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TMI Blog2024 (3) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... of based upon the RUDs and the non-RUDs already furnished to the petitioners. In T. Takano [ 2022 (2) TMI 907 - SUPREME COURT] relied upon by the petitioners, the Hon'ble Supreme Court has held that it could not be oblivious to the wide range of sensitive information that the investigation report submitted under Regulation 9 of the SEBI Regulations may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The Court held that the report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities marker. Therefore, the Court held that the requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or regards the dealings of third parties. The investigating authority may acquire information of a sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected. In T. Takano, the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed of by reference to the documents furnished to the petitioners, suggests sufficient transparency and fairness. The petitioners must join the adjudication process and not delay the same. This clarification is necessary because Ms Desai, at the stage of admitting these petitions, has made a statement that final orders will not be made without the leave of this Court. All these civil applications are disposed of. - M. S. SONAK VALMIKI SA MENEZES, JJ. For the Applicants : Mr Darius Khambata, Senior Advocate (thru VC), Mr Raghan Shankar (thru VC), Mr Parag Rao, Ms Shambhavi Rao, Mr Rajendra Barot (thru VC), Mr Suresh Varanasi (thru VC), Mr Dhirajkumar Totala (thru VC), Mr Sagnik Chatterjee (thru VC), Ms Harsha Uppal (thru VC), Ms Vasudha Jain, Mr Ajay Menon, Ms Gunjan Pande (thru VC), Mr Rohan Satija (thru VC), Mr Ajay Raj (thru VC), Advocate For the Respondent No. 1 in all the applications . : Mr Pravin Faldessai, Deputy Solicitor General with Mr Raviraj Chodankar, Central Government Standing Counsel. For the State in MCA No. 132/2024 : Mr N. Vernekar, Additional Government Advocate. For the State in MCA No. 131/2024 136/2024 : Ms M. Correia, Additional Government Advocate. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice dared 27.09.2023 until full and complete inspection of all documents sought for by the petitioners is not provided; (ii) For a direction to respondent nos. 6 and 8 to provide complete inspection of all documents pertaining to the investigation initiated against the petitioners including but not limited to the documents sought for by the petitioners in paragraphs 28 and 29 of the application. 6. Paragraphs 28 and 29 of the civil application refer to the documents sought by the petitioners and, therefore, the said paragraphs are transcribed below for the convenience of reference: - 28. As evidenced hereinabove, Petitioner No. 1 has made several requests and sought inspection of all documents pertaining to the investigation from Respondent Nos. 6 and 8, including but not limited to the investigation report referred to and/or relied upon during the course of the investigation; the office files as maintained by Respondent No. 6; opinions, internal notes, reports whether referred to and/or relied upon during the course of the investigation or otherwise, during the process of forming the contents of the Impugned SCN and/or referred to by Respondent No. 6 during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause notices as well the returns filed on behalf of the respondents, it is apparent that the specific intelligence developed had culminated into an investigation report. Based upon this investigation report, the impugned show cause notices came to be issued to the petitioners. Relying on T. Takano V/s. Securities and Exchange Board of India and Anr. (2022) 8 SCC 162,. Mr Khambata submitted that the petitioners were entitled to a copy of such investigation report and that the failure to furnish the same would violate principles of natural justice and fair play. He, therefore, submitted that necessary directions ought to be issued to the respondents to furnish their investigation report. 12. Mr Khambata submitted that assuming this intelligence report contained any sensitive information affecting the commercial interests of third parties, the same could always be redacted and furnished to the petitioners. However, refusing to furnish the investigation report would amount to a breach of the principles of natural justice, thereby denying the petitioners an effective opportunity to deal with the impugned show cause notices. 13. Mr Khambata submitted that the petitioners should also be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also furnished to the petitioners. She submitted that a statement has been made in the reports that show cause notices would be decided on the basis of the documents furnished/non-furnished to the petitioners. Accordingly, she submitted that there was no breach of whatsoever of the principles of natural justice and fair play. 18. Ms Desai submitted that the petitioners were avoiding stating the precise documents/information they required and, therefore, applications were extremely vague. She submitted that all this was an attempt to avoid/delay the adjudication proceedings. She referred to certain paragraphs of Takano (supra) to point out how there was no obligation to disclose sensitive information affecting the commercial rights of the other party or the requirement of compliance with the principles of natural justice does not encompass the right to a roving disclosure on matters unconnected or as regards the dealings of third parties. 19. Ms Desai relied on Jagannathdham Superstructures Pvt. Ltd. V/s. Deputy Director, Directorate General of Goods and Service Tax Intelligence and Anr. 2023 SCC OnLine Ori 6964 to submit that mere issuance of show cause notices does not mean that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and on other entities in the securities market, which might affect third-party rights. The Court held that the report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities marker. Therefore, the Court held that the requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or regards the dealings of third parties. The investigating authority may acquire information of a sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected. 26. In T. Takano (supra), the Hon'ble Supreme Court relied upon Natwar Singh (supra), wherein it was observed that there are exceptions to the general rule of disclosing evidentiary material. The Court held that such exceptions can be invoked if the disclosure of material causes harm to others, is injurious to public health or breaches confidentiality. The Court held that while identifying the purpose of disclosure one of the cruci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon in the show cause notice have already been furnished to the petitioners. Further, it was stated that even non-RUDs were retrieved by the petitioners from respondent no. 6's office on 18.12.2023. Response, however, states that the source of information/identity of the informants cannot be disclosed. Still, the gist of information was already provided in paragraph 2 of the impugned show cause notices. 31. Since the above response in Ritesh Kumar's affidavit filed on 04.03.2024 was not very clear whether specific intelligence referred to any intelligence or investigation reports, at the request of Ms Desai, the matter was adjourned from 06.03.2024 to 12.03.2024 to enable the respondents to file an additional affidavit on this issue. 32. In the additional affidavit filed by Mr S. Shuhab Peera, dated the deponent has made the following statements in paragraphs 3 and 4:- 3. The petitioner is seeking inspection of intelligence/investigation file without specifying any document. In this regard, it is submitted that the file contains sensitive information such as the source of intelligence, business and commercial interests of the third parties etc. which cannot be disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and unclear. 36. T. Takano (supra) provides that a quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication. A mere ipse dixit of the authority that it has not relied on certain material would not exempt it from its liability to disclose such material if it is relevant to and has a nexus to the action taken by the authority. Thus, the actual test is whether the material that is required to be disclosed is relevant for the purpose of adjudication. If so, then the principles of natural justice require its due disclosure. 37. If, as stated in paragraph 4 transcribed above, on conclusion of investigation proceedings, the investigation team indeed prepared investigation report, and further it is on acceptance of the same by the competent authority that the show cause notices were issued, then subject to exceptions being made out by the respondents, copy of such investigation report should be furnished to the petitioners. If such an investigation report contains sensitive information regarding the identity of the sources or regarding third parties and unrelated transactions, respondents can always furnish such investigation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to show the reasoning behind engaging Indian Statistical Institute, Hyderabad (ISI) . 41. In any case, paragraph 7.3.5.4 of the impugned show cause notices clearly states that since the data available on a private website was submitted without any regulatory and statutory backing, in order to verify the fairness and correctness of the House Advantages furnished by M/s Delta; and also for suggesting any better methodology for arriving at the 100% of the face value of bet (gross bet value) than the methodology proposed by M/. Delta, the services of Indian Statistical Institute (ISI) were obtained . 42. Paragraph 7.3.5.4 of the impugned show cause notices further states that the Indian Statistical Institute (ISI) is an institute of high repute and a public university public university recognised as an Institute of National Importance by the 1959 Act of the Indian Parliament. The relevant extracts from the report submitted by ISI were also transcribed in the impugned show cause notices. 43. Thus, the reasons for engaging ISI were clearly disclosed to the petitioners. Still, the petitioners insist they be informed of the reason for engaging ISL. This does not appear to be proper. B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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