TEAM CODE: 816

8th KIIT NATIONAL MOOT COURT COMPETITION 2021.

Before

THE HONOURABLE SUPREME COURT OF INDRAPRASTHA

UNDER SECTION 15Z OF THE SECURITIES AND EXCHANGE BOARD OF

INDRAPRASTHA ACT, 1992.

Civil Appeal No- ___/ 2021

IN THE MATTER OF

MR. KETAN GUPTA & MR. MEHUL KAPADIA……………………..….APPELANT

V.

SECURITES AND EXCHANGE BOARD OF INDRAPRASTHA……...RESPONDENT

WRITTEN SUBMISSION ON BEHALF OF THE RESPONDENT

DRAWN AND FILED BY COUNSEL ON BEHALF OF THE RESPONDENT

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TABLEOF CONTENTS

LIST OF ABBREVIATIONS………………………………………………………………4
INDEX OF AUTHORITIES………………………………………………………………. 5
STATEMENT OF JURISDICTION…….……………………………………………….. 7
STATEMENT OF FACTS………………………………………………………………... 8
STATEMENT OF ISSUES………………………………………………………………. 10
SUMMARY OF ARGUMENTS………………………………………………………….11
ARGUMENTS ADVANCED……………………………………………………………..13
1. ISSUE I. WHETHER SEBI IS MANDATORILY REQUIRED TO GRANT A
HEARING TO PARTIES BEFORE PASSING AN ORDER?
[a]SEBI has the power to issue Interim Orders…………………………………………13
[b] Pre-decisional hearing is not mandatory so as to avert danger and for the protection of
shareholders…………………………………………………………………………..….15
[c] Not granting pre-decisional hearing to precent imminent threat does not violate the
Principles of Natural Justice……………………………………………………………..16
2. ISSUE II. WHETHER SEBI IS REQUIRED TO PROVIDE A NOTICEE WITH
INSPECTION AND COPIES OF ALL THE DOCUMENTS COLLECTED AND
STATEMENTS RECORDED BY IT DURING THE COURSE OF
INVESTIGATION OR WHETHER SEBI IS ONLY REQUIRED TO PROVIDE
INSPECTION AND COPIES OF DOCUMENTS AND STATEMENTS WHICH
ARE REFERRED TO AND RELIED UPON BY SEBI IN THE SHOW CAUSE
NOTICE?

[a] The law does not mandate SEBI to provide additional documents…………………..19
[b] SEBI providing the Noticee only with the documents relied in the Show Cause Notice
does not amount to violation of Principles of Natural Justice.......................................….20
[c] It would lead to delay of dispensation of Justice……………………………………..21
3. ISSUE III. WHETHER AN ORDER THAT THE EXECUTIVE DIRECTORS OF
GCL WERE JOINTLY AND SEVERALLY LIABLE WITH THE PROMOTERS
TO DISGORGE AN AMOUNT OF RS 500 CRORES WAS SUSTAINABLE IN
LIGHT OF THE LEGAL PRINCIPLES SURROUNDING THE CONCEPT OF
DISGORGEMENT?
[a]SEBI has powers to pass such orders………………………………………………...23

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[b] The Executive Directors of GCL have made unlawful gains.....................................24

[c] The Executive Directors can be vicariously held liable on the basis of their acts......28
4. ISSUE IV. WHETHER THE ORDER RESTRAINING THE EXECUTIVE
DIRECTORS FROM TAKING UP ANY POSITION OR BEING ASSOCIATED
WITH THE SECURITIES MARKET IN ANY CAPACITY FOR TWO YEARS
WAS JUSTIFIED IN TERMS OF SECTION 11 AND 11 B OF THE SEBI ACT?
[a]SEBI has the powers to issue such orders to uphold the interests of the
shareholders…………………………………………………………………………......30
[b] The Order is not violative of the Executive Directors’ Fundamental Right u/a
19(1)(g)………………………………………………………………………………….32
PRAYER…………………………………………………………………………………...34

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LIST OF ABBREVIATIONS

Abbreviations Full Form

SEBI Securities and Exchange Board of
Indraprastha

GCL Graystone Corporation Ltd.

SAT Securities Appellate Tribunal
PFUTP SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to
Securities Market) Regulations, 2003

SCN Show Cause Notice

Hon’ble Honourable
v. Versus
Para Paragraph
Anr. Another
AIR All India Reporter
No. Number
Ors. Others
SC Supreme Court
Ltd. Limited
& And
Guj Gujarat
SCC Supreme Court Cases
Cas Cases
Com Company
SCL Sebi and Corporate Laws
W.P Writ Petition
Pvt. Private
u/a Under Article
Const. Constitution
Cl. Clause

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INDEX OF AUTHORITIES

CASES

 Anand Rathi v. SEBI, (2002) 110 Com Cas 837.

 Charan Lal Sahu v. Union of India, 1990 AIR 1480
 Coimbatore Stock Exchange Limited v. SEBI, W.P. No. 11557 of 2006, (Mad HC Aug.
25, 2006)
 In Re: Investigation Into Initial vs Unknown, (SAT Apr. 27, 2006)
 Karvy Stock Broking v. SEBI, 2007 SCC OnLine SAT 2.
 Liberty Oil Mills & Ors. v. Union of India, 1984 AIR 1271.
 Maneka Gandhi v. Union of India, 1978 AIR 597.
 M/s Amadhi Investments Ltd. v. SEBI, Appeal No. 186 of 2010, (SAT Aug. 3, 2011)
 Natwar Singh v. Director of Enforcement &Anr., (2010) 13 SCC 255.
 North End Foods Markeing Pvt. Ltd, v. SEBI, Appeal No. 80 of 2019, (SAT Mar. 12,
2019)
 Phillip Commodities India Pvt. Ltd. v. SEBI, Appeal No. 238 of 2018, (SAT Sept. 6,
2018)
 Price Waterhouse & Co. v. SEBI, Appeal 6 of 2018
 Ramrakh R. Bohra v. SEBI, (1998) 18 SCL 543.
 Ritesh Agarwal v. SEBI, (2008) 84 SCL 373.
 Shadilal Chopra v. SEBI, Appeal No. 201 of 2009, (SAT Dec.2, 2009)
 Shruti Vora v. SEBI, Appeal (L) No. 28 of 2020, (SAT Feb. 12, 2020)
 SEBI v. Alka Synthetics Ltd., AIR 1999 GUJ 221.
 SEBI v Gaurav Varshney, Criminal Appeal Nos., 827-830, (SC Jul. 15, 2016)
 SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368.
 SEBI v. Shri Kanaiyalal Baldev bhai Patel, (2017) 15 SCC 1.
 SEBI v. Pan Asia Advisors Ltd., (2015) 14 SCC 71.
 Union of India & Ors. v. E. Bashyan, (1988) 2 SCC 196

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BOOKS

 A Ramaiya Guide to the Companies Act, 18th Edition, Volume 2 (Sections 128-240),
Lexis Nexis.

 Black’s Law Dictionary, 1084 (10th ed. 2015).

 A Ramaiya Guide to the Companies Act, 18th Edition, Volume 2 (Sections 128-240),
Lexis Nexis.
 Disgorgement, (2007) 6 Law Rev GLC 74.

STATUTES

 Constitution of India, 1950.

 Companies Act, 2013.
 Negotiable Instruments Act, 1881.
 Securities and Exchange Board of India Act, 1992.
 Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003.

ONLINE SOURCES

 JSTOR
 Lexis Nexis
 Manupatra
 SCC Online
 Taxmann

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STATEMENT OF JURISDICTION

THE APPELLANT HAS FILED AN APPEAL BEFORE THE HON’BLE SUPREME

COURT OF INDRAPRASTHA AGAINST THE ORDER OF THE HON’BLE
SECURITIES APPEALLATE TRIBUNAL, IN THE MATTER OF GCL V. SEBI,
UNDER SECTION 15Z OF SEBI ACT.

Section 15Z. Any person aggrieved by any decision or order of the Securities Appellate
Tribunal may file an appeal to the Supreme Court within sixty days from the date of
communication of the decision or order of the Securities Appellate Tribunal to him on
any question of law arising out of such order :

Provided that the Supreme Court may, if it is satisfied that the applicant was prevented
by sufficient cause from filing the appeal within the said period, allow it to be filed within
a further period not exceeding sixty days.]

THE PRESENT MEMORANDUM SETS FORTH THE FACTS, CONTENTIONS AND

ARGUMENTS.

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STATEMENT OF FACTS

For the sake of brevity and convenience of the Hon’ble Court, the facts of the present case
are summarized as follows:

1. SEBI received complaints regarding fraud, financial mismanagement and diversion of

funds happening in Graystone Corporation Ltd. (GCL) which was listed on the National
Stock Exchange and is also registered as a Non-Banking financial institution with Reserve
Bank of Indraprastha.
2. SEBI initiated an investigation to examine the aforesaid allegations to ascertain whether
there was any violation of the provisions of the SEBI Act and PFUTP Regulations, and/or
any other SEBI rules / regulations. SEBI further directed a forensic audit to be conducted
in connection with the financial statements of GCL by an independent forensic auditor.
3. SEBI observed that-
 Funds to the tune of Rs. 500 Crore were lent as inter-corporate loans to various
promoter related entities through unsecured inter-corporate loans and investments.
 The borrower companies had weak financial standing with no revenue from
operations, negative profit after tax, cash losses, accumulated losses and negative net
worth and no documentation or analysis of the financial standing of these companies
was conducted while extending the loans except a one-page memorandum of
understanding between GCL and the borrowing entities.
 There was also no record of the end use of the funds lent by GCL.
 The bank statement of GCL was fabricated to show that parts of the funds advanced
were being repaid to GCL by the promoter entities.
4. The diversion of funds from GCL to entities controlled by the promoters had a significant
impact on the shareholders of GCL.
5. Based on the investigation report, SEBI issued an ex-parte interim order cum show cause
notice under Section 11(1), 11(4), 11B(1) and 11(5) to the promoters and non-promoter
executive directors of GCL and a reply was required to be filled within three weeks of the
said order.
6. Through the interim order, SEBI directed that the bank accounts of GCL’s promoters and
non-promoter executive directors to be freezed. In addition to this, the two non-promoter
executive directors were to show cause as to why they should not be held liable jointly and
severally and why no direction should be passed against them restraining from taking up
any position in a listed company or being associated with or accessing securities market.

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7. The promoters were arrested by the Economic Offences Wing, Mumbai in connection
with a criminal case filed on the same issue.
8. The two non-promoter executive directors appealed before the Hon’ble SAT, Mumbai
that they should be given a pre-decisional hearing ought to have been granted by SEBI
before freezing of accounts which was allowed. This order was further appealed by SEBI
in the Hon’ble Supreme Court of Indraprastha.
9. The two executive directors, Mr. Ketan Gupta and Mehul Kapadia requested SEBI for
inspection of all the documents which was collected during the investigation which was
denied by SEBI since all the necessary documents on which SEBI had been relied upon
was already provided to the executive directors.
10. Therefore, in the reply to SCN, the executive directors stated that refusal of SEBI to
provide all documents was in violation of principles of natural justice and argued that the
directions sought to be imposed in the SCN are illegal, disproportionate and cannot be
considered to be remedial in nature.
11. SEBI rejected the preliminary objections and passed a final order directing that the two
executive directors were jointly and severally liable along with the promoters to disgorge
an amount of Rs. 500 crores and further, SEBI restricted them for taking up any position
or being associated with the securities market in any capacity for a period of 2 years.
12. An appeal was filed by the executive directors before the Hon’ble SAT. However, the
Hon’ble SAT upheld the order of SEBI and dismissed the appeal.
13. Being aggrieved by the decision of the Hon’ble SAT, Mumbai, Mr. Ketan Gupta and
Mehul Kapadia, the two executive directors have filed an appeal beforethis Hon’ble
Court.

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ISSUES RAISED

The following questions are presented for adjudication in the instant matter:

1. WHETHER SEBI IS MANDATORILY REQUIRED TO GRANT A HEARING

TO PARTIES BEFORE PASSING AN ORDER?

2. WHETHER SEBI IS REQUIRED TO PROVIDE A NOTICEE WITH

INSPECTION AND COPIES OF ALL THE DOCUMENTS COLLECTED AND
STATEMENTS RECORDED BY IT DURING THE COURSE OF
INVESTIGATION OR WHETHER SEBI IS ONLY REQUIRED TO PROVIDE
INSPECTION AND COPIES OF DOCUMENTS AND STATEMENTS WHICH
ARE REFERRED TO AND RELLIED UPON BY SEBI IN THE SHOW CAUSE
NOTICE?

3. WHETHER AN ORDER THAT THE EXECUTIVE DIRECTORS OF GCL

WERE JOINTLY AND SEVERALLY LIABLE WITH THE PROMOTERS TO
DISGORGE AN AMOUNT OF RS. 500 CRORES WAS SUSTAINABLE IN THE
LIGHT OF THE LEGAL PRINCIPLES SURROUNDING THE CONCEPT OF
DISGORGEMENT?

4. WHETHER THE ORDER RESTRAINING THE EXECUTIVE DIRECTORS

FROM TAKING UP ANY POSITION OR BEING ASSOCIATED WITH THE
SECURITIES MARKET IN ANY CAPACITY FOR TWO YEARS WAS
JUSTIFIED IN TERMS OF SECTION 11 AND 11 B OF THE SEBI ACT?

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SUMMARY OF ARGUMENTS

ISSUE I. WHETHER SEBI IS MANDATORILY REQUIRED TO GRANT A

HEARING TO PARTIES BEFORE PASSING AN ORDER?

It is most humbly submitted before this Hon’ble Court that SEBI is not mandatorily required to
grant a hearing to the parties before passing an order based on the following grounds:

[a] SEBI has the power to issue Interim Orders.

[b] Pre-decisional hearing is not mandatory so as to avert danger and for the protection of
shareholders.
[c] Not granting pre-decisional hearing to prevent imminent threat does not violate the
Principles of Natural Justice.

ISSUE II. WHETHER SEBI IS REQUIRED TO PROVIDE A NOTICEE WITH

INSPECTION AND COPIES OF ALL THE DOCUMENTS COLLECTED AND
STATEMENTS RECORDED BY IT DURING THE COURSE OF INVESTIGATION
OR WHETHER SEBI IS ONLY REQUIRED TO PROVIDE INSPECTION AND
COPIES OF DOCUMENTS AND STATEMENTS WHICH ARE REFERRED TO AND
RELIED UPON BY SEBI IN THE SHOW CASE NOTICE?

It is most humbly submitted before this Hon’ble Court that SEBI is only required to provide
for inspection copies of documents and statements which are referred to and relied upon by
SEBI in the Show cause notice on the grounds that:

[a] The law does not mandate SEBI to provide additional documents.
[b] SEBI providing the Noticee only with the documents relied in the Show Cause Notice
does not amount to violation of Principles of Natural Justice.
[c] It would lead to delay of dispensation of Justice.

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ISSUE III. WHETHER AN ORDER THAT THE EXECUTIVE DIRECTORS OF GCL

WERE JOINTLY AND SEVERALLY LIABLE WITH THE PROMOTERS TO
DISGORGE AN AMOUNT OF RS 500 CRORES WAS SUSTAINABLE IN LIGHT OF
THE LEGAL PRINCIPLES SURROUNDING THE CONCEPT OF
DISGORGEMENT?

It is most humbly submitted before this Hon’ble Court that the order passed by SEBI which
held the executive directors of GCL jointly and severally liable with the promoters was
sustainable in light of the legal principles surrounding the concept of disgorgement on the
grounds that:

[a] SEBI has powers to pass such orders.

[b] The Executive Directors of GCL have made unlawful gains.
[c] The Executive Directors can be vicariously held liable on the basis of their acts.

ISSUE IV. WHETHER THE ORDER RESTRAINING THE EXECUTIVE

DIRECTORS FROM TAKING UP ANY POSITION OR BEING ASSOCIATED WITH
THE SECURITIES MARKET IN ANY CAPACITY FOR TWO YEARS WAS
JUSTIFIED IN TERMS OF SECTION 11 AND 11 B OF THE SEBI ACT?

It is most humbly submitted before this Hon’ble Court that the order restraining the executive
directors from taking up any position or being associated with the Securities market in any
capacity for two years was justified in terms of Section 11 and 11B of the Act on the basis of
the following grounds:

[a] SEBI has the powers to issue such orders to uphold the interests of the shareholders.
[b] The Order is not violative of the Executive Directors’ Fundamental Right u/a 19(1)(g)

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ARGUMENTS ADVANCED

ISSUE I. WHETHER SEBI IS MANDATORILY REQUIRED TO GRANT A

HEARING TO PARTIES BEFORE PASSING AN ORDER?

It is most humbly submitted before this Hon’ble Court that SEBI is not mandatorily required to
grant a hearing to the parties before passing an order. This stance is supported with the help of
a three-fold argument: [a]SEBI has power to issue interim orders, [b] Pre- decisional hearing is
not mandatory so as to avert danger and for the protection of shareholders and, [c] Not granting
pre-decisional hearing to prevent imminent threat does not violate principles of natural justice.

[a] SEBI has power to issue interim orders.

Section 11B of the SEBI Act 1 bestows power on SEBI to issue directions, which states that:

“11B. Power to issue directions. —Save as otherwise provided in section 11, if after making
or causing to be made an enquiry, the Board is satisfied that it is necessary—

(i) in the interest of investors, or orderly development of securities market; or

(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being
conducted in a manner detrimental to the interests of investors or securities market; or

(iii) to secure the proper management of any such intermediary or person, it may issue such
directions, —

(a) to any person or class of persons referred to in section 12, or associated with the
securities market; or

(b) to any company in respect of matters specified in section 11A, as may be appropriate in
the interests of investors in securities and the securities market.”

SEBI being the market regulator and with the duty to protect the interests of the shareholders
has the right to issue interim orders or any other such directions which are preventive in nature
as this power flows from Section 11B of the SEBI Act.

In the case of Coimbatore Stock Exchange Limited v. SEBI2, the Hon’ble High Court of
Madras upheld that:

1
Section 11B, Securities and Exchange Board of India Act, 1992
2
Coimbatore Stock Exchange Limited v. SEBI, W.P. No. 11557 of 2006, (Mad HC Aug. 25, 2006)

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“SEBI has the statutory duty and authority to pass interim orders, pending enquiry and these
powers do not mandate a pre-decisional hearing by the very nature of the situation and
circumstances in which it is required to be invoked and the interim measure is only to prevent
further possible mischief of tampering with the affairs of the Stock Exchange.”

Additionally, in the case of SEBI v. Alka Synthetics Ltd.3, the Hon’ble High Court of Gujarat
observed that:

“Interim order cannot be in the way of punishment or penalty but only by way of an interim
measure, pending enquiry into the manipulations.”

Further, in the case of Ramrakh R. Bohra v. SEBI4, the Hon’ble Supreme Court categorically
upheld SEBI’s power to issue interim measure pending enquiry.

Furthermore, the Hon’ble SAT in the case of North End Foods Marketing Pvt. Ltd. v.
SEBI5observed that:

“SEBI has power to pass interim orders and such interim orders can also be passed exparte.
Interim orders are passed in order to prevent further possible mischief of tampering with the
securities market.”

Therefore, SEBI being the market regulator has the power to issue interim orders in order to
protect the interest of the investors. In the present case in hand, SEBI conducted an
investigation to examine the allegations regarding diversion of funds from GCL for the benefit
of GCL promoters.6 It was found that funds amounting to Rs. 500 Crores had been diverted
from the books of GCL. Therefore, SEBI has the power to issue interim order as an urgent
remedial action to prevent further mischief or tampering any evidences.

3
SEBI v. Alka Synthetics Ltd., AIR 1999 GUJ 221.
4
Ramrakh R. Bohra v. SEBI, (1998) 18 SCL 543.
5
North End Foods MarkeingPvt. Ltd, v. SEBI, Appeal No. 80 of 2019,(SAT Mar. 12,2019)
6
Para 5, Moot Proposition.

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[b] Pre- decisional hearing is not mandatory so as to avert danger and for the protection of
shareholders.

Section 11(1) of the SEBI Act 7states that:

“Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of
investors in securities and to promote the development of, and to regulate the securities
market, by such measures as it thinks fit.”

Furthermore, the power to pass an ex-parte order, is derived from Section 11 (4) of the SEBI
Act. The proviso to Section 11 (4) clearly empowers SEBI to pass ex-parte orders in emergent
situations and a post decisional hearing can be granted thereafter.

The Hon’ble Supreme Court in the case of Liberty Oil Mills &Ors. v. Union of India8observed
that:

“Procedural fairness embodying natural justice is to be implied whenever action is taken

affecting the rights of parties. It may be that the opportunity to be heard may not be pre-
decisional; it may necessarily have to be post-decisional where the danger to be averted or the
act to be prevented is imminent or whether the action to be taken can brook no delay. If an
area is devastated by flood, one cannot wait to issue show cause notices for requisitioning
vehicles to evacuate population. If there is an outbreak of an epidemic, we presume one does
not have to issue show cause notices to requisition beds in hospitals, public or private. In such
situations, it may be enough to issue post-decisional notices providing for an opportunity. . It
may not even be necessary in some situations to issue such notices, but it would be sufficient
but obligatory to consider any representation that may be made by the aggrieved person and
that would satisfy the requirements of procedural fairness and natural justice. Again, it is
necessary to say that pre-decisional natural justice is not usually contemplated when the
decisions taken are of an interim nature pending investigation or enquiry. Ad interim orders
may always be made ex parte and such orders may themselves provide for an opportunity to
the aggrieved party to be heard at a later stage.”

Further, the Hon’ble SAT in the case of North End Foods Marketing Pvt. Ltd. v. SEBI9,
observed that:

7
Section 11(1), Securities and Exchange Board of India Act, 1992.
8
Liberty Oil Mills &Ors. v. Union of India,1984 AIR 1271.
9
North End Foods Markeing Pvt. Ltd, v. SEBI, Appeal No. 80 of 2019,(SAT Mar. 12,2019)

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“At times, an opportunity of hearing may not be pre-decisional and may necessarily have to be
post-decisional especially where the act to be prevented is imminent or where action to be
taken brooks no delay. Thus, pre-decisional hearing is not always necessary when ex-parte ad-
interim orders are made pending investigation or enquiry unless provided by the statute.”

In the case of Liberty Oil Mills & Ors. v. Union of India10, the Hon’ble Supreme Court
explained what can be considered as an urgent or imminent matter as:

“The urgency must be infused by a host of circumstances, viz. large-scale misuse and attempts
to monopolise or corner the market. In the said decision, the Supreme Court further held that
the regulatory agency must move quickly in order to curb further mischief and to take action
immediately in order to instil and restore confidence in the capital market.”

In the instant case in hand, an amount of Rs. 500 crores has been diverted from the funds of
GCL.11 The misuse of such a large scale amount of money highlights the urgency of the matter
and in order to curb further mischief it was required to take an action immediately which is the
reason behind a pre-decisional hearing not being granted in the given circumstances. After
conducting an investigation, SEBI passed this interim order cum show cause notice to the two
non-promoter executive directors, Mr. Ketan Gupta and Mehul Kapadia to show cause as to
why they should not be held liable for the amount diverted by the promoters. 12 Therefore,
SEBI has provided the two non-promoter executive directors with an opportunity to present
their case before imposing any penalty. The interim order directing to freeze the bank accounts
of the Mr. Ketan Gupta and Mehul Kapadia without a pre-decisional hearing was an urgent
remedial action in the interest of investors required to be taken under the given circumstances.

[c] Not granting a pre-decisional hearing to prevent imminent threat does not violate
principles of natural justice.

It is most humbly submitted before this Hon’ble Court that SEBI draws its power to pass an
ex-parte order, is derived from Section 11 (4) of the SEBI Act13. The proviso to Section 11 (4)
clearly empowers SEBI to pass ex-parte orders in emergent situations and a post decisional
hearing can be granted thereafter.

10
Liberty Oil Mills &Ors. v. Union of India,1984 AIR 1271.
11
Para 8, Moot Proposition.
12
Para 11, Moot Proposition.
13
Supra 1, Section 11(4).

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Furthermore, the Hon’ble SAT in the case of Anand Rathi v. SEBI14observed that:

“It is thus clearly seen that pre decisional natural justice is not always necessary when ad
interim ordersare made pending investigation or enquiry, unless so provided by the statue and
rules of natural justicewould be satisfied if the affected party is given post decisional
hearing…………. it is not always necessaryto grant prior opportunity of hearing when ad-
interim orders are made and principles of natural justicewill be satisfied if post decisional
hearing is given if demanded. Thus it is settled position that while ex-parte interim orders may
always be made without a pre decisionalopportunity or without the order itself providing for a
post decisional opportunity, the principles of naturaljustice which are never excluded will be
satisfied if a post decisional opportunity is given, if demanded.”

Further, in the case of Maneka Gandhi v. Union of India15, the Hon’ble Supreme Court
recognized that:

“where an obligation to give notice and opportunity to be heard would obstruct the taking of
prompt action, especially action of a preventive or remedial nature, right of prior notice and
opportunity to be heard may be excluded by implication.”

Further, in the case of Charan Lal Sahu v. Union of India16, the Hon’ble Supreme Court
observed that:

“Post-decisional hearing can obliterate the procedural deficiency of a pre-decisional hearing.

Therefore, if there is any lack in the proceedings of any case, then it can be resolved by using
post- decisional hearing.”

In the instant case in hand, the interim order passed by SEBI was preventive in nature. An
amount of Rs. 500 Crore was diverted from the funds of GCL for the benefit of the promoters.
Since Mr. Ketan Gupta and Mehul Kapadia hold the position of non-promoter Executive
directors in GCL, their bank accounts were directed to be freezed in the interim order as a
preventive measure. SEBI passed an interim order freezing their bank accounts, which is
temporary in nature given the imminent threat and circumstances.

During the investigation, SEBI observed that the interests of the shareholders were affected
due to the said amount being diverted from the funds of the GCL. 17

14
Anand Rathi v. SEBI, (2002) 110 Com Cas 837.
15
Maneka Gandhi v. Union of India, 1978 AIR 597.
16
Charan Lal Sahu v. Union of India, 1990 AIR 1480.

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Therefore, it is most humbly submitted before this Hon’ble Court that SEBI is not mandatorily
required to grant a hearing before passing an interim order especially if there is an imminent
threat to the interests of the shareholders as in the instant case.

17
Para 5, Moot Proposition.

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ISSUE II. WHETHER SEBI IS REQUIRED TO PROVIDE A NOTICEE WITH

INSPECTION AND COPIES OF ALL THE DOCUMENTS COLLECTED AND
STATEMENTS RECORDED BY IT DURING THE COURSE OF INVESTIGATION
OR WHETHER SEBI IS ONLY REQUIRED TO PROVIDE INSPECTION AND
COPIES OF DOCUMENTS AND STATEMENTS WHICH ARE REFERRED TO
AND RELIED UPON BY SEBI IN THE SHOW CAUSE NOTICE?

It is most humbly submitted before this Hon’ble Court that SEBI is only required to provide
inspection and copies of documents and statements which are referred to and relied upon by
SEBI in the Show cause notice. This stance is supported by a three-fold argument: [a] The
law does not mandate SEBI to provide additional documents, [b] SEBI providing the Noticee
only with the documents relied in the showcause notice does not amount to violation of
principles of natural justice and, [c] It would lead to delay of dispensation of justice.

[a] The law does not mandate SEBI to provide additional documents.
It is most humbly submitted before this Hon’ble Court that the principles of natural justice
and doctrine of fair play requires the Adjudicating officer to supply the documents upon
which reliance has been placed at the stage of show cause notice. Rule 4 of the SEBI Rules of
1995 are in consonance with the principles of natural justice and that the AO is required to
supply the documents relied upon while serving the show cause notice. This is essential for
the person to file an efficacious reply in his defence.

In the case of Shruti Vora v. SEBI18, the Hon’ble SAT made a similar observation that:

“In our view, on a reading of the Act and the Rules we find that there is no duty cast upon the
AO to disclose or provide all the documents in his possession especially when such
documents are not being relied upon.”

Further in the case of Natwar Singh v. Director of Enforcement &Anr19, the Hon’ble Apex
Court observed that:

“The concept of fairness may require the adjudicating authority to furnish copies of those
documents upon which reliance has been placed by him to issue show-cause notice requiring
the noticeeto explain as to why an inquiry should not be initiated.A notice is always entitled

18
Shruti Vora v. SEBI,Appeal (L) No. 28 of 2020, (SAT Feb. 12, 2020)
19
Natwar Singh v. Director of Enforcement &Anr., (2010) 13 SCC 255.

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to satisfy the adjudicating authority that those very documents upon which reliance has been
placed do not make out even a prima facie case requiring any further inquiry. In such view of
the matter, we hold that all such documents relied on by the authority are required to be
furnished to the notice enabling him to show a proper cause as to why an inquiry should not
be held against him.”

In the instant case in hand, SEBI called upon the two non-promoter executive directors, Mr.
Ketan Gupta and Mehul Kapadia, to reply to the show cause notice as to why they should not
be called upon to jointly and severally disgorge the amounts allegedly diverted by the
promoters and why directions should not be passed against them. The SCN issued to the
directors annexed certain documents which were relied upon by SEBI.

It is most humbly submitted before this Hon’ble Court that neither the Act nor the law
mandates the AO to furnish all the documents collected during the investigation by SEBI.

Hence, it is most humbly submitted before this Hon’ble Court that it is on the basis of these
documents that a prima facie case is made against the two non-promoter executive directors.
In order to prepare for an effective defence, the non-executive executive directors have been
provided with the required documents by SEBI to prove their innocence.

[b] SEBI providing the Noticee only with the documents relied in the show cause notice
does not amount to violation of principles of natural justice.

In the case ofNatwar Singh vs Directorate of Enforcement & Anr20, the Hon’ble Apex Court
observed that:

“Even the principles of natural justice do not require supply of documents upon which no
reliance has been placed by the Authority to set the law into motion. Supply of relied on
documents based on which the law has been set into motion would meet the requirements of
principles of natural justice.”

A similar observation was made in the case of Union of India & Ors v. E. Bashyan21, which
states that:

“The documents on which the show cause notice is relied upon has to be made available to
the delinquent.”

20
Natwar Singh vs Directorate of Enforcement & Anr., (2010) 13 SCC 255.
21
Union of India & Ors. v. E. Bashyan, (1988) 2 SCC 196

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Further, in the case of M/s Amadhi Investments Ltd. v. SEBI22, the Hon’ble SAT observed
that:

“We are of the considered view that the appellants are not entitled to the material collected
during the course of investigation by the Board which has not been relied upon in the show
cause notice.”

In the instant case, the factsheet clearly mentions that SEBI has provided the two non-
executive directors with all the documents which it has relied to issue the show cause notice.

Further, what particular rule of natural justice should apply to a given case must depend to a
great extent on the facts and circumstances of that case. In view of the present case in hand, it
is most humbly submitted before this Hon’ble Court that since the necessary documents have
been provided by SEBI to the executive directors, not providing the other documents
collected during the investigation which is irrelevant to the present case does not amount to
violation of principles of natural justice.

[c] It would lead to delay of dispensation of justice.

In the case of Phillip Commodities India Pvt. Ltd. v. SEBI23, the Hon’ble SAT observed
that:
“If formal orders are to be passed on every objection/issues raised by each Noticee in every
proceeding, it will ultimately result in a multiplicity of orders in one and the same proceeding
and further result in delay of dispensation of justice and also clog-up the quasi-judicial and
appellate forum with unwarranted litigations.This will become a tool in the hands of entities
who may not have substantive submissions to make on merit and seek to delay and wriggle
out of rigors of timely enforcement action by raising such pleas with the intention of delaying
final adjudication of the case on merits. Thus, I am of the opinion that this order should not
be cited as a precedent in every matter where inspection is sought by parties.”

Further in the case of M/s Amadhi Investments Ltd. v. SEBI24, the Hon’ble SAT made a
similar observation that:

“If any material collected during the course of investigation has not been relied upon in the
show cause notice, it will not deprive the appellant to present his case before the Board. We

22
M/s Amadhi Investments Ltd. v. SEBI, Appeal No. 186 of 2010, (SAT Aug. 3, 2011)
23
Phillip Commodities India Pvt. Ltd. v. SEBI, Appeal No. 238 of 2018, (SAT Sept. 6, 2018)
24
M/s Amadhi Investments Ltd. v. SEBI, Appeal No. 186 of 2010, (SAT Aug. 3, 2011)

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have no hesitation in holding that the whole time member was right in observing that
inspection of these documents was asked for with the sole aim of delaying the disposal of the
proceedings and that the Board is not obliged to provide inspection of these documents.”

Further, in the case of Natwar Singh v. Director of Enforcement25, the Hon’ble Supreme
Court observed that:

“The principles of natural justice are not intended to operate as roadblocks to obstruct
statutory inquiries. Duty of adequate disclosure is only an additional procedural safeguard in
order to ensure the attainment of fairness and it has its own limitations. The extent of its
applicability depends on the statutory framework.”

In the present case in hand, SEBI has provided the two non- promoter executive directors
with the necessary documents that it has relied upon to issue the show cause notice which
included certain documents including the forensic report which identified the diversion of the
funds. 26

Therefore, it is most humbly submitted before this Hon’ble Court that SEBI is only required
to provide inspection and copies of documents and statements which are referred to and
related upon by SEBI in the show cause notice since it does not deprive the executive
directors to prepare their defence since the necessary documents leading to a prima facie case
against them have been provided.

25
Natwar Singh vs Directorate of Enforcement &Anr., (2010) 13 SCC 255.
26
Para 14, Moot Proposition

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ISSUE III. WHETHER AN ORDER THAT THE EXECUTIVE DIRECTORS OF GCL

WERE JOINTLY AND SEVERALLY LIABLE WITH THE PROMOTERS TO
DISGORGE AN AMOUNT OF RS 500 CRORES WAS SUSTAINABLE IN LIGHT OF
THE LEGAL PRINCIPLES SURROUNDING THE CONCEPT OF
DISGORGEMENT?

It is most humbly submitted before this Hon’ble Court that the order passed by SEBI which
held the executive directors of GCL jointly and severally liable with the promoters was
sustainable in light of the legal principles surrounding the concept of disgorgement. This
stance is supported by a three-fold argument: [a] SEBI has powers to pass such orders, [b]
The executive directors of GCL have made unlawful gains and, [c] The executive directors
can be vicariously held liable on the basis on their acts.

[a] SEBI has powers to pass such orders.

It is most humbly submitted before this Hon’ble Court that SEBI has powers to pass an order
to disgorge an amount in case of contravention of the provisions of the SEBI Act or its
regulations. This stance is further supported by a two-fold argument: [a.a] SEBI has powers
to issue order directing to disgorge an amount under SEBI Act and, [a.b] The executive
directors have violated the provisions of the PFUTP Regulations, 1995.

[a.a] Power of SEBI to issue disgorgement order.

It is most humbly submitted before this Hon’ble Court that in 2014, under the clarifactory
amendment inserted by SEBI, such power to order disgorgement was explicitly granted to the
Board by the insertion of an Explanation to Section 11B of the SEBI Act 27. This Explanation
to section 11B embodies the statutory sanction to disgorgement and reads as follows:

“For the removal of doubts, it is hereby declared that the power to issue directions under this
section shall include and always be deemed to have been included the power to direct any
person, who made profit or averted loss by indulging in any transaction or activity in
contravention of the provisions of this Act or regulations made there under, to disgorge an
amount equivalent to the wrongful gain made or loss averted by such contravention.”

27
Supra 1

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[a.b] SEBI can pass such orders in cases of violation of PFUTP Regulations, 2003.

Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating
to Securities market) Regulations, 1995 prohibits manipulative, fraudulent and unfair trade
practices. Under the Second amendment, Regulation 4 of the PFUTP Regulations provides
that "any act of diversion, misutilisation or siphoning off of assets or earnings of a company
whose securities are listed or any concealment of such act or any device, scheme or artifice
to manipulate the books of accounts or financial statement of such a company that would
directly or indirectly manipulate the price of securities of that company"28 shall be deemed to
be considered as manipulative, fraudulent and unfair trade practice in the securities market
under regulation 4, in sub-regulation (1).

In the instant case in hand, an amount of Rs. 500 Crores were diverted from the funds of GCL
through an unsecured inter- corporate loan to promoter related entities affecting the interests
of the shareholders. 29 Moreover, the executive directors had the knowledge that such an
amount has been given as inter-corporate loan to the promoter related entities. Further, during
the investigation it was revealed that the bank statements of GCL were also fabricated to
show that the part of the funds advanced were being repaid.

Therefore, it is most humbly submitted before this Hon’ble Court that the acts of the
executive directors to manipulate the financial statements of the company would manipulate
the price of securities of the company leading to violation of the PFUTP Regulations. Due to
this manipulation, the executive directors must have gained some profits unlawfully and
therefore, SEBI has the power to pass an order to disgorge the amount.

[b] The executive directors of GCL have made wrongful gains.

Disgorgement is defined as “the act of giving up something (such as profits illegally

obtained) on demand or by legal compulsion.”

In the case of Shadilal Chopra v. SEBI30, the Hon’ble SAT observed that:

“Disgorgement is the forced giving up of profits obtained by illegal or unethical acts. It is a

repayment of ill-gotten gains that is imposed on wrong doers. It is a monetary equitable

28
Regulation 4, Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 2003.
29
Para 6, Moot Proposition
30
Shadilal Chopra v. SEBI, Appeal No. 201 of 2009, (SAT Dec.2, 2009)

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remedy that is designed to prevent a wrong doer from unjustly enriching himself as a result of
his illegal conduct.”

It is most humbly submitted before this Hon’ble Court that the executive directors have
acquired profits through illegal acts. This stance is supported is further supported by a two-
fold argument:[a] Preponderance of probabilities is the standard of proof and, [b] The
executive directors are key managerial position in relation to GCL:

[b.a] Preponderance of probabilities is the standard of proof.

It is most humbly submitted before this Hon’ble Court that in order to attract the rigor of
Regulations 3 and 4 of the 2003 Regulations31, mensreaisnotan indispensable requirement
and the correct test is one of preponderance of probabilities.

A similar observation was upheld in the case of SEBI v. Kishore R. Ajmera32, where the
Hon’ble Supreme Court observed that:

“Merely because the operation of the aforesaid two provisions of the 2003 Regulations
invites penal consequences on the defaulters, proof beyond reasonable doubt is not an
indispensable requirement. The inferential conclusion from the proved and admitted facts, so
long the same are reasonable and can be legitimately arrived at on a consideration of the
totality of the materials, would be permissible and legally justified.”

Further, in the aforementioned case, the Hon’ble Apex Court observed that:

“In the quasi-judicial proceeding before SEBI, the standard of proof is preponderance of
probability. It is a fundamental principle of law that proof of an allegation levelled against a
person may be in the form of direct substantive evidence or, as in many cases, such proof
may have to be inferred by a logical process of reasoning from the totality of the attending
facts and circumstances surrounding the allegations/charges made and levelled. While direct
evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the
Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate
facts and circumstances surrounding the events on which the charges/allegations are founded
and to reach what would appear to the Court to be a reasonable conclusion therefrom. The
test would always be that what inferential process that a reasonable/prudent man would
adopt to arrive at a conclusion.”

31
Supra 27
32
SEBI v.Kishore R. Ajmera, (2016) 6 SCC 368.

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In the case of SEBI v. Shri Kanaiyalal Baldevbhai Patel33, the Hon’ble Supreme Court
observed that:

“The burden on SEBI in such a case will not be to prove that the inducement was done
dishonestly or in bad faith by the person, but only to establish that the person so induced
would not have acted the way he did if he was not induced.”

In the instant case in hand, an inter-corporate loan to the tune of Rs. 500 Crores was lent out
from the accounts of GCL. However, the modus operandi of the diversion of funds by the
promoters entailed extending sums to various related parties of promoters was through
unsecured loans and investments.34 The Executive directors were aware about money being
lent to the promoter related entities.

Therefore, it is most humbly submitted before this Hon’ble Court that through a logical
inferential process based on the given facts and circumstances with, it can be inferred that the
executive directors have made wrongful gains through this diversion of funds from the
accounts of GCL.

[b.b] The Executive directors are key managerial position in relation to GCL

Section 2 (51) of the Companies Act, 201335, states that:

“Key managerial personnel, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager
(ii) the company secretary
(iii) the whole-time director
(iv) the Chief Financial Officer
(v) such other officer as may be prescribed.”

Under Rule 2(1)(k) of the Companies (Specification of definitions details) Rules, 2014,
"Executive Director means a whole time director as defined in clause (94) of section 2 of
the Act” and as per Clause 2 (94) of Companies Act, 2013, “whole-time director includes
a Director in the whole-time employment of the company.”

Under Section 27 of the SEBI Act 36, states that:

33
SEBI v. Shri KanaiyalalBaldevbhai Patel,(2017) 15 SCC 1.
34
Para 6, Moot Proposition
35
Section 2(51), Companies Act, 2013.

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“ (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act
has been committed by a company and it is proved that the offence has been committed with
the consent or connivance of, or is attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company, such director, manager, secretary or
other officer shall also be deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly.”

Further, in the case of SEBI v Gaurav Varshney37, it was observed that:

“A company being a juristic person, all its deeds and functions are the result of acts of
others. Every person who, at the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of business of the company, as well as the
company, liable for the offence. The proviso to the sub-section contains an escape route for
persons who are able to prove that the offence was committed without their knowledge or
that they had exercised all due diligence to prevent commission of the offence.”

In the present case in hand, Mr. Ketan Gupta and Mehul Kapadia are the non-promoter
Executive directors of GCL which means that they are whole time directors of the company
and are responsible for the conduct of business of the company. It is most humbly submitted
before the Hon’ble Court thatthe executive directors had knowledge about the inter-corporate
loan lent to the promoter related entities which shows that they were aware of what
businesses were being conducted considering the position they hold in the company.

Further, the financial statements of GCL were also being fabricated to show that part of the
funds advanced was being repaid to GCL by promoter entities. The executive directors were
aware about the inter-corporate loan however, did not exercise due diligence as they should
have. The amount diverted from the funds of GCL was not a small amount rather was to the
tune of Rs. 500 crores.

Therefore, it is most humbly submitted before this Hon’ble Court that through a logical
inference, it is a probability that based on the given facts and circumstances of the instant
case, the executive directors were in connivance with the promoter executive directors, as
they are in-charge of the affairs of the company considering their position and are therefore,
responsible for the diversion of funds from the bank accounts of GCL as they made unlawful
gains through the same.

36
Supra 1, Section 27.
37
SEBI v Gaurav Varshney, Criminal Appeal Nos., 827-830, (SC Jul. 15, 2016)

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[c] The executive directors can be held vicariously liable

It is most humbly submitted before this Hon’ble Court that under Section 179 of the
Companies Act, 2013 provides for the powers of Board of directors. The said section
provides that the Board of Directors of a company shall be entitled to exercise all such
powers, and to do all such acts and things, as the company is authorised to exercise and do.
The said Section does not distinguish between the powers of MD/ EDs and NEDs/ IDs.

Further, Section 141 of the Negotiable Instruments Act38, provides that:

“Every person who, at the time the offence was committed, was in charge of, and was
responsible to the company for the conduct of the business of the company, as well as the
company, shall be deemed to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly”.

In the case of In Re: Investigation Into Initial vs Unknown39, the Hon’ble SAT observed
that:

“Joint and several liability is rooted in the principle that a wrongdoer is liable for the
reasonably foreseeable acts of his fellow wrongdoers committed in furtherance of their joint
undertaking.”40

Further, in the same case, SEBI in its disgorgement order stated that:

“The order is being imposed on a joint and several liability because the entire scheme/artifice
was one large fraud where several entities either deliberately closed their eyes when the
wrongdoers perpetrated their illegality or were actively involved in the transactions.”

It is most humbly submitted before this Hon’ble Court that Mr. Ketan Gupta and Mehul
Kapadia were the non- promoter executive directors and were incharge of the affairs of the
company. Furthermore, they were well aware about the loan being lent to promoter related
entities. Considering their position in the Company, it is not possible that they were not aware
that the modus operandi adopted was unsecured.

It is most humbly submitted before this Hon’ble Court that the amount diverted from the
accounts of GCL is not a small amount as it is to the tune of Rs. 500 crores which affected
the interests of the shareholders. On the basis of the present facts and circumstances, it can be
38
Section 141, Negotiable Instruments Act, 1881.
39
In Re: Investigation Into Initial vs Unknown, (SAT Apr. 27, 2006)
40
Disgorgement, (2007) 6 Law Rev GLC 74 at page 93.

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reasonably inferred that firstly, the executive directors closed their eyes even after knowing
how the funds were being diverted which was reasonably foreseeable and secondly, they had
an active role in the same which can be established through a preponderance of probabilities.

Therefore, it is most humbly submitted before this Hon’ble Court that the executive directors
of GCL should be held jointly and severally liable with the promoters to disgorge the amount
of Rs. 500 Crores.

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ISSUE IV. WHETHER THE ORDER RESTRAINING THE EXECUTIVE

DIRECTORS FROM TAKING UP ANY POSITION OR BEING ASSOCIATED
WITH THE SECURITIES MARKET IN ANY CAPACITY FOR TWO YEARS WAS
JUSTIFIED IN TERMS OF SECTION 11 AND 11 B OF THE SEBI ACT?

It is most humbly submitted before this Hon’ble Court that the order restraining the executive
directors from taking up any position or being associated with the Securities market in any
capacity for two years was justified in terms of Section 11 and 11B of the Act. This stance is
supported by a two-fold argument: [a] SEBI has the power to issue such order to uphold the
interests of the shareholders and, [b] The order is not violative of Executive
Directors’Fundamental Right u/a 19(1)(g).

[a] SEBI has the power to issue such order in order to uphold the interests of the
shareholders.

Under Section 11-B of the SEBI Act41, has been invested with powers in the interest of the
investors or orderly development of the securities market or to prevent the affairs of any
intermediary or other persons referred to in Section 11 in themselves conducting in a manner
detrimental to the interest of investors of securities market.

Further, Section 11 (4) of the SEBI Act states that:

“Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and
section 11B, the Board may, by an order, for reasons to be recorded in writing, in the
interests of investors or securities market, take any of the following measures, either pending
investigationor inquiry or on completion of such investigation or inquiry, namely: —

(a) suspend the trading of any security in a recognised stock exchange;

(b)restrain persons from accessing the securities market and prohibit any person
associatedwith securities market to buy, sell or deal in securities;

(c) suspend any office-bearer of any stock exchange or self-regulatory organisation

fromholding such position.”

In the case of SEBI v. Pan Asia Advisors Ltd.42, the Hon’ble Apex Court categorically
upheld that:

41
Supra 1.
42
SEBI v. Pan Asia Advisors Ltd.,(2015) 14 SCC 71.

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“Under Section 11-B, SEBI has been invested with powers in the interest of the investors or
orderly development of the securities market or to prevent the affairs of any intermediary or
other persons referred to in Section 11 in themselves conducting in a manner detrimental to
the interest of investors of securities market and also to secure proper management of any
such intermediary or person. It can issue directions to any person or class of persons
referred to in Section 11 or associated with securities market or to any company in respect of
matters specified in Section 11-B in the interest of investors in the securities and the
securities market. The paramount duty cast upon the Board, as stated earlier, is protection of
interests of the investors in securities and securities market. In exercise of its powers, it can
pass orders of restraint to carry out the said purpose by restraining any person.”

Further, in the case of SEBI v. Kishore R. Ajmera43, the Hon’ble Supreme Court observed
that:
“The SEBI Act and the Regulations framed there under are intended to protect the interests of
investors in the Securities Market which has seen substantial growth in tune with
theparallel developments in the economy. Investors' confidence in the Capital/Securities
Market is a reflection of the effectiveness of the regulatory mechanism in force. All such
measures are intended to pre-empt manipulative tradingand check all kinds of
impermissibleconduct in order to boost the investors' confidence in the Capital market. The
primary purpose of the statutory enactments is to provide an environment conductive to
increased participation andinvestment in the securities market which is vital to the growth
and development of the economy. The provisions of the SEBI Act and the Regulations will,
therefore, have to be understood and interpreted in the above light.”

In the instant case in hand, the diversion of funds to the tune of Rs. 500 crores from the
accounts of GCL which impacted the interests of the shareholders and in order to avoid any
further mischief the SEBI is bestowed with powers to take necessary actions. Therefore,
SEBI being the market regulator is required to protect the interests of the shareholders.

Therefore, it is most humbly submitted before this Hon’ble Court that SEBI has the power to
issue an order restricting the restraining the executive directors from taking up any position or
being associated with the Securities market in any capacity for two years.

43
SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368.

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[b] The order is not violative of Executive Directors Fundamental Right u/a 19(1)(g).

Article 19(1)(g)44 of the Constitution of Indraprastha grants fundamental right to the citizens
to practise any profession or to carry on any occupation, trade or business. However, Article
19 (6) states that there can be reasonable restrictions on the exercise of this right.

In the case of Ritesh Agarwal v. SEBI45, the Hon’ble Apex Court held that:
“A citizen of India has a right to carry on a profession or business as envisaged by Article
19(1)(g) of the Constitution of India. Any restriction imposed thereupon must be made by
reason of a law contemplated under clause (6) thereof.”

Further, in the case of Price Waterhouse & Co. v. SEBI46, the Hon’ble SAT observed that:
“If the appellants have violated the provisions of the Companies Act or any provision or
regulations under SEBI, they can be prosecuted there under but the respondent cannot invoke
the SEBI laws in this cavalier fashion which violates the appellants' fundamental right to
carry on business as envisaged under article 19(1)(g) of the Constitution of India.”

Further, in the case of Karvy Stock Broking v. SEBI47, the Hon’ble SAT observed that:“If the
prima facie facts disclose a case for proceeding further in the matter and depending upon the
nature and gravity of the wrong doing, it would decide what measures it needs to take under
section 11 to protect the securities market and also the interests of the investors. If it feels
that immediate preventive action is essential, it can “restrain persons from accessing the
securities market and prohibit any person associated with securities market to buy, sell or
deal in securities” with immediate effect.”

It is most humbly submitted before this Hon’ble Court that in the present case in hand a huge
amount of Rs. 500 crores was diverted from the funds of GCL. Moreover, SEBI being the
market regulator has the power to restrict persons from being a part of the securities market in
view of the general public interest.

In the present case in hand, the executive directors have acted in contravention of the
Regulations 3 and 4 of the PFUTP Regulations, 2003 and therefore, restraining the executive
directors from taking up any position in the securities market for two years does not violate

44
India Const., Art. 19, cl. (1)(g).
45
Ritesh Agarwal v. SEBI, (2008) 84 SCL 373.
46
Price Waterhouse & Co. v. SEBI, Appeal 6 of 2018
47
Karvy Stock Broking v. SEBI, 2007 SCC OnLine SAT 2.

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the EDs fundamental rights under Art.19 (1)(g) since it is a reasonable restriction in the
interests of the public.

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PRAYER

Wherefore, in light of the facts stated, issues raised, arguments advanced and authorities
cited, it is most humbly submitted beforethis Hon’bleCourt thatmay graciously bepleased to:

1. Quash the order of the Hon’ble SAT, Mumbai (dated 1 st January, 2021) to grant a pre-
decisional hearing to the executive directors.
2. Hold that only the documents relied upon by SEBI are to be provided for inspection.
3. Uphold the order passed by SEBI holding the executive directors of GCL jointly and
severally liable with the promoters to disgorge Rs. 500 crores and restricting them from
taking up any position in the securities market for two years

AND/ OR

Pass any other order as it may deem fit in the interest of Justice, Equity and Good
Conscience for which the Respondent in duty bound shall ever pray.

__________________

Place: Sd/-

Date: COUNSEL FOR THE RESPONDENT

MEMORANDUM ON BEHALF OF THE RESPONDENT