# RELIANCE INDUSTRIES LIMITED v. SECURITIES AND EXCHANGE BOARD OF INDIA & ORS

- **Citation:** [2022] 15 S.C.R. 730
- **Court:** Supreme Court of India
- **Decided:** 2022-08-05
- **Case number:** Criminal Appeal No. 1167 of 2022
- **Bench:** N. V. Ramana, J. K. Maheshwari, Hima Kohli
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-industries-limited-v-securities-and-exchange-board-of-india-ors-35662
- **Pages:** 30

## Headnote

Companies Act, 1956 - s.77 - Non-disclosure of information
by SEBI - SEBI directed to act fairly - Complaint was filed with
SEBI against RIL & its associate companies and its directors alleging
that they fraudulently allotted 12 crore equity shares of RIL to entities
purportedly connected with RIL - Investigation Report was submitted
by the Investigating Authority on 04.02.2005 - SEBI in its counter
affidavit admitted that the aforesaid report was inconclusive and
recommended further enquiry in this regard - SEBI approached a
retired judge in the year 2009 to give his opinion on the possibility
of initiating criminal proceedings against RIL - The Retired Judge
gave his first opinion which formed the basis of initiating action
against the appellant - SEBI sent a letter to RIL alleging that RIL
had funded purchase of its own shares by 38 related entities and
thereby violated s.77 (2) of the Act and consequently violated
Regulations 3, 5 and 6 of the SEBI Regulations,1995 - RIL
addressed letters to SEBI requesting for copies of documents - SEBI
refused to furnish copy of opinion of Retired Judge stating that it is
privileged & confidential in nature - On 29.09.2011 RIL filed
settlement application before SEBI - SEBI sought opinion of Retired
Judge for the second time who wrote back to SEBI to consult
Chartered Accountant - This culminated in second opinion of Retired
Judge - Appellant sought further material in connection with
settlement application - SEBI rejected request for disclosure of
documents - Appellant filed writ petition before High Court that
was dismissed - SEBI filed complaint in the court of Special Judge
- Special Judge dismissed the complaint as being barred by limitation
- SEBI filed Criminal Revision Application before High Court - In
the aforesaid proceeding appellant filed interim application seeking
documents - The High Court stated that the interim application will
be heard along with main Revision Application - On appeal, held :
[2022] 15 S.C.R. 730
730
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SEBI's action to initiate a criminal complaint without providing the
appellant an adequate opportunity to defend itself by releasing
necessary Reports and other documents is gross violation of the
appellant's right to natural justice - The objection of SEBI that the
issue of disclosure of documents is res judicata as the same was
disallowed by the High Court in the earlier round of litigation,
cannot be sustained in the eyes of law - The first opinion of the
Retired Judge is not covered by 'legal privilege' u/s.129 of Evidence
Act - The second opinion and the Report of Chartered Accountant
are nothing but a continuation of the fact finding exercise
undertaken by SEBI to determine culpability - SEBI's attempt to
cherrypick the documents, it proposes to disclose, derogates the
commitment to a fair trial - The respondents were directed to furnish
copy of the above referred documents to appellant - Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 1995 -
Regulation 3,5,6 - Securities and Exchange Board of India
(Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 - Rule 4 - SEBI Takeover
Regulations - Regulation 11(1) - Securities and Exchange Board
of India (Settlement Proceedings) Regulations, 2018 - Regulation
13(2)(a),29 - Securities and Exchange Board of India (Prohibition
of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003.
Role of Regulator - Duty to act fairly - SEBI is a regulator
and has a duty to act fairly, while conducting proceedings or
initiating any action against the parties - Being a quasi-judicial
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

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RELIANCE INDUSTRIES LIMITED
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ORS.
(Criminal Appeal No. 1167 of 2022)
AUGUST 05, 2022
[N. V. RAMANA, CJI, J. K. MAHESHWARI AND
HIMA KOHLI, JJ.]
Companies Act, 1956 - s.77 - Non-disclosure of information
by SEBI - SEBI directed to act fairly - Complaint was filed with
SEBI against RIL & its associate companies and its directors alleging
that they fraudulently allotted 12 crore equity shares of RIL to entities
purportedly connected with RIL - Investigation Report was submitted
by the Investigating Authority on 04.02.2005 - SEBI in its counter
affidavit admitted that the aforesaid report was inconclusive and
recommended further enquiry in this regard - SEBI approached a
retired judge in the year 2009 to give his opinion on the possibility
of initiating criminal proceedings against RIL - The Retired Judge
gave his first opinion which formed the basis of initiating action
against the appellant - SEBI sent a letter to RIL alleging that RIL
had funded purchase of its own shares by 38 related entities and
thereby violated s.77 (2) of the Act and consequently violated
Regulations 3, 5 and 6 of the SEBI Regulations,1995 - RIL
addressed letters to SEBI requesting for copies of documents - SEBI
refused to furnish copy of opinion of Retired Judge stating that it is
privileged & confidential in nature - On 29.09.2011 RIL filed
settlement application before SEBI - SEBI sought opinion of Retired
Judge for the second time who wrote back to SEBI to consult
Chartered Accountant - This culminated in second opinion of Retired
Judge - Appellant sought further material in connection with
settlement application - SEBI rejected request for disclosure of
documents - Appellant filed writ petition before High Court that
was dismissed - SEBI filed complaint in the court of Special Judge
- Special Judge dismissed the complaint as being barred by limitation
- SEBI filed Criminal Revision Application before High Court - In
the aforesaid proceeding appellant filed interim application seeking
documents - The High Court stated that the interim application will
be heard along with main Revision Application - On appeal, held :
[2022] 15 S.C.R. 730
730
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SEBI's action to initiate a criminal complaint without providing the
appellant an adequate opportunity to defend itself by releasing
necessary Reports and other documents is gross violation of the
appellant's right to natural justice - The objection of SEBI that the
issue of disclosure of documents is res judicata as the same was
disallowed by the High Court in the earlier round of litigation,
cannot be sustained in the eyes of law - The first opinion of the
Retired Judge is not covered by 'legal privilege' u/s.129 of Evidence
Act - The second opinion and the Report of Chartered Accountant
are nothing but a continuation of the fact finding exercise
undertaken by SEBI to determine culpability - SEBI's attempt to
cherrypick the documents, it proposes to disclose, derogates the
commitment to a fair trial - The respondents were directed to furnish
copy of the above referred documents to appellant - Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 1995 -
Regulation 3,5,6 - Securities and Exchange Board of India
(Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995 - Rule 4 - SEBI Takeover
Regulations - Regulation 11(1) - Securities and Exchange Board
of India (Settlement Proceedings) Regulations, 2018 - Regulation
13(2)(a),29 - Securities and Exchange Board of India (Prohibition
of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003.
Role of Regulator - Duty to act fairly - SEBI is a regulator
and has a duty to act fairly, while conducting proceedings or
initiating any action against the parties - Being a quasi-judicial
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.
Doctrines/Principles - Principles of Natural Justice -
Discussed.
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Company Law - Criminal action - Initiation of criminal action
in commercial transactions - It should take place with a lot of
circumspection & 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 - Regulator must be cautious in initiating such an
action and carefully weigh each factor.
Trial - Transparency and fair trial - Opaqueness only
propagates prejudice and partiality - Opaqueness is antithetical to
transparency - 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.
Evidence Act, 1872 - s.129 - Litigation Privilege - Legal
privilege not applicable to legal opinion used by SEBI to initiate
prosecution, as such opinion is part of investigation.
Code of Criminal Procedure, 1973 - Condonation of delay -
Sec 473 is categorical in stating that any limitation prescribed u/s.
on 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 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.
Doctrines/Principles - Cherry picking principle - Selective
disclosure is countenanced in law as it amounts to cherry-picking.
Criminal Law - Difference between Legal advice privilege
and litigation privilege - Discussed.
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Allowing the appeal, the Court
HELD: 1.1 SEBI is a regulator and has a duty to act fairly,
while conducting proceedings or initiating any action against the
parties. Being a quasi-judicial 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 co-operation
and deference. [Para 42][751-C-D]
1.2 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. [Para 43][751-D-E]
2. The appellant has pressed into service the ratio laid down
by this Court in Takano case,to seek document disclosure. On
the other hand, the respondents have tried to distinguish the
present case by stating that the present case is not one of
disclosure which is being sought during investigation by SEBI
under the Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations, 2003. Although the Court agree with the
respondents that the Takano Case was rendered under the
aforesaid Regulations, however, the Court was of the opinion that
the reasoning of this Court alludes to a general obligation of
disclosure on the part of SEBI. This Court has held in the Takano
Case that three fundamental purposes of disclosure of information
are (i) reliability, i.e., the Court will be able to perform its function
accurately only if both parties have access to information and
possess opportunity to address arguments and counter
arguments; (ii) fair trial, i.e., this will enable the parties to
effectively participate in the proceedings; and (iii) transparency
and accountability, i.e., the investigative agencies are held
accountable through transparency and not opaqueness. [Para
44][752-B-E]
3. The impugned action of the appellant hails back to the
year 1994, and almost three decades have gone by without there
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being any light at the end of the tunnel. The investigation report
by SEBI in 2005 was inconclusive about the alleged offence.
There is even a communique by the Minister of Corporate Affairs,
Union of India recommending closure of the case as they found
nothing to further the prosecution under Section 77 of the
Companies Act, 1956. In this light, SEBI's action to initiate a
criminal complaint without providing the appellant an adequate
opportunity to defend itself by releasing necessary Reports and
other documents, cannot be appreciated by this Court as it is in
gross violation of the appellant's right to natural justice. [Para
45][764-B-D]
4. Indian position seems to be different from England.
Section 126 to 129 of the Evidence Act do not draw any distinction
between adversarial and investigative litigation as such, and
privilege is applicable all through. This aspect is crucial, as it
touches on the foundations of the legal profession at large in India.
This Court does not want to express any opinion in this regard
as the case at hand is different and such an issue does not arise,
for the following reasons:
i. The investigation report was inconclusive, as admitted
by SEBI itself.
ii. Instead of SEBI referring the issue to an expert, it could
have undertaken the exercise of further investigation by itself,
which was not done.
iii. SEBI ultimately took further steps, only because of the
first opinion of retired judge.
iv. The first opinion of retired judge is a part and parcel of
the investigation and documents connected therewith.
v. Moreover, certain documents have already been
disclosed to the appellant herein. [Para 53][757-A-E]
5. 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
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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. [Para
54][757-E-F]
6. This Court does not agree with the contention of the
Senior Counsel for SEBI that the first opinion of retired judge is
covered by 'legal privilege' under Section 129 of the Evidence
Act. Same is the case with the second opinion of retired judge
and the Report of Chartered Accountant, which are nothing but a
continuation of the fact- finding exercise undertaken by SEBI to
determine culpability. [Para 55][757-F-H]
7. The Senior counsel appearing for SEBI has pointed out
that the present set of proceedings have emanated before Criminal
Court, wherein the procedures must be strictly in accordance
with the provisions of CrPC. He states that the stage of document
production under the CrPC is provided under Section 207 and
208, which takes place after cognizance is taken by the
Magistrate. Observing the facts and circumstances of this case,
which have been adumbrated above, the Court was 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 pre-mature in
terms of the CrPC, cannot be sustained. [Para 56][757-H; 758E]
8. Another disconcerting aspect of this case that comes to
the fore is SEBI's attempt to cherry-pick the documents it
proposes to disclose. There is a dispute about the fact that certain
excerpts of the opinion of retired judge, were disclosed to the
appellant. 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 cherry-picking 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 cherry-picking. [Paras 57 & 58][758-F-G; 759-C]
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9.The Court allows the present appeal and direct the
respondents to furnish a copy of the following documents to the
appellant forthwith:-
(i) First opinion of the retired Judge
(ii) Report of Chartered Accountant
(iii) Second opinion of retired judge. [Para 59][759-D]
State Bank of Patiala v. SK Sharma (1996) 3 SCC 364
: [1996] 3 SCR 972; T. Takano v. Securities and
Exchange Board of India 2022 SCC Online SC 2022
(3) SCALE 585; S. P. Velumani v. Arappor Iyakkam
2022 SCC Online SC 663 - relied on.
Three Rivers District Council and Others (Respondents)
v. Governor and Company of the Bank of England
(Appellants) [2004] UKHL 48; In Re K (Infants) [1965]
AC; In Re E (S.A.) (a Minor) (Wardship: Court's Duty)
[1984] 1 WLR 156; Nea arteria Maritime Co Ltd v.
Atlantic and Great Lakes Steamship Corporation [1981]
Com LR 138 at 139 - referred to.
Case Law Reference
[1996] 3 SCR 972
relied on
Para 43
2022 (3) SCALE 585
relied on Para 21
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
1167 of 2022.
From the Judgment and Order dated 28.03.2022 of the High Court
of Judicature at Bombay in Criminal Interim Application No. 1945 of
2021 in Criminal Revision Application No. 209 of 2020.
Harish N. Salve, K.V. Vishwanathan, Amit Desai, Sr. Advs., K.
R. Sasiprabhu, Rohan Shah, Raghav Shankar, Amey Nabar,
Gopalakrishna Shenoy, Ms. Drishti R. Vishnu Sharma A. S.,
Venkataraman, Advs. for the Appellant.
Arvind P. Datar, Sr. Adv., Suraj Chaudhary, Dhaval Mehrotra,
Sudhanshu Sikka for M/s K Ashar & Co., Advs. for the Respondents.
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The Judgment of the Court was delivered by
N. V. RAMANA, CJI
1. Leave granted.
2. This appeal is filed against the impugned order dated 28.03.2022,
passed by the High Court of Judicature at Bombay in Criminal Interim
Application No. 1945 of 2021 in Criminal Revision Application No. 209
of 2020.
3. Brief facts necessary for disposal of this appeal are that a
complaint was filed on 21.01.2002 by one Shri S. Gurumurthy, with the
Securities and Exchange Board of India [for short 'the SEBI'] against
Reliance Industries Ltd. [for short 'RIL'], its associate companies and
its directors, alleging that they fraudulently allotted 12 crore equity shares
of RIL to entities purportedly connected with the promoters of RIL,
which were funded by RIL and other group companies in 1994. It was
alleged that the company and its directors were in violation of Section 77
of the Companies Act, 1956. Based on the aforesaid complaint, the SEBI
appointed an investigating officer to inquire into the aforesaid complaint.
Accordingly, a report was submitted by the said investigating officer on
04.02.2005.
4. It may be necessary to note that SEBI chose not to take any
action with respect to the aforesaid letter. The appellant alleged that a
note was prepared by the Legal Affairs Department of the SEBI on
17.05.2006, wherein it was noted that the report had not brought out any
specific violation of any legal provision by RIL. However, the note was
said to have observed that there was requirement of an opinion by an
external expert inter alia on the possibility of initiating appropriate criminal
proceedings against RIL. In this context, a retired Judge of this Court,
Justice (Retd.) B.N. Srikrishna was approached by SEBI for the same.
The learned retired Judge is stated to have given his first opinion to
SEBI, which was divulged by SEBI in parts, to the appellant herein.
5. On 16.04.2010, SEBI sent a letter to RIL alleging that RIL had
funded purchase of its own shares by 38 related entities and thereby
violated Section 77 (2) of the Companies Act, 1956 and consequently,
violated Regulations 3, 5 and 6 of the Securities and Exchange Board of
India (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 1995. RIL, in reply, addressed numerous
letters to SEBI requesting for copies of the documents and submitting
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inter alia that the issue concerning violation of Section 77 of the
Companies Act, 1956 was examined by the Ministry of Corporate Affairs
which had concluded that the transaction was compliant with the
applicable law.
6. In any case, the Adjudicating Officer of SEBI issued a show
cause notice to the promoters of RIL under Rule 4 of the Securities and
Exchange Board of India (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 alleging violation of
Regulation 11(1) of the SEBI Takeover Regulations (as it then stood).
7. It is borne out from the records that an Office Memorandum
dated 18.7.2011 was issued by the Ministry of Corporate Affairs wherein
it was noted that provisions under Section 77 of the Companies Act,
1956 was not attracted.
8. When the matter stood thus, on 29.09.2011, RIL filed a
settlement application before SEBI, without prejudice to its rights, in
order to put a quietus to the aforesaid issue which had taken place many
years ago.
9. In any case, SEBI issued a letter dated 23.04.2014, answering
the request of documents sought by the appellant herein in the following
manner:
"With regard to the documents/information sought in paragraphs
5(a) to (d) of the said letter, SEBI's response is as under:
1. Request 5(a): The copy of the opinion received by SEBI on
June 11, 2009 from a retired judge of the Hon'ble Supreme
Court of India cannot be provided since it is privileged and
confidential in nature.
2. Request 5(b): a copy of the case for opinion provided by SEBI
to the Hon'ble retired judge for seeking the opinion is enclosed.
3. Request 5(c): A copy of the communication from Ministry of
Corporate Affairs dated February 7, 2012 and dated September
1, 2011 forwarding letter dated July 18, 2011 is enclosed.
4. Request 5(d): A copy of the relevant opinion/views dated April
6, 2006, June 11, 2009 and August 25, 2010 of the legal
department of SEBI are enclosed."
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10. It is a matter of record that in the year 2017-18, the SEBI
decided to re-examine the issue and accordingly sought advice of Justice
(Retd.) B.N. Srikrishna for the second time. Justice (Retd.) B.N.
Srikrishna addressed a letter dated 26.07.2017 to the SEBI in the following
manner:
"Considering the importance of the matter I am of the view that
some very senior person should be consulted in this matter.
I would suggest SEBI to approach Mr. Y.H. Malegam, Chartered
Accountant, who may be consulted in this matter. He is a person
of high standing and great repute. In my opinion, he would be the
most appropriate person to advise us as to whether the monies
transferred to RUPL and RPTL were towards project advances
and other charges or were merely round tripping.
You may depute one senior person to meet him and discuss with
him the facts. It would enable him to take a view in the matter
and make a report to you. After the report of Mr. Malegam is
received, you may further discuss the matter with me."
11. It is stated by the appellant that Mr. Y.H. Malegam, Chartered
Accountant examined the records of RIL and various other companies
and submitted his report to SEBI.
12. Based on the report of Mr. Y.H. Malegam, an opinion was
sought from the learned retired Judge for the second time.
13. On 21.01.2019, the appellant addressed a letter to SEBI seeking
further material in connection with the pending settlement application in
the following manner:
"Accordingly, we request SEBI to provide us inspection and copies
of the following in connection with the subject settlement:
(a) All further material collected by SEBI;
(b) Further internal reports and noting;
(c) Reports from external experts, including report from Shri Y.H.
Malegam, which was confirmed by the Committee as having
been received;
(d) Any further case for opinion and opinion obtained by SEBI."
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14. In reply, SEBI rejected the request for disclosure of the
documents in the following manner:
"With regard to your request for the said report, it may be noted
that no such report or other material as asked is asked (sic) is
made part of the pending settlement proceedings. Further, your
attention is drawn to Regulation 13(2)(a) of the SEBI (Settlement
Proceedings) Regulations, 2018, which reads as under:
"(a) Call for relevant information, documents etc., pertaining to
the alleged default(s) in possession of the applicant or obtainable
by the applicant;
Explanation - Nothing in these regulations shall confer a right
upon the applicant to seek information from the Board or require
the Board to seek information from any other person for the
purpose of relying upon it in the settlement proceedings or request
the Board to permit it to present information not already disposed
in the applicant, [Illegible] the applicant our (sic) aware of at the
time of making the application or which information upon diligent
enquiry being made could bare became known to the applicant."
In view of the same, I am directed to inform you that the request
for the said report and other material has not been acceded to."
15. Aggrieved by the aforesaid communication of the SEBI, the
appellant challenged the same before the High Court of Bombay in Writ
Petition (Lodg.) No. 300 of 2019. The High Court, vide order dated
04.02.2019, dismissed the aforesaid petition. It may not be out of context
to note that SEBI also rejected the supplementary application filed by
the appellant herein.
16. On 16.07.2020, SEBI filed a complaint in the Court of SEBI
Special Judge, Mumbai praying therein as under:
"(a) That this Hon'ble Court may be pleased to issue the process
against the accused for the continuing offences punishable under
Section 24(1) r/w Section 27 of the SEBI Act, 1992 as amended
in 2002, for having violated Regulations 3,5 and 6 of the SEBI
(PFUTP) Regulations 1995, Regulation 11 of the SEBI (SAST)
Regulations, 1997 and be further pleased to deal with the accused
in accordance with the law.
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(b) That this Hon'ble Court may be pleased to issue the process
against the accused for offences punishable under Sections 77(2)
and 77A r/w Section 55A of the Companies Act, 1956."
17. On 30.09.2020, the SEBI Special Court dismissed the complaint
filed by SEBI as being barred by limitation.
18. The aforesaid order has been challenged by SEBI in Criminal
Revision Application No. 209 of 2020 before the High Court of Bombay.
In the aforesaid proceedings, the appellant filed an application being IA
No. 1945 of 2021, seeking the following documents:
(i)
Report of Sh. Y.H. Malegam, Chartered Accountant.
(ii)
Brief for opinion / Case for opinion prepared by SEBI for
obtaining further written opinion of Hon'ble Mr. Justice (Retd.)
B.N. Srikrishna.
(iii) Revised written opinion issued by Hon'ble Mr. Justice (Retd.)
B.N. Srikrishna.
19. The High Court after extensively hearing the arguments on
the aforesaid application passed the impugned order on 28.03.2022 in
the following manner:
"5. At this stage, the prayer sought for in the Interim Application
cannot be considered without hearing the main Revision
Application. It is pertinent to note that the respondent No.1 -
SEBI i.e. original applicant in the Revision Application has filed
the aforesaid Revision Application seeking quashing and setting
aside of the impugned order dated 30th September, 2020, passed
by the learned SEBI Special Judge, City Civil and Sessions Court,
Greater Bombay, in SEBI Misc. Application No. 686 of 2020, by
which the learned Judge dismissed the Miscellaneous Application
No. 686 of 2020 (complaint) only on the ground, that it was barred
by limitation. Therefore, the question that arises in the Revision
Application is whether the complaint filed by SEBI was barred by
limitation or not.
6. In view of what is stated hereinabove, the Interim Application
will have to be heard alongwith the main Revision Application, on
the next date. It is made clear that all contentions of the parties in
the aforesaid Interim Application are kept open, including the
question of maintainability."
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20. Aggrieved by the aforesaid order, the appellant-RIL has filed
the present appeal.
21. Mr. Harish Salve, learned Senior counsel appearing on behalf
of the appellant contends:
i.
That the challenge to the maintainability of the present appeal
is misconceived. He stated that the interim application filed
for seeking documents was argued at length before the High
Court, which was ultimately not considered.
ii.
That the SEBI, being a regulator, has a duty to disclose
documents pursuant to Article 21. This constitutional mandate
has been accepted by this Court and has been applied to
SEBI in T. Takano v. Securities and Exchange Board of
India, 2022 SCC Online SC 210
iii.
SEBI cannot claim litigation privilege as the proceedings
are not adversarial in nature.
iv.
That the selective disclosure of excerpts of the opinion by
Justice (Retd.) B.N. Srikrishna, amounted to cherry picking
by SEBI which cannot be allowed. The accused is entitled
to the complete document to ensure a fair trial.
v.
That the action of SEBI of disclosing excerpts of the report
clearly amounts to waiver of litigation privilege claimed by
SEBI.
22. Mr. Arvind Datar, learned Senior Counsel appearing on behalf
of the respondents contends:
i.
That the present appeal is not maintainable as there is no
criminal complaint pending as on this date. The appellant
cannot seek documents in a criminal revision against
dismissal of the complaint on the ground of limitation.
ii.
The issue before the High Court was limited to the issue of
limitation and the attempt of the accused to expand the
proceedings to seek documents cannot be entertained.
iii.
That the impugned order was a mere adjournment order
which has not affected any rights of the accused. Therefore,
the appeal is not maintainable against such an adjournment
order.
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iv.
The law laid down in T. Takano v. Securities and
Exchange Board of India, 2022 SCC Online SC 210, is
not applicable to the present case as it was rendered in the
context of investigation under different Regulations.
v.
The documents are being sought at a pre-mature stage. If
cognizance is taken by the trial Court, the accused would
be entitled for the documents in terms of Section 207 of
CrPC. Any attempt to seek documents beyond the scope
of Section 207 CrPC cannot be accepted.
vi.
The opinion of the Retd. Judge and the report of the
Chartered Accountant are clearly covered as part of
litigation privilege in terms of the Indian Evidence Act. Such
opinions cannot be a matter of production by a party.
23. Having heard the parties at length and perusing the records,
the following questions arise for consideration:
i.
Whether this appeal is maintainable?
ii. Whether SEBI is required to disclose documents in the present
set of proceedings?
ISSUE I
24. At the outset, Mr. Datar, learned Senior Counsel appearing on
behalf of the respondents has challenged the maintainability of the present
appeal on two grounds namely: (1) that the impugned order is a mere
adjournment order against which this Court should not exercise its
discretionary jurisdiction; (2) that no criminal complaint exists, to seek
document disclosure as the trial Court had already dismissed SEBI's
complaint on the ground of delay. On the contrary, Mr. Harish Salve,
learned Senior Counsel appearing on behalf of the appellant has portrayed
that the High Court was not justified in adjourning a case after hearing
the parties on more than two occasions on the application.
25. The present dispute pertains to certain facts which took place
in 1992-1994, when the initial complaint was instituted before SEBI in
the year 2002, which is alleged to be closed by the note of the Legal
Affairs Department of SEBI dated 17.05.2006. Further, the letter of the
Ministry of Corporate Affairs dated 07.02.2012 also clarifies inter-alia,
that no violation of Section 77 of the Companies Act, 1956 was made
out, in the following manner:
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4. It has further been reported by the ROC that there was no
violation of Section 81(1A) of the Companies Act, 1956 in respect
of preferential allotment of shares. Also, there was no specific
guidelines for valuation or determination of premium in respect of
issue of convertible debentures at the relevant time. The
determination of premium was within the authority of the company
subject to compliance with Section 81(1A) which appears to have
been done.
5.MCA had conducted inspection of books of accounts of M/s.
Reliance Industries Ltd. in 2002 and for the various violations
reported in the inspection report, necessary penal action was
initiated as stated in para 2 and 3 above.
6. The inspection report of 2002 also revealed as follows:-
i.) Provision of Section 77 of the Act were not attracted in respect
of funds invested by the company in Somnath Syndicate, a
partnership firm in which company is a partner;
ii.) No funds was given by RIL to 34 entities to which NCDs
were allotted;
iii.) Ambanis were neither directors nor shareholders of the entities
to whom shares were allotted;
iv.) Ambanis were not allotted any shares pursuant to PPD-IV
issue.
7. In view of above, no action is required to be taken on the
part of Ministry of Corporate Affairs.
(Emphasis supplied)
In this context, the re-examination of the complaint by SEBI
ought to happen only after providing adequate opportunity to the
accused to fully defend his case.
26. There is no doubt that the Special Court of SEBI in M.A. No.
686 of 2020 has dismissed the complaint of SEBI on the ground of
limitation. Against such an order, SEBI has filed a Criminal Revision
being Criminal Revision Application No. 209 of 2020 before the High
Court which is pending. On perusal of this Criminal Revision Petition it
is clear that SEBI has made the following prayer:
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(a) This Hon'ble Court be pleased to quash and set-aside the
impugned order dated 30th September, 2020 and direct the Ld.
Special Court Judge to issue process against the Accused.
(emphasis supplied)
Interestingly, SEBI has not restricted the revision petition to the
grounds of condonation of delay or inapplicability of limitation as
the offences alleged, are continuing in nature; rather SEBI has
pleaded the case on merits. This is apparent from the following
grounds advanced by SEBI on merits:
F. The Ld. Judge erred to appreciate that the allotment including
the allotment of bonus shares, was fraudulent since it was issued
without any authority, and in violation of securities laws,
including the Companies Act. When the actual issue and
allotment of NCDs with detachable warrants and subsequent
conversion of warrants into equity shares itself was undertaken
without any authority of the AGM, and the earmarking of
'bonus' issue of shares for the benefit of a debenture-holder
i.e. a non-share-holder was done and the total private placement
of 12 crore shares was carried out without any authority either
of the shares holders or in law resulting in cementing of 'control'
and exercise thereof there was a clear breach of the fiduciary
duty of the accused directors of the issuer company.
G. The Ld. Judge erred in failing to appreciate that the fraud
was consummate and involved a complex subterfuge, spread
over a long period of time. The accused Directors sat in subcommittees that negotiated and earmarked without any share
holder authority, the NCDs with warrants convertible of shares
with a sizeable free allotment of bonus shares to allottees of
the NCDs which were essentially paper companies and related
companies of the accused and later on joined them as person
acting in concert (PACs) when the warrants attached to the
NCDs were converted into shares in 2000. When the directors
negotiated the placement of NCDs with warrants with the Unit
Trust of India (UTI) whose allotment is made as per Resolution
13 as disclosed on the stock exchange, no such 'free' bonus
was given to UTI. However, all this was not considered by the
Ld. Judge who erred in failing to appreciate that the directors
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also granted a conversion price to the accused allottees which
was much less than the conversion price given to UTI.
...
...
P. The Ld. Judge erred in failing to appreciate the ratio laid down
by the Hon'ble Supreme Court in the matter of Fiona Shrikhande
Versus State of Maharashtra and another, (2013) 14 Supreme
Court Cases 44 wherein, the Hon'ble Supreme Court has held
that at the complaint stage, the Magistrate is merely concerned
with the allegations made out in the complaint and has only to
prima facie satisfy whether there are sufficient grounds to proceed
against the accused. In the facts of the present case there were
more than sufficient grounds for the Ld. Judge to prima-facie be
satisfied of the offence and issue process in the matter.
...
...
W. The Ld. Judge failed to note that it was vitally necessary to
take cognizance of the offences in the interest of justice under
Section 473, keeping in mind the devious method of involving 38
companies and routing of funds in a preplanned and preordained
sequence of transactions. If no cognizance is taken of such
egregious offences, it would seriously harm the interest of the
investors in the securities market. It is in the interests of justice
that large conglomerates having lakhs of shareholders are not
permitted to flagrantly violate the law and seek to escape
prosecution.
27. Coming to the point of delay, inter alia the contention of SEBI
is that the Court should have considered Section 473 of CrPC to condone
delay having considered the facts and circumstances in proper
perspective. At this juncture, it is relevant to quote Section 473 of CrPC
which reads as under:
"473. Extension of period of limitation in certain cases. -
Notwithstanding anything contained in the foregoing provisions of
this Chapter, any Court may take cognizance of an offence after
the expiry of the period of limitation, if it is satisfied on the facts
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and in the circumstances of the case that the delay has been
properly explained or that it is necessary so to do in the interests
of justice."
The aforesaid provision is categorical in stating 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.
28. It is in this context that 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.
29. 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.
30. 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 1992-1994, 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.
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ISSUE II
31. This brings us to the issue as to whether the interim application
seeking documents, filed by the appellant herein deserves to be allowed
in the instant case. The respondents have raised objections for such
disclosure on two counts:
i.
That such a request was already rejected by the High Court in
an earlier writ petition filed by the appellant herein, when the
settlement proceedings were on going;
ii. That the respondents claim legal privilege, as against both the
opinions of Justice (Retd.) B. N. Srikrishna and the Report of
the Chartered Accountant, viz. Sh. Y.H. Malegam.
32. Coming to the first objection, there is no gainsaying the fact
that the respondent (regulator) had issued a letter dated 16.04.2010,
conveying the findings of the investigation. In furtherance thereto, the
appellant had sought to settle the issue considering the fact that substantial
time had already elapsed.
33. During the settlement proceedings, SEBI had appointed Sh.
Y. H. Malegam, Chartered Accountant on the advice of Justice (Retd.)
B. N. Srikrishna. Accordingly, the Chartered Accountant is supposed to
have submitted a Report to SEBI.