Siddharth Shankar v. SEBI

16. The Respondent/SEBI has opposed the Petition on the ground that it had fully complied with its statutory obligations under the Code of Criminal Procedure, 1973 (CrPC).

17. It is submitted that the obligation under Section 208 read with Section 207 CrPC is limited to furnishing the accused with copies of the Police Report or Complaint, statements of witnesses recorded, confessions and any other document forwarded to the Magistrate with the Report/Complaint. Since all documents that SEBI formally relied upon in the Complaint were furnished, there was sufficient compliance of S.208 Cr.P.C.

18. The Respondent asserted that the Petitioner had no right to demand copies of documents that were not relied upon in the Complaint or that were not formally annexed to the Complaint, as held in judgment of Chandrama Tewari vs. Union of India 1987 Supp SCC 518, where the Court stated the obligation is confined only to material and relevant documents which may have been relied upon.

19. Respondent further asserted that the documents sought by the Petitioner, were either privileged or irrelevant at the pre-charge stage. The Digitally Investigation Report and file Notings which formed the basis for the decision to file the Complaint were classified as internal, administrative documents or inter-departmental communications, which is only relevant for the formation of an opinion to initiate proceedings.

20. Respondent has relied on the case of Krishna Chandra Tandon vs. Union of India, (1974) 4 SCC 374 wherein the Apex Court held that Reports of Departmental Officers not relied upon by the Inquiry Officer or Disciplinary Authority, need not be supplied to the delinquent employee. It is contended that its internal process of reaching to a “satisfaction” as mentioned in the Complaint, was not open to challenge or disclosure before the framing of charge.

21. The Respondent contended that the Petitioner’s Application was a mere attempt to conduct a “roving and fishing inquiry” into the internal working of the Regulatory body, which is impermissible in law, for which reliance is placed on Natwar Singh vs. Director of Enforcement, (2010) 13 SCC 255.

22. The relevance of any document for the defence of the accused only arises once the charges are framed and the accused is called upon to enter his defence. The Application was premature as this stage and documents necessary for the defence, typically arises only after the court proceeds to record the defence evidence and not at the pre-charge stage.

23. The burden was on the Petitioner, to clearly demonstrate how the not supplied documents were not only relevant but how their non-supply specifically caused prejudice to his case, as noted in the case of State of U.P. vs. Ramesh Chandra Mangalik, (2002) 3 SCC 443 and State of T.N. Digitally vs. Thiru K.V. Perumal, (1996) 5 SCC 474. The Respondent submits that the Petitioner failed to meet this high threshold.

24. The concession made by SEBI’s counsel on 25.08.2017, was that the “the documents which are very bulky would be open for inspection.” and did not amount to a statement for the supply of copies of unrelied documents.

25. Thus, it is prayed that the Petition be dismissed.

26. Written submissions have been filed on behalf of the Petitioner as well as the Respondent and the same have been perused. Submissions Heard and Record Perused.

27. The Petitioner, by way of an Application under Section 208 CrPC read with Section 26(D) of SEBI Act, had sought certain documents including the Investigation Report, which formed basis for the Complaint. In compliance of Section 208 CrPC, all the documents filed along with the Complaint, were supplied to the Accused. However, the narrow controversy survives around the Investigation Report.

28. The core question which thus, seeks determination is the extent of the right of the Accused to be entitled to the disclosure of documents in a prosecution initiated by SEBI. To comprehend the contours of the controversy, it is pertinent to refer to PFUTP Regulations governing the Prosecution of the person under SEBI Act. Rule 9 to12 of the Regulation read as under:- “9. The Investigating Authority shall, on completion of investigation, after taking into account all relevant facts, submit a report to the appointing authority: Provided that the Investigating Authority may submit an interim report pending completion of investigations Digitally if he considers necessary in the interest of investors and the securities market or as directed by the appointing authority.”

29. Rule 10 of the Regulation reads as under:-

30. Rule 11 of the Regulation reads as under:-

Digitally stock exchange or self-regulatory organization from holding such position; (d) impound and retain the proceeds or securities in respect of any transaction which is in violation or prima facie in violation of these regulations; (e) direct and intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of a fraudulent and unfair transaction; (f) require the person concerned to call upon any of its officers, other employees or representatives to refrain from dealing in securities in any particular manner; (g) prohibit the person concerned from disposing of any of the securities acquired in contravention of these regulations; (h) direct the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status quo ante. (2) The Board shall issue a press release in respect of any final order passed under sub-regulation (1) in at least two newspapers of which one shall have nationwide circulation and shall also put the order on the website of the Board.”

31. Rule 12 of the Regulation reads as under:-

Digitally Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 is complied with.”

32. Regulation 9 provides that the Investigating Authority shall, on completion of investigation, after taking into account all relevant facts, submit a Report to the appointing authority. In Regulation 10, after consideration of the Report referred to in Regulation 9, if satisfied that there is a violation of these Regulations and after giving a reasonable opportunity of hearing to the persons concerned, the Board is empowered to either issue a direction or take action, as specified in Regulations 11 and 12.

33. The language of Regulation 9 and 10, is indicative that The words of Regulation 10 are that Board “after consideration of the report referred to in Regulation 9, if satisfied that there is a violation of the Regulations and after giving reasonable opportunity of hearing to the person concerned”, takes action under Regulations 11 and 12. Therefore, the consideration of the Report of the Investigating Authority submitted under Regulation 9, is an intrinsic component of the Board‟s satisfaction for determining whether there is any violation of the Regulations.

34. In the case of T. Takano (supra), the identification of a purpose of disclosure of the relevant material is connected to three key purposes, which are:

(i) Reliability i.e. the information available with both the parties can aid the Courts in determining the truth of the contentions. The role of the Court is not in restricted to interpreting the provisions of law, but also to determine the veracity and truth of the allegations made thereunder. This function can be performed accurately only if both the parties have access to the Digitally information and are given an opportunity to address arguments relating to the information.

(ii) Fair Trial: Since the verdict of the Court has far-reaching repercussions on the life and liberty of an individual, it is only fair that there is legitimate expectation that the parties are provided all the aid in order for them to effectively participate in the proceedings

(iii) Transparency and accountability: The investigating agencies and the judicial institutions are held accountable through transparency and not opaqueness of proceedings. The principles of fairness and transparency of adjudicating proceedings are the cornerstones of the principle of open justice. This is the reason why adjudicating authorities are required to record its reasons for every Judgment or Order to be passed.

35. It denies the party concerned and the public at large, the ability to effectively scrutinise the decisions of the authority since it creates an information asymmetry. It was thus observed in T. Takano (supra) as under:-

Digitally

36. It was further observed in T. Takano (supra) that it would be contrary to the principles of natural justice, if the relevant part of the Investigation Report which pertains to the Appellant is not disclosed. He must have be given a reasonable opportunity of hearing, which postulates that such material, which has been taken into account under Regulation 10, must be disclosed to the Noticee.

37. The main contention raised by the Respondent is that the Investigation Report is essentially an intra-Department document and has no relevance to the enquiry to be conducted by the Regulatory Board under Regulation 10. In this context, it is firstly relevant to refer to the Judgment of Natwar Singh (supra) wherein the issue before the two-Judge Bench was whether a Noticee, who is served with a Show Cause Notice under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (hereinafter referred to as „the FEMA Rules, 2000”), is entitled to demand all the documents in the possession of the Adjudicating Authority including those documents upon which no reliance has been placed, while issuing a Show Cause Notice as to why an enquiry should not be initiated against him.

38. In this Case, the Apex Court distinguished the stage of adjudication as distinct from the initial stage under Rule 4(1). At the stage of adjudication, all documents useful or relevant to the subject-matter have to be disclosed to the Noticee. However, it was noted that the Rules do not empower the Adjudicating Authority to straight away make any enquiry into the allegations of contravention against any person against whom the Complaint has been filed. Rule 4 contemplates giving a Show Cause Notice as to why an enquiry should not be held. It is evident from the bare reading of this Digitally Rule, that the Show Cause Notice is to be issued not for the purpose of making any adjudication into alleged contravention, but for the purpose of deciding whether the enquiry should be held or not. Even every such Notice is required to indicate the nature of controversy alleged to have been committed by such person.

39. It was further observed that the right to fair hearing is a guaranteed right. A person may be allowed to inspect the file and take the notes. Whatever mode is used, the fundamental principle remains that nothing should be used against the person, which has not been brought to his notice. If the relevant material is not disclosed to a party, there is prima facie unfairness, irrespective of whether the material in question arose before, during or after the hearing.

40. The law is well-settled that if prejudicial allegations are being made against the person, he must be given particulars of that, before hearing so that he can prepare the defence.

41. However, Natwar Singh (supra), also identified various exceptions to this general Rule by observing that disclosure of evidential material which may inflict serious harm on a person directly concerned or other persons or where disclosure would be breach of confidence or might be injurious to the public interest as it would involve the revelation of official secrets, inhibit frankness of comment and the detection of crime, might make it impossible to obtain certain clauses of essential information at all, in the future.

42. The concept of fairness may require the Adjudicating Authority to furnish the copies of the documents upon which reliance has been placed by him to issue Show Cause Notice requiring a notice to explain why an inquiry under Section 16 of the Act, should not be initiated. To this extent, the Digitally principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules. The Noticee is always entitled 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. Therefore, 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.

43. Therefore, it was held in the case of Natwar Singh (supra), that the documents and the evidence relied upon by the Adjudicatory Authority, must be made available to the Accused, to ensure reasonable opportunity of being heard and also to ensure the fairness of the procedure. The duty of adequate disclosure is only an additional procedural safeguard in order to ensure the attainment of the fairness. A distinction was drawn between the stage of enquiry under Rule 4(1) and the final adjudication and it was observed that at the stage of Show Cause Notice, it is sufficient that only documents that are relied upon are disclosed.

44. The logic behind such disclosure is the likelihood of being influenced by the documents referred in the enquiry whether relied or not. It was observed in the case of Khudiram Das vs. State of West Bengal (supra) in the context of preventive detection, that it can hardly be disputed that if there was before the District Magistrate material against the detenu, which is of a highly damaging character and has nexus and relevancy with the object of detention, and proximity with the time when the subjective satisfaction forming part of the detention order was arrived at, it would be legitimate for the Court to infer that such material must have influenced the District Magistrate in arriving at the subjective satisfaction and the Court would Digitally refuse to accept the bald statement of the District Magistrate that he did not take any material into account and excluded it from consideration. The human mind does not function in compartments.

45. When it receives impressions from different sources, it is the totality of the impressions, which goes into the making of the decision. It is not possible to analyse and dissect the impressions and predicate which impressions went into the making of the decision. Nor is it any easy exercise to erase the impression created by particular circumstances so as to exclude the influence of such impression in the decision-making process.

46. Therefore, where there is material before the District Magistrate, which is of the character as would have reasonable probability to influence the decision of a reasonable man, the Court would be reluctant to accept the ipse dixit of the District Magistrate that he was no so influenced and a fortiori, if such material is not disclosed to the detenu, the Order of detention would be vitiated.

47. The principle that the material that may influence the decision of a quasi-judicial authority to award a penalty, must be disclosed to the delinquent, was affirmed by the Apex Court in the Case of Union of India v Mohd. Ramzan Khan, (1991) 1 SCC 588.

48. This principle was again reaffirmed by the Constitution Bench of the Apex Court in the Case of ECIL (supra). It was held that the reason why the right to receive the Report of the enquiry officer is considered as an essential part of the reasonable opportunity at the first stage and also a principle of natural justice, is that the findings recorded by the Enquiry Officer forms an important material before the Disciplinary Authority, which along with the evidence, is taken into consideration by it to come to the conclusion. The Digitally principles of natural justice require that the employee’ should have a fair opportunity to meet, explain and controvert it before he is condemned. It is negation of the tenets of justice and a denial of fair opportunity to the employee, to consider the findings recorded by a third party like an enquiry officer, without giving an opportunity to reply.

49. Although the Disciplinary Authority is required to arrive at its own findings on the basis of the evidence, but it is equally true that the Disciplinary Authority takes into consideration the findings recorded by the Enquiry Officer along with the evidence on record. In the circumstances, the findings of the Enquiry Officer do constitute an important material, which is likely to influence the conclusions of the Disciplinary Authority and therefore, the same must be made available to the employee.

50. In the case of T. Takano (supra) while referring to the aforesaid Judgments, it was concluded that a quasi-judicial authority, has to disclose the material that is to be relied upon, at the stage of adjudication. Mere assertions of the Authority that it has not relied on certain material, would not exempt it of its liability to disclose such material, if it is relevant and has nexus to the action taken by the Authority. The actual test is whether the material is relevant for the purpose of adjudication. It also has to be considered that whether non-disclosure of such documents as resulted in prejudice to the person.

51. It was further held in T. Takano (supra) in respect of the Regulation 9 of PFUTP Regulations, that it required the Investigating Authority to submit the Report, after completion of investigations, to the Adjudicating Authority for it to decide whether there is a prima facie ground to initiate enforcement Digitally proceedings. The Investigation Report between the Officers investigating the matter and Authority is in the nature of inter-departmental communication.

52. However, since it is the basis of satisfaction of the enforcement authority for determination of alleged violation, it is necessarily required to be provided to the person. Since it meets the test of not only being relevant but also of having nexus with the Order and it is the basis for the decision of the Authority, it would be contrary to assert that the Investigation Report is merely an internal document, the disclosure of which is not warranted. Even in the language of Regulation 10, the Board forms an opinion regarding the violation of Regulations after considering the Investigation Report prepared under Regulation 9.

53. The only exception recognised is that those portions of the Enquiry Report, which involve information on third parties or confidential information on the securities market, may not be disclosed and may be redacted while the remaining Investigation Report, be made available to the person. It was thus, held that the Investigation Report submitted under Regulation 9 to the Board in terms of the Regulation 10, is not merely an internal document but is the basis on which opinion is formed by the Board. Therefore, the same is required to be provided to the person.

54. In the light of the aforesaid decision of T. Takano (supra), it is evident that the Investigation Report prepared under Regulation 9, is the basis on which the Board decides whether there is violation and proceeds under Order 10, to take further action in terms of Regulations 11 and 12. It is a document which is relevant and essential for the Petitioner, to prepare their defence and to have a fair hearing. Digitally Conclusion:

55. It is, therefore, directed that the Investigating Report be provided to the Petitioner, in accordance with law, by the Respondents.

56. Accordingly, the Petition is allowed and disposed of accordingly, along with the pending Applications.

JUDGE DECEMBER 17, 2025 Digitally