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2022 (8) TMI 423
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.... 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 possibility of initiating appropriate criminal proceedin....
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....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 tripping. You may depute one senior person to meet him and discuss with him the facts. It would enable h....
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....g.) 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 by limitation. 18. The aforesaid order has been challenged by SEBI in Criminal Revision Application No. 209 of 2020 before the High Court of Bombay. In the aforesaid procee....
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....sarial 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 adjournment order which has not affected any rights of the accused. Therefore, the appeal is not maintainable against such an adjournment order. iv. The law laid down in T. Takano v. Securities and Exchange Board of India, 2022 SCC Online SC 210, is not applicable t....
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....ompliance 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 the part of Ministry of Corporate Affairs. (Emphasis supplied) In this context, the re-examination of the complaint by SEBI ought to happen only after providing adequate opportunity to the accused to fully defend his case. 26. There is no doubt that the Special Court of SEBI in M.A. No. 686 of 2020 has dismissed the complaint of SEBI on the....
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.... 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 primafacie be satisfied of the offence and issue process in the matter. ...... W. The Ld. Judge failed to note that it was vitally necessary to take cognizance of the offences in the interest of justice under Section 473, keeping in mind the devious method of involving 38 companies and routing of funds in a preplanned and preordained sequence of transactions. If no cognizance is taken of such egregious....
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....epers 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 without there being any end to the litigation. In this regard, the Court intends to examine this important issue and pass appropriate orders to ensure that the adjudication is not delayed unnecessarily, ad infinitum. ISSUE II 31. This brings us to the issue as to whether the interim application seeking documents, filed by the appellant herein deserves to be allowed in the instant case. The respondents have raised objections f....
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....catory 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 avail to the SEBI, as we are at a stage when SEBI has invoked the provisions under the criminal law to prosecute the appellant herein. 35. At this juncture, SEBI relies on Regulation 29 of Securities and Exchange Board of India (Settlement Proceedings) Regulations 2018, which notes as under : CONFIDENTIALITY OF INFORMATION . 29. (1) All information submitted and discussions held in pursuance of the settlement proceedings under these regulations shall be deemed to h....
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....vertible 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.) B. N. Srikrishna for a second time. 41. Thereafter, Justice (Retd.) B. N. Srikrishna wrote back to SEBI asking them to consult Sh. Y. H. Malegam, a renowned Chartered Accountant to determine the culpability of the appellant and various directors. It is reported that this exercise had culminated in the Second opinion of Justice (Retd.) B. N. Srikrishna. 42. SEBI is a regulator and has a duty to act fairly, while conducting proceedings or initiating any action against the parties. Being a quasijudicial bo....
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....rket) 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 proceedings; and (iii) transparency and accountability, i.e., the investigative agencies are held accountable through transparency and not opaqueness. Keeping a party abreast of the information that influenced the decision promotes transparency of the judicial process which was discussed in the aforesaid case in the following manner: "24. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclose....
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....arency 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 only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed." 45. There is no doubt that the set of facts portrayed herein are unique. The impugned action of the appellant hails back to the year 1994, and almost three decades have gone by without there being any light at the end of the tunnel. The investigation report by SEBI in 2005 was inconclusive about the alleged offence. There is even a communique by the Minister of Corporate Affairs, Union of India recommending closure of the case....
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....t 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 who should, of all others, have the greatest mutual Confidence with one another; and this will make Men so jealous of their Advocates that they will lose their private Business, or succumb in their just Defence, rather than Hazard the opening of their Secrets to those who can give them no Advice when the case is Half concealed, or may be forced to discover them when revealed." In England, the Legal professional privilege is often classified under two subheadings: legal advice privilege and litigation privilege. Legal advice privilege comprises of communications between a clien....
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....n 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, which was not done. iii. SEBI ultimately took further steps, only because of the first opinion of Justice (retd.) B. N. Srikrishna. iv. The first opinion of Justice (retd.) B. N. Srikrishna is a part and parcel of the investigation and documents connected therewith. v. Moreover, certain documents have already been disclosed to the appellant herein. 54. The simple test in this case is whether SEBI has launched the prosecution on the basis of the investigation report alone. The answer seems to be 'No' by SEBI's own admission in its reply where it states that the investigation report was inconclusive and hence further scrutiny ....