tri-Sure India Ltd. v. A.F. Ferguson And Co. And Others, 1987 61 CompCas 548 Bom; Adjudication Order In
the Matter of Fortis Healthcare Limited, Order/GR/KG/2021-22/13092,
https://www.sebi.gov.in/enforcement/orders/aug-2021/adjudication-order-in-respect-of-mr-rashim-tandon-
partner-deloitte-haskins-and-sells-llp-in-the-matter-of-fortis-healthcare-limited_52115.html.
16
SEBI Order In the Matter of falsification/ misstatement in financial statements of Arvind Remedies Limited,
WTM/SM/ CFID/ CFID/ 27506/ 2023-24, https://www.sebi.gov.in/enforcement/orders/jun-2023/final-order-in-
the-matter-of-falsification-misstatement-in-financial-statements-of-arvind-remedies-limited_72779.html.
17
Price Waterhouse & Co. v. SEBI, 2010 SCC OnLine Bom 1197; SEBI Order In the Matter of falsification/
misstatement in financial statements of Arvind Remedies Limited, WTM/SM/ CFID/ CFID/ 27506/ 2023-24,
https://www.sebi.gov.in/enforcement/orders/jun-2023/final-order-in-the-matter-of-falsification-misstatement-in-

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As soon as such prior implication is made, the exclusive jurisdiction under the proviso of
Article 132(4)(a) will kick in and all other regulatory bodies (including SEBI) shall lose any
power to try a case emerging from the same cause of action.

Therefore, the jurisdiction assumed by SEBI in the present case is also void for want of
procedural correctness.

ISSUE II- DOES AGLOW EXERCISE SUFFICIENT CONTROL OVER SUNDARYA

TO MANDATE A PARENT-SUBSIDIARY CLASSIFICATION?

¶ 1. It is humbly submitted that Aglow exercise sufficient control over Sundarya to mandate a
parent-subsidiary classification because [2.1] The standard for sufficient control must be given
due regard to and; [2.2] The standard for the sufficient control was not fulfilled.

[2.1] The standard for sufficient control must be given due regard to.
While the control has been clearly defined to vest with the investor directing the relevant
activities, it is imperative to determine the standard for sufficient control, i.e., the amount of
control over relevant activities at which an investor becomes a parent instead of an associate.
This standard may be inferred through the language of the accounting provisions.

[2.1.1] Language of Ind AS 110

¶ 2. The language employed in a statute is determinative factor of legislative intent.18 The
language of the Ind AS 110, while determining control, needs to be given due regard to. IndAS
110, that deals with accounting of subsidiaries in a consolidated financial statements, while
mentioning the tests used to determine whether an entity is a subsidiary or not states “if and
only if the investor has all the following”.19 Such a language is inherently restrictive, and hints
towards abstinence from a reckless application or liberal interpretation of the provision.

financial-statements-of-arvind-remedies-limited_72779.html; SEBI Order In the Matter of Newever TradeWings

Ltd., WTM/AB/IVD/ID19/19360/2022-23,https://www.sebi.gov.in/enforcement/orders/sep-2022/final-order-in-
the-matter-of-ms-newever-trade-wings-limited_62921.html; SEBI Order In the Matter of G.V. Films Ltd.,
WTM/AB/IVD/ID19/18570/2022-23,
https://www.bseindia.com/markets/MarketInfo/DownloadAttach.aspx?id=20220826-23&attachedId=e93e37e7-
1f6f-4213-8de6-7937c306b1c7.
18
State of Karnataka v. Vishwabharathi House Building Coop. Society, (2003) 2 SCC 412; Sandeep S. Metange
v. State of Maharashtra, 2021 SCC OnLine Bom 5726; Pankaj v. State of Maharashtra, 2017 SCC OnLine Bom
215.
19
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 7.
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Moreover, satisfaction of each of the grounds listed therein is important to classify a company
as a subsidiary of another company.20
¶ 3. It is pertinent to note that the language at ¶5 of Ind AS 110, wherein it is prescribed that
each investor, regardless of the nature of its involvement with an entity (the investee), shall
determine whether it is a parent by assessing whether it controls the investee. 21 This clearly
expounds the probability of most investors not achieving this position even after the evaluation
is made. This clearly showcases that the parent status enshrined in Ind AS 110 is an exceptional
position. Conversely, the language envisaged for a joint arrangement within Ind AS 111 is a
straightforward and inclusive definition.22 Joint arrangements also provide for multiple
permutations, including joint operations and joint ventures. The default presumption, therefore,
should be one of a joint undertaking and the classification for subsidiary relationship be
exceptionally proved for.
[2.1.2] Sufficient Standalone Control

¶ 4. Control, according to the definition, is a proactive and not a reactive power.23 Control
really means creating or controlling a situation by taking the initiative.24 When determining
control, it is not merely enough to show that one of the entities exercises greater control than
the other over the target company, rather it is important to exhibit that such control is
determinative, influential and effective.25 The test is whether the entity in question is in the
driving seat. To extend the metaphor further, the question would be whether he controls the
steering, accelerator, the gears and the brakes.26 If the answer to these questions is in the
affirmative, then alone would he be in control of the company.27

¶ 5. Ind AS 110 provides that if two or more investors each have existing rights that give them
the unilateral ability to exercise different relevant activities, the investor that has the ability to
direct the activities more significantly affect the returns of the investee has the power over the

20
Id.
21
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 5.
22
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶¶ 4-6.
23
Subhkam Ventures v. SEBI, (2010) 99 SCL 159 (SAT); Ashwin K. Doshi v. SEBI, (2002) 40 SCL 545;
ArcelorMittal (India) Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1.
24
Id.
25
Ashwin K. Doshi v. SEBI, (2002) 40 SCL 545 (SAT); Mansarovar Commercial Pvt. Ltd. v. Commissioner of
Income Tax, Delhi, 2023 SCC OnLine SC 386.
26
Subhkam Ventures v. SEBI, (2010) 99 SCL 159 (SAT).
27
Id.
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investee, which is a key component to determine controlling interest.28 However, an exact

50:50 distribution is not only difficult to achieve but also may be against the business interest
as the relevant activities of the company might have to be divided in an incongruent manner,
This may result in a decision gridlock with the owners failing to reconcile competing strategies
and investment appetites.29 Not having a perfectly equal distribution of power and the
possession of the power of ‘casting vote’ in a board of directors with an equal number of
directors appointed by both the parties does not take away the joint venture status.30 Reference
can be made to Annexure 2 for data on multiple joint ventures with distributed ownership.

¶ 6. Thus, to prove within Aglow and Sundarya, a parent-subsidiary relationship, merely a

‘greater exercise of control’ would not be a sufficient standard. It would be needed to be proven
that a ‘decisive and standalone’ control over the relevant activities is being exercised by Aglow.

[2.2] THE DISTRIBUTION OF EQUITY AS WELL AS CONTROL BETWEEN

AGLOW AND AGARWAL GROUP IS EQUAL AND COMPLEMENTARY.

[2.2.1] POWER OVER THE INVESTEE

¶ 7. The criteria of ‘power over the investee’ as determined by Ind AS 110 evaluates the current
ability to direct the relevant activities, i.e., the activities that significantly affect the investee’s
returns.31 In casu, an analysis of such power over Sundarya should be made under two heads
encompassing relevant activities; Sundarya as a business entity engaging in offering salon
services,32 and Sundarya as a company that requires internal administration.
[2.2.1.1] As a business engaged in offering salon services
¶ 8. As a business offering salon services, the controlling business interest and resultantly, the
variable returns is also dependent upon the direction of relevant activities. An investor with the
current ability to direct the relevant activities contains power even if its rights to direct have

28
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 13.
29
Philip Zanfagna, Molly Farber, and James Bamford, Decision Making in 50:50 Joint Ventures, HARVARD LAW
SCHOOL FORUM ON CORP. GOV. (Nov. 13, 2020), https://corpgov.law.harvard.edu/2020/11/13/decision-making-
in-5050-joint-ventures/.
30
Novartis Vaccines and Diagnostics Inc. v. Aventis Pharma Ltd., 2009 SCC Online (Bom) 1126.
31
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶¶ 10-14.
32
Moot Problem ¶ 3.
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yet to be exercised.33 ‘Control’ could be achieved either through acquiring majority interest or
by virtue of exercising control over the business affairs of the company.34
¶ 9. By providing supervisory services in respect of each and every facet of the daily
operations, the Agarwal Group drives the nature of services provided by the Sundarya.35
Moreover, as the investor behind the appointment of the Managing Director, the highest
executive office, the Agarwal Group was also empowered to drive the creation/modification of
policy decisions.
[2.2.1.2] As a company requiring administration
¶ 10. As a recognised corporation with three stores, multiple employees and an established
revenue chain, Sundarya is not just a business entity but also an administrative unit.36 Head and
seat and directing power of the affairs of the company37 and exertion of influence over policy
matters of a company is a key consideration for assessing whether there was a mere strategic
alliance or actual control.38 Therefore, any business or statutory authorities dealing with
Sundarya would first consult and adjudge its position based on the administrators.
¶ 11. Further, Ind AS 110 also mentions the power to appoint and remunerate key management
personnel as a facet of decisions about relevant activities.39 Agarwal Group is also contractually
empowered to appoint the Managing Director.40 It is pertinent to note that the Managing
Director holds a greater position in managing the day-to-day affairs and working of the
company than the Chairman.
[2.2.2] EXPOSURE OR RIGHTS TO VARIABLE RETURNS
¶ 12. The right to variable returns corresponds to degree of uncertainty that arises with respect
to the revenue accrued to a party by nature of its investment in a third party. The investments
can be of multiple types. While some investments are made by certain entities in hope of a
stable revenue source, others are made in the hope of massive returns. The parties accruing a
stable revenue are generally a dormant non participatory investor, while the ones most exposed
to volatility are the ones that drive the decision making to maximise their profits.

33
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶ 12.
34
Calesa Associates L.P. v. American Capital Ltd., C.A. No. 10557-VCG (Del. Ch. Feb. 29, 2016) (USA).
35
Moot Problem ¶ 22.
36
Moot Problem ¶ 4.
37
Mansarovar Commercial Pvt. Ltd. v. Commissioner of Income Tax, Delhi, 2023 SCC OnLine SC 386;
ArcelorMittal (India) Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1.
38
Technip S.A. v. S.M.S. Holding Pvt. Ltd., (2005) 5 SCC 465.
39
Companies (Indian Accounting Standards) Rules, 2015, Gazette of India, pt. II sec. 3(i) (Feb. 16, 2015),
Annexure, Indian Accounting Standards (Ind AS) 110, ¶ B12.
40
Moot Problem ¶ 22.
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¶ 13. An equity participation in a company means that there shall always be a certain degree
of variable return that the investor is exposed to, viz., through capital appreciation, payable
dividends, and other profit-sharing agreement. In such a case, when multiple investors are
exposed to variable returns through the investee, the amount and the degree of variability (i.e.,
how susceptible to variation those returns are) determines the investor that is to be classified
‘in control’.
¶ 14. In the present case, no division of returns is a function of the extent of equity ownership
held. The capital appreciation for both the investors (Aglow and Agarwal Group) are not just
proportionate but also the same. Any other returns due as a function of equity shall also be
equalised due to the 50:50 bifurcation of ownership.
¶ 15. Further, the moot proposition provides no information on provision of any additional
dividend payouts being made. As such, the only right to returns can be gauged from the
contractual arrangement underpinning the arrangement.
¶ 16. Entry 5 of the rights/controls in respect of the various activities provides for a technical
fee of 0.9% of project cost, excluding the cost of the land to be paid out to Aglow.41 At the
same time, the cost for commercial conversion of land for salon use was actually meted out by
the Agarwal Group.42 The construction was to be done by Aglow in consultation with Agarwal
Group and completing the construction of saloons in all other aspects was to be performed
jointly.
¶ 17. Such technical fee, determined at a percentage of the total project cost is generally
attributed to a service provider when they are engaged by a company to provide certain services
within a project. This is not reeking of a parent relationship over an entity, where generally
either the payment is made for the service to be rendered or the expertise of the parent company
is lent out to the subsidiary at a minimal cost to increase its profitability. In this case however,
while the cost for commercial conversion was paid for by Agarwal alone, and completion of
construction was a collaborative endeavour, a technical fee at par with the general market
practise was charged.
¶ 18. Since there is no cost involved by the Aglow, and a certain amount is guaranteed to them,
the uncertainty in undertaking the present business endeavour for them is much lower
compared to Agarwal Group, who has both suffered a cost and shall derive variable pay only
in consonance with Entry 12 of the aforementioned table.

41
Moot Problem ¶ 22.
42
Id.
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¶ 19. Having a conjoined reading of the Entry 11 and Entry 12 of the the rights/controls in
respect of the various activities, it is seen that a management fee @0.9 % of turnover and 5%
of gross (not net) profits were to be earned by Aglow for its investment in Sundarya and
contribution in its day-to-day operations. Agarwal provides for appointment of multiple KMPs,
getting the construction completed and work commenced; and providing for supervisory
services within various verticals and the company. It is entitled further to the surplus remaining
after payment of management fees to Aglow and further deducting reasonable allowance of
working capital.43
¶ 20. It is imperative to note that the returns accrued to Aglow are a small percentage of the
turnover and the gross profits. Both of these terms are highly superficial and only deal with the
prima facie occurring revenue and profit.
¶ 21. The word ‘turnover’ refers to the total amount of money a company earns from its
primary business activities, and it typically reflects positive income generated from selling
products or services.44 It's a measure of a company's ability to generate revenue. A company’s
annual turnover can almost never be negative.45
¶ 22. The word ‘gross profits’ on the other hand is a financial metric that represents the
difference between a company's total revenue and the cost of goods sold (COGS).46 Generally,
it only accounts for the variable costs while determining the quantum of profits, i.e., the money
spent at material, labour etc. while completely ignoring fixed costs such as materials, direct
labour, sales staff commission, rent, salaries etc. While it does have a possibility to be in net
negative, it has generally been seen not to. A company rarely loses money on its core
production but rather does it due to the inability to manage the associated costs.47
¶ 23. As such, it is clearly visible that while Aglow’s intention was to secure for itself, a fixed
yearly income that can keep constantly accruing to it, Agarwal Group is entitled to all other
surplus remaining after the company achieves operating profitability and is able to pay out the
amount accrued to Aglow. In case of a massive profit, a large chunk of money shall accrue to
Aglow and a substantial but much smaller amount shall be paid to Aglow.

43
Annexure 1 to the Moot Problem, cl. 13.
44
Companies Act, 2013, § 2(91), No. 18, Acts of Parliament, 2013 (India).
45
Broberg, M.P., Commission's Jurisdiction over Mergers in the Financial Sector, 23 LEGAL ISSUES OF EUR.
INTEGRATION 35 (1996).
46
Tariq, N., 2012. A Comparative Study on Bank’s Profitability Before, During and After Crises, 6(1) SOUTH
ASIAN JOURNAL OF MANAGEMENT.
47
Stulz, R.M., Rethinking Risk Management, in CORPORATE RISK MANAGEMENT 87 (Columbia University Press
2008).
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¶ 24. Moreover, for past some years, as the salon business is in a slump due to Covid related
slowdown, Sundarya had accrued losses.48 While even in a net loss, the turnover is necessarily
positive and the gross profit most likely too. In such cases of loss, while certain money was
still being accrued to Aglow, no money would have been payable to Agarwal.
¶ 25. The Aglow’s returns are dependent on running the business while the Agarwal’s returns
are dependents upon running the business profitably, as such, they have to account for a much
larger number of variables. Since the Agarwal are entitled to receive a greater share of income
in case of a net operating profit, and accrue no returns in case of a net operating loss, they have
a greater exposure to variable returns from Sundarya.
¶ 26. In any case, even if the power is greater than the Agarwal Group, there is nothing to show
that it is disproportionately higher and sufficiently standalone.

ISSUE III- WHETHER THE OFFLOADING OF SHARES BY MR. PULKIT AND MS.
ANJALI AMOUNTED TO UNFAIR TRADE PRACTICE?

¶ 27. It is humbly submitted that the offloading of shares by Mr. Pulkit and Ms. Anjali does not
amount to unfair trade practice because [3.1] The reclassification of Sundarya as a Joint Venture
did not result in fraud since the ‘essentials of fraud’ under PFUTP Regulations, 2003 were not
fulfilled; [3.2] There was no asymmetry of knowledge for the investors of aglow in the
securities market; [3.3] Necessary due-diligence was carried out and required duties of
directors were fulfilled.

[3.1] THE RECLASSIFICATION OF SUNDARYA AS A JOINT VENTURE DID NOT

RESULT IN FRAUD SINCE THE ‘ESSENTIALS OF FRAUD’ UNDER PFUTP
REGULATIONS, 2003 WERE NOT FULFILLED

[3.1.1] There was no manipulation of scrip price of Aglow

¶ 28. It is submitted that market manipulation is a deliberate attempt to interfere with the free
and fair operation of the market and create artificial, false or misleading appearances with
respect to the price, market, product, security and currency.49 Market manipulation must be
in evidence before any charge of violating Regulation 3 and 4 of PFUTP regulations50 could be

48
Moot Problem ¶ 27.
49
Adjudication Order In the Matter of Scanpoint Geomatics Limited, Order/PM/AB/2020-21/8084,
https://www.sebi.gov.in/enforcement/orders/jun-2020/adjudication-order-in-respect-of-rakhi-trading-pvt-ltd-in-
the-matter-of-scanpoint-geomatics-ltc-_46972.html.
50
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,
Reg. 3,4.
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upheld.51 A wild allegation of market manipulation unsupported with convincing evidence is

not to be sustained that allegation of fraud cannot survive on mere conjectures and surmises.52
¶ 29. Absence of analysis of allegations- Regulation 4(1) of PFUTP Regulations, 200353 deals
with fraudulent and unfair trade practices relating to securities while Regulation 4(2)54 is
nothing but an enumeration of specific instances of fraudulent and unfair trade practices
relating to securities. The common thread through these provisions is that the ingredients of
fraud/manipulation/unfair trade practices must be satisfied.55 Further, every notice to any
person shall indicate the nature of offence alleged to have been committed by him.56
¶ 30. In the present case, the FAR does not allege anything which can be termed as unfair trade
practice in the securities market without there being any direct or indirect manipulation of the
price of the securities of the Company. The SCN contains no particularized charge under
Regulation 3 or Regulation 4(2), at all. The SCN makes assertions only as to Regulation 4(1).
The other Regulations are inserted by number only, without any particulars. Mr. Pulkit and Ms.
Anjali have been charged with the violation of numerous regulations.57 However, there is no
analysis as to how each of the findings impacted the persons dealing in securities.58
¶ 31. Additionally, it has not been explained how non-compliance with provisions of LODR
Regulations59 or misrepresentation attract each of the PFUTP Regulations, 200360 as alleged.
Section 12A (a), (b) & (c) of the SEBI Act, 1992 may be invoked in cases where there exists
any manipulative or deceptive device or contrivance, any device, scheme or artifice to defraud
or any act, practice, course of business which operates or would operate as fraud or deceit upon
any person, in connection with the issue, purchase or sale of any securities. In the SCN, there

51
Id.
52
KSL Industries Ltd v. SEBI, SAT Appeal no. 9 of 2003 (Sept. 30, 2003).
53
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,
Reg. 4(1).
54
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,
Reg. 4(2).
55
SEBI Order In the Matter of Quest Financial Services Ltd., WTM/AB/IVD/ID19/15432/2021-22,
https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/mar-2022/unserved-final-order-dated-
march-21-2022-in-respect-of-jyoti-lohia-in-the-matter-of-quest-financial-services-limited_58208.html.; SEBI
Order In the Matter of ARSS Infrastructure Projects Ltd., WTM/AB/IVD/ID19/14342/2021-22,
https://www.sebi.gov.in/enforcement/orders/nov-2021/final-order-in-the-matter-of-arss-infrastructure-projects-
limited_54213.html.
56
SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, Rule 4(2).
57
Moot Problem ¶ 38, 39.
58
SEBI Order In the Matter of Quest Financial Services Ltd., WTM/AB/IVD/ID19/15432/2021-22,
https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/mar-2022/unserved-final-order-dated-
march-21-2022-in-respect-of-jyoti-lohia-in-the-matter-of-quest-financial-services-limited_58208.html.
59
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
60
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
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are no trading or order data or details of any purchase, sale or price impact analysis that would
impact the investors.
¶ 32. The WTM has relied on the SCN and the submissions of Aglow to pass orders. 61 The
submissions provided by the noticee would rely on the SCN which lays out different findings,
but in the present case, exclusion of analysis of various findings which have been used SEBI
to pass orders against Aglow also restricts the scope of evidence that would be produced by
Aglow. Such evidence is imperative for imposing any liability on a party.62 Lack of opportunity
to Aglow to provide such evidence is violative of the proper procedure that is supposed to be
followed by SEBI.
¶ 33. No manipulative devices- Market abuse refers to the use of manipulative devices, giving
out incorrect or misleading information, so as to encourage investors to jump into conclusions,
on wrong premises, which is known to be wrong to the abusers. Manipulation can be achieved
by inflating the company’s revenue, security deposits and receivables, resulting in price rise of
the scrip of the company. Investors are then lured to make their “investment decisions” on those
manipulated inflated results, using the above devices which will amount to market abuse."
¶ 34. In the present case, there is nothing to show that we went out of the way that was a
manipulative device, along with the intent. The information disseminated through the CFS was
shared after undertaking due diligence by taking legal and financial advice from professional
experts, and duty of care was exhausted.63 Therefore, no such manipulative devices have been
employed in order to attract investments out of false or misleading information.
¶ 35. Impact on price of scrips- It is submitted that any device, to manipulate the books of
accounts or financial statement of a company must directly or indirectly result into
manipulation of the price of securities of that company.64

¶ 36. In the present case, for FY 2020-21, Aglow had consolidated losses after tax of Rs. 27.47
crores. For FY 2021-22, it declared a net profit after tax of Rs. 18.05 crore. According to the
allegations by SEBI, this significant improvement, i.e., 165.72% rise in the net profit was
majorly attributable to re-measurement gain of Rs. 17.77 crore on account of treating Sundarya
as an associate company instead of a subsidiary. Aglow was already having a net profit of Rs.

61
Moot Problem ¶ 43.
62
SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, Rule 5(1).
63
Moot Problem ¶ 9(i).
64
SEBI Order In the Matter of ARSS Infrastructure Projects Ltd., WTM/AB/IVD/ID19/14342/2021-22,
https://www.sebi.gov.in/enforcement/orders/nov-2021/final-order-in-the-matter-of-arss-infrastructure-projects-
limited_54213.html.
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0.25 crore, excluding the remeasurement gain of Rs. 17.77 crore.65 When the company is going
on an upward trajectory, the presumption in minds of the investors is bound to be positive, with
the belief that the company would further grow in the future. Normally, an investor invests his
money by considering the financial health of the Company and in order to find out the same,
one will naturally bank upon the accounts and balance-sheets of the Company.66
¶ 37. Furthermore, overall revenue growth and increase in share prices of Aglow can be
attributed to the possibility of effect of such sectoral growth. Therefore, there is nothing to p
rove that misrepresentation led to any manipulation of the price of the scrips.
¶ 38. Dealing in securities- 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.’67 If Mr.
Pulkit and Ms. Anjali are considered to be ‘dealing in securities’, then also their act does not
come under the realm of ‘trade practice’. Their act 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.
[3.1.2] There was no Bona fide intention of the Noticees
¶ 39. It is submitted that the act of false and untrue, promises, declarations/statements
containing misleading and distorted information with ‘intention’ to lure innocent and gullible
investors is included in fraud.68 It is settled law that a fraud is an act of deliberate deception
with the design of securing something by taking unfair advantage of another, it is a deception
in order to gain by another's loss, it is a cheating intended to get an advantage. 69
¶ 40. The necessity of 'Intent' and the element of 'fraud' appears to be a prerequisite in all the
parts of regulations 3 and 4 of the PFUTP Regulations. Regulation 4(2)70 are very specific in
nature. The test laid down in the regulation demand a manipulative intent to affect market

65
Moot Problem 27.
66
Price Waterhouse v. SEBI, SAT Appeal No. 8 of 2011 (June 6, 2011),
https://www.sebi.gov.in/satorders/pricewaterhouse2.pdf, , ¶ 3.
67
The Competition Act, 2002, § 2(x), No. 12 of 2003, Acts of Parliament, 2002 (India).
68
SEBI Order In the Matter of SGI Research & Analysis Ltd., AO/VKV/AS/AO-11/2017,
https://www.sebi.gov.in/enforcement/orders-that-could-not-be-served/nov-2017/adjudication-order-in-the-
matter-of-sgi-research-and-analysis-limited_36791.html.
69
Union of India v. Design Auto Systems Ltd., 2009 SCC OnLine CLB 61.
70
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,
Reg. 4(2).
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information.71 “The entire scheme of fraud is planned and executed demonstrates beyond
reasonable doubt the manipulative intent to deliberately withhold the critical information.”72
¶ 41. In the present case, to establish the presence of a mala fide intention, it must be
demonstrated that the Noticees 1 to 4 acted purposefully to cause material loss to investors and
were fully conscious of the predicted outcome. Neither the SCN, nor the order by the
Adjudication Officer in the present matter establish such knowledge or deliberately wrongful
action. Noticees No. 3 and 4 in the present matter only took to reduce promoter shareholding
at a time when the beauty salon sector in general was seeing a boom. This is not an uncommon
practise, and early investors often reduce their shareholding during a bullish market.
¶ 42. Moreover, there was no deficiency in the conduct of the either of the noticees that would
result in the shareholders being unaware. The news of the reclassification of Sundarya as an
associate was published as early as January 31st.73 The publication of the Consolidated
Financial Statements merely incorporated this change in accounting terms. Any immediate
impact upon price due to this reclassification would have taken place between January 31st and
March 31st.
¶ 43. The Noticees also undertook the requisite due diligence to ensure that the reclassification
was legally provided.74 Since the noticees’ actions were akin to the standard business practise,
and all reasonable efforts were made, no intention can be gauged on the part of promoters.
[3.1.3] There was no Inducement by Aglow
¶ 44. It is submitted that ‘inducement’ is required to constitute ‘fraud’ under PFUTP
Regulations 200375 and must be made while ‘dealing in securities’ and must be made for the
purpose ‘to induce others to deal in securities’.76
¶ 45. Further, fraud cannot be proved only on alleged gross negligence, carelessness or
recklessness as amounting to collusion and connivance on a preponderance of probabilities.
The element of "inducement" must exist and should be proved before holding that a person is
guilty of fraud.77

71
Adjudication Order In the Matter of Blue Blends (India) Ltd., Order/SR/SM/2020-2021/7697-7698/7-8,
https://www.sebi.gov.in/enforcement/orders/may-2020/adjudication-order-in-respect-of-bp-fintrade-private-ltd-
and-bp-comtrade-private-ltd-in-the-matter-of-blue-blends-india-limited_46648.html.
72
Adjudication Order In the Matter of Resurgere Mines & Minerals India Ltd., Order/GR/PU/2022-23/17202-
17225, https://www.sebi.gov.in/enforcement/orders/jun-2022/adjudication-order-in-the-matter-of-resurgere-
mine-and-minerals-india-ltd-_59890.html.
73
Moot Problem ¶ 6.
74
Moot Problem ¶ 9(i).
75
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
76
SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1.
77
SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1.
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¶ 46. In the instant case, there is no finding that the appellants had induced someone and
thereby played a fraud in the securities market. It must be proved by cogent evidence that the
appellants are guilty of "inducement". In the absence of any evidence, neither is the charge of
fraud proved, nor the provisions of Regulation 3 and 4 of PFUTP Regulations applicable.78 In
the present case, the allegations made in the SCN do not bring out findings or any facts relating
to trading in securities by Noticees or these essential ingredients of ‘fraud’ such as
‘manipulation in securities’, ‘dealing in securities’, ‘inducement’, etc.

[3.2] THERE WAS NO ASYMMETRY OF KNOWLEDGE FOR THE INVESTORS OF

AGLOW IN THE SECURITIES MARKET
¶ 47. It is submitted that channels for disseminating information shall provide for equal, timely
and cost efficient access to relevant information by investors.79 Fairness in financial markets
is often expressed in terms of level playing field. A playing field may be uneven because of
varied reasons such as inequalities in information etc. The unequal possession of information
is fraudulent only when the information has been acquired in bad faith and thereby inducing an
inequitable result for others.80 Securities market is based on free and open access to
information, the integrity of the market is predicated on the quality and the manner on which
it is made available to market.81
¶ 48. Knowledge in market- In the present case, Aglow through its notice dated January 31,
2022, informed that Sundarya had ceased to be a subsidiary company of Aglow and was
classified as a joint venture company of Aglow.82 All trades undertaken by Mr. Pulkit and Ms.
Anjali started much after the announcement, i.e., from 4 February 2022 and 1 July 2022
respectively.83 They offloaded certain number of their shares between February 2022 to
December 2022, and SEBI relied on these tradings to determine violations. However, none of
these offloads were made perusing any non-public information. Therefore, it can be concluded
that there was no asymmetry of knowledge in the market, and no fraud was committed by Mr.
Pulkit and Ms. Anjali.

78
S. Gopalakrishnan v. SEBI, SAT Appeal No. 6 of 2018 (Sept. 9, 2019); SEBI Order In the Matter of K-Lifestyle
& Industries Ltd., WTM/AB/IVD/ID19/14495/2021-22, https://www.sebi.gov.in/enforcement/orders/dec-
2021/final-order-in-the-matter-of-k-lifestyle-and-industries-limited_54851.html.
79
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Reg. 4(1)(f).
80
SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1.
81
N. Narayanan v. SEBI, (2013) 12 SCC 152.
82
Moot Problem ¶ 6.
83
Mott Problem ¶ 31.
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¶ 49. Lawful gains by selling securities- It is not a crime to make huge profits unless you show
that the profits were made by manipulating the price in collusion and with fraudulent intent
with other entities such as the Company and its directors and promoter84. The powers vested in
the Board are only to ensure that investors were not mislead in making investments based on
fraud and allurement and that there was nothing unusual about investors being attracted when
the Company came with positive annual reports.

¶ 50. Extraordinary profits in itself could not be the basis for concluding that the Company's
accounts are manipulated with a specific objective to mislead the investors.85 Merely because
the appellants reaped in huge profits by selling the shares, that does not make them a part and
parcel of a fraudulent scheme.86The profits made by Mr. Pulkit and Ms. Anjali, even if
considered as unusual profits, by itself could not constitute any transgression of law.

[3.3] NECESSARY DUE-DILIGENCE WAS CARRIED OUT AND REQUIRED

DUTIES OF DIRECTORS WERE FULFILLED.
¶ 51. It is humbly submitted that it is not necessary that every director is required to be
penalized merely because he is a director on the ground that he is responsible for the affairs of
the company. If the director can explain that he had no role to play in the alleged default or that
he did not perform his duties assigned to him under the agreement of his appointment, the
presumption of guilt and thereafter penalty cannot be fastened upon him.87

¶ 52. MCA's Master Circular No. 1/2020 dated March 2, 2020, clarifies that no director shall
be held liable for any violation by the company or by any other officer of the company, if the
violation occurred without his or her knowledge and without his or her consent or connivance
or where he or she has acted diligently. 88It was not open for the WTM to pass further orders
on the other Directors, namely, the appellant especially when there is no finding nor there is a
shred of any evidence to indicate that the appellant was also responsible for the affairs of the
Company.

84
Umang Dhanuka v. SEBI, SAT Appeal No. 102 of 2020 (June 8, 2021),
https://sat.gov.in/english/pdf/E2021_JO202044.PDF.
85
SEBI v. Mega Corporation Ltd., Civil Appeal No. 2104 of 2009.
86
Praveen Kurele v. SEBI, SAT Appeal No. 319 of 2020 (Oct. 26, 2021).
87
Sayanti Sen v. SEBI, SAT Appeal No. 163 of 2018 (Aug. 9, 2019).
88
SEBI Order In the Matter of Landmarc Leisure Corpn. Ltd., WTM/AB/IVD/ID19/14750/2021-22,
https://www.sebi.gov.in/enforcement/orders/jan-2022/final-order-in-the-matter-of-landmarc-leisure-corporation-
ltd-_55462.html.
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[3.3.1] Duty and care

¶ 53. A director need not exhibit in the performance of his duties a greater degree of skill than
may be expected from a person of his knowledge and experience. Further, a director is not
liable for mere errors in judgement.89 Mr. Pulkit and Ms. Anjali fulfilled their duty, and
assuming that they didn’t, the standard of due diligence was fulfilled and any act would have
been a mere error in judgement.
[3.3.2] Professional advice
¶ 54. Where a company has acted on professional advice, in the absence of sufficient evidence
to establish the charge of misleading the public, it cannot be held that the said company has
wilfully failed to disclose material information.90 Director may legimately defer to the views
of those with greater expertise than him.91 In the present case, an impact analysis was made by
Aglow’s management regarding the implications on the appointment of IDs after Aglow
received a notice of the EGM meeting from Sundarya on January 10, 2022, regarding proposal
for appointment of two Independent Directors (“IDs”) for meeting on January 29, 2022.92
¶ 55. Mr. Sameer Amal did detailed research and intimated to Pulkit Sharma that as per IND
AS 110, the Holding-Subsidiary relationship between Aglow and Sundarya would end, and
Sundarya was required to be treated as an associate company during the consolidation of
financial statements. For this, two opinions were sought, one from a law firm, namely
LegalSense and another from Mr. Nagarjuna, a practicing Company Secretary both of which
were received to Aglow.93 The professional opinions indicated that from the effective date of
appointment of two IDs i.e., January 29, 2022, the Holding-Subsidiary relationship between
Aglow and Sundarya would cease to exist.

[3.3.3] The standard of due diligence differs from case-to-case depending on reasonability.
¶ 56. The Appellant humbly submits that the concept of due diligence is such that it differs
from case to case. It has to be perused in light of facts and circumstances. In addition to that
reasonability of due diligence that can be performed also varies in different circumstances.94

89
In re Brazilian Rubber & Plantation Estates Ltd. [1911] 1 Ch. 425, 437.
90
Sundaram Finance Ltd. v. SEBI, SAT Appeal No. Appeal No.37/2002 (Jan. 29, 2003),
https://www.sebi.gov.in/satorders/sundaram.html.
91
Madoff Securities International v. Raven [2013] EWHC 3147 (Comm).
92
Moot Problem ¶ 5.
93
Moot problem ¶ 9(i).
94
COMPANY DIRECTORS DUTIES, LIABILITIES, AND REMEDIES (Simon Mortimore Q.C. ed., 3rd ed. Oxford
University Press 2017).
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¶ 57. Thus, it is pertinent to note that the standard of due diligence that is exercised differs
from case-to-case. Due diligence was taken by SEBI from an order of the Hon‟ble Supreme
Court as “Due diligence in law, means doing everything reasonable and not everything
possible. Due diligence as a prudent man would exercise in conduct of his own affairs.”95
¶ 58. Moreover, due diligence doesn’t mean Microscopic examination of details where a party
assumes him to be an amateur detective.96 Due diligence is subjective and differs from case-
to-case.97 Also, SEBI itself hasn‟t provided a certain guidelines on which due diligence has to
be exercised. In the given case, the appellant has exercised proper due diligence, what should
have been exercised by a reasonable man. They relied on advice of experts and believed it to
be true after using independent judgement while acting as signatories of the CFS.
¶ 59. Liability of Non- executive directors- It is submitted that no liability could be fastened
upon Ms. Anjali merely because she was present in board meetings.98 Further, board resolution,
in no way, indicates prior knowledge of the appellant with respect to any fraud. In the absence
of any evidence to show the appellant's involvement in the issue, the averments that the
appellant was present at Board meetings has no relevance.
¶ 60. In consonance with MCA and RBI circular, only such non-executive director should be
booked against whom cogent evidence is available that such director was aware of the fraud
involved in the announcement, or he was acting in connivance. 99 Non-executive directors are
not expected to be directly concerned in management and may have to contribute to decisions
on the basis of information obtained from other members.100
¶ 61. Under section 149(12) of the Companies Act101, Non-Executive Directors and
Independent Directors cannot be held liable unless they have knowledge of commission of
wrong doings by the Company or had not acted diligently.102 In the present case, Ms. Anjali is
a non-executive director of Aglow.103 She relied on the information provided by the CFO of

95
Adjudication Order In the Matter of SEBI v. Indiabulls Securities Ltd., BM/AO- 76/2012,
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1356705349130.pdf.
96
Ross v. London County (1929) 1 KB 40 (UK).
97
Prafull Anubhai Shah v. SEBI, SAT Appeal no. 389 of 2021 (June 28, 2021).
98
Moot Problem ¶ 34.
99
Marfani and Co. Ltd v. Midland Bank Ltd. (1968) 2 All ER 573 (UK); Llyod Bank Ltd. v. E.B. Savory & Co.
(1933) AC 201 (UK).
100 100
Bishopgate Investment Management Ltd. v. Maxwell (No. 2) [1993] BCLC 814 (UK).
101
The Companies Act, 2013, § 149(2), No. 18, Acts of Parliament, 2013 (India).
102
SEBI Order In the Matter of Svam Software Ltd., WTM/AB/IVD/ID19/13689/2021-22,
https://www.sebi.gov.in/enforcement/orders/oct-2021/final-order-in-the-matter-of-svam-software-ltd-
_53181.html.
103
Moot Problem ¶ 34.
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the company while acting as a signatory of the CFS.104 There is no evidence to prove that she
was aware of any misrepresentation, if any, present in the financial statements.

ISSUE IV- WHETHER THE QUANTUM OF PENALTY IMPOSED BY SEBI IS

HARSH, EXCESSIVE AND DISPROPORTIONATE TO THE ALLEGATIONS
AGAINST AGLOW?

¶ 62. It is humbly submitted that the quantum of penalty is harsh because [3.1] the mitigating
factors contained in Sec. 15J of SEBI Act, 1992105 have not been considered by the AO, [3.2]
there was absence of wilful default by Aglow.

[4.1] THE MITIGATING FACTORS CONTAINED IN SEC. 15J OF SEBI ACT, 1992
HAVE NOT BEEN CONSIDERED BY THE AO.
¶ 63. It is humbly submitted that punishments must be proportionate to the nature and gravity
of the offenses.106 The cardinal rule of adjudicating penalty is that; it should justify the gravity
of the offense and be sustainable in the eyes of law. While exercising the power to impose
penalty, there must be reasonableness and a penalty should never smack of arbitrariness.107
¶ 64. Section 15J lays down a few guiding factors for determining the quantum of penalty. It
must be shown that the guilty party would have (1) benefited from a disproportionate gain or
taken unfair advantage which is quantifiable, (2) the amount of loss caused to the investor as a
result of default and (3) repetitive nature of default.108 When the criteria in section 15J are not
complied with, the penalty has to be bare minimum. When none of the parameters are met,
minimum penalty will be commensurate with the violations committed by the Noticee.109 This
was also held in a similar case as the present case, where the material available on record had
not quantified the amount of disproportionate gain or unfair advantage made by the Noticees.
A minimal penalty of 6 lacs was imposed.110

104
Moot Problem ¶ 9.
105
The Securities Exchange Board of India, §15J, No. 15, Acts of Parliament, 1992, (2013).
106
Ess Ess Intermediaries v. SEBI, SAT Appeal No. 13 of 2013 (June 19, 2013),
https://www.sebi.gov.in/enforcement/orders/jun-2013/in-the-matter-of-m-s-ess-ess-intermediaries_24919.html.
107
J.M. Mutual Fund v. SEBI, (2005) 3 CompLJ 544 SAT.
108
Id.
109
Adjudication Order In the Matter of Laxmi Narayan Rawat, Order/MC/RM/2021-22/14560,
https://www.sebi.gov.in/enforcement/orders/dec-2021/adjudication-order-in-respect-of-laxmi-narayan-rawat-
huf-in-the-matter-of-illiquid-stock-options-at-bse-54941.html.
110
Adjudication Order In the Matter of Audit Report of ACIL Cotton Industries Ltd., Universal Credit and
Securities Ltd., Mindvision Capital Ltd. and RFL International Ltd., Order/GR/PU/2022-23/20625-20642,
https://www.sebi.gov.in/enforcement/orders/oct-2022/adjudication-order-in-the-matter-of-audit-report-of-acil-
cotton-industries-ltd-universal-credit-and-securities-ltd-mindvision-capital-ltd-and-rfl-international-
ltd_64387.html.
MEMORANDUM on BEHALF of APPELLANT PAGE |
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7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [ARGUMENTS ADVANCED]

¶ 65. No quantifiable gain- Since the sectoral growth was positive for numerous peer
competitors111, it cannot be determined whether the amount of disproportionate gain, if any,
was caused by the normal course of market play, or through misrepresentation of financial
statements of Aglow.112 Additionally, if certain portion of such gain is even attributed to
misrepresentation, the exact proportion of the same is not quantifiable. Reference can be made
to Annexure I to visualise how the price rise was in line with the sector.
¶ 66. No loss to the investors-Due to symmetry of knowledge in the market, the extent of loss
suffered by the investors as a result of the default has neither been specified by SEBI, nor is it
quantifiable. Therefore, the AO failed to consider the mitigating factors specified in Sec. 15J113

[4.2] THERE WAS ABSENCE OF WILFUL DEFAULT BY AGLOW.

¶ 67. It is submitted that the imposition of any penalty in law including under the SEBI Act,
requires it to be established that there was a "wilful default" or "deliberate defiance" of the
provisions to commit the offence.114 Numerous decisions have recognised the distinction
between the ingredients for commission of the offence under SEBI Act (which in certain cases
is not required to include any mens rea) and the imposition of penalty which, with or without
the requirement of mens rea, requires a "wilful default" or "deliberate defiance". 115
¶ 68. A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance
of law, or acts in conscious disregard to its obligation.116 In the absence of any direct evidence
to wholly implicate appellant in the larger conspiracy, the appellant is to be given benefit of
doubt as far as the quantum of penalty is concerned.117 The Appellant has been charged for
executing fraudulent trades which is, indeed, a serious charge and cannot be established on
mere suspicion and should have firmer ground to stand upon. A higher degree of probability
must exist before such a charge could be found to have been established. 118
¶ 69. If it can be shown that a contravener never intended or consciously avoided to comply
with the obligations under the Regulations, then no case is made out for any penalty

111
Moot Clarifications 10.
112
Id.
113
The Securities Exchange Board of India, §15J, No. 15, Acts of Parliament, 1992, (2013).
114
Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253; Samrat Holdings Ltd. v. SEBI, SAT Appeal No. 23
of 2000 (Jan 25, 2001), https://www.sebi.gov.in/enforcement/orders/jan-2001/samrat-holdings-vs-adjudicating-
officer_17772.html.
115
Hemant S. Sonawala v. SEBI, SAT Appeal No. 12 of 2002 (Oct. 2002),
https://www.sebi.gov.in/satorders/hemant.html.
116
Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253.
117
Manish Mathur v. SEBI, SAT Appeal No. 332 of 2014 (Oct. 3, 2016),
https://sat.gov.in/ENGLISH/PDF/E2016_JO2014332.PDF.
118
R.K. Global v. SEBI, SAT Appeal No. 158 of 2008 (Sept. 16, 2010),
https://www.sebi.gov.in/satorders/rkglobalord.pdf?QUERY.
MEMORANDUM on BEHALF of APPELLANT PAGE |
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7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023 [ARGUMENTS ADVANCED]

notwithstanding the provisions of section 15J.119 The findings arrived at by the adjudicating
officer cannot be without any evidence and based on her ipse dixit. Further, in order to implicate
a person, namely, a director of any fraudulent act it is necessary for the authority to further find
any evidence of fraud. 120 In the present case, they performed every procedure for determining
the true status of the company. No trading of scrip was executed until the information was
actually made publicly available.121

119
Cabot International Capital Corpn. v. Adjudicating Officer, SAT Appeal No. 24 of 2000 (Jan. 2021),
https://www.sebi.gov.in/satorders/Cabot.html; Naresh Chand v. SEBI, SAT Appeal No. 28, 28A, 28B and 28C of
2005 (Dec. 8, 2005), https://www.sebi.gov.in/satorders/naresh.html; Merck Spares v. Collector of Central Excise
& Customs, [1983] ELT 1261; Shama Engine Valves Ltd. v. Collector of Customs, [1984] 18 ELT 533;
Madhusudhan Gordhandas & Co. v. Collector of Customs, [1987] 29 ELT 904.
120
Adjudication Order In the Matter of Chromatic India Ltd., Order/AA/AR/2020-21/8795,
https://www.sebi.gov.in/enforcement/orders/aug-2020/adjudication-order-in-respect-of-vipin-sharma-in-the-
matter-of-chromatic-india-ltd_47432.html; Adjudication Order In the Matter of National Highway Authority of
India, ORDER/PM/RR/2020-21/7744, https://www.sebi.gov.in/enforcement/orders/may-2020/adjudication-
order-in-respect-of-national-highway-authority-of-india_46713.html.
121
Moot Problem ¶ 31.
MEMORANDUM on BEHALF of APPELLANT PAGE |
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 7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023

PRAYER

Wherefore in light of the above submissions, APPELLANT respectfully prays before this
Hon’ble tribunal to adjudge and declare that:

I. SEBI DID NOT HAVE JURISDICTION TO HOLD THAT AGLOW STILL

EXERCISES CONTROL OVER SUNDARYA AND TO CONSEQUENTLY
IMPOSE SANCTIONS IN THE FORM OF DISGORGEMENT AND
PENALTIES

II. EVEN IF SEBI HAD JURISDICTION, AGLOW DID NOT EXERCISE

SUFFICIENT CONTROL OVER SUNDARYA TO MANDATE A PARENT-
SUBSIDIARY CLASSIFICATION

III. THE OFFLOADING OF SHARES BY MR. PULKIT AND MS. ANJALI DID
NOT AMOUNT TO UNFAIR TRADE PRACTICE

IV. THE QUANTUM OF PENALTY IMPOSED BY SEBI IS HARSH, EXCESSIVE

AND DISPROPORTIONATE TO THE ALLEGATIONS AGAINST AGLOW

AND/OR pass any order/declaration that the Hon’ble Court may deem fit in the interest of
justice, equity and good conscience.

All of which is most humbly prayed.

Respectfully submitted

On behalf of Aglow Limited

Counsels for the Appellant.

MEMORANDUM on BEHALF of APPELLANT PAGE | XV

 7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023

ANNEXURE I

MEMORANDUM on BEHALF of APPELLANT PAGE | XVI

 7TH GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2023

ANNEXURE 2
Entity % Shareholding of % Shareholding Classification of Entity
Investor I of Investor II
Mahindra Summit Mahindra Agri Sumitomo Joint Venture
Agriscience Ltd. Solutions Ltd.122 (60%) Corporation
(40%)
Inalfa Gabriel Gabriel India Ltd.123 Inalfa Roof Joint Venture
Sunroof Systems (49%) Systems Group
Pvt. Ltd. B.V. (51%)
Operations of Zara Trent Limited124 (49%) Inditex Group Joint Venture
and Massimo Dutti (51%)
in India
Clariant IGL India Glycols Ltd. 125
Clariant Joint Venture
Speciality Chemicals (49%) International Ltd.
Private Ltd. (51%)
Marks and Spencer Reliance Industries Ltd. Marks and Joint Venture
Reliance India 126
Spencer
Private Ltd.
PT Angkasa Pura GMR Airports PT Angkasa Pura Joint Venture
Aviasi (PT APA) Netherlands B.V. (49%) II
(A subsidiary of GMR (51%)
Airports Infrastructure
Ltd.) 127

122
Mahindra Ltd., Mahindra Agri Solutions Forms Joint Venture with Japan Based Sumitomo Corporation for its
Crop Care Business,
https://www.mahindra.com/resources/investorreports/FY19/Announcements/PressRelease.pdf.
123
Gabriel India Ltd., Annual Report for the Financial Year 2022-23, https://www.anandgroupindia.com/wp-
content/uploads/2023/07/Gabriel-India-Annual-Report-2022-23.pdf.
124
Trent Ltd., A Tata Enterprise, Annual Report for the Financial Year 2022-23, https://www.bseindia.com/xml-
data/corpfiling/AttachHis//58357a1d-01e7-410e-a079-834f7aefce44.pdf.
125
India Glycols Ltd., Annual Report for the Financial Year 2022-23,
https://www.indiaglycols.com/investors/downloads/annual-report-2022-23.pdf.
126
Reliance Industries Ltd., Annual Report for the Financial Year 2022-23, https://www.bseindia.com/xml-
data/corpfiling/AttachHis//b55b5dfc-a3bf-4f24-9d7f-ca09774a1dd9.pdf.
127
GMR Airports Infrastructure Ltd., Annual Report for the Financial Year 2022-23,
https://www.bseindia.com/xml-data/corpfiling/AttachHis//46a853ec-37bd-434d-b9a7-a83c18582665.pdf

MEMORANDUM on BEHALF of APPELLANT PAGE | XVII