On Friday, the Supreme Court ordered the Securities and Exchange Board of India (Sebi) to provide Reliance Industries (RIL) with certain documents relied on by the regulator in connection with an investigation into a share takeover case by of the conglomerate.
A bank headed by Chief Justice of India NV Ramana agreed with RIL’s claim that Sebi’s decision to provide it with only parts of the investigation documents amounted to cherry picking.
“There is a dispute over the fact that certain extracts from the opinion of (retired) Judge BN Srikrishna were disclosed to the appellant. It is Appellant’s contention that while the parties that were disclosed vaguely indicate Appellant’s guilt, Sebi refuses to disclose the information that exonerates him. Such selection of cherries by Sebi only abrogates the commitment to a fair trial,” the court, which also includes Justices JK Maheshwari and Hima Kohli, said in the ruling.
“In the case at hand, Sebi could not claim privilege over certain parts of the documents and, at the same time, agree to disclose some part. Such selective disclosure cannot be sanctioned by law as it clearly amounts to selective targeting,” said the Chief Justice writing for the court.
The order added that “Sebi’s approach, by not disclosing the documents, also raises transparency and fair trial concerns. Opacity only propagates prejudice and bias. Opacity is the antithesis of transparency. It is extremely important that in a country based on the rule of law, the institutions adopt procedures that promote the democratic principles of transparency and accountability. The principles of fairness and transparency of judicial procedures are the cornerstone of the principles of open justice”.
The case stems from a complaint filed with Sebi in January 2002 by S Gurumurthy against RIL, its associated companies and their directors. He alleged that they fraudulently allocated Rs 12 crore of shares in the conglomerate to entities, which were allegedly connected to promoters of Reliance Industries and financed by RIL and other group companies, in 1994.
Sebi launched an investigation into the complaint, and the investigating officer filed a report on February 4, 2005.
RIL maintained that the Sebi Legal Affairs Department prepared a note on May 17, 2006, stating that the report had not revealed any specific violation of any legal provision by the group.
However, the note was said to have noted that an outside expert’s opinion was required on the possibility of initiating appropriate criminal proceedings against RIL. Accordingly, retired SC Justice BN Srikrishna was contacted.
Judge Srikrishna gave his opinion, which RIL held that only parts of it were revealed to him by Sebi.
On April 16, 2010, the market regulator sent a letter to RIL alleging that the group had financed the purchase of its own shares by 38 related entities and therefore violated Section 77 (2) of the Law of Companies Act 1956 and consequently violated Regulations 3, 5 and 6 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Business Practices Related to Securities Market) Regulations, 1995.
In 2017-18, Sebi decided to re-examine the issue and sought the advice of Judge Srikrishna a second time, but he suggested that the regulator’s approach be closer to Chartered Accountant YH Malegam.
Malegam examined the records of RIL and several other companies and submitted his report to Sebi, based on which the regulator again requested a report from Judge Srikrishna.
RIL maintained that Sebi rejected its request for Judge Srikrishna’s first and second opinions, as well as Malegam’s report, citing the privilege to litigate.
However, the higher court rejected Sebi’s objections and ordered him to provide the reports to RIL.
The court said that “…Sebi’s action of initiating a criminal complaint without giving the appellant an adequate opportunity to defend himself by publishing the necessary reports and other documents, cannot be appreciated by this court as it is a serious violation of the right from the appellant to natural justice. ”.
RIL had first approached the Bombay High Court against the refusal of the documents but was unable to obtain any relief, after which it was moved to the SC.