IUMCC 2019 Senior’s Moot

IUMCC Senior’s Moot Proposition, 20191

1 Copy and Paste are citizens of the country of Index, a same sex couple who have been together
for many years. Having promised their lifelong commitment to each other, in 2011 they wed in
New Doc, a city in the country of United States of Format, where same sex couples can legally be
married.

2 Copy and Paste share a home in Index and are both wildly successful in their respective careers in
the country. Copy is an Advocate, practising in the Supreme Court of Index and has been placed
in Review Magazine’s Top 40 under 40 five years in a row. Copy has represented several high
profile clients in commercial disputes, being especially known as an impeccable stickler for
attorney-client privilege. Paste, is a Professor of Ethics, having tenure at the top University in
Index, and worldwide recognition for her books on ethical conduct.

3 TurnItInn Ltd. (TurnItInn) is a public listed company, incorporated in Index in November 2012.
It has heavily marketed its products that were released in January 2014 - delicious ready-to-eat
food substitutes that claim to have the same nutrients as vegetables and fruits, but without any
natural sugar. The company claims that the substitutes are incredible for facilitating weight loss
and that after a period of consuming them for 3 months, a person is estimated to drop three sizes,
- literally “turn in”. The novelty of the products cause the company’s share prices to soar.

4 Delete has been running a successful health club in Index for many years. In February 2014, on
the strength of the advertisements and marketing of TurnItInn, he decides to, along with his fifty
club members, undertake a 3 month test of their products. However, within six weeks of this
switch to TurnItInn’s products, Delete and nearly thirty of his club members gain a tremendous
amount of weight.

5 Outraged by what he believes is an unfair trade practice, he files a case against TurnItInn in court.
In response, TurnItInn immediately engages the services of Copy. The case rages on for months,
becoming something of a media storm. Copy, wanting to do her best at defending her client,
requests access to confidential company documents on procurements, expenditures and formulas,
and has frequent meetings with TurnItInn’s directors at her home office.

1Drafted by Hemavathi S. Shekhar and Sumedha Ray Sarkar, with valuable inputs from C.R. Shriram, Rahul Hemrajani,
and other members of the Faculty.

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6 Meanwhile, Paste, a health fanatic herself, has held shares of TurnItInn since its incorporation.
While taking a monthly stock of her finances at the end of the year, on 02.12.2014 Paste decides
to sell her shares in the company.

7 On 08.01.2015 the Court held and severely admonished TurnItInn for indulging in unfair trade
practices. In the public outrage that follows, TurnItInn’s share prices plummet by 50%.

8 All this while, the Securities Exchange Board of Index (SEBI), the regulator of all transactions in
securities, has been following the case against TurnItInn closely - monitoring transfers in the
shares of the company. While tracking these transactions, SEBI notices a spike in the selling of
shares of TurnItInn in the week prior to the judgment delivered by the Court. In the list of
transactions SEBI prepared, Paste’s transaction was listed as one among the transactions that
avoided the loss most shareholders incurred after the judgment.

9 When SEBI investigated the transaction, they discovered that Paste was “married” to Copy, the
counsel representing TurnItInn in the court fight, and that the two lived together. Believing it has
reasonable ground to connect Paste’s sale of shares to Copy’s knowledge of TurnItInn’s affairs,
SEBI issues notices dated 20.01.2015
6 to both Copy and Paste to show cause why they should not
be penalised for insider trading under Section 15G of the SEBI Act, 1992 read with the SEBI
(Prohibition of Insider Trading) Regulation, 2015. (PIT, 2015).

10 Alleging communication of Unpublished Price Sensitive Information (UPSI), the show cause
notice to Copy demanded that she disclose all the documentation in her possession with respect
to TurnItInn’s case. The notice to Paste demanded that she respond to a potential finding of her
having indulged in insider trading – either as a ‘connected person’ under Regulation 2 (d) of the
PIT 2015, or as a person to whom UPSI has been communicated.

11 In her reply to SEBI dated 05.02.2015,

7 Copy flatly refuses to share any information about
TurnItInn on the grounds of the information being privileged communication. In an equally curt
reply on 06.02.2015,
7 Paste denies any involvement in insider trading and asserts that she had
compelling reasons to sell her shares and had never been in possession of UPSI.

12 SEBI, treating the replies as a refusal to cooperate, decides to conduct a search and seizure of
Copy and Paste’s home, which SEBI knows includes Copy’s office. On 25.02.2015,
7 while Copy
was at Court, SEBI raided the house. Officials collected all documents from every corner of the
home and office. This included all case files of other parties as well as all electronic devices. During
the course of the raid, a nervous and taken aback Paste, who had a day off from work, was asked
probing questions about the details of the nature of her relationship with Copy.

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13 SEBI examined the documents seized from the home. It came to the conclusion that the
documents in Copy’s possession contained information, the knowledge of which would allow a
person to predict that TurnItInn would lose the unfair trade practices case. That person, would
therefore be able to predict the nosedive in share prices. Owing to this belief, its reading of the
relationship between Copy and Paste, and the accessibility of the home office by Paste, SEBI
8
issued three orders dated 25.03.2015 against the couple under the PIT, 2015 and the SEBI Act,
1992.

14 Vide Order ‘A’ SEBI declared Copy to have communicated UPSI in violation Reg. 3 of the PIT,
2015. It also finds Copy guilty of professional misconduct and imposes a two year ban on her
from representing any listed company. Vide Order ‘B’, SEBI found that Paste was involved in
trading based on unpublished price sensitive information, thus violating Regulation 4 of the PIT,
2015. Finally, vide Order ‘C’, SEBI directed the freezing of Paste’s bank accounts.

15 Against these orders, Copy and Paste approach the Supreme Court of Index and seek a finding
that:

(i) The discretion conferred on the SEBI under Section 11 and 11C of the SEBI Act of 1992
is excessive and thus unconstitutional. In any event the exercise of the discretion is
manifestly arbitrary and violative of Article 14 of the Constitution of Index.

(ii) 7
That the search and seizure conducted on 25.02.2015 as well as the charge of professional
misconduct against Copy is violative of her right to freely practise her profession.

(iii) That the sale of shares by Paste dated 02.12.2014 does not constitute insider trading and
that the freezing of her bank account is illegal.

16 SEBI rebuts all the above arguments. The case is listed for hearing on 7th September 2019.

NOTE:

a. The laws of the State of Index are pari materia with the laws of India.

b. The parties are free to add any other issues or modify existing issues.