2025 (12) TMI 1674 - HC - SEBI

Market regulator prosecution over access to investigation report and inquiry materials; petition allowed, disclosure ordered with limited redactions

In a prosecution initiated by a market regulator, the dominant issue was whether the accused is entitled, as part of the right to a fair trial under Art. ... Right to a fair trial - Entitlement to the disclosure of documents in a prosecution initiated by SEBI - Seeking the supply of documents relied and those forming the basis of the Complaint - Compliance with Section 207/208 Cr.P.C - failed to appreciate that the obligation for disclosure in criminal proceedings extends beyond merely the list of documents formally relied upon by the prosecution, to include all material necessary or desirable for the accused to prepare his defence - Article 21 of the Constitution of India - HELD THAT:- 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. 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 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. 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. 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. In the light of the aforesaid decision of T. Takano [2022 (2) TMI 907 - SUPREME COURT], 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. It is, therefore, directed that the Investigating Report be provided to the Petitioner, in accordance with law, by the Respondents. Accordingly, the Petition is allowed and disposed of accordingly, along with the pending Applications. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, in a prosecution initiated by the securities regulator, the accused is entitled to disclosure of the Investigation Report which formed the basis of the regulator's 'satisfaction' to prosecute, notwithstanding that it was not supplied with the summons or treated as a merely 'internal' document. (ii) Whether denial of the Investigation Report, despite supply of documents filed with the complaint, defeats the requirements of fair hearing/natural justice as applied to the disclosure obligation, thereby warranting interference and a direction for supply (with permissible redactions, if applicable). 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Entitlement to the Investigation Report forming the basis of prosecution Legal framework (as discussed by the Court): The Court examined the regulatory scheme under the PFUTP Regulations, particularly the sequence that the investigating authority submits a report on completion of investigation (Regulation 9) and the Board, after consideration of that report, forms satisfaction regarding violation and proceeds to take action (Regulation 10 read with Regulations 11 and 12). The Court treated this structure as demonstrating that the Investigation Report is integral to the decision-making process that leads to enforcement/prosecution. Interpretation and reasoning: The Court held that the language of Regulation 10 shows that consideration of the Investigation Report is an 'intrinsic component' of the Board's satisfaction on violation. Applying the reasoning adopted in the decision discussed by the Court, disclosure is not confined to documents formally 'relied upon' or annexed; the controlling test is whether the material is relevant and has a nexus with the action. The Investigation Report, though inter-departmental in nature, is not immune from disclosure merely by being labelled 'internal', because it forms the basis on which the authority decides whether a violation exists and proceeds further. The Court accepted that only limited non-disclosure may be justified for portions involving third-party/confidential securities market information, which may be redacted, while the remainder must be supplied. Conclusion: The Investigation Report prepared under Regulation 9 and considered under Regulation 10 is not merely an internal administrative document; it is relevant and essential to the accused and must be provided in accordance with law (subject to permissible redactions of confidential/third-party information). Issue (ii): Effect of non-supply on fairness/natural justice and the appropriate relief Legal framework (as discussed by the Court): The Court considered the disclosure obligation through the lens of fair hearing and natural justice, emphasising that disclosure serves reliability (truth-finding), fair trial, and transparency/accountability. The Court also considered the distinction between stages of proceedings discussed in the authorities it analysed, but ultimately applied the relevance-and-prejudice approach as the determinative standard for disclosure of material having nexus to the enforcement decision. Interpretation and reasoning: The Court noted that while the accused had been supplied documents filed with the complaint, the surviving dispute concerned the Investigation Report. Since the Report is foundational to the regulator's satisfaction to proceed, withholding it creates information asymmetry and impairs the ability to effectively meet the case. The Court rejected the contention that disclosure could be refused because the document is internal or because relevance arises only later; where the material forms the basis of the authority's satisfaction and has direct nexus to the action, fairness requires disclosure. The Court treated the Investigation Report as essential for preparing defence and for a fair hearing in the enforcement process. Conclusion: Non-supply of the Investigation Report could not be sustained. The Court allowed the petition and directed the respondent to provide the Investigation Report to the accused in accordance with law.