SEBI Appeals Decision: Cross-Examination Allowed, Inquiry Prompted, Full Material Access Upheld

The Tribunal allowed the appeals, set aside the impugned order, and directed SEBI to allow cross-examination of relevant witnesses, furnish copies of their statements to the appellants, complete the inquiry promptly, and permit full inspection of all collected material. Justice N. K. Sodhi supported the decision but advocated for access to all investigation material for fairness. The Tribunal upheld SEBI's jurisdiction to investigate chartered accountants involved in securities market malpractices based on available evidence.

---

---

Issues Involved:
1. Entitlement to copies of statements/documents referred to/relied upon in the show cause notice.
2. Right to cross-examine persons whose statements are relied upon or referred to in the show cause notice.
3. Jurisdiction of the Securities and Exchange Board of India (SEBI) to proceed against the appellants, who are members of the Institute of Chartered Accountants of India.

Issue-wise Detailed Analysis:

1. Entitlement to Copies of Statements/Documents:
The appellants requested copies of documents and statements of witnesses relied upon by SEBI in the show cause notice. SEBI denied some of these requests, leading to claims of a breach of natural justice. The Tribunal emphasized that the appellants should have access to all material relied upon in the show cause notice to ensure a fair defense. The Tribunal cited various judgments underscoring the importance of access to evidence for a fair trial, including *Kashinath Dikshita v. Union of India* and *State of Uttar Pradesh v. Saroj Kumar Sinha*, highlighting that non-disclosure of documents causes prejudice and denies a reasonable opportunity to defend.

2. Right to Cross-Examine Witnesses:
The appellants sought to cross-examine several individuals whose statements were referenced in the show cause notice, including Ramalinga Raju and others. SEBI allowed limited cross-examination and denied it for some witnesses. The Tribunal found this approach to be a violation of natural justice. It stressed that cross-examination is crucial for a fair trial, as established in cases like *State of Mysore v. Shivabasappa* and *New India Assurance Co. Ltd. v. Nusli Neville Wadia*. The Tribunal directed SEBI to allow cross-examination of all relevant witnesses and provide their statements to the appellants.

3. Jurisdiction of SEBI:
The appellants challenged SEBI's jurisdiction, arguing that as chartered accountants, they are regulated by the Institute of Chartered Accountants of India. The Bombay High Court had previously ruled that SEBI has the power to take preventive measures to safeguard investors' interests, even against chartered accountants, if there is evidence of their involvement in fabricating accounts. The Tribunal upheld this view, stating that SEBI's jurisdiction depends on the evidence available during the inquiry. The Tribunal referenced the High Court's judgment, which clarified that SEBI can inquire into the conduct of chartered accountants if it pertains to the securities market.

Separate Judgment by Justice N. K. Sodhi:
Justice N. K. Sodhi agreed with the decision to allow the appeals but disagreed with the majority on the issue of access to all material collected by SEBI during the investigation. He argued that fairness demands that the entire material, whether relied upon or not, should be available for inspection by the appellants. He cited cases like *Kashinath Dikshita* and *Regina v. Leyland Justices* to support the view that withholding evidence, whether exculpatory or incriminatory, is neither fair nor just. Justice Sodhi directed SEBI to allow full inspection of all material collected during the investigation.

Order of the Tribunal:
The Tribunal allowed the appeals, set aside the impugned order, and directed SEBI to:
- Allow cross-examination of the persons mentioned in the appellants' application dated November 22, 2010.
- Furnish copies of their statements to the appellants.
- Complete the inquiry expeditiously, preferably within four months.
- Allow full inspection of all material collected during the investigation (as per Justice Sodhi's direction).

---