2022 Supreme(SC) 200

SUPREME COURT OF INDIA
(From the Bombay High Court)
Dr. Dhananjaya Y. Chandrachud, Sanjiv Khanna, JJ.
T. Takano – Appellant
Versus
Securities and Exchange Board of India & Anr. – Respondents
Civil Appeal Nos. 487-488 of 2022
Decided on : 18-02-2022

Headnote:

The appellant, a former Managing Director and Chief Executive Officer of a public listed company, was issued a show cause notice by the Securities and Exchange Board of India (SEBI) alleging a violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 (PFUTP Regulations). The appellant challenged the show cause notice before the Securities Appellate Tribunal (SAT), which allowed the appeal and quashed the notice. The SAT held that the confirmatory order issued by SEBI was based on a suspicion about the appellant's role and that the submissions of the appellant were not dealt with appropriately. SEBI appealed to the High Court, which held that the investigation report prepared under Regulation 9 of PFUTP Regulations is solely for internal purposes and need not be furnished to the appellant. The appellant appealed to the Supreme Court.

Fact of the Case:

The appellant, a former Managing Director and Chief Executive Officer of a public listed company, was issued a show cause notice by the Securities and Exchange Board of India (SEBI) alleging a violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 (PFUTP Regulations). The appellant challenged the show cause notice before the Securities Appellate Tribunal (SAT), which allowed the appeal and quashed the notice. The SAT held that the confirmatory order issued by SEBI was based on a suspicion about the appellant's role and that the submissions of the appellant were not dealt with appropriately. SEBI appealed to the High Court, which held that the investigation report prepared under Regulation 9 of PFUTP Regulations is solely for internal purposes and need not be furnished to the appellant. The appellant appealed to the Supreme Court.

Finding of the Court:

The Supreme Court held that the appellant has a right to disclosure of the material relevant to the proceedings initiated against him. The Court held that the investigation report is not merely an internal document and that the Board under Regulation 10 considers the investigation report submitted by the Investigating Authority under Regulation 9, and if it is satisfied with the allegations, it could issue punitive measures under Regulations 11 and 12. The Court also held that the disclosure of material serves a three-fold purpose of decreasing the error in the verdict, protecting the fairness of the proceedings, and enhancing the transparency of the investigatory bodies and judicial institutions.

Issues: 1. Whether the appellant has a right to disclosure of the material relevant to the proceedings initiated against him? 2. Whether the investigation report is merely an internal document? 3. Whether the Board under Regulation 10 considers the investigation report submitted by the Investigating Authority under Regulation 9? 4. Whether the disclosure of material serves a three-fold purpose of decreasing the error in the verdict, protecting the fairness of the proceedings, and enhancing the transparency of the investigatory bodies and judicial institutions?

Ratio Decidendi: 1. The appellant has a right to disclosure of the material relevant to the proceedings initiated against him. 2. The investigation report is not merely an internal document. 3. The Board under Regulation 10 considers the investigation report submitted by the Investigating Authority under Regulation 9. 4. The disclosure of material serves a three-fold purpose of decreasing the error in the verdict, protecting the fairness of the proceedings, and enhancing the transparency of the investigatory bodies and judicial institutions.

Final Decision: The Supreme Court allowed the appeal and set aside the judgment of the High Court. The Court directed that after a due disclosure is made to the appellant in terms as noted above, a reasonable opportunity shall be granted to the appellant of being heard with reference to the matters of disclosure in compliance with the principles of natural justice before a final decision is arrived at.