TaxTMI 
TaxTMI 
2022 (8) TMI 423
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....t a complaint was filed on 21.01.2002 by one Shri S. Gurumurthy, with the Securities and Exchange Board of India [for short 'the SEBI'] against Reliance Industries Ltd. [for short 'RIL'], its associate companies and its directors, alleging that they fraudulently allotted 12 crore equity shares of RIL to entities purportedly connected with the promoters of RIL, which were funded by RIL and other group companies in 1994. It was alleged that the company and its directors were in violation of Section 77 of the Companies Act, 1956. Based on the aforesaid complaint, the SEBI appointed an investigating officer to inquire into the aforesaid complaint. Accordingly, a report was submitted by the said investigating officer on 04.02.2005. 4. It may be necessary to note that SEBI chose not to take any action with respect to the aforesaid letter. The appellant alleged that a note was prepared by the Legal Affairs Department of the SEBI on 17.05.2006, wherein it was noted that the report had not brought out any specific violation of any legal provision by RIL. However, the note was said to have observed that there was requirement of an opinion by an external expert inter alia on the possibilit....
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....ble retired judge for seeking the opinion is enclosed. 3. Request 5(c): A copy of the communication from Ministry of Corporate Affairs dated February 7, 2012 and dated September 1, 2011 forwarding letter dated July 18, 2011 is enclosed. 4. Request 5(d): A copy of the relevant opinion / views dated April 6, 2006, June 11, 2009 and August 25, 2010 of the legal department of SEBI are enclosed." 10. It is a matter of record that in the year 201718, the SEBI decided to reexamine the issue and accordingly sought advice of Justice (Retd.) B.N. Srikrishna for the second time. Justice (Retd.) B.N. Srikrishna addressed a letter dated 26.07.2017 to the SEBI in the following manner: "Considering the importance of the matter I am of the view that some very senior person should be consulted in this matter. I would suggest SEBI to approach Mr. Y.H. Malegam, Chartered Accountant, who may be consulted in this matter. He is a person of high standing and great repute. In my opinion, he would be the most appropriate person to advise us as to whether the monies transferred to RUPL and RPTL were towards project advances and other charges or were merely round trippi....
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....eded to." 15. Aggrieved by the aforesaid communication of the SEBI, the appellant challenged the same before the High Court of Bombay in Writ Petition (Lodg.) No. 300 of 2019. The High Court, vide order dated 04.02.2019, dismissed the aforesaid petition. It may not be out of context to note that SEBI also rejected the supplementary application filed by the appellant herein. 16. On 16.07.2020, SEBI filed a complaint in the Court of SEBI Special Judge, Mumbai praying therein as under: "(a) That this Hon'ble Court may be pleased to issue the process against the accused for the continuing offences punishable under Section 24(1) r/w Section 27 of the SEBI Act, 1992 as amended in 2002, for having violated Regulations 3,5 and 6 of the SEBI (PFUTP) Regulations 1995, Regulation 11 of the SEBI (SAST) Regulations, 1997 and be further pleased to deal with the accused in accordance with the law. (b) That this Hon'ble Court may be pleased to issue the process against the accused for offences punishable under Sections 77(2) and 77A r/w Section 55A of the Companies Act, 1956." 17. On 30.09.2020, the SEBI Special Court dismissed the complaint filed by SEBI as being barred....
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....ndate has been accepted by this Court and has been applied to SEBI in T. Takano v. Securities and Exchange Board of India, 2022 SCC Online SC 210 iii. SEBI cannot claim litigation privilege as the proceedings are not adversarial in nature. iv. That the selective disclosure of excerpts of the opinion by Justice (Retd.) B.N. Srikrishna, amounted to cherry picking by SEBI which cannot be allowed. The accused is entitled to the complete document to ensure a fair trial. v. That the action of SEBI of disclosing excerpts of the report clearly amounts to waiver of litigation privilege claimed by SEBI. 22. Mr. Arvind Datar, learned Senior Counsel appearing on behalf of the respondents contends: i. That the present appeal is not maintainable as there is no criminal complaint pending as on this date. The appellant cannot seek documents in a criminal revision against dismissal of the complaint on the ground of limitation. ii. The issue before the High Court was limited to the issue of limitation and the attempt of the accused to expand the proceedings to seek documents cannot be entertained. iii. That the impugned order was a mere adjour....
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.... of the Companies Act, 1956 in respect of preferential allotment of shares. Also, there was no specific guidelines for valuation or determination of premium in respect of issue of convertible debentures at the relevant time. The determination of premium was within the authority of the company subject to compliance with Section 81(1A) which appears to have been done. 5.MCA had conducted inspection of books of accounts of M/s. Reliance Industries Ltd. in 2002 and for the various violations reported in the inspection report, necessary penal action was initiated as stated in para 2 and 3 above. 6. The inspection report of 2002 also revealed as follows: i.) Provision of Section 77 of the Act were not attracted in respect of funds invested by the company in Somnath Syndicate, a partnership firm in which company is a partner; ii.) No funds was given by RIL to 34 entities to which NCDs were allotted; iii.) Ambanis were neither directors nor shareholders of the entities to whom shares were allotted; iv.) Ambanis were not allotted any shares pursuant to PPDIV issue. 7. In view of above, no action is required to be taken on....
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....s of the accused and later on joined them as person acting in concert (PACs) when the warrants attached to the NCDs were converted into shares in 2000. When the directors negotiated the placement of NCDs with warrants with the Unit Trust of India (UTI) whose allotment is made as per Resolution 13 as disclosed on the stock exchange, no such 'free' bonus was given to UTI. However, all this was not considered by the Ld. Judge who erred in failing to appreciate that the directors also granted a conversion price to the accused allottees which was much less than the conversion price given to UTI. ... ... P. The Ld. Judge erred in failing to appreciate the ratio laid down by the Hon'ble Supreme Court in the matter of Fiona Shrikhande Versus State of Maharashtra and another, (2013) 14 Supreme Court Cases 44 wherein, the Hon'ble Supreme Court has held that at the complaint stage, the Magistrate is merely concerned with the allegations made out in the complaint and has only to prima facie satisfy whether there are sufficient grounds to proceed against the accused. In the facts of the present case there were more than sufficient grounds for the Ld. Judge to primafac....
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.... Section 473 of CrPC. The approach of the High Court of adjourning adjudication of the interim application seeking disclosure of documents cannot be appreciated. Ideally, the High Court ought to have considered the interim application before dealing with the limitation aspect. 29. Initiation of criminal action in commercial transactions, should take place with a lot of circumspection and the Courts ought to act as gate keepers for the same. Initiating frivolous criminal actions against large corporations, would give rise to adverse economic consequences for the country in the long run. Therefore, the Regulator must be cautious in initiating such an action and carefully weigh each factor. 30. In ordinary course, this Court would have remanded the matter for adjudication by the High Court on the interim application moved by the appellant seeking such disclosure. However, arguments have been extensively advanced before this Court touching upon important aspects of criminal jurisprudence which require consideration. Moreover, the facts stated above, clearly indicate that the acts which are sought to be prosecuted go back to the year 19921994, and over three decades have passed wi....
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....opy of the said report. In that view of the matter, the issue of principles of fairness does not arise at this stage, considering the purpose of the proceedings before the internal Committee and powers of the High Power Committee and the Regulations framed in this regard. There is no right conferred under the Regulations on the Petitioner to ask for such a copy. In the facts, we are not convinced to exercise our writ jurisdiction. As and when the adjudicatory proceedings takes place, the Petitioner may ask for copies of such documents in accordance with the procedure established to conduct the proceedings." (emphasis supplied) We may only note that the High Court was dealing with specific requests that were made during the Settlement proceedings under Regulation 13(2) of the Settlement Regulations. From a reading of the Explanation appended to Regulation 13(2)(a) of the Settlement Regulations, it is clear that the intention of Settlement proceedings is to facilitate the Regulator to consider the feasibility of settlement in certain cases, without allowing a roving and fishing expedition. However, the findings of the High Court in the aforesaid case are of no av....
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....ccusedappellant to seek document disclosure in the present case. In this case, the appellant has been pursuing SEBI for these documents as they believe that an attempt is being made by SEBI to suppress the Opinions and Reports as they are adverse to the cause of SEBI. 39. A cursory glance at the background of the matter would reveal that initially, a complaint was submitted to SEBI on 21.01.2002, wherein the appellant and its directors were purportedly involved in irregularities in allotment of NonConvertible Debentures in the year 1994. Accordingly, an Investigation Report was submitted by the Investigating Authority on 04.02.2005. SEBI in its counteraffidavit has admitted that the aforesaid Report was inconclusive and recommended further enquiry in this regard. 40. In pursuance thereof, SEBI approached Justice (Retd.) B. N. Srikrishna in the year 2009. He is supposed to have given his first Opinion, which formed the basis of initiating action against the appellant herein. It is SEBI's case that during the Settlement proceedings, the appellant had disclosed numerous documents, which mandated SEBI to reexamine its stand. Accordingly, the matter was referred to Justice (Retd.)....
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....ustice and a fair hearing were treated as synonymous. ..." 44. At this juncture, the appellant has pressed into service the ratio laid down by this Court in Takano case (supra), to seek document disclosure. On the other hand, the respondents have tried to distinguish the present case by stating that the present case is not one of disclosure which is being sought during investigation by SEBI under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Although we agree with the respondents that the Takano Case (supra) was rendered under the aforesaid Regulations, however, we are of the opinion that the reasoning of this Court alludes to a general obligation of disclosure on the part of SEBI. This Court has held in the Takano Case (supra) that three fundamental purposes of disclosure of information are (i) reliability, i.e., the Court will be able to perform its function accurately only if both parties have access to information and possess opportunity to address arguments and counter arguments; (ii) fair trial, i.e., this will enable the parties to effectively participate in the proceeding....
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....ransparency and accountability. The principles of fairness and transparency of adjudicatory proceedings are the cornerstones of the principle of open justice. This is the reason why an adjudicatory authority is required to record its reasons for every judgement or order it passes. However, the duty to be transparent in the adjudicatory process does not begin and end at providing a reasoned order. Keeping a party bereft of the information that influenced the decision of an authority undertaking an adjudicatory function also undermines the transparency of the judicial process. It denies the concerned party and the public at large the ability to effectively scrutinise the decisions of the authority since it creates an information asymmetry. 25. The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure o....
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....munications with legal advisers.-No one shall be compelled to disclose to the Court any confidential communication which has taken place between him and his legal professional adviser, unless he offers himself as a witness, in which case he may be compelled to disclose any such communications as may appear to the Court necessary to be known in order to explain any evidence which he has given, but no others. 49. The rationale of such a provision has been well known to common law since ages. Sir George Mackenzie's Observations upon the 18th Act of the 23rd Parliament of King James the Sixth against Dispositions made in Defraud of Creditors 34 etc (1675), in Sir George Mackenzie's Works Vol 2 (1755), p1 are significant. He said this, at p 44: "An Advocate is by the Nature of his employment tied to the same Faithfulness that any Depositor is: For his Client has depositate in his Breast his greatest Secrets; and it is the Interest of the Commonwealth, to have that Freedom allowed and secured without which Men cannot manage their Affairs and private Business: And who would use that Freedom if they might be ensnared by it? This were to beget a Diffidence betwixt such w....
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.... jurisdiction and that: "Its duty is not limited to the dispute between the parties: on the contrary, its duty is to act in the way best suited in its judgment to serve the true interest and welfare of the ward. In exercising wardship jurisdiction, the Court is a true family court. Its paramount concern is the welfare of the ward. It will, therefore, sometimes be the duty of the court to look beyond the submissions of the parties in the endeavor to do what it judges to be necessary" 53. Indian position seems to be different from England. Section 126 to 129 of the Evidence Act do not draw any distinction between adversarial and investigative litigation as such, and privilege is applicable all through. This aspect is crucial, as it touches on the foundations of the legal profession at large in India. This Court does not want to express any opinion in this regard as the case at hand is different and such an issue does not arise, for the following reasons: i. The investigation report was inconclusive, as admitted by SEBI itself. ii. Instead of SEBI referring the issue to an expert, it could have undertaken the exercise of further investigation by itself, w....
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.... own affidavit and the preliminary report submitted earlier before the High Court stating that commission of cognizable offence had not been made out. It is in this background we hold that the mandate of Section 207 of CrPC cannot be read as a provision etched in stone to cause serious violation of the rights of the appellantaccused as well as to the principles of natural justice." Observing the facts and circumstances of this case, which have been adumbrated above, we are of the firm opinion that the defence taken by SEBI that they need not disclose any documents at this stage as such a request is premature in terms of the CrPC, cannot be sustained. 57. Before we part with the present appeal, another disconcerting aspect of this case that comes to the fore is SEBI's attempt to cherrypick the documents it proposes to disclose. There is a dispute about the fact that certain excerpts of the opinion of Justice (Retd.) B. N. Srikrishna, were disclosed to the appellant herein. It is the allegation of the appellant that while the parts which were disclosed, vaguely point to the culpability of the appellant, SEBI is refusing to divulge the information which exonerate it. Such cherry....