Comprehension
If a person enters into a transaction which is surely likely to result in loss, he cannot be accused of insider trading. In other words, the actual gain or loss is immaterial, but the motive for making a gain is essential.
The words, “likely to materially affect the price” appearing in the main part of Regulation 2(ha) gain significance for the simple reason that profit motive, if not actual profit should be the motivating factor for a person to indulge in insider trading. This is why the information in Item No.(vii) of the Explanation under Regulation 2(ha) may have to be examined with reference to the words “likely to materially affect the price”. Keeping this in mind let us now come back to the facts of the case.
Gammon Infrastructure Projects Limited (“GIPL”) was awarded a contract for the execution of a project, whose total cost was admittedly ₹ 1,648 crores. Simplex Infrastructure Limited (“SIL”) was awarded a contract for a project whose cost was ₹ 940 crores. Both GIPL and SIL created Special Purpose Vehicles and then they entered into two shareholders Agreements. Under these Agreements, GIPL and SIL will have to make investments in the Special Purpose Vehicles created by each other, in such a manner that each of them will hold 49% equity interest in the other’s project.
It means that GIPL could have acquired 49% equity interest in the project worth ₹ 940 crores and SIL would have acquired 49% equity interest in a project worth ₹ 1,648 crore.
In arithmetical terms, the acquisition by GIPL, of an equity interest in SIL’s project was worth ₹ 460 crores approximately. Similarly, the acquisition by SIL, of the equity interest in GIPL’s project was worth ₹ 807.52 crores. Therefore, the cancellation of the shareholders Agreements resulted in GIPL gaining very hugely in terms of order book value. In such circumstances an ordinary man of prudence would expect an increase in the value of the shares of GIPL and would wait for the market trend to show itself up, if he actually desired to indulge in insider trading. But the respondent did not wait for the information about the market trend, after the information became public. The reason given by him, which is also accepted by the Whole-Time Member (“WTM”) and the Tribunal is that he had to dispose of his shares as well as certain other properties for the purpose of honouring a Corporate Debt Restructuring (“CDR”) package. It is on record that if the CDR package had not gone through successfully, the parent company of GIPL namely, Gammon India Ltd., could have gone for bankruptcy.
Therefore, the Tribunal was right in thinking that the respondent had no motive or intention to indulge in insider trading because he had a pressing necessity.
As a matter of fact, the Tribunal found that the closing price of shares rose, after the disclosure of the information. This shows that the unpublished price sensitive information was such that it was likely to be more beneficial to the shareholders, after the disclosure was made. Any person desirous of indulging in insider trading, would have waited till the information went public, to sell his holdings. The respondent did not do this, obviously on account of a pressing necessity.
[Excerpted from the judgment delivered by Ramasubramanian, J., in Securities and Exchange Board of India v. Abhijit Rajan, CA No. 563 of 2020 (hereafter ‘A Rajan’)]
The words, “likely to materially affect the price” appearing in the main part of Regulation 2(ha) gain significance for the simple reason that profit motive, if not actual profit should be the motivating factor for a person to indulge in insider trading. This is why the information in Item No.(vii) of the Explanation under Regulation 2(ha) may have to be examined with reference to the words “likely to materially affect the price”. Keeping this in mind let us now come back to the facts of the case.
Gammon Infrastructure Projects Limited (“GIPL”) was awarded a contract for the execution of a project, whose total cost was admittedly ₹ 1,648 crores. Simplex Infrastructure Limited (“SIL”) was awarded a contract for a project whose cost was ₹ 940 crores. Both GIPL and SIL created Special Purpose Vehicles and then they entered into two shareholders Agreements. Under these Agreements, GIPL and SIL will have to make investments in the Special Purpose Vehicles created by each other, in such a manner that each of them will hold 49% equity interest in the other’s project.
It means that GIPL could have acquired 49% equity interest in the project worth ₹ 940 crores and SIL would have acquired 49% equity interest in a project worth ₹ 1,648 crore.
In arithmetical terms, the acquisition by GIPL, of an equity interest in SIL’s project was worth ₹ 460 crores approximately. Similarly, the acquisition by SIL, of the equity interest in GIPL’s project was worth ₹ 807.52 crores. Therefore, the cancellation of the shareholders Agreements resulted in GIPL gaining very hugely in terms of order book value. In such circumstances an ordinary man of prudence would expect an increase in the value of the shares of GIPL and would wait for the market trend to show itself up, if he actually desired to indulge in insider trading. But the respondent did not wait for the information about the market trend, after the information became public. The reason given by him, which is also accepted by the Whole-Time Member (“WTM”) and the Tribunal is that he had to dispose of his shares as well as certain other properties for the purpose of honouring a Corporate Debt Restructuring (“CDR”) package. It is on record that if the CDR package had not gone through successfully, the parent company of GIPL namely, Gammon India Ltd., could have gone for bankruptcy.
Therefore, the Tribunal was right in thinking that the respondent had no motive or intention to indulge in insider trading because he had a pressing necessity.
As a matter of fact, the Tribunal found that the closing price of shares rose, after the disclosure of the information. This shows that the unpublished price sensitive information was such that it was likely to be more beneficial to the shareholders, after the disclosure was made. Any person desirous of indulging in insider trading, would have waited till the information went public, to sell his holdings. The respondent did not do this, obviously on account of a pressing necessity.
[Excerpted from the judgment delivered by Ramasubramanian, J., in Securities and Exchange Board of India v. Abhijit Rajan, CA No. 563 of 2020 (hereafter ‘A Rajan’)]
Question: 1
In A Rajan, which of the following are essential prerequisites for an insider to fall within the mischief of “insider trading” under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992?
In A Rajan, which of the following are essential prerequisites for an insider to fall within the mischief of “insider trading” under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992?
Show Hint
In insider trading cases, courts often stress motive — here, the profit motive — over actual monetary outcomes.
Updated On: Aug 17, 2025
- Lack of access to price sensitive information
- A profit motive
- Mens rea
- Abstaining from dealing in securities of a company about which the insider has price sensitive information
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The Correct Option is B
Solution and Explanation
Step 1: Understanding the case context.
The judgment in A Rajan clarifies that actual gain or loss is immaterial, but the motive for making a gain is essential for insider trading.
Step 2: Applying to the question.
Here, the insider must have engaged in the trade with a profit motive, even if the profit is not ultimately realized.
Step 3: Elimination of incorrect options.
(A) is incorrect — having access to price-sensitive information is a condition, but the question asks for an essential prerequisite per the judgment.
(C) "Mens rea" is a general legal term for guilty intent, but the case focuses specifically on a profit motive, which is narrower.
(D) abstaining from dealing is the opposite of engaging in insider trading, so it is irrelevant. \[ \boxed{\text{(B)}} \]
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Question: 2
Which of the following are the key facts in A Rajan?
Which of the following are the key facts in A Rajan?
Show Hint
When distinguishing insider trading from legitimate trades, timing of the transaction relative to the public release of information is critical.
Updated On: Aug 17, 2025
- The respondent sold the shares of the company about which he had unpublished price sensitive information (“UPSI”) after the rise in price of the shares consequential to the disclosure of the UPSI.
- The respondent did not possess any UPSI about the company whose shares he sold.
- The respondent sold the shares of the company about which he had UPSI before the rise in price of the shares consequential to the disclosure of the UPSI in his possession.
- The respondent did not sell any shares of the company about which he had UPSI.
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The Correct Option is C
Solution and Explanation
Step 1: Extracting facts from the judgment.
The respondent possessed UPSI about GIPL, but sold shares before the price rise that occurred after the public disclosure of the UPSI. Step 2: Motive determination.
He sold due to a pressing financial necessity (honouring a CDR package), not to profit from the price change. Step 3: Elimination of wrong options.
(A) is wrong — he sold before the rise, not after.
(B) is wrong — he did possess UPSI.
(D) is wrong — he did sell the shares. \[ \boxed{\text{(C)}} \]
The respondent possessed UPSI about GIPL, but sold shares before the price rise that occurred after the public disclosure of the UPSI. Step 2: Motive determination.
He sold due to a pressing financial necessity (honouring a CDR package), not to profit from the price change. Step 3: Elimination of wrong options.
(A) is wrong — he sold before the rise, not after.
(B) is wrong — he did possess UPSI.
(D) is wrong — he did sell the shares. \[ \boxed{\text{(C)}} \]
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Question: 3
Based on the passage, what is `insider trading` under the Insider Trading Regulations?
Based on the passage, what is `insider trading` under the Insider Trading Regulations?
Show Hint
In insider trading, two conditions are critical: possession of UPSI and intention to profit from it. Without either, the definition is not satisfied.
Updated On: Aug 17, 2025
- Dealing in the securities of a company about which one does not have UPSI, without any desire to make a profit.
- Dealing in the securities of a company about which one has UPSI, without any desire to make a profit.
- Dealing in the securities of a company about which one does not have UPSI, with the desire to make a profit.
- Dealing in the securities of a company about which one has UPSI, with the desire to make a profit.
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The Correct Option is D
Solution and Explanation
Step 1: Understanding UPSI and insider trading definition.
From the passage, UPSI means ``Unpublished Price Sensitive Information''. The key factor for insider trading is that the person possesses UPSI and engages in securities transactions using this information.
Step 2: Importance of profit motive.
The passage states that ``the actual gain or loss is immaterial, but the motive for making a gain is essential.'' This means that the intention to profit from the UPSI is necessary for the act to be considered insider trading, regardless of whether a profit is ultimately realized.
Step 3: Eliminating incorrect options.
(A) Incorrect — No UPSI is involved, so cannot be insider trading.
(B) Incorrect — While UPSI is involved, absence of profit motive excludes it from being insider trading.
(C) Incorrect — No UPSI is involved, even though there is a profit motive.
(D) Correct — Involves UPSI and a profit motive, fulfilling the definition in the passage.
\[ \boxed{\text{D}} \]
From the passage, UPSI means ``Unpublished Price Sensitive Information''. The key factor for insider trading is that the person possesses UPSI and engages in securities transactions using this information.
Step 2: Importance of profit motive.
The passage states that ``the actual gain or loss is immaterial, but the motive for making a gain is essential.'' This means that the intention to profit from the UPSI is necessary for the act to be considered insider trading, regardless of whether a profit is ultimately realized.
Step 3: Eliminating incorrect options.
(A) Incorrect — No UPSI is involved, so cannot be insider trading.
(B) Incorrect — While UPSI is involved, absence of profit motive excludes it from being insider trading.
(C) Incorrect — No UPSI is involved, even though there is a profit motive.
(D) Correct — Involves UPSI and a profit motive, fulfilling the definition in the passage.
\[ \boxed{\text{D}} \]
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Question: 4
Based on the passage, what was the impact of the cancellation of the shareholders’ agreements between SIL and GIPL?
Based on the passage, what was the impact of the cancellation of the shareholders’ agreements between SIL and GIPL?
Show Hint
Always match the exact language in the passage (“rose” → “increase”) to eliminate opposite or irrelevant options quickly.
Updated On: Aug 17, 2025
- There was a decrease in the closing prices of the shares after this information was disclosed.
- There was an increase in the closing prices of the shares after this information was disclosed.
- There was no change in the closing prices of the shares after this information was disclosed.
- The company’s securities were delisted from the stock exchange.
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The Correct Option is B
Solution and Explanation
Step 1: Identifying the relevant passage.
The passage clearly states: “the Tribunal found that the closing price of shares rose, after the disclosure of the information.”
Step 2: Interpreting the statement.
“Closing price rose” means there was an increase in the share price after disclosure. This indicates a positive market reaction.
Step 3: Eliminating incorrect options.
(A) Incorrect — Opposite of what the passage states.
(C) Incorrect — The passage confirms there was a change.
(D) Incorrect — There is no mention of delisting from the stock exchange.
Thus, (B) is the only correct choice. \[ \boxed{\text{B}} \]
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Question: 5
Which of the following approaches has been adopted in several jurisdictions, including India, to determine cases of insider trading?
Which of the following approaches has been adopted in several jurisdictions, including India, to determine cases of insider trading?
Show Hint
For insider trading, remember that “parity of information” ensures a fair market where no one trades with a secret advantage.
Updated On: Aug 17, 2025
- Parity of information
- Lifting the corporate veil
- Indoor management
- Constructive notice
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The Correct Option is A
Solution and Explanation
Step 1: Concept of “parity of information.”
The “parity of information” approach means that all market participants should have equal access to material, price-sensitive information before trading. Step 2: Passage reference.
The passage references this approach as being used in India and other jurisdictions for insider trading regulation. Step 3: Elimination of other options.
(B) Lifting the corporate veil — Used in company law to identify real owners, not directly for insider trading tests.
(C) Indoor management — Relates to assumptions outsiders can make about a company’s internal affairs.
(D) Constructive notice — Legal presumption of knowledge of public documents, not relevant here.
\[ \boxed{\text{A}} \]
The “parity of information” approach means that all market participants should have equal access to material, price-sensitive information before trading. Step 2: Passage reference.
The passage references this approach as being used in India and other jurisdictions for insider trading regulation. Step 3: Elimination of other options.
(B) Lifting the corporate veil — Used in company law to identify real owners, not directly for insider trading tests.
(C) Indoor management — Relates to assumptions outsiders can make about a company’s internal affairs.
(D) Constructive notice — Legal presumption of knowledge of public documents, not relevant here.
\[ \boxed{\text{A}} \]
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Question: 6
What reason did A Rajan give for selling his shares in the company about which he had UPSI?
What reason did A Rajan give for selling his shares in the company about which he had UPSI?
Show Hint
When a question involves a person’s motive, look for explicit statements in the passage that clarify intent — here, “pressing necessity” outweighed profit motive.
Updated On: Aug 17, 2025
- He expected a huge rise in the share price of GIPL upon the disclosure of the UPSI in his possession.
- It was a compulsory requirement under the shareholders’ agreement with SIL.
- He needed funds to buy the securities of SIL.
- He needed funds to honour a CDR package.
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The Correct Option is D
Solution and Explanation
Step 1: Extracting the relevant detail from the passage.
The passage notes: “The reason given by him… is that he had to dispose of his shares… for the purpose of honouring a Corporate Debt Restructuring (‘CDR’) package.” Step 2: Why this matters legally.
This reason was accepted by the Tribunal, indicating there was no profit motive — an essential element for insider trading was missing. Step 3: Eliminating wrong options.
(A) Incorrect — The passage says he did not wait for a price rise, which would be expected if this was his motive.
(B) Incorrect — No mention of a compulsory shareholder agreement sale.
(C) Incorrect — No mention of buying SIL securities.
\[ \boxed{\text{D}} \]
The passage notes: “The reason given by him… is that he had to dispose of his shares… for the purpose of honouring a Corporate Debt Restructuring (‘CDR’) package.” Step 2: Why this matters legally.
This reason was accepted by the Tribunal, indicating there was no profit motive — an essential element for insider trading was missing. Step 3: Eliminating wrong options.
(A) Incorrect — The passage says he did not wait for a price rise, which would be expected if this was his motive.
(B) Incorrect — No mention of a compulsory shareholder agreement sale.
(C) Incorrect — No mention of buying SIL securities.
\[ \boxed{\text{D}} \]
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Question: 7
Which of the following did the court in A Rajan say was clarified in SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1, as regards the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (the ``FUTP Regulations'')?
Which of the following did the court in A Rajan say was clarified in SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1, as regards the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (the ``FUTP Regulations'')?
Show Hint
In securities law, some regulations are ``strict liability'' — violations can occur without proving criminal intent.
Updated On: Aug 17, 2025
- That mens rea is an indispensable requirement to attract the rigour of the FUTP Regulations
- That mens rea is not an indispensable requirement to attract the rigour of the FUTP Regulations
- That mens rea is not an indispensable requirement to attract the rigour of the Insider Trading Regulations
- That mens rea is an indispensable requirement to attract the rigour of the Insider Trading Regulations
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The Correct Option is B
Solution and Explanation
Step 1: Understanding the court’s clarification.
The court referred to the SEBI v. Kanaiyalal Baldevbhai Patel case, which clarified that under the FUTP Regulations, mens rea (criminal intent) is not a mandatory requirement for a violation. Step 2: Application to the question.
This means that even without proving intent, an act violating the FUTP Regulations can still be penalized. Step 3: Eliminating incorrect options.
(A) Incorrect — This reverses the actual clarification.
(C) and (D) Incorrect — They refer to Insider Trading Regulations, whereas the question specifically refers to FUTP Regulations.
\[ \boxed{\text{B}} \]
The court referred to the SEBI v. Kanaiyalal Baldevbhai Patel case, which clarified that under the FUTP Regulations, mens rea (criminal intent) is not a mandatory requirement for a violation. Step 2: Application to the question.
This means that even without proving intent, an act violating the FUTP Regulations can still be penalized. Step 3: Eliminating incorrect options.
(A) Incorrect — This reverses the actual clarification.
(C) and (D) Incorrect — They refer to Insider Trading Regulations, whereas the question specifically refers to FUTP Regulations.
\[ \boxed{\text{B}} \]
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Question: 8
The Insider Trading Regulations are no longer in force. Which of the following is the current set of regulations governing insider trading in India?
The Insider Trading Regulations are no longer in force. Which of the following is the current set of regulations governing insider trading in India?
Show Hint
Always check for the latest amendments or replacements of regulations — insider trading in India is now governed by the 2015 regulations.
Updated On: Aug 17, 2025
- The FUTP Regulations
- The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- The SEBI (Prohibition of Insider Trading) Regulations, 2015
- The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015
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The Correct Option is C
Solution and Explanation
Step 1: Identifying the updated regulation.
The passage specifies that the older Insider Trading Regulations have been replaced by the SEBI (Prohibition of Insider Trading) Regulations, 2015. Step 2: Eliminating incorrect options.
(A) FUTP Regulations — Deal with fraud and unfair trade, not insider trading specifically.
(B) Issue of Capital and Disclosure — Relates to public issue disclosures, not insider trading.
(D) Listing Obligations — Relates to corporate governance and disclosures, not insider trading.
\[ \boxed{\text{C}} \]
The passage specifies that the older Insider Trading Regulations have been replaced by the SEBI (Prohibition of Insider Trading) Regulations, 2015. Step 2: Eliminating incorrect options.
(A) FUTP Regulations — Deal with fraud and unfair trade, not insider trading specifically.
(B) Issue of Capital and Disclosure — Relates to public issue disclosures, not insider trading.
(D) Listing Obligations — Relates to corporate governance and disclosures, not insider trading.
\[ \boxed{\text{C}} \]
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Question: 9
What did A Rajan hold regarding the information related to the termination of the shareholders’ agreements between GIPL and SIL?
What did A Rajan hold regarding the information related to the termination of the shareholders’ agreements between GIPL and SIL?
Show Hint
Price sensitive information is judged by its likely material effect on share prices, not just actual price movement.
Updated On: Aug 17, 2025
- It was not in the respondent’s possession
- It had no impact on the closing price of GIPL’s shares
- It was not price sensitive information
- It was price sensitive information
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The Correct Option is D
Solution and Explanation
Step 1: Passage evidence.
The passage states that the closing prices of shares rose after disclosure, meaning the information was likely to materially affect share prices — fulfilling the definition of price sensitive information. Step 2: Elimination.
(A) Incorrect — He possessed the information.
(B) Incorrect — There was an impact (increase).
(C) Incorrect — The market reaction proves it was price sensitive.
\[ \boxed{\text{D}} \]
The passage states that the closing prices of shares rose after disclosure, meaning the information was likely to materially affect share prices — fulfilling the definition of price sensitive information. Step 2: Elimination.
(A) Incorrect — He possessed the information.
(B) Incorrect — There was an impact (increase).
(C) Incorrect — The market reaction proves it was price sensitive.
\[ \boxed{\text{D}} \]
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Question: 10
In A Rajan, the court opined that a person who wanted to indulge in insider trading would have:
In A Rajan, the court opined that a person who wanted to indulge in insider trading would have:
Show Hint
For profit-driven insider trading, timing is crucial — the trader waits for the market to react to the disclosed UPSI before acting.
Updated On: Aug 17, 2025
- Held on to the shares, and only sold them after the news about the termination of the shareholders’ agreements with SIL was made public.
- Sold the shares before the news about the termination of the shareholders’ agreements with SIL was made public.
- Held on to the shares and not sold them under any circumstances.
- Never have bought GIPL’s shares in the first place.
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The Correct Option is A
Solution and Explanation
Step 1: Logic from the passage.
The passage states that anyone intending to profit from insider trading would wait for the positive market reaction after disclosure before selling shares. Step 2: Elimination.
(B) Incorrect — Selling before disclosure forfeits profit from the price increase.
(C) Incorrect — Selling at the right time is the key to profit; not selling at all makes no gain.
(D) Incorrect — Irrelevant to the context of timing.
\[ \boxed{\text{A}} \]
The passage states that anyone intending to profit from insider trading would wait for the positive market reaction after disclosure before selling shares. Step 2: Elimination.
(B) Incorrect — Selling before disclosure forfeits profit from the price increase.
(C) Incorrect — Selling at the right time is the key to profit; not selling at all makes no gain.
(D) Incorrect — Irrelevant to the context of timing.
\[ \boxed{\text{A}} \]
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Questions Asked in CLAT PG exam
- The Hon’ble Supreme Court in the case of ‘Nil Ratan Kundu and another v. Abhijit Kundu’ 2008(3) Apex Court Judgements 232 (SC), while granting the custody to the maternal grandparents observed: In our judgement, the law relating to custody of a child is fairly well settled and it is this. In deciding a difficult and complex question as to custody of minor, a Court of law should keep in mind relevant statutes and the rights flowing therefrom. But such cases cannot be decided solely by interpreting legal provisions. It is a humane problem in live in relationship and is required to be solved with human touch. A Court while dealing with custody cases, is neither bound by statutes nor by strict rules of evidence or procedure nor by precedents. In selecting proper guardian of a minor, the paramount consideration should be the welfare and well-being of the child. In selecting a guardian, the Court is exercising parens patriae jurisdiction and is expected, may bound, to give due weight to a child’s ordinary comfort, contentment, health, education, intellectual development and favorable surroundings. But over and above physical comforts, moral and ethical values cannot be ignored. They are equally, or we may say, even more important, essential and indispensable consideration. If the minor is old enough to form an intelligent preference or judgement, the Court must consider such preference as well, though the final decision should rest with the Court as to what is conducive to the welfare of the minor.
The Hon’ble Supreme Court in the case of ‘Gaurav Nagpal v. Semedha Nagpal’-(2009)1 SCC 42, while giving paramount importance to the welfare of the child, which should include moral and ethical values, besides ethical well-being, observed as under:
When the court is confronted with conflicting demands made by the parents, each time it has to justify the demands. The Court has not only to look at the issue on legalistic basis, in such matters human angles are relevant for deciding those issues. The Court then does not give emphasis on what the parties say, it has to exercise a jurisdiction which is aimed at the welfare of the minor. As observed recently in Mausami Moitra Ganguli case, the Court has to give due weightage to the child’s ordinary contentment, health, education, intellectual development and favorable surroundings, but over and above physical comforts, the moral and ethical values have also to be noted. They are equal if not more important than the others.
(Extracts from Jaswinder Singh and Another vs Surjit Singh, AIR 2010 (NOC) 425 (P. & H.))- CLAT PG - 2025
- Family Laws
- The Companies Act, 2013 does not deal with insolvency and bankruptcy when the companies are unable to pay their debts or the aspects relating to the revival and rehabilitation of the companies and their winding up if revival and rehabilitation is not possible. In principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act, 2013. The two situations are not identical. Under Section 271 of the Companies Act, 2013, even a running and financially sound company can also be wound up for the reasons in clauses (a) to (e). The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envisaged under the IBC. The two enactments deal with two distinct situations and in our opinion, they cannot be equated when we examine whether there is discrimination or violation of Article 14 of the Constitution of India. For the revival and rehabilitation of the companies, certain sacrifices are required from all quarters, including the workmen. In case of insolvent companies, for the sake of survival and regeneration, everyone, including the secured creditors and the Central and State Government, are required to make sacrifices. The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation,solely on the ground that some or marginal sacrifice is to be made by the workers. We would also reject the argument that to find out whether there was a violation of Article 14 of the Constitution of India or whether the right to life under Article 21 Constitution of India was infringed, we must word by word examine the waterfall mechanism envisaged under the Companies Act, 2013, where the company is wound up in terms of grounds (a) to (e) of Section 271 of the Companies Act, 2013; and the rights of the workmen when the insolvent company is sought to be revived, rehabilitated or wound up under the Code. The grounds and situations in the context of the objective and purpose of the two enactments are entirely different.
(Extracted, with edits and revision, from the judgement in Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma v. Union of India and Ors, 2023 SCC Online SC 547)- CLAT PG - 2025
- Company Law
- Ahmadi, J. (as he then was) speaking for himself and Punchhi, J., endorsed the recommendations in the following words-The time is ripe for taking stock of the working of the various Tribunals set up in the country after the insertion of Articles 323-A and 323-B in the Constitution. After the incorporation of these two articles, Acts have been enacted where-under tribunals have been constituted for dispensation of justice. Sufficient time has passed, and experience gained in these last few years for taking stock of the situation with a view to finding out if they have served the purpose and objectives for which they were constituted. Complaints have been heard in regard to the functioning of other tribunals as well and it is time that a body like the Law Commission of India has a comprehensive look-in with a view to suggesting measures for their improved functioning. That body can also suggest changes in the different statutes and evolve a model on the basis whereof tribunals may be constituted or reconstituted with a view to ensuring greater independence. An intensive and extensive study needs to be undertaken by the Law Commission in regard to the Constitution of tribunals under various statutes with a view to ensuring their independence so that the public confidence in such tribunals may increase and the quality of their performance may improve.
Before parting with the case, it is necessary to express our anguish over the ineffectiveness of the alternative mechanism devised for judicial review. The judicial review and remedy are the fundamental rights of the citizens. The dispensation of justice by the tribunal is much to be desired.
(Extracted with Edits from R.K. Jain v. Union of India, 1993 (4) SCC 119)- CLAT PG - 2025
- Constitutional Laws
- The elements of tort of negligence consist in – (a) duty of care; (b) duty is owed to the plaintiff; (c) the duty has been carelessly breached. Negligence does not entail liability unless the exacts a duty in the given circumstances to observe care. Duty is an obligation recognised by law to avoid conduct fraught with unreasonable risk of damage to others. The question whether duty exists in a particular situation involves determination of law. Hence, three ingredients are necessary for the existence of a duty of care: (i) foreseeability of the damage, (ii) proximity of relationship between the parties; and (iii) whether it is “just, fair and reasonable” that the law should impose a duty of care. In Caparo Industries Plc. v. Dickman, 1990 2AC 605, the court held that breach of duty is concerned with the standard of care that ought to have been adopted in the circumstances and whether the defendant’s conduct fell below that standard i.e., whether he was careless.
The court while quoting Rajkot Municipal Corporation v. Manjulben Jayantilal Nakum, 1997 stated that as a tort, negligence consists of legal duty to take care and breach of that duty. Duty determines whether the type of loss suffered by the plaintiff in the particular way in which to occurred can ever be actionable. The division of negligence into duty, breach and consequent damage is convenient for the purpose of exposition but it can be confusing because the issues will often overlap. The process of determining a breach of duty involves three steps: First, it is necessary to ascertain the qualities of the reasonable person, given the qualities attributed to him, would have taken in the circumstances. The factors that are permissible to take into account in this regard are prescribed by law, but the amount of care that the reasonable person would have taken is a question of fact. Thirdly, it must be determined whether the defendant took less care than the reasonable person would have taken.
(Extracts from Managing Director, Kerala Tourism Development Corporation Limited v. Deepti Singh and Ors., 2019 SC)- CLAT PG - 2025
- Law of Torts
- Article 14 of the Constitution stipulates that the State shall not deny to any person equality before the law or the equal protection of laws within the territory of India. Article 15(1) states that the State should not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them. Article 15(4) stipulates that nothing in Article 15 shall prevent the State from making any special provision for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes. Article 16 deals with equality of opportunity in matters of public employment. Clause (1) of Article 16 guarantees equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State. Clause (2) stipulates that no citizen shall be discriminated in or be ineligible for any employment or office under the State on the grounds only of religion, race, caste, sex, descent, place of birth, residence or any of them. Clause (4) of the provision states that nothing in Article 16 shall prevent the State from making any provision for the reservation of appointments or posts in favour of any backward class of citizens, which in the opinion of the State, is not adequately represented in the services under the State. The purpose of the equal opportunity principle in Article 16(1) and the reservation provision in Article 16(4) has emerged as a focal point of the jurisprudence on reservations in this Court. A discussion of the journey of the competing models of equality that the Court has espoused and their evolution over the course of the years is necessary to understand the constitutional vision on equality.
The impugned constitutional amendments by which Article 16 (4-A) and 16 (4-B) have been inserted, flow from Article 16 (4). They do not alter the structure of Article 16 (4). They retain the controlling factors or the compelling reasons which enables the State to provide for reservation keeping in mind the overall efficiency of the state administration under article 335. Sub-categorization within a class is a constitutional requirement to secure substantive equality in the event that there is a distinction between two sections of a class; Sub-classification must not lead to the exclusion of one of the categories in the class. A model that provides sufficient opportunities to all categories of the class must be adopted; and Sub-classification among a class must be on a reasonable basis.
Justice Bela Trivedi opined, in dissent, that presidential list of scheduled castes notified under Article 341 cannot be altered by the States. Any change to this list can only be made by a law enacted by Parliament. Sub-classification, according to her would amount to tampering with the Presidential List and undermine the object Article 341, which aims to eliminate political influence in the SC-ST List. Further, she emphasised the importance of adhering to the rule of plain and literal interpretation. She mentions that any preferential treatment for a sub-class within the presidential list would deprive other classes within the same category of their benefits. In the absence of executive or legislative power, state lack the competence to sub-classify castes and the benefit reserved for all SCs. Allowing states to do so would constitute a colourable exercise of power, which is impermissible under law. Justice Trivedi concluded by affirming that affirmative action by States must remain within constitutional boundaries and held that the law laid down in E.V. Chinnaiah case was correct and should be upheld.
(Extract from The State of Punjab & Ors. v. Davinder Singh & Ors. 2024 SC)- CLAT PG - 2025
- Constitutional Laws
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