The Hon’ble Supreme Court recently passed an order in the case of Reliance Industries Ltd. v. SEBI & Ors., Criminal Appeal No. 1167/2022 wherein issue was relating to an order dated 28.03.2022 passed by the Bombay High Court.
The case was related to a complaint filed by one Shri S. Gurumurthy before Securities & Exchange Board of India (herein referred as “SEBI”) against Reliance Industries Ltd. alleging fraudulent allotment of 12 crore equity shares of Reliance Industries Ltd. to entities which were apparently connected with the promoters of Reliance Industries Ltd. and were funded by Reliance Industries Ltd. & other group companies in 1994. It was also alleged in the complaint that the Reliance Industries Ltd. and its directors were in violation of Section 77 of the Companies Act, 1956. On the said complaint, SEBI then appointed an investigating officer to inquire & investigate. A report was then submitted after due investigation accordingly on 04.02.2005. It was then alleged that a note was prepared by the Legal Affairs of SEBI on 17.05.2006, wherein it was noted that the report had not brought out any specific violation of any legal provision by Reliance Industries Ltd.
The note however also observed that an opinion was required from an external expert on the possibility of initiating appropriate criminal proceedings against Reliance Industries Ltd. HMJ. (Retd.) B.N. Srikrishna, former judge of Supreme Court was then approached by SEBI who gave his opinion.
Thereafter SEBI sent a letter to Reliance Industries Ltd. on the allegations that Reliance Industries Ltd. had funded purchase of its own shares by 38 related entities and henceforth had violated Section 77 (2) of the Companies Act, 1956 and consequently also violated Regulations 3, 5 and 6 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
Thereafter a showcause notice was also sent by SEBI to the promoters of Reliance Industries Ltd. under Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 for violation of Regulation 11(1) of the SEBI Takeover Regulations (as it then stood).
The issue then stood at a position wherein Reliance Industries Ltd. filed a settlement application before SEBI without any prejudice to its rights so as to settle the issue once and for all.
However SEBI denied any access to Reliance Industries Ltd., which was seeking copy of the opinion of HMJ. (Retd.) B.N. Srikrishna. With the matter still lingering on, another opinion was sought by SEBI from HMJ. (Retd.) B.N. Srikrishna, this time around Mr. Y.H. Malegam, Chartered Accountant also examined the issue in concern. Thereafter Reliance Industries Ltd.
sought documents pertaining to the opinions/reports submitted which were denied by SEBI. A writ petition was filed by Reliance Industries Ltd. against SEBI denying the documents, unfortunately for Reliance Industries Ltd. Bombay High Court upheld the views of SEBI. That on 16.07.2020 SEBI then filed a complaint in the Court of SEBI Special Judge, Mumbai which was denied by the SEBI Special Judge as the same being time barred.
After which SEBI went in appeal in a Criminal Revision Application before the Bombay High Court. Therein Reliance Industries Ltd. filed an interim application seeking documents pertaining to the opinion of HMJ. (Retd.) B.N. Srikrishna and Mr. Y.H. Malegam, Chartered Accountant, which was denied by the Bombay High Court.
On the issue of document disclosures the Supreme Court while quoting State Bank of Patiala v. SK Sharma, (1996) 3 SCC 364 held that it is the duty of SEBI to act fairly within the principles of natural justice wherein a party cannot be condemned without having been given an adequate opportunity to defend itself. While referring to T. Takano v. Securities and Exchange Board of India 2022 SCC Online SC 210 the Supreme Court also held that there are three fundamental purposes of disclosure of information- a) reliability, b) fair trial, c) transparency and accountability. The approach of SEBI in failing to disclose the documents before the Court raised concerns of transparency and fair trial and the same being against the rule of law as was propelled in the case of S.P. Velumani v. Arappor Iyakkam, 2022 SCC Online SC 663. The Hon’ble Supreme Court then went into differentiating Indian Courts and English Courts on the aspect of confidential & privileged information vis-à-vis section 126 to 129 of the Indian Evidence Act, 1872.
While holding that SEBI cannot cherry pick the documents it chooses to disclose, the Supreme Court directed SEBI to furnish the documents to Reliance Industries Ltd. as sought by it. Now it must be seen that that any regulating authority does not infringe upon the rights of any party for a fair trial especially in context of disclosing relevant materials & documents to that affected party. In the aforementioned case in hand it is also to be affirmed in mind that there was an Office Memorandum dated 18.7.2011 as part of the record which was issued by the Ministry of Corporate Affairs wherein it was noted that provisions under Section 77 of the Companies Act, 1956 were not attracted against Reliance Industries Ltd. Therefore it further begs the question that how much discretionary rights can a regulatory authority hold while conducting trial against a party concerned.