1154

IN THE
SUPREME COURT OF INDISH
AT
INDISH

Writ Petition No.: XXX/2016

FILED

UNDER

ARTICLE 32

OF

THE CONSTITUTION

OF INDIA,

1950

IN THE MATTER OF

GUPTESH

SPORTS

EQUIPMENT

LTD..

PETITIONER
MS. PRAWNA MATHS...PETITIONER
Versus
SEBI..... RESPONDENT

-MEMORIAL ON BEHALF OF THE PETITIONERS-

TABLE OF CONTENTS
index of authorities iii
statement of facts............................................................................................................................iv
statement of jurisdiction..................................................................................................................v
issues for consideration..................................................................................................................vi
summary of argumnents................................................................................................................vii
I.

Whether the Supreme Court has jurisdiction in the present matter?..................................vii

II. Whether Securities and Exchange Board of Indish has Jurisdiction in the present matter?
vii
III.

Whether such issuance of OFCDs by Guptesh is in violation of Companies Act 1956?

vii

arguments advanced.........................................................................................................................1
The Supreme Court has jurisdiction in the present matter..........................................................1
Securities and Exchange Board of Indish does not have Jurisdiction in the present matter.......2
Issuance of OFCDs by Guptesh is not in violation of Companies Act 1956..3
SECTION 67 IS NOT VIOLATED.........................................................................................3
OFCDS CANNOT BE LISTED.............................................................................................4
VIOLATION OF CORPORATE AUTONOMY.....................................................................4
prayer...............................................................................................................................................5

INDEX OF AUTHORITIES
Cases
Bennett Coleman & Co. v. Union of India, AIR 1973 SC106.........................................................9
Godhra Electric Co. Ltd v. State of Gujarat, AIR 1975 SC 32......................................................10
RC Cooper v. Union of India, AIR 1970 SC 564............................................................................9
Rules
Proviso 1, Section 67, The Companies Act, 1956..........................................................................11
Section 2(19A), The Companies Act, 1956...................................................................................11
Section 2(45AA), The Companies Act, 1956................................................................................11
Section 28(1)(b), Securities Contracts Regulation Act, 1956........................................................12
Section 55A, Companies Act, 1956...............................................................................................10

STATEMENT OF FACTS
Guptesh Sports Equipment Ltd. [Guptesh] is a well-known company in the Union of Indish.
In order to expand, its promoter Ms. Prawna Maths decided to enter into business of textiles.
Hence, on September 21, 2011, she decided to solicit money from her forty nine relatives and
friends by sending them application forms to their respective addresses and e-mail ids. Such task
of sending solicitations forms was allotted to Mr. Shaggi.
On October 5, 2011, Mr. Shaggi, while posting those forty nine applications, also uploaded the
same on Gupteshs website. In light of the companys popularity, Mr. Surva Dhareen, a sports
enthusiast, shared the website page that was soliciting money from public on Facebook.
Subsequently, news went viral and many people, apart from those forty nine acquaintances,
applied for the subscription by sending applications to the company.
Ms. Prawna, unaware of the prevailing law, was enlightened with such high demand. In total, she
had received Rs. 200 crores from the subscribers. On December 6, 2011, Ms. Prawna, allotted
optionally fully convertible debentures [OFCDs] to all retail investors who had applied for
subscription.
Securities and Exchange Board of Indish [SEBI] became aware of such an action, it sent a
notice to Ms. Prawna on why an action shouldnt be taken against her.
Aggrieved by the notice, Ms. Prawna filed a writ petition before the Supreme Court of Indish
questioning the jurisdiction of SEBI in the present matter.
SEBI argued since Guptesh is not a citizen under the Constitution of Indish, writ petition was not
maintainable. SEBI also contended that such issuance of shares is a blatant violation of the
Companies Act, 1956 and Guptesh should have got its shares listed.
It was urged by Guptesh that OFCDs are not securities under the Securities Contracts
(Regulation) Act, 1956. Guptesh also contended that since it did not intend to offer shares to
public and application forms were mistakenly uploaded on the website, there was no violation of
the Companies Act, 1956.

STATEMENT OF JURISDICTION
The Petitioners humbly submits to the jurisdiction of the Supreme Court of Indish.
Writ Petition No. XXX/2016 has been filed in the Supreme Court in the present matter under
Article 32 of the Constitution of India, 1950.
It is thus submitted that this Honble Court has complete competency and jurisdiction to
adjudicate the matters mentioned above.

All of which is urged in detail in the written submission and is submitted most respectfully

ISSUES FOR CONSIDERATION

I.

WHETHER

THE

SUPREME COURT

HAS

JURISDICTION

IN

THE

PRESENT

MATTER?

II.

WHETHER SECURITIES

AND

EXCHANGE BOARD

OF INDISH HAS JURISDICTION

IN THE PRESENT MATTER?

III.

WHETHER

SUCH ISSUANCE OF

OFCDS

COMPANIES ACT 1956?

BY

GUPTESH

IS IN VIOLATION OF

SUMMARY OF ARGUMNENTS

I.

WHETHER

THE

SUPREME COURT

HAS

JURISDICTION

IN

THE

PRESENT

MATTER?

Supreme Court has jurisdiction in the present matter as the writ is maintainable if the
fundamental rights of a natural person or citizen are also violated and their name is joined with
that of the company.
II.

WHETHER SECURITIES

AND

EXCHANGE BOARD

OF INDISH HAS JURISDICTION

IN THE PRESENT MATTER?

Section 55A of the Companies Act, 1956 excludes the jurisdiction of SEBI in case of public
unlisted companies and vests the same in the Central Government.
III.

WHETHER

SUCH ISSUANCE OF

OFCDS

BY

GUPTESH

IS IN VIOLATION OF

COMPANIES ACT 1956?

SECTION 67 IS NOT VIOLATED: as it only specifies the law regarding shares and
debentures and does not speak of hybrid securities, i.e., OFCD in the present case.

OFCDS CANNOT BE LISTED: Section 28(1)(b) of SCR, 1956 specifically excludes

convertible bonds to be listed.

VIOLATION OF CORPORATE AUTONOMY: SEBIs compulsion on Guptesh to list

its securities clearly violates its Corporate Autonomy.

ARGUMENTS ADVANCED
THE SUPREME COURT

HAS JURISDICTION IN THE PRESENT MATTER

It is most respectfully submitted that it is now an established practice to file writ petitions by the
company concerned alongwith a shareholder to challenge the state action against the company
and thus, invoke the Fundamental Rights granted only to the citizens. It is well settled that a
company can file a writ petition if a natural person whose rights are also violated is joined to it.
In Bank Nationalization Case1, a Central law acquiring banks was challenged in writ petitions
under Art. 32 by the concerned banking companies, a shareholder, a director and a holder of a
current account in the bank. The Supreme Court of India held the petitions maintainable on the
ground that the rights of the companies as well as the shareholders were involved and the court
will not, concentrating merely upon the technical operation of the action, deny itself the
jurisdiction to grant relief.
Further in Bennett Coleman Case2, the Newsprint Control Order was challenged under Arts.
19(1)(a) and 14 in writ petitions filed by several newspaper companies, several readers,
newspaper editors and several shareholders of these companies. These petitions were held
maintainable as the rights not only of the newspaper companies but also of the editors, readers

1 RC Cooper v. Union of India, AIR 1970 SC 564

2 Bennett Coleman & Co. v. Union of India, AIR 1973 SC106

1

and shareholders were also involved. These individuals exercised their right of freedom of
speech through their newspaper through which they speak.
In Godhra Electric Co. Ltd v. State of Gujarat3, when the company was sought to be nationalized
by the State Government, writ petitions to challenge the same were filed by the company and a
shareholder, the Supreme Court held these petitions maintainable under Art 19(1)(f) and (g), as
his right to carry on the business through the company, his right to divisible share in future of
the property of the company, were diminished by takeover of the company.
Therefore, Ms. Prawna Maths being the promoter of the Guptesh4, can file the writ petition on
behalf of the company by attaching her name, as the matter effects her rights as well as the
rights of the numerous members and other stakeholders of the company too.
SECURITIES

AND

EXCHANGE BOARD

OF INDISH DOES NOT HAVE JURISDICTION IN

THE PRESENT MATTER

Section 55A clearly deals with the powers of Securities and Exchange Board of Indish(SEBI). It
says SEBI is not empowered to administer the provisions of the Companies Act relating to the
issue and transfer of securities and non-payment of dividends, so far as an unlisted public
company is concerned.5
3 Godhra Electric Co. Ltd v. State of Gujarat, AIR 1975 SC 32

4 Proposition

5 Section 55A, Companies Act, 1956

2

It is also submitted that the powers of SEBI to administer the aforesaid provisions are limited to
the listed companies and public companies which intend to get their securities listed on any
recognized stock exchange in India. Also, the Explanation to Section 55A says that all powers
relating to all other matters i.e. matters other than those relating to the issue and transfer of
securities and non-payment of dividends, including the matter relating to prospectus would be
exercised by the Central Government or the RoC and not SEBI.6
In the present case, petitioner company Guptesh is a Public Unlisted Company 7. It is neither
listed on any of the recognized stock exchanges nor it intends to be listed on any of the stock
exchanges and therefore, according to Section 55A, only Central Government has jurisdiction in
the present matter and not SEBI.
ISSUANCE

OF

OFCDS

BY

GUPTESH

IS NOT IN VIOLATION OF

COMPANIES ACT

1956

SECTION 67 IS NOT VIOLATED

Section 2(45AA) of the Companies Act, 1956 defines securities meaning securities as defined
in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956, and includes

6 Id.

7 Proposition
3

hybrids8. Section 2(19A) defines Hybrids as any security which has the character of more than
one type of security, including their derivatives9.
It is submitted that the OFCDs issued by the Petitioner company is a Hybrid instrument that are
debentures as of now and has an option of getting fully converted into shares. First Proviso to
Section 67 which says offer to more than fifty persons shall deemed to be a public issue 10 is not
applicable as section 67 speaks only of shares and debentures and does not uses the term
securities which therefore excludes hybrids and hence OFCDs.
OFCDS CANNOT BE LISTED
Section 28(1)(b) of the Securities Contracts Regulation Act, 1956 clearly lays down the
inapplicability of the act on any convertible bond or share warrant or any option or right.11
OFCDs issued in the present case are convertible bonds and hence are non-listable securities
within the meaning of section 2(h) of Securities Contracts Regulation Act, 1956 and therefore no
question of making them listed as per Section 73 arises in the present matter.
VIOLATION OF CORPORATE AUTONOMY
As proved above, that SEBI has no jurisdiction in the present matter and any act of compulsion
on Guptesh to list their shares or debentures on a stock exchange would make serious inroad into
8 Section 2(45AA), The Companies Act, 1956

9 Section 2(19A), The Companies Act, 1956

10 Proviso 1, Section 67, The Companies Act, 1956

11 Section 28(1)(b), Securities Contracts Regulation Act, 1956

4

their corporate autonomy. It is submitted that the concept of autonomy involves the rights of
shareholders, their free speech, their decision making and all other factors.
It is also submitted that that SEBIs insistence that Guptesh ought to have listed their shares or
debentures on a recognized stock exchange in accordance with Section 73 of the Companies Act
would necessarily expose shareholders and debenture holders to the risks of trading in shares and
would also compel unlisted companies to seek financial help from investment bankers.

PRAYER
Wherefore in light of the facts stated, issues raised, arguments advanced and authorities cited, it
is most humbly prayed before this Honble Court: -

To hold the writ of Quo Warranto maintainable

To pass order denying the jurisdiction of SEBI in the present matter
To hold the issuance of OFCDs not in violation of any law.

And pass any such order which the Honble Court may deem fit in the eyes of justice and good
conscience.

All of which is most humbly and respectfully, submitted.

Place: Indish

1154
(Counsel for the Petitioners)