2025 (11) TMI 611 - AT - SEBI

Appellant permitted access to investigation materials including chats, trade logs, fund manager statements; Section 65B certificate not required now

Viresh Joshi Versus Securities and Exchange Board of India, Mumbai

AT partly allowed the appeal, holding the appellant is entitled to inspect and receive investigation material relevant to their defence. SEBI must provide ... Entitlement to receive documents and material collected during an investigation before submitting reply for notice - inspection a soft copy of the investigation report - show cause notice cum interim order against 20 noticees and issued certain directions, which include restraining them from buying, selling or dealing in the securities market - production of Section 65B certificate and digital evidence collection - HELD THAT:- Appellant is entitled for the data backed up from the devices of the entities to the extent it is relevant. SEBI is right in contending that providing the entire chat between the third party’s will be in violation of right to privacy of such third parties. Appellant has been permitted inspection. SEBI shall make available the chats between the appellant and any entity. It is admitted that the Trade Logs of the entities other than the noticees have been masked. It is further contended that the details of the Big Client cannot be provided as they contain details of various market participants and front running trades relate to hundred scrips and providing the entire trade log for 7 months period would expose proprietary trading strategies of varies third parties. The point involved is, whether appellant is involved in front running. To decide this aspect Trade Logs of the appellant and the Big Client containing details of the scrip, quantum of traded shares and time of placing the order are necessary. SEBI shall re-examine and provide the details of scrip, quantum of shares traded and the time of placing the order, if not already provided. Providing Certificate under Section 65 B of the Code of Criminal Procedure or not is within the wisdom of the concerned party. At this stage, in this appeal we are not examining the admissibility of the Evidence. Therefore, recording any finding with regard to Section 65 B is unnecessary. Hence no direction is necessary with regard to this document. It is settled that though it can be claimed that no reliance is placed on certain document, an astute officer can use the material without actually referring to the same. SEBI has not claimed the statements to be sensitive in nature. As a rule, a noticee is entitled for every material sought to be used against him. On that principle, appellant shall be entitled for copies of the statements of the Fund Managers recorded by SEBI. We direct the SEBI to make available those statements. Appellant has sought for the documents collected from his desk and he is entitled for the same. We direct SEBI to provide them. The factual matrix whether appellant’s devices were under the custody of AMC is an important aspect while dealing with the securities. Therefore, appellant shall be entitled for a copy of daily register kept by AMC. We direct SEBI to provide the same. SEBI has taken a stand that the material relied upon by them has been provided and no reliance is placed on this document. Thus, SEBI’s categoric stand is that, no reliance is placed on the call data record of the said number. Admittedly, the SIM of the said phone number was given to the appellant while he was working from home. SEBI has obtained its call details but has denied the same to the appellant. Such a stand is untenable and appellant shall be entitled for the call details of his phone. Accordingly, we direct SEBI to make available the same. Appeal is partly allowed on above terms and the communication. ISSUES PRESENTED AND CONSIDERED 1. Whether a noticee is entitled to inspection and supply of documents and materials collected during a regulatory investigation prior to filing a reply to a show cause notice. 2. The scope of entitlement to digital data backed up from devices seized in search and seizure operations: whether the noticee is entitled to entire device contents or only extracts relevant to the noticee, and the role of privacy and third-party interests. 3. Whether data from mobile devices of third parties (non-noticees) seized during investigation must be furnished to the noticee, and if so, to what extent and subject to what redaction. 4. Entitlement to device collection forms, panchnamas and related search documentation where similar documents in respect of other persons were inadvertently provided - whether parity requires supply and whether redaction is permissible. 5. Entitlement to statements recorded during search and seizure operations of other persons and officers (including other fund managers and dealers) when such statements may bear on the allegation that the noticee was the mastermind of a scheme. 6. The extent to which trade logs and order logs (market/data logs) relied upon or necessary to establish front-running must be provided, including whether counterparty and time/quantum details must be disclosed. 7. Whether certification under Section 65B (for electronic evidence) must be directed to be produced at the interlocutory stage of inspection and supply. 8. Entitlement to Call Data Records (CDRs) of a telephone number issued by the noticee's employer for work-from-home use when the regulator has obtained such records but has not supplied them to the noticee. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to inspection and supply of investigation materials prior to reply Legal framework: A noticee is entitled to materials that are or will be used against him so as to enable effective reply; inspection and limited supply form part of principles of fair procedure in regulatory adjudication. Precedent treatment: The Court treated this as a settled principle of law (referred to in submissions and applied in the decision). Interpretation and reasoning: The Tribunal held that inspection had been permitted and some materials were supplied; however, where documents were relied upon or necessary for preparing a reply, the noticee is entitled to copies or extracts, subject to legitimate third-party privacy and market-sensitivity concerns. Ratio vs. Obiter: Ratio - noticee entitlement to materials necessary for reply; Obiter - specifics of formats or timing beyond the present facts. Conclusion: The noticee is entitled to inspection and supply of relevant materials; SEBI's blanket refusal to furnish certain documents was not sustained. Issue 2 - Scope of device backups and digital chats Legal framework: Digital data seized during search and seizure may contain third-party private communications; supply must balance the noticee's right to relevant material and third-party privacy and proprietary market interests. Precedent treatment: The Tribunal applied the balance between relevance to the noticee and third-party privacy/proprietary interests. Interpretation and reasoning: Entire device contents and all WhatsApp chats of third parties need not be furnished where much of the material is unrelated and disclosure would violate privacy or enable market misuse. However, where chats involve the noticee or are directly relevant to allegations against him, SEBI must provide those extracts or chats. Ratio vs. Obiter: Ratio - supply must be limited to material relevant to the noticee; redaction/masking permissible to protect third-party privacy. Obiter - broader observations about market speculation risk. Conclusion: SEBI must provide device data and chats between the noticee and any entity; it need not provide entire third-party chats but must furnish relevant extracts subject to redaction for privacy and market sensitivity. Issue 3 - Mobile device data of specific third parties (Ms. D. Kurani and Mr. P. Kurani) Legal framework: Similar privacy/relevance balancing applies; where third-party data is demonstrably operated or controlled by the noticee, entitlement is stronger. Precedent treatment: Applied the principle that admitted operation/control of a third-party account by the noticee diminishes privacy objections. Interpretation and reasoning: SEBI contended chats with identifier 'Asdfg' were operated by the noticee (admitted by a relative) and hyperlinks to video material were already provided. Given admission that the number was operated by the noticee, supply of the sought device data was not tenable as a ground to compel additional disclosure; the video hyperlink sufficed for present purposes. Ratio vs. Obiter: Ratio - where a purported third-party account is admitted to be operated by the noticee, SEBI's refusal to furnish that third party's device data is not tenable as a basis for delay; Obiter - comment that Section 65B and admissibility are not being decided at the inspection stage. Conclusion: The specific device data sought from those third parties need not be ordered where the material relevant to the noticee has already been identified and provided (video hyperlink and admissions). No further direction was issued on those specific device datasets beyond what was already supplied or shown to be operated by the noticee. Issue 4 - Digital Evidence/Device Collection Forms and Panchnama (parity and redaction) Legal framework: Documents evidencing seizure and chain of custody are pertinent to verifying the nature and provenance of seized items; inadvertent prior disclosure of similar forms creates an expectation of parity subject to privacy redaction. Precedent treatment: The Tribunal accepted that inadvertent provision of other parties' digital evidence forms made it inequitable to deny similar documents in respect of requested persons. Interpretation and reasoning: SEBI admitted that Device Collection Forms for other noticees were inadvertently provided. On parity, the Tribunal directed supply of the Digital Evidence Collection Form for the named third party and the Panchnama for a specific residence search, but mandated redaction of sensitive third-party personal details (mobile numbers, e-mail addresses, passwords, witness particulars) not relevant to the noticee. Ratio vs. Obiter: Ratio - parity in disclosure where similar documents already reached the noticee; redaction permissible to protect non-relevant private information. Obiter - characterization of inadvertent disclosure does not bar corrective provision of comparable documents. Conclusion: SEBI shall provide the requested collection form and panchnama in redacted form to exclude unrelated private information. Issue 5 - Statements of other persons recorded during search and seizure Legal framework: Statements recorded during investigation that are relied upon, or that could be used against the noticee, fall within the ambit of materials to be made available for fair reply; where portions are irrelevant to the noticee, masking/redaction is permissible. Precedent treatment: The Tribunal rejected SEBI's contention that reliance was limited and held that material gathered could be used even if not expressly cited, thereby entitling the noticee to the statements. Interpretation and reasoning: The Tribunal found SEBI's categorical assertion that relevant statements were provided to be untenable. Recognizing that investigative officers may use material without explicit citation, the Tribunal directed disclosure of the full statements recorded during search/seizure, subject to masking/redaction of portions purely concerning other entities and irrelevant to the noticee. Ratio vs. Obiter: Ratio - full statements must be provided with liberty to redact irrelevant third-party material. Obiter - comment on investigative use of un-cited material. Conclusion: SEBI must furnish the recorded statements requested, with redactions as necessary to protect unrelated third-party interests. Issue 6 - Trade logs and order logs (market data) necessary to assess front-running allegations Legal framework: To adjudicate alleged front-running, particulars such as scrip, quantum of traded shares and times of orders for the noticee and the big client are material; however, disclosure of broader market participants' proprietary trading data may be legitimately limited. Precedent treatment: The Tribunal required provisioning of sufficient trade/order particulars to verify the allegations while recognizing SEBI's concern about revealing proprietary strategies of unrelated market participants. Interpretation and reasoning: While SEBI provided trade logs for relevant entities, it had masked logs of non-noticees and refused to provide big client details. The Tribunal held that to decide whether the noticee engaged in front-running, the noticee must have access at least to the scrip identifiers, quantum and time stamps for his trades and the big client's trades. SEBI was directed to re-examine and provide such details if not already provided, but broad, multi-month disclosure of all market participants was not ordered. Ratio vs. Obiter: Ratio - disclosure of scrip, quantum and time of orders for the noticee and relevant counterparty is necessary; Obiter - protection of proprietary strategies of unrelated market participants. Conclusion: SEBI to provide trade/order details sufficient to verify the front-running allegations (scrip, quantum, time), subject to protection of unrelated proprietary data. Issue 7 - Section 65B certification for electronic evidence Legal framework: Section 65B certification pertains to admissibility of electronic records in criminal proceedings; at the interlocutory stage of inspection/supply for regulatory response, the question of admissibility is premature. Precedent treatment: The Tribunal declined to direct production of Section 65B certificate at this stage, observing that admissibility is not under consideration on inspection applications. Interpretation and reasoning: As the appeal concerns supply of materials for reply, requiring a Section 65B certificate or deciding admissibility is unnecessary; relevant extracts had been provided and the question of certification is left to the parties' discretion for future proceedings. Ratio vs. Obiter: Ratio - no direction on Section 65B certification at the inspection/supply stage. Obiter - observations on parties' discretion regarding certification. Conclusion: No direction issued regarding Section 65B certificates for the alleged Bloomberg chat at this stage. Issue 8 - Call Data Records (CDR) of employer-issued work-from-home number Legal framework: Where the regulator has obtained CDRs of a number issued to the noticee for work purposes, and the records are relevant to rebut or establish allegations, the noticee is entitled to the records unless SEBI can show cogent reason for non-disclosure. Precedent treatment: The Tribunal rejected SEBI's categorical denial of reliance and directed supply where the regulator had obtained the records but denied access to the noticee. Interpretation and reasoning: SEBI admitted obtaining the CDR but contended no reliance; the Tribunal deemed such refusal untenable given the noticee's legitimate need to demonstrate non-communication with scheme participants while working from home. The CDR is directly probative of the factual matrix and must be supplied. Ratio vs. Obiter: Ratio - CDRs obtained by the regulator that pertain to the noticee and are relevant must be made available to the noticee. Obiter - none. Conclusion: SEBI directed to provide the call details of the work-issued mobile number to the noticee. Overall Disposition - Orders and Practical Directives The Tribunal partly allowed the appeal: it set aside the communication refusing documents to the extent indicated, directed SEBI to provide specified categories of material (device chats involving the noticee; Digital Evidence Collection Forms and panchnama in redacted form; full statements recorded during search/seizure with redactions as necessary; trade/order particulars of scrip, quantum and time where relevant; documents collected from the noticee's desk; daily custody register of devices; call details of the employer-issued number), refused to direct Section 65B certificates at the inspection stage, and confirmed that redaction/masking is permissible to protect third-party privacy and proprietary interests.