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. Issues: Whether, in a prosecution initiated by SEBI, the accused is entitled to disclosure (supply or inspection) of the Investigation Report and related materials which formed the basis of the Complaint at the pre-charge stage.Analysis: The Court examined the scope of disclosure under Section 207/208 CrPC read with Section 26D of the SEBI Act and the PFUTP Regulations (notably Regulations 9 to 12). It reviewed governing principles from authorities (including T. Takano and Natwar Singh) on (i) relevance and materiality as the test for disclosure rather than mere formal reliance, (ii) the role of an investigation report as an intrinsic component of a regulator's satisfaction under Regulation 10, and (iii) exceptions permitting redaction of confidential or third-party information. The Court applied the tests of reliability, fair trial, transparency and prejudice to the accused and considered the limited admissible justifications for withholding parts of the investigative material.Conclusion: The Investigation Report (subject to redaction of confidential third-party or market-sensitive portions) is relevant and material and must be provided to the Petitioner in accordance with law; the petition is allowed.