A move by market regulator SEBI to file a review petition in the Supreme Court in a matter involving the supply of case-related documents to Reliance Industries (RIL) and the judgment of the apex court in another matter involving one Kavi Arora, have raised concerns among law firms dealing in securities market-related cases.

Lawyers feel SEBI will get more aggressive in limiting, if not blocking, an inspection of crucial documents to them with regard to the cases against their clients.

According to a rule laid down by earlier SC judgments and the SEBI Act, the regulator is supposed to allow a proper inspection or even copies of all the relevant case documents that it had relied upon to launch inquiries or issue show-cause notices (SCN) to the accused.

In February, in a matter involving T Takano versus SEBI, a Bench of Justice DY Chandrachud and Sanjiv Khanna had ruled that “SEBI is duty-bound to disclose all the relevant material, including the investigation report, in order to give reasonable opportunity to be heard to the notice. However, as an exception, it can redact information that impinges on the privacy of third parties.”

‘Conflicting signal’

But a September ruling, in the matter involving Kavi Arora versus SEBI is now seen as conflicting with the previous judgment and both do not overrule each other, which gives SEBI a choice to act as per its will, lawyers said. Kavi Arora had told the Supreme Court that during the inspection, SEBI did not show his lawyers the relevant documents.

SC dismissed his appeal and upheld the high court order, which “permitted respondent SEBI to hold the inquiry, without relying upon any documents, not supplied to the petitioner. The interim order will govern the inquiry. In our view, there is no infirmity in the impugned judgment and order of the high court dismissing the writ petition filed by the petitioner,” the apex court said. Lawyers say, the regulators can draw their own Inference from the order.

“Kavi Arora Judgement has no applicability for providing documents post issuance of SCN but only to the ones before taking decision to proceed with the inquiry that are internal. The essence is reiterated that SEBI or any authority cannot rely upon the documents that have not been provided to an entity. There is no need for an interpretation in the SC’s view,” said Sumit Agrawal, Managing Partner of Regstreet Law Advisors & former SEBI officer.

In RIL versus SEBI, the SC recently allowed a petition by RIL seeking certain legal opinions and expert reports from SEBI which the regulator had relied on while commencing criminal action against RIL. While allowing RIL’s plea, the SC held that SEBI has a duty to disclose these reports, which are investigative in nature, and cannot claim legal privilege to share some “cherry picked” excerpts from them. The SC held that as a regulator, SEBI has the duty to act fairly and not “circumvent the rule of law.” But SEBI has sought a review of this judgment.

In Takano matter, SC after going through several matters had summarised that a quasi-judicial authority has a duty to disclose material that has been relied upon at the stage of adjudication; and an ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority.

As per SC in the matter involving former foreign minister Natwar Singh versus Directorate of Enforcement and Others 4, “All such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute.”

When asked about SEBI’s reluctance in crucial case related documents, chairperson Madhabi Puri Buch told businessline that they would go as per SC judgments without elaborating much.

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