Regulator duty. SEBI issues apology to SC for not supplying documents to RIL after contempt notice

An apology has been issued by SEBI to the Supreme Court (SC) as it did not provide access to certain documents to Reliance Industries (RIL). The SC had issued a contempt notice to SEBI as the market regulator did not comply with the court’s directions to share vital case documents with RIL. But even after the court directive, SEBI acted cagey, which led the SC to issue a contempt notice. 

SEBI said that it did not share the case documents since a review petition was pending, and that it had now supplied the documents to RIL.

“There was no other intention on the part of SEBI for not complying with the court. A review petition was pending and bonafidely, the documents were not supplied,” SEBI council told the court. 

But SEBI has come under criticism for holding back documents selectively in other cases as well. 

On August 5, SC had asked SEBI to give RIL access to documents used to investigate a share acquisition matter, saying it was the “duty of the regulator to act fairly”. But on November 7, senior advocate Harish Salve, appearing on behalf of RIL, told the court that SEBI had still not provided them the access.

A bench comprising Justices MR Shah and MM Sundresh said, “Issue notice to the respondent, making it returnable on December 2, 2022. Abhishek Singh, counsel, accepts service of notice on behalf of the respondent.”

Transparency concerns

The apex court is of the view that SEBI should show fairness and furnish documents sought by RIL since the regulator has a duty to act fairly while conducting proceedings or initiating any action against the parties. On August 5, a bench led by then Chief Justice NV Ramana said, “The approach of SEBI, in failing to disclose the documents, also raises concerns of transparency and fair trial. Opaqueness only propagates prejudice and partiality. Opaqueness is antithetical to transparency.”

The company claimed that SEBI cannot continue to resist the production of these documents and it had also sent a notice to the regulator saying if documents were not received by August 18, then it will establish that SEBI does not want to comply with the SC judgment.

RIL sought three documents from SEBI that would exonerate it and its promoters from criminal prosecution initiated in a case related to the alleged irregularities in the acquisition of its own shares between 1994 and 2000. In 2002, Chartered Accountant S Gurumurthy filed a complaint with SEBI alleging irregularities by RIL, its associate companies and their directors/promoters, including Mukesh Ambani and his wife Nita, Anil Ambani and his wife Tina, and 98 others.

The complaint cited the issue of two preferential placements of non-convertible debentures in 1994. RIL filed a contempt petition as SEBI has not shared three documents — the two legal opinions by former Supreme Court judge BN Srikrishna and former ICAI President YH Malegam’s report which examined the irregularities.

SEBI had alleged that RIL along with Reliance Petroleum had circuitously funded the acquisition of its own shares in violation of the Sections 77 and 77A of the Companies Act, 1956.

On November 7, senior advocate and former Attorney General of India KK Venugopal, representing SEBI, submitted that the review petition preferred by the respondent is pending before this court and therefore, no further order be passed in the present proceedings.

Further hearing

The bench, in its order, noted, “We have gone through the subsequent order passed by this court dated October 12, 2022, in the review petition. The pendency of an appeal and/or writ petition along with stay cannot be equated with the pendency of the review petition.

There is a final decision by this court in an appeal. Merely because the stay application is pending in review petition cannot be a ground to grant stay by the respondent on its own and not to comply with the directions issued by this court.”

To arrive at a decision on the contempt notice, the judges noted a past precedent involving the State of J&K Vs. Mohd. Yaqoob Khan and others were against the ex-parte order passed by the single judge, pending writ petition, the contempt proceedings were initiated.

“Therefore, this court observed that when the stay application is yet to be heard and decided and disposed of, the contempt proceedings cannot be initiated. Under the circumstances, the said decision(s) cannot be of any assistance to the respondent,” SC said.

A further hearing on the matter has been scheduled on December 2.

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