2022 (8) TMI 423 - SC - SEBI

Offence under SEBI - Period of limitation - Whether this appeal is maintainable? - HELD THAT - Any limitation prescribed under Section 468 of CrPC can be overlooked if sufficient cause is made out in the facts and circumstances of the individual case in the interest of justice. The said provision, while trying to balance public interest in initiating criminal prosecutions, has been restricted to peculiarities of individual case while clothing the Court with discretionary power. Such a discretion vested in the Court ought to be a principled exercise, wherein the facts and circumstances portrayed justify such an exercise. The intention of the aforesaid provision is to make the inquiry a question of fact and not of untrammelled discretion as to whether in a particular case, the Court should condone the delay. The High Court is bound to consider the facts of the present case concerning the modus of initiation of the case and other factors, before considering the aspect of condonation of delay in terms of Section 473 of CrPC. The approach of the High Court of adjourning adjudication of the interim application seeking disclosure of documents cannot be appreciated. Ideally, the High Court ought to have considered the interim application before dealing with the limitation aspect. Initiation of criminal action in commercial transactions, should take place with a lot of circumspection and the Courts ought to act as gate keepers for the same. Initiating frivolous criminal actions against large corporations, would give rise to adverse economic consequences for the country in the long run. Therefore, the Regulator must be cautious in initiating such an action and carefully weigh each factor. In ordinary course, this Court would have remanded the matter for adjudication by the High Court on the interim application moved by the appellant seeking such disclosure. However, arguments have been extensively advanced before this Court touching upon important aspects of criminal jurisprudence which require consideration. Moreover, the facts stated above, clearly indicate that the acts which are sought to be prosecuted go back to the year 19921994, and over three decades have passed without there being any end to the litigation. In this regard, the Court intends to examine this important issue and pass appropriate orders to ensure that the adjudication is not delayed unnecessarily, ad infinitum. Whether SEBI is required to disclose documents in the present set of proceedings? - whether the interim application seeking documents, filed by the appellant herein deserves to be allowed in the instant case? - In this case, the appellant has been pursuing SEBI for these documents as they believe that an attempt is being made by SEBI to suppress the Opinions and Reports as they are adverse to the cause of SEBI. A cursory glance at the background of the matter would reveal that initially, a complaint was submitted to SEBI on 21.01.2002, wherein the appellant and its directors were purportedly involved in irregularities in allotment of NonConvertible Debentures in the year 1994. Accordingly, an Investigation Report was submitted by the Investigating Authority on 04.02.2005. SEBI in its counteraffidavit has admitted that the aforesaid Report was inconclusive and recommended further enquiry in this regard. SEBI is a regulator and has a duty to act fairly, while conducting proceedings or initiating any action against the parties. Being a quasijudicial body, the constitutional mandate of SEBI is to act fairly, in accordance with the rules prescribed by law. The role of a Regulator is to deal with complaints and parties in a fair manner, and not to circumvent the rule of law for getting successful convictions. There is a substantive duty on the Regulators to show fairness, in the form of public cooperation and deference. The duty to act fairly by SEBI, is inextricably tied with the principles of natural justice, wherein a party cannot be condemned without having been given an adequate opportunity to defend itself. 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. It is of utmost importance that in a country grounded in the Rule of Law, institutions ought to adopt procedures that further the democratic principles of transparency and accountability. Principles of fairness and transparency of adjudicatory proceedings are the cornerstone of the principles of open justice. Even for adjudication of condonation of delay under Section 473, CrPC, the modus of initiation of criminal complaint and the conclusions reached therein are relevant in the facts and circumstance of the case. The simple test in this case is whether SEBI has launched the prosecution on the basis of the investigation report alone. The answer seems to be No by SEBI s own admission in its reply where it states that the investigation report was inconclusive and hence further scrutiny of the transactions by experts was called for. That being the case, further Reports and opinions obtained, from whomsoever it may be, are only an extension of the investigation to help SEBI as a Regulator to ascertain the facts and reach conclusions for prosecution or otherwise. We do not agree with the contention of the learned Senior Counsel for SEBI that the first opinion of Justice (Retd.) B. N. Srikrishna is covered by legal privilege under Section 129 of the Evidence Act. Same is the case with the second opinion of Justice (Retd.) B. N. Srikrishna and the Report of Sh. Y. H. Malegam, which are nothing but a continuation of the fact finding exercise undertaken by SEBI to determine culpability. Thus we are of the firm opinion that the defence taken by SEBI that they need not disclose any documents at this stage as such a request is premature in terms of the CrPC, cannot be sustained. SEBI s attempt to cherrypick the documents it proposes to disclose - There is a dispute about the fact that certain excerpts of the opinion of Justice (Retd.) B. N. Srikrishna, were disclosed to the appellant herein. It is the allegation of the appellant that while the parts which were disclosed, vaguely point to the culpability of the appellant, SEBI is refusing to divulge the information which exonerate it. Such cherrypicking by SEBI only derogates the commitment to a fair trial.. In the case at hand, SEBI could not have claimed privilege over certain parts of the documents and at the same time, agreeing to disclose some part. Such selective disclosure cannot be countenanced in law as it clearly amounts to cherrypicking. Appeal allowed.

Summary

Issues Involved:
1. Maintainability of the appeal.
2. Requirement for SEBI to disclose documents in the present set of proceedings.

Detailed Analysis:

Issue I: Maintainability of the Appeal

24. The respondents challenged the maintainability on two grounds: the impugned order is a mere adjournment order, and no criminal complaint exists to seek document disclosure as the trial Court dismissed SEBI's complaint on the ground of delay. The appellant argued that the High Court was not justified in adjourning the case after extensive hearings.

25. The dispute pertains to events from 1994, with the initial complaint filed in 2002 and noted to be closed by SEBI's Legal Affairs Department in 2006. The Ministry of Corporate Affairs also found no violation of Section 77 of the Companies Act, 1956. The re-examination by SEBI should only proceed after providing the accused an opportunity to defend.

26. SEBI's complaint was dismissed by the SEBI Special Court on limitation grounds. SEBI filed a Criminal Revision Application seeking to quash the dismissal and issue process against the accused. SEBI's revision petition included grounds on merits, suggesting the High Court should have considered the interim application before addressing the limitation aspect.

27. Section 473 of CrPC allows for the extension of the period of limitation if the delay is properly explained or necessary in the interests of justice. The High Court should consider the facts and circumstances before deciding on the condonation of delay.

28. The High Court's approach of adjourning the interim application seeking document disclosure is not appreciated. The High Court should have considered the interim application before dealing with the limitation aspect.

29. Initiating criminal action in commercial transactions should be done with circumspection. Frivolous criminal actions against large corporations can have adverse economic consequences. The Regulator must weigh each factor carefully.

30. Although ordinarily the matter would be remanded for adjudication by the High Court, the extensive arguments and the long history of the case necessitate this Court to examine the issue and pass appropriate orders to prevent unnecessary delays.

Issue II: Requirement for SEBI to Disclose Documents

31. The appellant sought documents which SEBI refused, claiming legal privilege and prior rejection by the High Court during settlement proceedings.

32. The appellant's request for documents during settlement proceedings was rejected by SEBI under Regulation 13(2) of the Settlement Regulations. The High Court upheld this rejection, noting the lack of a right to such documents under the regulations.

33. SEBI's reliance on Regulation 29 of the Settlement Regulations to claim confidentiality is misplaced as it pertains to the non-reliance on proposals or information submitted during settlement if the settlement fails, not to SEBI's disclosure obligations.

34. The settlement proceedings were terminated, and SEBI initiated a criminal complaint. The objection of res judicata regarding document disclosure is not valid.

35. SEBI, as a regulator, must act fairly and transparently. The duty to act fairly is tied to natural justice principles, ensuring the accused has an adequate opportunity to defend.

36. The appellant has been pursuing SEBI for documents, believing SEBI is suppressing opinions and reports adverse to SEBI's cause.

37. The initial investigation report by SEBI in 2005 was inconclusive. SEBI sought further opinions and reports, forming the basis for action against the appellant.

38. SEBI's refusal to disclose documents violates the appellant's right to natural justice. The principles of fairness and transparency are essential for a fair trial.

39. The respondents' claim of litigation privilege under Section 129 of the Evidence Act is not applicable as SEBI's investigation report was inconclusive, and the further opinions and reports are part of the investigation.

40. SEBI's selective disclosure of documents amounts to cherry-picking, which is not permissible in law.

41. The appeal is allowed, and SEBI is directed to furnish the following documents to the appellant:

(i) First opinion of Justice (Retired) B.N. Srikrishna

(ii) Report of Y.H. Malegam

(iii) Second opinion of Justice (Retired) B.N. Srikrishna