REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPEALLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO. 15149 OF 2021

Kavi Arora Petitioner (s)

Versus

Securities & Exchange

Board of India Respondent (s)

J U D G M E N T

Indira Banerjee, J.

This present special leave petition is against the impugned

judgment and final order dated 15

th

September 2021, passed by the

Division Bench of the High Court of Judicature at Bombay,

dismissing Writ Petition (L) No. 19352 of 2021, filed by the

Petitioner under Article 226 of the Constitution of India, whereby

the Petitioner had sought directions against the Respondent,

Security and Exchange Board of India (SEBI), to forthwith furnish to

the Petitioner documents relied upon by the Respondent-SEBI, in

Show Cause Notice No. SEBI/HO/IVD/ID2/OW/P/2020/19435/1 dated

17

th

November 2020 issued to the Petitioner to show cause why

1

appropriate directions should not be taken against him under

Sections 11(1), 11(4), 11B(1) 11B(1), 11B(2), and 11(4A) of the

Securities and Exchange Board of India Act, 1992 (hereinafter

referred to as “the SEBI Act”) and Section 12A(1) and 12A(2) of the

Securities Contract (Regulation) Act, 1956 (hereinafter referred to

as “SCR Act 1956”) read with SEBI (Procedure for Holding Inquiry

and Imposing Penalties by Adjudicating Officer) Rules, 1995

(hereinafter referred to 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”). The Petitioner had also sought orders for

supply of a copy of the opinion formed under Rule 3 of the SEBI

Adjudication Rules 1995, for constituting an Adjudicating Authority

to issue Show Cause Notice dated 17

th

November 2020 to the

Petitioner.

2. The Petitioner joined Religare Finvest Limited (RFL), a

subsidiary 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 SME Lending Business.

3.Respondent SEBI appointed a Forensic Auditor, M/s MSA Probe

Consulting Private Limited (hereinafter referred to as “MSA Probe

Consulting”) to conduct an investigation in the matter of M/s

2

Religare Enterprises Private Ltd. (REL) and related entities for

alleged violation of the provisions of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 (hereinafter referred 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 the Petitioner under Section 15HA of the

SEBI Act and Rule 3 of the Adjudication 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) of the SCR Act 1956 read with SEBI

Adjudication Rules 1995 and SCR Penalties 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, the

Petitioner being one of them (Noticee No. 12). The allegation in the

Show Cause Notice is that funds to the tune of Rs. 2315.66 crores

were diverted from RFL through several layers of conduit entities

for the ultimate benefit of promoters of REL and RFL.

6. On receipt of the Show Cause Notice, the Petitioner filed a

Settlement Application dated 22.02.2021, proposing to settle the

proceedings initiated by the Show Cause Notice, in terms of SEBI

(Settlement Proceedings), Regulations, 2018 (hereinafter referred

3

to, in short as "the Settlement Regulations"). The Petitioner could

not settle the proceedings.

7. The Petitioner sent an e-mail to the Respondent SEBI,

requesting Respondent SEBI to afford him an opportunity to inspect

the documents relied upon by the Respondent SEBI. Ms. Sneha

Jalan, Assistant General Manager, SEBI, offered some documents for

inspection of the Petitioner, on 15

th

January 2021.

8.The Petitioner submits that from time to time, the Petitioner

asked the Respondent SEBI to provide for inspection to the

Petitioner, the documents relied upon, for the issuance of Show

Cause Notice.

9. According to the Petitioner, some documents were supplied to

the Petitioner and other noticees. However, certain documents

were denied on the ground that those were confidential documents.

10. The Petitioner submits that, as per SEBI Rules, it is

mandatory on the part of Respondent SEBI to provide a copy of the

opinion formed by Respondent SEBI for issuance of the Show Cause

Notice to the noticee, before hearing the Show Cause Notice. It is

further submitted that copies of all documents were relied upon by

the Respondent SEBI at the time of issuing Show Cause Notice have

to be provided to the Petitioner. It is contended that without getting

4

access to those documents, it would not be possible for the

Petitioner to reply to the Show Cause Notice.

11.On the other hand, it is the case of Respondent SEBI, that as

per the SEBI Adjudication Rules, the Board has to form an opinion,

to decide whether the Show Cause Notice is required to be issued

or not. The Respondent SEBI is not required to furnish the noticee

with a copy of the opinion. It is further, the case of Respondent

SEBI, that in addition to physical inspection of all relevant

documents. Respondent SEBI has provided the Petitioner with a

Compact Disc containing voluminous records, except those which

contain internal confidential documents or documents which affect

the confidentiality of third parties. By a letter dated 24

th

March

2021, the Petitioner was informed that the documents mentioned in

paragraphs 3, 4 and 5 of his e-mail dated 23

rd

March 2021 were

confidential documents. The Petitioner, however, made an

application to SEBI to supply the documents relied upon to form an

opinion as per the SEBI Adjudication Rules, to commence inquiry.

12.Mr. Sidharth Luthra, learned Senior Counsel appearing on

behalf of the Petitioner submitted that Show Cause Notice had been

issued to the Petitioner by Respondent SEBI, inter alia, under

Section15HA of SEBI Act (Chapter VI-A) and Rule 3 of the SEBI

Adjudication Rules which requires formation of opinion for

appointing an Adjudicating Authority, before proceeding under

Chapter VIA.

5

13.Mr. Luthra submitted that that on 17

th

November 2020, Show

Cause Notice was issued to the Petitioner. The Petitioner filed his

preliminary reply on 28

th

December 2020, reserving his right to file

a detailed reply after inspection of documents.

14.By an order dated 6

th

January 2021, the Adjudicating

Authority adjourned the hearing for inspection of documents.

Inspection of documents was conducted on 15

th

January 2021.

Many documents relied upon in the Show Cause Notice were not

shown to the Petitioner.

15.By an email dated 23

rd

March 2021, the Petitioner through his

Advocate requested for all documents relied upon by the

Respondent SEBI.

16.On 24

th

March 2021, only some of the documents relied upon

were supplied and other documents refused on the ground of

confidentiality.

17.The Petitioner’s Advocate again requested for supply and

inspection of relied upon documents on 12

th

April 2021 and 4

th

May

2021. On 12

th

May 2021 & 14

th

May 2021, online inspection was

made by Advocate of the Petitioner. According to the Petitioner,

documents relied upon were neither shown, nor supplied to the

Petitioner.

6

18.On 27

th

May 2021, illegible copies of some documents

identified by the Petitioner were supplied but not the remaining

ones.

19.On 13

th

July 2021, the Petitioner filed two applications for

supply of opinion formed under Rule 3 of the SEBI Adjudication

Rules 1995 and for supply of documents relied upon. However,

without supplying the documents relied upon the Adjudicating

Authority fixed the matter for final hearing on 26

th

August 2021.

20.On 26

th

July 2021, the Petitioner’s Advocate sent an email

showing that the proceedings could not be fixed for final hearing in

terms of Rule 4(1), 4(2), 4(3) 4(4) and 4(5) of SEBI Adjudication

Rules 1995 which provide for two-tier adjudication process.

21.On 26

th

August 2021, the Petitioner sought permission to

address arguments on the two applications but the Adjudicating

Authority refused to hear them and it was observed by the

Adjudicating Authority that documents not supplied would not be

relied upon in the final order.

22.It was argued that the Petitioner had sought inspection of the

opinion under Rule 3, by an email dated 4

th

May 2021. The

proceedings before the Adjudicating Authority were listed on 29

th

September 2021. The Adjudicating Authority, without hearing the

Petitioner sent the Record of the proceedings dated 29

th

September

2021 to the Petitioner on 30

th

September 2021, incorrectly

recording that the arguments were heard by the Adjudicating

7

Authority on the Applications filed by the Petitioner. In the record of

proceedings, it was inter-alia stated that an opportunity to inspect

the opinion, would be provided to the Petitioner.

23.Counsel argued that after numerous requests, an opportunity

to 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. According to the Petitioner, only redacted opinion was

supplied to the Petitioner. In the circumstances, Petitioner sought

the complete opinion formed under Rule 3 of the SEBI Adjudication

Rules 1995 by the Adjudicating Authority.

24.It is argued that Show Cause Notice relies heavily on the

probe conducted by an independent agency called MSA Probe

Consulting. The said MSA Probe Consulting submitted a report

upon completion of investigation, along with all supporting

documents. The said Report along with its enclosures was made

Annexure 1 to the Show Cause Notice.

25. Mr. Luthra argued that while deciding whether or not to issue

Show Cause Notice, SEBI relied upon the MSA Probe Report and its

enclosures, but refused to supply the same once the Petitioner

entered appearance, 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.

ii.Calendar of evidence (oral) consisting of gist of

interviews conducted.

8

iii. Calendar of evidence (documentary) consisting of

emails/ letters/ hardcopies,

iv. Calendar of evidence (documentary) consisting of

soft copies of emails/communications/ bank

statements & certain supporting documents in CDs.”

26.Mr. Luthra submitted that while Respondent SEBI has taken a

stand that documents are confidential without giving reasons, the

Adjudicating Authority had on 26

th

August 2021 taken a stand that

documents 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 the

Respondent SEBI the Show Cause Notice, could not be denied to

the Petitioner. 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 Overseas Limited

3

.

28.In Natwar Singh v. Directorate of Enforcement and

Others

4

, this Court held:-

“31. The concept of fairness may require the

adjudicating authority to furnish copies of those

documents upon which reliance has been placed by

him to issue show-cause notice requiring the noticee

to explain as to why an inquiry under Section 16 of the

Act should not be initiated. To this extent, the

principles of natural justice and concept of fairness are

required to be read into Rule 4(1) of the Rules. Fair

procedure and the principles of natural justice are in-

1 2022 SCC Online SC 210

2 (2010) 13 SCC 255

3 2020 SCC Online SC 967

4 (2010) 13 SCC 255

9

built into the Rules. A noticee is always entitled to

satisfy the adjudicating authority that those very

documents upon which reliance has been placed do

not make out even a prima facie case requiring any

further inquiry. In such view of the matter, we hold

that 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.

***

33. In this regard, the learned Senior Counsel for the

appellant pressed into service the doctrine of duty of

adequate disclosure which according to him is an

essential part of the principles of natural justice and

doctrine of fairness. A bare reading of the provisions of

the Act and the Rules do not support the plea taken by

the appellants in this regard. Even the principles of

natural justice do not require supply of documents

upon which no reliance has been placed by the

authority to set the law into motion. Supply of relied

on documents based on which the law has been set

into motion would meet the requirements of the

principles of natural justice. No court can compel the

authority to deviate from the statute and exercise the

power in altogether a different manner than the

prescribed one.

34. As noticed, a reasonable opportunity of being

heard is to be provided by the adjudicating authority

in the manner prescribed for the purpose of imposing

any penalty as provided for in the Act and not at the

stage where the adjudicating authority is required

merely to decide as to whether an inquiry at all be

held into the matter. Imposing of penalty after the

adjudication is fraught with grave and serious

consequences and therefore, the requirement of

providing a reasonable opportunity of being heard

before imposition of any such penalty is to be met. In

contradistinction, the opinion formed by the

adjudicating authority whether an inquiry should be

held into the allegations made in the complaint are

not fraught with such grave consequences and

therefore the minimum requirement of a show-cause

notice and consideration of cause shown would meet

the ends of justice. A proper hearing always include,

no doubt, a fair opportunity to those who are parties in

the controversy for correcting or contradicting

anything prejudicial to their view.”

10

29.In Shashank Vyankatesh Manohar v. Union of

India

5

, the High Bombay Court interfered with the Show Cause

Notice impugned, even though the Court found that there was

nothing on record to indicate that the Adjudicating Authority

had considered certain aspects adverted to by the noticee,

before forming the opinion to proceed further with the inquiry.

However, a communication calling the Petitioner in that case

for a personal hearing was set aside and the Special Director

was directed first to form his opinion after recording reasons,

whether to proceed against the Petitioner with regard to the

impugned 11 Show Cause Notices.

30.In Amit Jain v. Securities and Exchange Board of

India and Another

6

, the Delhi High Court held:-

“33. It is apparent from the above that the formation of an

opinion by the Board that there are grounds for adjudging

under any of the provisions of Chapter VIA of the Act is a

pre-condition for appointment of an Adjudicating

Officer. It follows that in absence of such an opinion, an

Adjudicating Officer cannot be appointed and any

such appointment would be without jurisdiction. The

respondent also does not dispute the above proposition. It

claims that the Board has formed an opinion that there are

grounds for adjudging under the provisions of

Chapter VIA of the Act and, therefore, the

appointment 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 alleged irregularities in the trading in

shares of Himalayan Granites Ltd. and into possible

violation of the provisions of the SEBI Act and PIT

Regulations. Further, the adjudication proceedings

were initiated in the matter after the Whole Time

5 2014(1) MahLJ 838

6 2018 SCC Online Del 9784

11

Member was prima-facie satisfied that there are

sufficient grounds to enquire into the affairs

and adjudicate upon the alleged violations under

the SEBI Act and PIT Regulations. It is submitted

that the same can be seen from Page no.66 (Annexure

10) of the writ petition containing the file noting.”

31.Mr. Luthra pointed out that Rule 4 of the SEBI Adjudication

Rules 1995 provides for a two-tier adjudication process. The said

Rule is in pari materia with Rule 4 of the Foreign Exchange

Management (Adjudication Proceedings and Appeal) Rules, 2000.

32.Rule4 of the SEBI Adjudication Rules 1995 contemplates

that the Adjudicating Authority is first required to form an opinion

on the basis of the reply to the Show Cause Notice, as to whether

an inquiry should be conducted against the noticee or not. Even

after forming the opinion, the Adjudicating Authority cannot

proceed to the stage of final hearing, without first issuing notice to

the Petitioner for explaining the charges against him and then

giving him an opportunity to produce documents and examine

witnesses.

33.It is submitted that, in this case, the Adjudicating Authority

has not followed the procedure, and instead fixed the case for final

hearing without forming an opinion, as required under Rule 4(3) of

the SEBI Adjudication Rules 1995. In the context of his argument.

Mr. Luthra relied on the decision of the High Court at Bombay in

Shashank Vyankatesh Manohar (supra) upheld by this Court in

SLP (C) No. 017104/2014 titled Union of India v. Shanshank

12

Vyankatesh Manohar. In Shashank Vyankatesh Manohar

(supra), the High Court held:-

“10. It is true that ordinarily this Court would not

entertain a Writ Petition against a show cause notice

as the noticee would get an opportunity to submit his

reply and of hearing before the adjudicating authority.

However, the scheme of the Adjudication Rules in

question is different from the other inquiries where an

authority issues a show cause notice, the noticee

submits his reply, the authority then hears the

complainant 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 4 of the Adjudication Rules. In

ordinary inquiries, the inquiry officer is not required to

form any opinion before conclusion of the inquiry. On

the other hand, the scheme of Rule 4 of the

Adjudication Rules is quite different and the same is

required to be examined both for the purpose of

considering the last alternative submission of the

petitioner about breach of Rule 4 of the Adjudicating

Rules and also for considering the aforesaid

preliminary objection raised by the learned Additional

Solicitor General about maintainability of the Writ

Petition.

***

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 terms of the above Rule, the

Adjudicating Authority has to consider the objections

raised by the noticee and only if he forms an opinion

that an inquiry should be continued further that the

Adjudicating proceedings can be proceeded with, by

issuing a notice for personal hearing. However, if the

Adjudicating Authority is satisfied that the objections

raised to the notice are valid, he may drop the show

cause notice. The provision as found in Rule 4 of the

Adjudication Rules is a unique provision. The Counsel

for the parties were not able to point out any similar

rules under which a two tier adjudication of a show

cause notice is provided for in any other statute.

Normally, once a show cause notice has been issued,

the Adjudicating Authority deals with all the objections

of the noticee, be it preliminary as well as any other

defence, by passing one common order of

adjudication. The fact that the legislature has provided

in Rule 4 of the Adjudication Rules that on issue of

13

notice, the noticee can object to the same and this

objection has to be considered by the Adjudicating

Authority for forming an opinion to proceed further

with the show 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 relying

upon its decision in Natwar Singh (supra) held:-

“30. The submission of Mr. C U Singh, learned senior

counsel is that only those materials which are relied

upon should be disclosed to the first respondent.

Regulation 10, as we have noted earlier, stipulates that

the satisfaction of the Board whether there has been a

violation of the regulations has to be arrived at:

(i) after considering the report of the investigating authority

referred to in Regulation 9; and

(ii) after giving a reasonable opportunity of hearing to the

person concerned.

31. Once the subordinate legislation mandates that the

investigating authority's report is an essential ingredient

for the Board to arrive at the satisfaction, it requires due

disclosure.

***

51. The above extracts indicate that the findings of the

investigation report are relevant for the Board to arrive

at the satisfaction on whether the Regulations have been

violated. Even if it is assumed that the report is an inter-

departmental communication, as held in Krishna

Chandra Tandon (supra), there is a duty to disclose such

report if it is relevant for the satisfaction of the

enforcement authority for the determination of the

alleged violation.”

35.As held by this Court in T. Takano (supra), it would be

fundamentally contrary to the principles of natural justice if the

relevant material were not disclosed to the noticee.

36.In T. Takano (supra), this Court approved and followed the

law laid down in Natwar Singh (supra) and reiterated that the

Adjudicating Authority had the duty to disclose the materials that

14

had been relied upon during the stage of adjudication. It is also

true that the Adjudicating Authority cannot exercise unfettered

discretion to redact documents necessary for the noticee to defend

his case.

36.The Respondent SEBI has, in this Case clearly stated that the

documents specified, namely, Index of bank statements, Calendar

of evidence (oral) consisting of emails/letters/hard copies, Calendar

of evidence (documentary) consisting of emails/ letters/ hardcopies,

Calendar of evidence (documentary) consisting of soft copies of

emails/communications/ bank statements & certain supporting

documents in CDs are confidential. Mr. Luthra submitted that the

Petitioner has been able to show that withholding of documents

containing exculpatory material would adversely affect the defence

of the Petitioner.

37.Mr. Chander Uday Singh, learned Senior Counsel appearing

on behalf of the Respondent SEBI submitted that SEBI had

conducted an investigation in the matter of Religare Enterprises

Ltd. (REL) and various related entities for alleged violation of the

provision of SEBI Act and/or SEBI PFUTP Regulations”, during the

period between 1

st

April 2011 to 31

st

March 2018.

38.Mr. Singh submitted that MSA Probe Consulting was

appointed Forensic Auditor on 10

th

May 2018 to examine alleged

diversion of funds from REL and/or its subsidiaries for the benefit of

the promoter/promoters and/or connected entities.

15

39.The Petitioner was apparently President, Consumer Finance of

Religare Finvest Ltd., a subsidiary of REL and a related entity from

15

th

May 2008. He was CEO from 2009 and Managing Director and

CEO till November 2017. Mr. Singh submitted that he was at the

helm of affairs of Religare Finvest Limited subsidiary of REL during

the period when funds were diverted from REL and Religare Finvest

Limited and other related entities.

40.The Petitioner along with 12 other entities had been issued

common Show Cause Notice dated 17

th

November 2020 along with

relevant documents relied upon by SEBI for issuance of the Show

Cause Notice. The Petitioner was required to show cause why an

inquiry should not be held against him. After considering the cause

shown, the Adjudicating Officer might issue notice under Rule 4(3)

fixing a date for appearance of the noticee either personally or

through a lawyer or authorised representative.

41.Mr. Singh submitted that having filed preliminary reply, the

Petitioner repeatedly sought and obtained inspection of various

records and documents. In addition to physical inspection, SEBI

provided a compact disc containing voluminous records of most of

the documents, except some documents which were internal or

confidential or affected the confidentiality of third parties and

hence could not be provided.

42.Mr. Singh submitted that the Petitioner did not submit his

reply to the Show Cause Notice but sent emails demanding to know

16

which documents were relied upon by SEBI and which documents

were not. Further, online inspection was granted as physical

inspection was not possible due to the Pandemic. The Petitioner

made an application for supply of the following documents:-

“(i)Enclosure (i) to the MSA Probe Report containing

index of bank statements;

(ii)Enclosure (iii) to the MSA Probe Report containing

calendar of oral evidence consisting of gist of interviews

conducted.

(iii)Complete set of Enclosure (iv) to MSA Report i.e.

Calendar of evidence (Documentary) consisting of emails/

letters/hard copies.

(iv)Complete set of enclosure (v) to the MSA Report i.e.

Calendar of Evidence (Documentary) consisting of soft

copies of emails/communications /bank statement and

certain supporting documents in CD.”

43.According to Mr. Singh, the Petitioner had been provided with

all documents relied upon by SEBI which were relevant for the

Petitioner to 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

Adjudicating Officer) Rules, 1995 reads:-

“Appointment of adjudicating officer for holding

inquiry. 3. Whenever the Board is of the opinion that

there are grounds for adjudging under any of the

provisions in Chapter VI-A of the Act, it may appoint any

of its officers not below the rank of Division Chief to be

an adjudicating officer for holding an inquiry for the said

purpose.

Holding of inquiry.

4.(1) In holding an inquiry for the purpose of adjudging

under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G [15HA

and 15HB] whether any person has committed

contraventions as specified in any of sections 15A, 15B,

17

15C, 15D, 15E, 15F, 15G [15HA and 15HB] the

adjudicating officer shall, in the first instance, issue a

notice to such person requiring him to show cause within

such period as may be specified in the notice (being not

less than fourteen days from the date of service thereof)

why an inquiry should not be held against him.

(2) Every notice under sub-rule (1) to any such person

shall indicate the nature of offence alleged to have been

committed by him.

(3) If, after considering the cause, if any, shown by such

person, the adjudicating officer is of the opinion that an

inquiry should be held, he shall issue a notice fixing a

date for the appearance of that person either personally

or through his lawyer or other authorised representative.

(4) On the date fixed, the adjudicating officer shall

explain to the person proceeded against or his lawyer or

authorised representative, the offence, alleged to have

been committed by such person indicating the provisions

of the Act, rules or regulations in respect of which

contravention is alleged to have taken place.

(5) The adjudicating officer shall then give an

opportunity to such person to produce such documents

or evidence as he may consider relevant to the inquiry

and if necessary the hearing may be adjourned to a

future date and in taking such evidence the adjudicating

officer shall not be bound to observe the provisions of

the Evidence Act, 1872 (11 of 1872)

Provided that the notice referred to in sub-rule (3), and

the personal 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

inquiry under this rule.

(6) While holding an inquiry under this rule the

adjudicating officer shall have the power to summon and

enforce the attendance of any person acquainted with

the facts and circumstances of the case to give evidence

or to produce any document which, in the opinion of the

adjudicating officer, may be useful for or relevant to, the

subject-matter of the inquiry.

(7) If any person fails, neglects or refuses to appear as

required by sub-rule (3) before the adjudicating officer,

the adjudicating officer may proceed with the inquiry in

the absence of such person after recording the reasons

for doing so.

1. Substituted for "and 15H" by the SEBI (Procedure for

Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Amendment Rules, 2006, w.e.f. 14-11-2006.

18

2. Substituted for "and 15H" by the SEBI (Procedure for

Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Amendment Rules, 2006, w.e.f. 14-11-2006.

3. Inserted for "and 15H" by the SEBI (Procedure for

Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Amendment Rules, 2006, w.e.f. 14-11-2006.

45.At the stage of Rule 3, the Board appoints an Adjudicating

Officer if it is of the opinion that there are grounds for adjudication

under any of the provisions in Chapter VIA of the SEBI Act. At this

stage, the Board only decides whether adjudication proceedings

should be initiated or not. The formation of opinion is not a formal

inquiry proceeding involving any person or persons against whom

inquiry is contemplated. The participation of the person against

whom inquiry is contemplated is not necessary. The Board forms

its opinion, based on whether there are prima facie materials or

grounds for initiation of inquiry. The opinion of the Board under

Section 3 has nothing to do with the outcome of the enquiry.

46.After the Board forms its opinion to appoint an Adjudicating

Officer, comes the next stage, which is the stage under Rule 4 of an

inquiry for adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F,

15G, 15H, 15I, 15J and 15HB whether any person has committed

contraventions as specified in those sections. The inquiry

commences with a Show Cause Notice calling upon the noticee to

show cause why an inquiry should not be held against him. The

Show Cause Notice has to specify the nature of offence alleged to

have been committed and the penalty proposed, to enable the

noticee to effectively reply to the show cause. A reading of Section

4(3) makes it clear that, if after considering the cause, if any shown

19

by the noticee, the Adjudicating Officer is of the opinion that an

inquiry should be held, he shall issue a notice fixing a date for

appearance of that person either personally or through his lawyer

or other authorised representative. The noticee is not required to

be heard personally or through lawyer before taking a decision to

proceed with an inquiry in respect of the contraventions alleged in

the Show Cause Notice. Decision to proceed or not to proceed with

the inquiry may be taken on the basis of the reply of the noticee to

the Show Cause Notice. Once it is decided to proceed with the

inquiry, an opportunity of personal hearing is mandatory. The

inquiry has to be conducted in accordance with law, in compliance

with the principles of natural justice.

47.In this case, the Board was of the opinion that there were

grounds for adjudication and accordingly appointed Adjudicating

Officer. Adjudicating Officer issued Show Cause Notice to the

Petitioner to which the Petitioner gave a preliminary reply and

thereafter sought documents as observed above. Inspection of

some documents was permitted. After considering the reply, the

Adjudicating Officer was of the opinion that inquiry should be held.

Accordingly, a notice fixing a date for appearance was issued.

There was no procedural irregularity, at least till the stage of notice

fixing a date of hearing.

48.In Course of argument before the High Court, counsel for the

Respondent SEBI made a statement that SEBI would not rely on

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any document apart from those which had been provided to the

Petitioner.

49.It is well settled that the documents which are not relied

upon by 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

suggests that there is no duty of disclosure of all the

documents in possession of the Adjudicating Authority

before forming an opinion that an inquiry is required to

be held into the alleged contraventions by a noticee.

Even the principles of natural justice and concept of

fairness do not require the statute and the Rules to be so

read. Any other interpretation may result in defeat of the

very object of the Act. Concept of fairness is not a one way

street. The principles of natural justice are not intended to

operate as roadblocks to obstruct statutory inquiries. Duty

of adequate disclosure is only an additional procedural

safeguard in order to ensure the attainment of the

fairness and it has its own limitations. The extent of its

applicability depends upon the statutory framework.”

50.The High Court rightly did not interfere with the proceedings

at the stage of the Show Cause Notice. The Petitioner has

apparently been permitted to inspect the opinion formed under

Rule 3 of the SEBI Adjudication Rules. There is apparently no rule

which requires SEBI to furnish the opinion under Rule 3 to the

noticee in its entirety. The documents relied upon for formation of

opinion under Rule 3, are not required 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, based on any materials

not supplied to the Petitioner, or any prejudice is demonstrated to

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have been caused to the Petitioner, it would be open to the

Petitioner to approach the appropriate forum.

51.This Court has by its interim order dated 27

th

September 2021

permitted Respondent SEBI to hold the inquiry, without relying

upon any documents, not supplied to the Petitioner. The interim

order will govern the inquiry.

52.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.

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

dismissed.

….……………………………………. J.

[INDIRA BANERJEE]

………..……………………………… J.

[A. S. BOPANNA]

NEW DELHI

SEPTEMBER 14, 2022

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