KAVI ARORA versus SECURITIES & EXCHANGE BOARD OF INDIA on 14 September 2022

[2022] 19 S.C.R. 323

KAVI ARORA

v.

SECURITIES & EXCHANGE BOARD OF INDIA

(Special Leave Petition (Civil) No. 15149 of 2021)

SEPTEMBER 14, 2022

[INDIRA BANERJEE AND A. S. BOPANNA, JJ.]

Securities and Exchange Board of India Act, 1992 – s.15HA– Securities and Exchange Board of India (Procedure for HoldingInquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995– rr.3, 4 – Show Cause Notice was issued by Respondent-SEBI tothe Petitioner, who was MD and CEO of one Religare Finvest Limited(RFL) [subsidiary of Religare Enterprises Ltd. (REL)], allegingdiversion of funds from RFL through several layers of conduit entitiesfor the ultimate benefit of promoters of REL and RFL – Writ petitionfiled by the Petitioner seeking directions against SEBI, to furnishthe documents relied upon by it in the Show Cause Notice – Petitioneralso sought orders for supply of a copy of the opinion formed u/r.3of the SEBI Adjudication Rules for constituting an AdjudicatingAuthority to issue the aforesaid Show Cause Notice to the Petitioner– Dismissed – On appeal, held: High Court rightly did not interferewith the proceedings at the stage of the Show Cause Notice –Petitioner was permitted to inspect the opinion formed u/r.3 of theSEBI Adjudication Rules – There is apparently no rule which requiresSEBI to furnish the opinion u/r.3 to the noticee in its entirety –Documents relied upon for formation of opinion u/r.3, are notrequired to be disclosed to the noticee unless relied upon in theinquiry – Further, in course of argument before the High Court, thecounsel for SEBI made a statement that SEBI would not rely on anydocument apart from those which had been provided to the Petitioner– It is well settled that documents which are not relied upon by theAuthority need not be supplied – Supreme Court by its interim orderhad permitted SEBI to hold the inquiry, without relying upon anydocuments, not supplied to the Petitioner – The interim order willgovern the inquiry – No infirmity in the impugned judgment of theHigh Court – Securities Contract (Regulation) Act, 1956 – SecuritiesContract (Regulation) (Procedure for holding inquiry and imposingpenalties) Rules, 2005.

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324SUPREME COURT REPORTS

ADismissing the SLP, the Court

HELD: 1.1 At the stage of Rule 3, the Board appoints anAdjudicating Officer if it is of the opinion that there are groundsfor adjudication under any of the provisions in Chapter VIA ofthe SEBI Act. At this stage, the Board only decides whetherBadjudication proceedings should be initiated or not. The formationof opinion is not a formal inquiry proceeding involving any personor persons against whom inquiry is contemplated. Theparticipation of the person against whom inquiry is contemplatedis not necessary. The Board forms its opinion, based on whetherthere are prima facie materials or grounds for initiation of inquiry.CThe opinion of the Board under Rule 3 has nothing to do with theoutcome of the enquiry. [Para 45][340-B-D]

1.2 After the Board forms its opinion to appoint anAdjudicating Officer, comes the next stage, which is the stageunder Rule 4 of an inquiry for adjudging under Sections 15A,D15B, 15C, 15D, 15E, 15F, 15G, 15H, 15I, 15J and 15HB whetherany person has committed contraventions as specified in thosesections. The inquiry commences with a Show Cause Notice callingupon the noticee to show cause why an inquiry should not beheld against him. The Show Cause Notice has to specify the natureEof offence alleged to have been committed and the penaltyproposed, to enable the noticee to effectively reply to the showcause. A reading of Rule 4(3) makes it clear that, if afterconsidering the cause, if any shown by the noticee, theAdjudicating Officer is of the opinion that an inquiry should beheld, he shall issue a notice fixing a date for appearance of thatFperson either personally or through his lawyer or other authorisedrepresentative. The noticee is not required to be heard personallyor through lawyer before taking a decision to proceed with aninquiry in respect of the contraventions alleged in the Show CauseNotice. Decision to proceed or not to proceed with the inquiryGmay be taken on the basis of the reply of the noticee to the ShowCause Notice. Once it is decided to proceed with the inquiry, anopportunity of personal hearing is mandatory. The inquiry has tobe conducted in accordance with law, in compliance with theprinciples of natural justice. In this case, the Board was of the H

opinion that there were grounds for adjudication and accordinglyappointed Adjudicating Officer. Adjudicating Officer issued ShowCause Notice to the Petitioner to which the Petitioner gave apreliminary reply and thereafter sought documents as observedabove. Inspection of some documents was permitted. Afterconsidering the reply, the Adjudicating Officer was of the opinionthat inquiry should be held. Accordingly, a notice fixing a date forappearance was issued. There was no procedural irregularity, atleast till the stage of notice fixing a date of hearing. [Paras 46,47][340-D-H; 341-A-B]

1.3 In Course of argument before the High Court, counselfor the Respondent SEBI made a statement that SEBI would notrely on any document apart from those which had been providedto the Petitioner. It is well settled that the documents which arenot relied upon by the Authority need not be supplied. [Paras 48,49][341-C]

Natwar Singh v. Directorate of Enforcement andAnother (2010) 13 SCC 255 : [2010] 13 SCR 99 –relied on.

1.4 The High Court rightly did not interfere with theproceedings at the stage of the Show Cause Notice. The Petitionerhas apparently been permitted to inspect the opinion formedunder Rule 3 of the SEBI Adjudication Rules. There is apparentlyno rule which requires SEBI to furnish the opinion under Rule 3to the noticee in its entirety. The documents relied upon forformation of opinion under Rule 3, are not required to bedisclosed to the noticee unless relied upon in the inquiry. In theevent, the Petitioner is prejudiced by reason of any adverse order,based on any materials not supplied to the Petitioner, or anyprejudice is demonstrated to have been caused to the Petitioner,it would be open to the Petitioner to approach the appropriateforum. This Court has by its interim order dated 27th September2021 permitted Respondent SEBI to hold the inquiry, withoutrelying upon any documents, not supplied to the Petitioner. Theinterim order will govern the inquiry. There is no infirmity in theimpugned judgment and order of the High Court dismissing thewrit petition filed by the Petitioner. [Paras 50-52][341-G-H; 342-A-C]

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AT. Takano v. SEBI 2022 SCC Online SC 210; IndianCommodity Exchange Limited v. Neptune OverseasLimited 2020 SCC Online SC 967; ShashankVyankatesh Manohar v. Union of India 2014(1) MahLJ838; Amit Jain v. Securities and Exchange Board ofIndia and Another 2018 SCC Online Del 9784 –Breferred to.

Case Law Reference

[2010] 13 SCR 99relied onPara 27, 28

CIVIL APPELLATE JURISDICTION: Special Leave PetitionC(Civil) No. 15149 of 2021.

From the Judgment and Orders dated 15.09.2021 of the HighCourt of Judicature at Bombay in Writ Petition (L) No. 19352 of 2021.

Madhav Khuran, Nitin Saluja, Karthikeye Dang, Advs. for thePetitioner.D

C. U. Singh, Sr. Adv., Dhaval Mehrotra, Sudhanshu Sikka for M/s K. Ashar & Co., Advs. for the Respondent.

The Judgment of the Court was delivered by INDIRA BANERJEE, J.E

This present special leave petition is against the impugned judgmentand final order dated 15[th] September 2021, passed by the Division Benchof the High Court of Judicature at Bombay, dismissing Writ Petition (L)No. 19352 of 2021, filed by the Petitioner under Article 226 of theConstitution of India, whereby the Petitioner had sought directions againstFthe Respondent, Security and Exchange Board of India (SEBI), toforthwith furnish to the Petitioner documents relied upon by theRespondent-SEBI, in Show Cause Notice No. SEBI/HO/IVD/ID2/OW/P/2020/19435/1 dated 17[th] November 2020 issued to the Petitioner toshow cause why appropriate directions should not be taken against himGunder Sections 11(1), 11(4), 11B(1) 11B(1), 11B(2), and 11(4A) of theSecurities and Exchange Board of India Act, 1992 (hereinafter referredto as “the SEBI Act”) and Section 12A(1) and 12A(2) of the SecuritiesContract (Regulation) Act, 1956 (hereinafter referred to as “SCR Act1956”) read with SEBI (Procedure for Holding Inquiry and ImposingPenalties by Adjudicating Officer) Rules, 1995 (hereinafter referred toH

as, as “SEBI Adjudication Rules 1995”) and Securities Contract(Regulation) (Procedure for holding inquiry and imposing penalties) Rules,2005 (hereinafter referred to as “SCR Penalties Rules 2005”). ThePetitioner had also sought orders for supply of a copy of the opinionformed under Rule 3 of the SEBI Adjudication Rules 1995, for constitutingan Adjudicating Authority to issue Show Cause Notice dated 17[th]November 2020 to the Petitioner.

2. The Petitioner joined Religare Finvest Limited (RFL), asubsidiary 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 SMELending Business.

3. Respondent SEBI appointed a Forensic Auditor, M/s MSA ProbeConsulting Private Limited (hereinafter referred to as “MSA ProbeConsulting”) to conduct an investigation in the matter of M/s ReligareEnterprises Private Ltd. (REL) and related entities for alleged violationof the provisions of the SEBI (Prohibition of Fraudulent and Unfair TradePractices relating to Securities Market) Regulations, 2003 (hereinafterreferred to as “the SEBI PFUTP Regulations”).

4. Show Cause Notice (SCN) No. SEBI/HO/IVD/ID2/OW/P/2020/19435/1 dated 17.11.2020 was issued by Respondent SEBI to thePetitioner under Section 15HA of the SEBI Act and Rule 3 of theAdjudication Rules pertaining to Section 11(1), 11(4), 11B(1), 11B(2),and 11(4A) of the SEBI Act along with Section 12A(1) and 12A (2) ofthe SCR Act 1956 read with SEBI Adjudication Rules 1995 and SCRPenalties Rules 2005 as to why appropriate directions for imposing penalty,should not be passed against him.

5. Show Cause Notices were issued against 13 noticees, thePetitioner being one of them (Noticee No. 12). The allegation in theShow Cause Notice is that funds to the tune of Rs. 2315.66 crores werediverted from RFL through several layers of conduit entities for the ultimatebenefit of promoters of REL and RFL.

6. On receipt of the Show Cause Notice, the Petitioner filed aSettlement Application dated 22.02.2021, proposing to settle theproceedings initiated by the Show Cause Notice, in terms of SEBI(Settlement Proceedings), Regulations, 2018 (hereinafter referred to, in ABC

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Ashort as “the Settlement Regulations”). The Petitioner could not settlethe proceedings.

7. The Petitioner sent an e-mail to the Respondent SEBI,requesting Respondent SEBI to afford him an opportunity to inspect thedocuments relied upon by the Respondent SEBI. Ms. Sneha Jalan,BAssistant General Manager, SEBI, offered some documents forinspection of the Petitioner, on 15[th] January 2021.

8. The Petitioner submits that from time to time, the Petitionerasked the Respondent SEBI to provide for inspection to the Petitioner,the documents relied upon, for the issuance of Show Cause Notice.

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9. According to the Petitioner, some documents were supplied tothe Petitioner and other noticees. However, certain documents weredenied on the ground that those were confidential documents.

10. The Petitioner submits that, as per SEBI Rules, it is mandatoryon the part of Respondent SEBI to provide a copy of the opinion formedDby Respondent SEBI for issuance of the Show Cause Notice to thenoticee, before hearing the Show Cause Notice. It is further submittedthat copies of all documents were relied upon by the Respondent SEBIat the time of issuing Show Cause Notice have to be provided to thePetitioner. It is contended that without getting access to those documents,Eit would not be possible for the Petitioner to reply to the Show CauseNotice.

11. On the other hand, it is the case of Respondent SEBI, that asper the SEBI Adjudication Rules, the Board has to form an opinion, todecide whether the Show Cause Notice is required to be issued or not.FThe Respondent SEBI is not required to furnish the noticee with a copyof the opinion. It is further, the case of Respondent SEBI, that in additionto physical inspection of all relevant documents. Respondent SEBI hasprovided the Petitioner with a Compact Disc containing voluminousrecords, except those which contain internal confidential documents ordocuments which affect the confidentiality of third parties. By a letterGdated 24[th] March 2021, the Petitioner was informed that the documentsmentioned in paragraphs 3, 4 and 5 of his e-mail dated 23[rd] March 2021were confidential documents. The Petitioner, however, made anapplication to SEBI to supply the documents relied upon to form anopinion as per the SEBI Adjudication Rules, to commence inquiry.

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12. Mr. Sidharth Luthra, learned Senior Counsel appearing onbehalf of the Petitioner submitted that Show Cause Notice had beenissued to the Petitioner by Respondent SEBI, inter alia, underSection15HA of SEBI Act (Chapter VI-A) and Rule 3 of the SEBIAdjudication Rules which requires formation of opinion for appointingan Adjudicating Authority, before proceeding under Chapter VIA.

13. Mr. Luthra submitted that that on 17[th] November 2020, ShowCause Notice was issued to the Petitioner. The Petitioner filed hispreliminary reply on 28[th] December 2020, reserving his right to file adetailed reply after inspection of documents.

14. By an order dated 6[th] January 2021, the Adjudicating Authorityadjourned the hearing for inspection of documents. Inspection ofdocuments was conducted on 15[th] January 2021. Many documents reliedupon in the Show Cause Notice were not shown to the Petitioner.

15. By an email dated 23[rd] March 2021, the Petitioner through hisAdvocate requested for all documents relied upon by the RespondentSEBI.

16. On 24[th] March 2021, only some of the documents relied uponwere supplied and other documents refused on the ground ofconfidentiality.

17. The Petitioner’s Advocate again requested for supply andinspection of relied upon documents on 12[th] April 2021 and 4[th] May2021. On 12[th] May 2021 & 14[th] May 2021, online inspection was madeby Advocate of the Petitioner. According to the Petitioner, documentsrelied upon were neither shown, nor supplied to the Petitioner.

18. On 27[th] May 2021, illegible copies of some documents identifiedby the Petitioner were supplied but not the remaining ones.

19. On 13[th] July 2021, the Petitioner filed two applications forsupply of opinion formed under Rule 3 of the SEBI Adjudication Rules1995 and for supply of documents relied upon. However, withoutsupplying the documents relied upon the Adjudicating Authority fixedthe matter for final hearing on 26[th] August 2021.

20. On 26[th] July 2021, the Petitioner’s Advocate sent an emailshowing that the proceedings could not be fixed for final hearing in termsof Rule 4(1), 4(2), 4(3) 4(4) and 4(5) of SEBI Adjudication Rules 1995which provide for two-tier adjudication process.

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A21. On 26[th] August 2021, the Petitioner sought permission toaddress arguments on the two applications but the Adjudicating Authorityrefused to hear them and it was observed by the Adjudicating Authoritythat documents not supplied would not be relied upon in the final order.

22. It was argued that the Petitioner had sought inspection of theBopinion under Rule 3, by an email dated 4[th] May 2021. The proceedingsbefore the Adjudicating Authority were listed on 29[th] September 2021.The Adjudicating Authority, without hearing the Petitioner sent the Recordof the proceedings dated 29[th] September 2021 to the Petitioner on 30[th]September 2021, incorrectly recording that the arguments were heardby the AdjudicatingAuthority on the Applications filed by the Petitioner.CIn the record of proceedings, it was inter-alia stated that an opportunityto inspect the opinion, would be provided to the Petitioner.

23. Counsel argued that after numerous requests, an opportunityto inspect the opinion was given to the Advocate of the Petitioner on 10[th]December 2021, under Rule 3 of the SEBI Adjudication Rules 1995.DAccording to the Petitioner, only redacted opinion was supplied to thePetitioner. In the circumstances, Petitioner sought the complete opinionformed under Rule 3 of the SEBI Adjudication Rules 1995 by theAdjudicating Authority.

24. It is argued that Show Cause Notice relies heavily on theEprobe conducted by an independent agency called MSA Probe Consulting.The said MSA Probe Consulting submitted a report upon completion ofinvestigation, along with all supporting documents. The said Report alongwith its enclosures was made Annexure 1 to the Show Cause Notice.

25. Mr. Luthra argued that while deciding whether or not to issueFShow Cause Notice, SEBI relied upon the MSA Probe Report and itsenclosures, but refused to supply the same once the Petitioner enteredappearance, on the contention that it would not rely on the said documents.It is contended that Respondent SEBI withheld the following documents:- “i. Index of bank statements.Gii. Calendar of evidence (oral) consisting of gist of interviewsconducted.

iii. Calendar of evidence (documentary) consisting of emails/letters/ hardcopies, H

iv. Calendar of evidence (documentary) consisting of softcopies of emails/communications/ bank statements & certainsupporting documents in CDs.”

26. Mr. Luthra submitted that while Respondent SEBI has takena stand that documents are confidential without giving reasons, theAdjudicating Authority had on 26[th] August 2021 taken a stand thatdocuments would not be relied upon. He stated that the documents at(i), (iii) & (iv) mentioned above, were stated to be confidential documents.

27. Mr. Luthra submitted that the documents relied upon by theRespondent SEBI the Show Cause Notice, could not be denied to thePetitioner. In support of his submission Mr. Luthra cited T. Takano v.SEBI[1], Natwar Singh v. Directorate of Enforcement and Another[2]and Indian Commodity Exchange Limited v. Neptune OverseasLimited[3].

28. In Natwar Singh v. Directorate of Enforcement andOthers[4], this Court held:- “31. The concept of fairness may require the adjudicatingauthority to furnish copies of those documents upon whichreliance has been placed by him to issue show-cause noticerequiring the noticee to explain as to why an inquiry underSection 16 of the Act should not be initiated. To this extent,the principles of natural justice and concept of fairness arerequired to be read into Rule 4(1) of the Rules. Fair procedureand the principles of natural justice are in-built into the Rules.A noticee is always entitled to satisfy the adjudicating authoritythat those very documents upon which reliance has beenplaced do not make out even a prima facie case requiringany further inquiry. In such view of the matter, we hold thatall such documents relied on by the authority are required tobe furnished to the noticee enabling him to show a propercause as to why an inquiry should not be held against himthough the Rules do not provide for the same. Such a fairreading of the provision would not amount to supplanting the 1 2022 SCC Online SC 210

2 (2010) 13 SCC 255

3 2020 SCC Online SC 967

4 (2010) 13 SCC 255

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procedure laid down and would in no manner frustrate theapparent purpose of the statute.

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33. In this regard, the learned Senior Counsel for the appellantpressed into service the doctrine of duty of adequate disclosurewhich according to him is an essential part of the principlesof natural justice and doctrine of fairness. A bare reading ofthe provisions of the Act and the Rules do not support theplea taken by the appellants in this regard. Even the principlesof natural justice do not require supply of documents uponwhich no reliance has been placed by the authority to set thelaw into motion. Supply of relied on documents based on whichthe law has been set into motion would meet the requirementsof the principles of natural justice. No court can compel theauthority to deviate from the statute and exercise the powerin altogether a different manner than the prescribed one.

34. As noticed, a reasonable opportunity of being heard is tobe provided by the adjudicating authority in the mannerprescribed for the purpose of imposing any penalty asprovided for in the Act and not at the stage where theadjudicating authority is required merely to decide as towhether an inquiry at all be held into the matter. Imposing ofpenalty after the adjudication is fraught with grave andserious consequences and therefore, the requirement ofproviding a reasonable opportunity of being heard beforeimposition of any such penalty is to be met. Incontradistinction, the opinion formed by the adjudicatingauthority whether an inquiry should be held into theallegations made in the complaint are not fraught with suchgrave consequences and therefore the minimum requirementof a show-cause notice and consideration of cause shownwould meet the ends of justice. A proper hearing alwaysinclude, no doubt, a fair opportunity to those who are partiesin the controversy for correcting or contradicting anythingprejudicial to their view.”

29. In Shashank Vyankatesh Manohar v. Union of India[5], theHigh Bombay Court interfered with the Show Cause Notice impugned,even though the Court found that there was nothing on record to indicatethat the Adjudicating Authority had considered certain aspects advertedto by the noticee, before forming the opinion to proceed further with theinquiry. However, a communication calling the Petitioner in that case fora personal hearing was set aside and the Special Director was directedfirst to form his opinion after recording reasons, whether to proceedagainst the Petitioner with regard to the impugned 11 Show CauseNotices.

30. In Amit Jain v. Securities and Exchange Board of Indiaand Another[6], the Delhi High Court held:- “33. It is apparent from the above that the formation of anopinion by the Board that there are grounds for adjudgingunder any of the provisions of Chapter VIA of the Act is apre-condition for appointment of an Adjudicating Officer. Itfollows that in absence of such an opinion, an AdjudicatingOfficer cannot be appointed and any such appointment wouldbe without jurisdiction. The respondent also does not disputethe above proposition. It claims that the Board has formed anopinion that there are grounds for adjudging under theprovisions of Chapter VIA of the Act and, therefore, theappointment of the Adjudicating Officer cannot be faulted.In its counter affidavit, the respondent has averred as under:- “It is submitted that SEBI had examined into the allegedirregularities in the trading in shares of HimalayanGranites Ltd. and into possible violation of the provisionsof the SEBI Act and PIT Regulations. Further, theadjudication proceedings were initiated in the matter afterthe Whole Time Member was prima-facie satisfied that thereare sufficient grounds to enquire into the affairs andadjudicate upon the alleged violations under the SEBI Actand PIT Regulations. It is submitted that the same can beseen from Page no.66 (Annexure 10) of the writ petitioncontaining the file noting.”

5 2014(1) MahLJ 838

6 2018 SCC Online Del 9784

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A31. Mr. Luthra pointed out that Rule 4 of the SEBI AdjudicationRules 1995 provides for a two-tier adjudication process. The said Ruleis in pari materia with Rule 4 of the Foreign Exchange Management(Adjudication Proceedings and Appeal) Rules, 2000.

32. Rule 4 of the SEBI Adjudication Rules 1995 contemplatesBthat the Adjudicating Authority is first required to form an opinion on thebasis of the reply to the Show Cause Notice, as to whether an inquiryshould be conducted against the noticee or not. Even after forming theopinion, the Adjudicating Authority cannot proceed to the stage of finalhearing, without first issuing notice to the Petitioner for explaining thecharges against him and then giving him an opportunity to produceCdocuments and examine witnesses.

33. It is submitted that, in this case, the Adjudicating Authority hasnot followed the procedure, and instead fixed the case for final hearingwithout forming an opinion, as required under Rule 4(3) of the SEBIAdjudication Rules 1995. In the context of his argument. Mr. LuthraDrelied on the decision of the High Court at Bombay in ShashankVyankatesh Manohar (supra) upheld by this Court in SLP (C) No.017104/2014 titled Union of India v. Shanshank Vyankatesh Manohar.In Shashank Vyankatesh Manohar (supra), the High Court held:-

“10. It is true that ordinarily this Court would not entertain aEWrit Petition against a show cause notice as the noticee wouldget an opportunity to submit his reply and of hearing beforethe adjudicating authority. However, the scheme of theAdjudication Rules in question is different from the otherinquiries where an authority issues a show cause notice, theFnoticee submits his reply, the authority then hears thecomplainant and the noticee for taking a decision in the matter.Ordinarily, inquiries are not divided into different stages,unlike the inquiry for which procedure is laid down in Rule 4of the Adjudication Rules. In ordinary inquiries, the inquiryofficer is not required to form any opinion before conclusionGof the inquiry. On the other hand, the scheme of Rule 4 of theAdjudication Rules is quite different and the same is requiredto be examined both for the purpose of considering the lastalternative submission of the petitioner about breach of Rule4 of the Adjudicating Rules and also for considering theHaforesaid preliminary objection raised by the learned KAVI ARORA v. SECURITIES & EXCHANGE BOARD OFINDIA [INDIRA BANERJEE, J.]

Additional Solicitor General about maintainability of the WritPetition.

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12. On reading the above Rule, particularly sub-rules (1) and(3) thereof, it is clear that on the issue of show cause notice,a noticee is permitted to submit his reply to the same. In termsof the above Rule, the Adjudicating Authority has to considerthe objections raised by the noticee and only if he forms anopinion that an inquiry should be continued further that theAdjudicating proceedings can be proceeded with, by issuinga notice for personal hearing. However, if the AdjudicatingAuthority is satisfied that the objections raised to the noticeare valid, he may drop the show cause notice. The provisionas found in Rule 4 of the Adjudication Rules is a uniqueprovision. The Counsel for the parties were not able to pointout any similar rules under which a two tier adjudication ofa show cause notice is provided for in any other statute.Normally, once a show cause notice has been issued, theAdjudicating Authority deals with all the objections of thenoticee, be it preliminary as well as any other defence, bypassing one common order of adjudication. The fact that thelegislature has provided in Rule 4 of the Adjudication Rulesthat on issue of notice, the noticee can object to the same andthis objection has to be considered by the AdjudicatingAuthority for forming an opinion to proceed further with theshow cause notice would require giving some meaning to it,otherwise it would be rendered otiose.”

34. In T. Takano (supra), cited by Mr. Luthra, this Court relyingupon its decision in Natwar Singh (supra) held:- “30. The submission of Mr. C U Singh, learned seniorcounsel is that only those materials which are relied uponshould be disclosed to the first respondent. Regulation 10,as we have noted earlier, stipulates that the satisfaction ofthe Board whether there has been a violation of theregulations has to be arrived at:

(i) after considering the report of the investigating authorityreferred to in Regulation 9; and A

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A(ii) after giving a reasonable opportunity of hearing to theperson concerned.

31. Once the subordinate legislation mandates that theinvestigating authority’s report is an essential ingredientfor the Board to arrive at the satisfaction, it requires dueBdisclosure.

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51. The above extracts indicate that the findings of theinvestigation report are relevant for the Board to arrive atthe satisfaction on whether the Regulations have beenCviolated. Even if it is assumed that the report is an inter-departmental communication, as held in Krishna ChandraTandon (supra), there is a duty to disclose such report if itis relevant for the satisfaction of the enforcement authorityfor the determination of the alleged violation.”D35. As held by this Court in T. Takano (supra), it would befundamentally contrary to the principles of natural justice if the relevantmaterial were not disclosed to the noticee.

36. In T. Takano (supra), this Court approved and followed thelaw laid down in Natwar Singh (supra) and reiterated that theEAdjudicating Authority had the duty to disclose the materials that hadbeen relied upon during the stage of adjudication. It is also true that theAdjudicating Authority cannot exercise unfettered discretion to redactdocuments necessary for the noticee to defend his case.

36. The Respondent SEBI has, in this Case clearly stated that theFdocuments specified, namely, Index of bank statements, Calendar ofevidence (oral) consisting of emails/letters/hard copies, Calendar ofevidence (documentary) consisting of emails/ letters/ hardcopies, Calendarof evidence (documentary) consisting of soft copies of emails/communications/ bank statements & certain supporting documents inCDs are confidential. Mr. Luthra submitted that the Petitioner has beenGable to show that withholding of documents containing exculpatorymaterial would adversely affect the defence of the Petitioner.

37. Mr. Chander Uday Singh, learned Senior Counsel appearingon behalf of the Respondent SEBI submitted that SEBI had conductedan investigation in the matter of Religare Enterprises Ltd. (REL) andH

various related entities for alleged violation of the provision of SEBI Actand/or SEBI PFUTP Regulations”, during the period between 1[st] April2011 to 31[st] March 2018.

38. Mr. Singh submitted that MSA Probe Consulting was appointedForensic Auditor on 10[th] May 2018 to examine alleged diversion of fundsfrom REL and/or its subsidiaries for the benefit of the promoter/promotersand/or connected entities.

39. The Petitioner was apparently President, Consumer Financeof Religare Finvest Ltd., a subsidiary of REL and a related entity from15[th] May 2008. He was CEO from 2009 and Managing Director andCEO till November 2017. Mr. Singh submitted that he was at the helmof affairs of Religare Finvest Limited subsidiary of REL during the periodwhen funds were diverted from REL and Religare Finvest Limited andother related entities.

40. The Petitioner along with 12 other entities had been issuedcommon Show Cause Notice dated 17[th] November 2020 along withrelevant documents relied upon by SEBI for issuance of the Show CauseNotice. The Petitioner was required to show cause why an inquiry shouldnot be held against him. After considering the cause shown, theAdjudicating Officer might issue notice under Rule 4(3) fixing a date forappearance of the noticee either personally or through a lawyer orauthorised representative.

41. Mr. Singh submitted that having filed preliminary reply, thePetitioner repeatedly sought and obtained inspection of various recordsand documents. In addition to physical inspection, SEBI provided acompact disc containing voluminous records of most of the documents,except some documents which were internal or confidential or affectedthe confidentiality of third parties and hence could not be provided.

42. Mr. Singh submitted that the Petitioner did not submit his replyto the Show Cause Notice but sent emails demanding to know whichdocuments were relied upon by SEBI and which documents were not.Further, online inspection was granted as physical inspection was notpossible due to the Pandemic. The Petitioner made an application forsupply of the following documents:- “(i) Enclosure (i) to the MSA Probe Report containing indexof bank statements; AB

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(ii) Enclosure (iii) to the MSA Probe Report containingcalendar of oral evidence consisting of gist of interviewsconducted.

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(iii) Complete set of Enclosure (iv) to MSA Report i.e. Calendarof evidence (Documentary) consisting of emails/ letters/hardBcopies.

(iv) Complete set of enclosure (v) to the MSA Report i.e.Calendar of Evidence (Documentary) consisting of soft copiesof emails/communications /bank statement and certainsupporting documents in CD.”

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43. According to Mr. Singh, the Petitioner had been provided withall documents relied upon by SEBI which were relevant for the Petitionerto reply to the Show Cause Notice.

44. Rules 3 and 4 of the Security and Exchange Board of India(Procedure for Holding Inquiry and Imposing Penalties by AdjudicatingDOfficer) Rules, 1995 reads:- “Appointment of adjudicating officer for holding inquiry. 3.Whenever the Board is of the opinion that there are groundsfor adjudging under any of the provisions in Chapter VI-A ofthe Act, it may appoint any of its officers not below the rankEof Division Chief to be an adjudicating officer for holdingan inquiry for the said purpose.

Holding of inquiry.

4. (1) In holding an inquiry for the purpose of adjudging undersections 15A, 15B, 15C, 15D, 15E, 15F, 15G [15HA and 15HB]Fwhether any person has committed contraventions asspecified in any of sections 15A, 15B, 15C, 15D, 15E, 15F,15G [15HA and 15HB] the adjudicating officer shall, in thefirst instance, issue a notice to such person requiring him toshow cause within such period as may be specified in theGnotice (being not less than fourteen days from the date ofservice thereof) why an inquiry should not be held againsthim.

(2) Every notice under sub-rule (1) to any such person shallindicate the nature of offence alleged to have been committedby him.

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(3) If, after considering the cause, if any, shown by suchperson, the adjudicating officer is of the opinion that aninquiry should be held, he shall issue a notice fixing a datefor the appearance of that person either personally or throughhis lawyer or other authorised representative.

(4) On the date fixed, the adjudicating officer shall explainto the person proceeded against or his lawyer or authorisedrepresentative, the offence, alleged to have been committedby such person indicating the provisions of the Act, rules orregulations in respect of which contravention is alleged tohave taken place.

(5) The adjudicating officer shall then give an opportunity tosuch person to produce such documents or evidence as hemay consider relevant to the inquiry and if necessary thehearing may be adjourned to a future date and in taking suchevidence the adjudicating officer shall not be bound toobserve the provisions of the Evidence Act, 1872 (11 of 1872)

Provided that the notice referred to in sub-rule (3), and thepersonal hearing referred to in sub-rules (3),(4) and (5) may,at the request of the person concerned, be waived.

(5A) The Board may appoint a presenting officer in an inquiryunder this rule.

(6) While holding an inquiry under this rule the adjudicatingofficer shall have the power to summon and enforce theattendance of any person acquainted with the facts andcircumstances of the case to give evidence or to produce anydocument which, in the opinion of the adjudicating officer,may be useful for or relevant to, the subject-matter of theinquiry.

(7) If any person fails, neglects or refuses to appear asrequired by sub-rule (3) before the adjudicating officer, theadjudicating officer may proceed with the inquiry in theabsence of such person after recording the reasons for doingso.

1. Substituted for “and 15H” by the SEBI (Procedure forHolding Inquiry and Imposing Penalties by AdjudicatingOfficer) Amendment Rules, 2006, w.e.f. 14-11-2006.

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2. Substituted for “and 15H” by the SEBI (Procedure forHolding Inquiry and Imposing Penalties by AdjudicatingOfficer) Amendment Rules, 2006, w.e.f. 14-11-2006.

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3. Inserted for “and 15H” by the SEBI (Procedure for HoldingInquiry and Imposing Penalties by Adjudicating Officer)BAmendment Rules, 2006, w.e.f. 14-11-2006.

45. At the stage of Rule 3, the Board appoints an AdjudicatingOfficer if it is of the opinion that there are grounds for adjudicationunder any of the provisions in Chapter VIA of the SEBI Act. At thisstage, the Board only decides whether adjudication proceedings shouldCbe initiated or not. The formation of opinion is not a formal inquiryproceeding involving any person or persons against whom inquiry iscontemplated. The participation of the person against whom inquiry iscontemplated is not necessary. The Board forms its opinion, based onwhether there are prima facie materials or grounds for initiation of inquiry.The opinion of the Board under Section 3 has nothing to do with theDoutcome of the enquiry.

46. After the Board forms its opinion to appoint an AdjudicatingOfficer, comes the next stage, which is the stage under Rule 4 of aninquiry for adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F, 15G,15H, 15I, 15J and 15HB whether any person has committedEcontraventions as specified in those sections. The inquiry commenceswith a Show Cause Notice calling upon the noticee to show cause whyan inquiry should not be held against him. The Show Cause Notice hasto specify the nature of offence alleged to have been committed and thepenalty proposed, to enable the noticee to effectively reply to the showFcause. A reading of Section 4(3) makes it clear that, if after consideringthe cause, if any shown by the noticee, the Adjudicating Officer is of theopinion that an inquiry should be held, he shall issue a notice fixing a datefor appearance of that person either personally or through his lawyer orother authorised representative. The noticee is not required to be heardpersonally or through lawyer before taking a decision to proceed with anGinquiry in respect of the contraventions alleged in the Show Cause Notice.Decision to proceed or not to proceed with the inquiry may be taken onthe basis of the reply of the noticee to the Show Cause Notice. Once itis decided to proceed with the inquiry, an opportunity of personal hearingis mandatory. The inquiry has to be conducted in accordance with law,Hin compliance with the principles of natural justice.

47. In this case, the Board was of the opinion that there weregrounds for adjudication and accordingly appointed Adjudicating Officer.Adjudicating Officer issued Show Cause Notice to the Petitioner to whichthe Petitioner gave a preliminary reply and thereafter sought documentsas observed above. Inspection of some documents was permitted. Afterconsidering the reply, the Adjudicating Officer was of the opinion thatinquiry should be held. Accordingly, a notice fixing a date for appearancewas issued. There was no procedural irregularity, at least till the stage ofnotice fixing a date of hearing.

48. In Course of argument before the High Court, counsel for theRespondent SEBI made a statement that SEBI would not rely on anydocument apart from those which had been provided to the Petitioner.

49. It is well settled that the documents which are not relied uponby the Authority need not be supplied as held in Natwar Singh (supra)where this Court held:- “48. On a fair reading of the statute and the Rules suggeststhat there is no duty of disclosure of all the documents inpossession of the Adjudicating Authority before forming anopinion that an inquiry is required to be held into the allegedcontraventions by a noticee. Even the principles of naturaljustice and concept of fairness do not require the statute andthe Rules to be so read. Any other interpretation may result indefeat of the very object of the Act. Concept of fairness is nota one way street. The principles of natural justice are notintended to operate as roadblocks to obstruct statutoryinquiries. Duty of adequate disclosure is only an additionalprocedural safeguard in order to ensure the attainment of thefairness and it has its own limitations. The extent of itsapplicability depends upon the statutory framework.”

50. The High Court rightly did not interfere with the proceedingsat the stage of the Show Cause Notice. The Petitioner has apparentlybeen permitted to inspect the opinion formed under Rule 3 of the SEBIAdjudication Rules. There is apparently no rule which requires SEBI tofurnish the opinion under Rule 3 to the noticee in its entirety. Thedocuments relied upon for formation of opinion under Rule 3, are notrequired to be disclosed to the noticee unless relied upon in the inquiry.In the event, the Petitioner is prejudiced by reason of any adverse order, AB

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Abased on any materials not supplied to the Petitioner, or any prejudice isdemonstrated to have been caused to the Petitioner, it would be open tothe Petitioner to approach the appropriate forum.

51. This Court has by its interim order dated 27[th] September 2021permitted Respondent SEBI to hold the inquiry, without relying upon anyBdocuments, not supplied to the Petitioner. The interim order will governthe inquiry.

52. In our view, there is no infirmity in the impugned judgment andorder of the High Court dismissing the writ petition filed by the Petitioner.

53. In view of the foregoing reasons, the Special Leave petition isCdismissed.

Divya Pandey and Anurag Bhaskar(Assisted by : Rahul Kumar, LCRA)

SLP dismissed.

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