In SLP (Civil) No.15149 of 2021-SC- Documents relied upon for formation of opinion under Rule 3 of SEBI Adjudication Rules 1995,  are not required to be disclosed to noticee unless relied upon in inquiry: Supreme Court
Justices Indira Banerjee & A.S. Bopanna [14-09-2022]

Read judgment: KAVI ARORA V. SECURITIES & EXCHANGE BOARD OF INDIA

Mansimran Kaur

New Delhi, September 19, 2022: There is  apparently no rule which requires SEBI to furnish the opinion under Rule 3 of SEBI Adjudication Rules 1995,  to the noticee in its entirety, the Supreme Court has observed.

The Division bench of Justice Indira Banerjee and Justice A.S. Bopanna dismissed the present Special Leave Petition assailing the impugned judgment passed by the Division Bench of the High Court at Bombay, dismissing the writ petition under Article 226 of the Indian Constitution, whereby the petitioner sought directions against the respondent, Security and Exchange Board of India (SEBI), to furnish to the petitioner documents relied upon by the respondent-SEBI, in Show Cause Notice issued to the petitioner.

The show cause notice pertained to actions to be taken as per Sections 11(1), 11(4), 11B(1) 11B(1), 11B(2), and 11(4A) of the Securities and Exchange Board of India Act, 1992 and Section 12A(1) and 12A(2) of the Securities Contract (Regulation) Act, 1956 (read with SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 and Securities Contract (Regulation) (Procedure for holding inquiry and imposing penalties) Rules, 2005. 

Factual matrix of the case was such that the  petitioner  joined Religare Finvest Limited (RFL), a subsidiary entity of Religare Enterprises Ltd. (REL) as the President- Consumer Finance, to set up and manage its retail lending business i.e. SME Lending business. Thereafter, he worked as the Managing Director (MD) and Chief Executive Officer (CEO) of RFL to represent the SME Lending Business. Respondent SEBI appointed a Forensic Auditor, M/s MSA Probe Consulting Private Limited to conduct an investigation in the matter of M/s Religare Enterprises Private Ltd. (REL) and related entities for alleged violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. 

Subsequently, Show Cause Notices were issued against 13 noticees and the petitioner was one of them. The allegation in the Show Cause Notice was that the funds to the tune of Rs 2315.66 crore were diverted from RFL through several layers of conduit entities for the ultimate benefit of promoters of REL and RFL. 

On receipt of the Show Cause Notice, the petitioner filed a Settlement Application proposing to settle the proceedings initiated by the Show Cause Notice, in terms of SEBI (Settlement Proceedings), Regulations, 2018. The petitioner could not settle the proceedings. 

The petitioner submitted that  from time to time, the petitioner asked the respondent SEBI to provide for inspection to the petitioner, the documents relied upon, for the issuance of Show Cause Notice. According to the petitioner, some documents were supplied to the petitioner and other noticees. However, certain documents were denied on the ground that those were confidential documents. 

After considering the rival contentions of the parties, the Top Court noted that the High Court rightly did not interfere with the proceedings at the stage of the Show Cause Notice. The petitioner was apparently permitted to inspect the opinion formed under Rule 3 of the SEBI Adjudication Rules. 

“There is apparently no rule which requires SEBI to furnish the opinion under Rule 3 to the noticee in its entirety. The documents relied upon for formation of opinion under Rule 3, are not required to be disclosed to the noticee unless relied upon in the inquiry”, the Court observed. 

In the event, if the petitioner is prejudiced by reason of any adverse order, based on any materials not supplied to the petitioner, or any prejudice was demonstrated to have been caused to the petitioner, it would be open to the petitioner to approach the appropriate forum, the Court noted. 

Referring to its interim order dated September 27, 2021 by which Respondent SEBI was permitted to hold the inquiry, without relying upon any documents not supplied to the petitioner, the Top Cour that such order would govern the inquiry.

The Court found not infirmity in the impugned judgment and order of the High Court. Hence, in light of the above stated observations, the Special Leave Petition was dismissed.