# T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF INDIA & ANR

- **Citation:** [2022] 16 S.C.R. 212
- **Court:** Supreme Court of India
- **Decided:** 2022-02-18
- **Case number:** Civil Appeal Nos. 487-488 of 2022
- **Bench:** Dr Dhananjaya Y Chandrachud, Sanjiv Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/t-takano-v-securities-and-exchange-board-of-india-anr-35610
- **Pages:** 47

## Headnote

Securities and Exchange Board of India Act 1992 (SEBI) -
ss. 11(1), 11(4), 11B, 11B(1), 11B(2), 11C and 15HA - SEBI
(Prohibition of Fraudulent and Unfair Trade Practices) Regulations
2003 (PFUTP Regulations) - Regn. 3(b), 3(c), 3(d), 4(1), 4(2)(e),
4(2)(k), 5, 6, 9, 10, 11 and 12 - Regn. 6 - Disclosure of investigation
report - Appellant was employed as MD and CEO in a public listed
company - Show cause notice issued to the appellant for violation
of the provisions of the SEBI Act, SCRA and PFUTP Regulations -
Show cause notice specifically relied upon the report of the
investigation and invokes, inter alia, a violation of the PFUTP
Regulations by the appellant - Appellant responded to show cause
notice stating that he had not received the report of the investigation
conducted by SEBI - Respondent-SEBI stated that the investigation
report is an 'internal document' which cannot be shared - Appellant
reiterated the demand to receive report of the investigation
conducted by SEBI - Whether an investigation report under
Regulation 9 of the PFUTP Regulations must be disclosed to the
person to whom a notice to show cause is issued - Held: The Board
should determine such parts of the investigation report u/Regn. 9
which have a bearing on the action which is proposed to be taken
against the person to whom the notice to show cause is issued and
disclose the same - The Board shall be duty-bound to provide copies
of such parts of the report which concern the specific allegations
which have been levelled against the appellant in the notice to show
cause - It can redact information that impinges on the privacy of
third parties - It cannot exercise unfettered discretion in redacting
information - The institution/authority/agency can withhold
disclosure of those sections of the report which deal with third party
personal information and strategic information bearing upon the
[2022] 16 S.C.R. 212
212
A
B
C
D
E
F
G
H
213
stable and orderly functioning of the securities market - Respondent
should prima facie establish that the disclosure of the report would
affect third-party rights and the stability and orderly functioning of
the securities market - The onus then shifts to the appellant to prove
that the information is necessary to defend his case appropriately.
Allowing the appeals, the Court
HELD: 1.1 The appellant is unable to prove that the
disclosure of the entire report is necessary for him to defend the
case. The first respondent made the following arguments making
a prima facie case that the disclosure of the report would violate
third party rights: (i) Investigation reports contain information
on the volatile nature of the market; (ii) The report also contains
the personal information of various stakeholders. Disclosure will
violate the right to privacy of the third party individuals; and (iii)
It includes strategic information. [Para 47][255-B-D]
1.2 The appellant did not sufficiently discharge his burden
by proving that the non-disclosure of the above information would
affect his ability to defend himself. However, merely because a
few portions of the enquiry report involve information on thirdparties or confidential information on the securities market, the
respondent does not have a right to withhold the disclosure of
the relevant portions of the report. The first respondent can only
claim non-disclosure of those sections of the report which deal
with third party personal information and strategic information
on the functioning of the securities market. [Para 48][255-D-E]
1.3 The Board should determine such parts of the
investigation report under Regulation 9 which have a bearing on
the action which is proposed to be taken against the person to
whom the notice to show cause is issued and disclose the same.
It can redact information that impinges on the privacy of third
parties. It cannot exercise unfettered discretion in redacting
information. On the other hand, such parts of the report which
are necessary for the appellant to def

## Text

_Characters 0–39,894 of 109,357. This is a partial read: ask again with offset=39894 for what follows._

A
B
C
D
E
F
G
H
212
SUPREME COURT REPORTS
[2022] 16 S.C.R.
T. TAKANO
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal Nos. 487-488 of 2022)
FEBRUARY 18, 2022
[DR DHANANJAYA Y CHANDRACHUD AND
SANJIV KHANNA, JJ.]
Securities and Exchange Board of India Act 1992 (SEBI) -
ss. 11(1), 11(4), 11B, 11B(1), 11B(2), 11C and 15HA - SEBI
(Prohibition of Fraudulent and Unfair Trade Practices) Regulations
2003 (PFUTP Regulations) - Regn. 3(b), 3(c), 3(d), 4(1), 4(2)(e),
4(2)(k), 5, 6, 9, 10, 11 and 12 - Regn. 6 - Disclosure of investigation
report - Appellant was employed as MD and CEO in a public listed
company - Show cause notice issued to the appellant for violation
of the provisions of the SEBI Act, SCRA and PFUTP Regulations -
Show cause notice specifically relied upon the report of the
investigation and invokes, inter alia, a violation of the PFUTP
Regulations by the appellant - Appellant responded to show cause
notice stating that he had not received the report of the investigation
conducted by SEBI - Respondent-SEBI stated that the investigation
report is an 'internal document' which cannot be shared - Appellant
reiterated the demand to receive report of the investigation
conducted by SEBI - Whether an investigation report under
Regulation 9 of the PFUTP Regulations must be disclosed to the
person to whom a notice to show cause is issued - Held: The Board
should determine such parts of the investigation report u/Regn. 9
which have a bearing on the action which is proposed to be taken
against the person to whom the notice to show cause is issued and
disclose the same - The Board shall be duty-bound to provide copies
of such parts of the report which concern the specific allegations
which have been levelled against the appellant in the notice to show
cause - It can redact information that impinges on the privacy of
third parties - It cannot exercise unfettered discretion in redacting
information - The institution/authority/agency can withhold
disclosure of those sections of the report which deal with third party
personal information and strategic information bearing upon the
[2022] 16 S.C.R. 212
212
A
B
C
D
E
F
G
H
213
stable and orderly functioning of the securities market - Respondent
should prima facie establish that the disclosure of the report would
affect third-party rights and the stability and orderly functioning of
the securities market - The onus then shifts to the appellant to prove
that the information is necessary to defend his case appropriately.
Allowing the appeals, the Court
HELD: 1.1 The appellant is unable to prove that the
disclosure of the entire report is necessary for him to defend the
case. The first respondent made the following arguments making
a prima facie case that the disclosure of the report would violate
third party rights: (i) Investigation reports contain information
on the volatile nature of the market; (ii) The report also contains
the personal information of various stakeholders. Disclosure will
violate the right to privacy of the third party individuals; and (iii)
It includes strategic information. [Para 47][255-B-D]
1.2 The appellant did not sufficiently discharge his burden
by proving that the non-disclosure of the above information would
affect his ability to defend himself. However, merely because a
few portions of the enquiry report involve information on thirdparties or confidential information on the securities market, the
respondent does not have a right to withhold the disclosure of
the relevant portions of the report. The first respondent can only
claim non-disclosure of those sections of the report which deal
with third party personal information and strategic information
on the functioning of the securities market. [Para 48][255-D-E]
1.3 The Board should determine such parts of the
investigation report under Regulation 9 which have a bearing on
the action which is proposed to be taken against the person to
whom the notice to show cause is issued and disclose the same.
It can redact information that impinges on the privacy of third
parties. It cannot exercise unfettered discretion in redacting
information. On the other hand, such parts of the report which
are necessary for the appellant to defend his case against the
action proposed to be taken against him need to be disclosed. It
is needless to say that the investigating authority is duty-bound
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR.
A
B
C
D
E
F
G
H
214
SUPREME COURT REPORTS
[2022] 16 S.C.R.
to disclose such parts of the report to the noticee in good faith. If
the investigating authority attempts to circumvent its duty by
revealing minimal information, to the prejudice of the appellant,
it will be in violation of the principles of natural justice. The court/
appellate forum in an appropriate case will be empowered to call
for the investigation report and determine if the duty to disclose
has been effectively complied with. [Para 49][255-F-H; 256-A]
1.4 The notice to show cause issued to the appellant is for
violation of the provisions of the SEBI Act, SCRA and PFUTP
Regulations. The show cause notice has specifically referred to
what was revealed during the course of the investigation and has
invoked the provisions of the PFUTP Regulations in the
allegations against the appellant. Since the show cause notice
has specifically relied upon the report of the investigation and
invokes, inter alia, a violation of the PFUTP Regulations by the
appellant, the mandate of Regulation 10 must be complied with.
However, while directing that there should be a disclosure of the
investigation report to the appellant, it needs to be clarified that
this would not permit the appellant to demand roving inspection
of the investigation report which may contain sensitive information
as regards unrelated entities and transactions [Para 50][256-B,
E-F]
1.5 This Court concludes that: (i)The appellant has a right
to disclosure of the material relevant to the proceedings initiated
against him. A deviation from the general rule of disclosure of
relevant information was made in Natwar Singh based on the stage
of the proceedings. It is sufficient to disclose the materials relied
on if it is for the purpose of issuing a show cause notice for deciding
whether to initiate an inquiry. However, all information that is
relevant to the proceedings must be disclosed in adjudication
proceedings; (ii) The Board under Regulation 10 considers the
investigation report submitted by the Investigating Authority
under Regulation 9, and if it is satisfied with the allegations, it
could issue punitive measures under Regulations 11 and 12.
Therefore, the investigation report is not merely an internal
document. In any event, the language of Regulation 10 makes it
clear that the Board forms an opinion regarding the
A
B
C
D
E
F
G
H
215
violation of Regulations after considering the investigation report
prepared under Regulation 9; (iii) The disclosure of material
serves a three- fold purpose of decreasing the error in the verdict,
protecting the fairness of the proceedings, and enhancing the
transparency of the investigatory bodies and judicial institutions;
(iv) A focus on the institutional impact of suppression of material
prioritises the process as opposed to the outcome. The direction
of the Constitution Bench of this Court in Karunakar that the
non-disclosure of relevant information would render the order of
punishment void only if the aggrieved person is able to prove
that prejudice has been caused to him due to non-disclosure is
founded both on the outcome and the process;
(v) The right to disclosure is not absolute. The disclosure
of information may affect other third-party interests and the
stability and orderly functioning of the securities market. The
respondent should prima facie establish that the disclosure of
the report would affect third-party rights and the stability and
orderly functioning of the securities market. The onus then shifts
to the appellant to prove that the information is necessary to defend
his case appropriately; and (vi) Where some portions of the enquiry
report involve information on third-parties or confidential
information on the securities market, the respondent cannot for
that reason assert a privilege against disclosing any part of the
report. The respondents can withhold disclosure of those sections
of the report which deal with third-party personal information and
strategic information bearing upon the stable and orderly
functioning of the securities market. [Para 51][256-G-H; 257-AH; 258-A-B]
1.7 The Board shall be duty-bound to provide copies of
such parts of the report which concern the specific allegations
which have been levelled against the appellant in the notice to
show cause. However, this does not entitle the appellant to receive
sensitive information regarding third parties and unrelated
transactions that may form part of the investigation report. [Para
52][258-B-C]
Chandrama Tewari v. Union of India (1988) 1 SCR
1102 : [1988] SCR 1102; Natwar Singh v. Director of
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR.
A
B
C
D
E
F
G
H
216
SUPREME COURT REPORTS
[2022] 16 S.C.R.
Enforcement (2010) 13 SCC 255 : [2010] 13 SCR 99;
Krishna Chandra Tandon v. Union of India AIR 1974
SC 1589 - referred to.
Khudiram Das v. State of West Bengal (1975) 2 SCC
81 : [1975] 2 SCR 832; Union of India and Ors. v.
Mohd. Ramzan Khan (1991) 1 SCC 588 : [1990] 3
Suppl. SCR 248; Managing Director, ECIL, Hyderabad
v. B. Karunakar (1993) 4 SCC 727 : [1993] 2 Suppl.
SCR 576; State Bank of Patiala v. S K Sharma (1996)
3 SCC 364 : [1996] 3 SCR 972; State of Uttar Pradesh
v. Ramesh Chandra Mangalik (2002) 3 SCC 443;
Kothari Filaments v. Commr. of Customs (2009) 2 SCC
192 : [2008] 17 SCR 647 - relied on.
Case Law Reference
[1988] SCR 1102
referred to
Para 14
[1975] 2 SCR 832
relied on
Para 13
[1990] 3 Suppl. SCR 248
relied on
Para 35
[1993] 2 Suppl. SCR 576
relied on
Para 35
[1996] 3 SCR 972
relied on
Para 36
(2002) 3 SCC 443
relied on
Para 37
[2008] 17 SCR 647
relied on
Para 38
[2010] 13 SCR 99
referred to
Para 12
(1974) 4 SCC 374
referred to
Para 14
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 487488 of 2022.
From the Judgment and Order dated 29.09.2020 of the High Court
of Judicature at Bombay in Writ Petition (L) No.3298 of 2020 and Order
dated 22.10.2020 in Review Petition (L) No.4780 of 2020 in Writ Petition
(L) No. 3298 of 2020.
Ashim Sood, Ms. Shreya Suri, Ms. Vaishnavi Rao, Ms. Swati
Mittal, Rhytham Buaria, Senu Nizar, Armaan Pratap Singh, Ekansh Gupta,
Kuberinder Bajaj, Ms. Aurica Bhattacharya, Samarth Mohanty, Rajat
Singh, Advs. for the Appellant.
A
B
C
D
E
F
G
H
217
C. U. Singh, Sr. Adv., Ashish Prasad, Mahfooz Ahsan Nazki,
Pruthvi Dhinoja, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR DHANANJAYA Y CHANDRACHUD, J.
A. Factual Background ........................................................... 3*
B Submissions of Counsel ..................................................... 10*
C. Analysis
.......................................................................... 16*
C.1 Regulatory Framework of PFUTP Regulations ... 16*
C.2 Duty to Disclose Investigative Material ............... 23*
C.3. Exceptions to the Duty to Disclose ..................... 43*
D. Conclusion ........................................................................ 47*
A. Factual Background
1. By a judgment dated 29 September 2020, a Division Bench of
the Bombay High Court dismissed the petition instituted by the appellant
under Article 226 of the Constitution for challenging a show cause notice
which was issued by the first respondent1 alleging a violation of the
provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices) Regulations 20032. A petition seeking a review of the judgment
of the Division Bench was disposed of by an order dated 22 October
2020. The appellant moved a Special Leave Petition against the judgment
in the writ petition and the order in review. The principal issue is whether
an investigation report under Regulation 9 of the PFUTP Regulations
must be disclosed to the person to whom a notice to show cause is
issued.
2. The appellant was employed as the Managing Director3 and
Chief Executive Officer4 in Ricoh India Limited5, a public listed company,
for the financial years 2012-13, 2013-14 and 2014-15, till 31 March 2015.
* Ed.Note : Pagination as per the original Judgment
1 "SEBI" or the "Board"
2 "PFUTP Regulations"
3 "MD"
4 "CEO"
5 "Company"
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR.
A
B
C
D
E
F
G
H
218
SUPREME COURT REPORTS
[2022] 16 S.C.R.
In 2016, BSR & Co. were appointed as statutory auditors of the Company.
The auditors raised a suspicion regarding the veracity of the financial
statements of the Company for the quarters that ended on June 30, 2015
and September 30, 2015. The Audit Committee of the Company appointed
Price Water House Coopers Private Limited6 to carry out a forensic
audit. PWC submitted a preliminary audit report on 20 April 2016. The
Company addressed a communication to the first respondent on the same
day stating that the financial statements for those quarters did not reflect
the true affairs of the Company and requested the first respondent to
carry out an independent investigation on possible violations of the
provisions of the PFUTP Regulations. The final report submitted by PWC
was forwarded by the Company to the first respondent on 29 November
2016.
3. The first respondent initiated an investigation. During the course
of the investigation, summons was issued to Manoj Kumar (then MD &
CEO for the financial year of 2015-16), Arvind Singhal (then Chief
Financial Officer) and Anil Saini (then Senior Vice President and Chief
Operating Officer). The Company in its letter dated 8 June 2016 submitted
that it suspected Manoj Kumar, Arvind Singhal and Anil Saini for their
involvement in misstating the financial affairs. The first respondent in its
ex parte interim order-cum-show cause notice prima facie found two
others, including the appellant, responsible for facilitating the
misstatements of the financial position. With regard to the role of the
appellant, it was noted:
"On examination of the Organization Structure of Ricoh for past
years, it is noted that T. Takano was the MD & CEO of the
Company till March 31, 2015. It is also noted that the mandate for
PwC investigation was restricted to the half-year ended September
30, 2015 and not extended to all the years when the misstatements
occurred. If Manoj Kumar, who was MD & CEO in FY 2015-16
was held responsible for the fraud, it is only logical that T. Takano
as the previous MD & CEO (during whose tenure the fraud
actually started) was also responsible for the misstatements. It
appears that by restricting the investigation period mandated to
PwC, the Company intended to restrain PwC from examining the
transactions of the previous years and thereby ring-fence the earlier
MD & CEO, T. Takano."
6 "PWC"
A
B
C
D
E
F
G
H
219
4. Based on the investigation, it was noted that the financial
misstatements commenced from 2012-13 and the Company suffered a
loss due to, inter alia, transfers to third parties, write-offs and a sale
made to Fourth Dimension Solutions Limited7 without inventory. It was
further noted that the share price of the Company had gone up due to
the misstatements. Hence, it was observed that the appellant, along with
five others, has prima facie violated the provisions of Section 12A(a),
12(A)(b) and 12A(c) of the Securities and Exchange Board of India Act
19928 read with Regulations 3(b), 3(c), 3(d), 4(1), 4(2)(e), 4(2)(k) and
4(2)(r) of the PFUTP Regulations. Hence, the first respondent issued
the following directions under Sections 11(1), 11(4) and 11B of the SEBI
Act and Regulation 11 of the PFUTP Regulations:
(i)
The appellant and the other five key managerial persons
were restrained from accessing the securities market or
buying, selling or otherwise dealing in the securities market;
(ii)
An independent audit firm was appointed for conducting a
detailed forensic audit of the books of accounts of the
company from the financial year 2012-13 ;
(iii)
The independent audit firm was called upon to submit a
report to the first respondent within three months from the
date of appointment; and
(iv)
A show cause notice for directions under Sections 11, 11(4)
and 11 (B) of the SEBI Act, including directions for
restraining/prohibiting him from accessing the securities
market and buying, selling or otherwise dealing in securities
in any manner.
5. By his letters dated 6 June 2018 and 28 June 2018, and at a
personal hearing on June 11, 2018 the appellant submitted that:
(i)
He had no knowledge of the purported transactions and/or
the misstatements in the books of account;
(ii)
The inclusion of his name in the interim order-cum-show
cause notice was speculative, based on the premise that
since the MD and CEO of financial year 2015-16 has been
held prima facie responsible, the appellant who was the
7 "FDSL"
8 "SEBI Act"
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
220
SUPREME COURT REPORTS
[2022] 16 S.C.R.
MD and CEO during the previous year must also be held
responsible; and
(iii)
The financial team was solely responsible for preparing
financial statements. These statements were then examined
by the statutory auditors of the company. The version
subsequently prepared was the final version of the financial
statement. Therefore, he had no knowledge of the intricacies
of the financial statements.
6. By an order dated 16 August 20189, the first respondent
confirmed the directions issued in the ex parte interim order dated 12
February 2018. The order notes that though the facts indicate largescale irregularities in business transactions, the time span of the
irregularities and the exact role of the noticees are not fully ascertained,
and therefore, "it would be premature to give credence to the submissions
of the individual noticees". It was also observed that "a clear picture
regarding the financial affairs of the company and the role of various
noticees in the alleged fraud is yet to emerge pending such investigation."
The time for submission of the forensic report by the first respondent
was extended to 30 September 2018. SEBI appointed Pipara & Co.
LLP on 20 February 2019 to conduct a forensic audit of the books of
account of the Company. The report of the forensic auditors was
submitted on 25 October 2019.
7. The appellant challenged the confirmatory order before the
Securities Appellate Tribunal10, Mumbai. The appeals were allowed and
the order against the appellant was quashed on 29 January 2020 on the
grounds that:
(i)
 The confirmatory order is based on a suspicion about the
role of the appellant;
(ii) The submissions of the appellant were not dealt with
appropriately;
(iii) Since the company is in liquidation, the appellant is not in a
position to influence decisions; and
9 "Confirmatory order"
10 "Tribunal"
A
B
C
D
E
F
G
H
221
(iv) The appellant cannot be prevented from dealing in the securities
market when the appellant is held to be vicariously liable due
to the position he held as MD/CEO.
 The tribunal, however, directed that the first respondent is at liberty
to issue a fresh show cause notice if the evidence against the appellant
is made available through the forensic report or through the first
respondent's investigation.
8. A fresh show cause notice was issued to the appellant on 19
March 2020 under the provisions of Sections 11(1), 11(4), 11(4A), 11B(1)
and 11B(2) and 15HA of the SEBI Act and Section 12A(2) read with
Section 23H of the Securities Contracts (Regulation) Act 195611 based
on the forensic audit report and investigation conducted by the first
respondent. With regard to the appellant, it was alleged that :
"... Mr. T. Takano, during whose tenure the business transactions
with FDSL started by virtue of his position as MD & CEO of
Ricoh during FY 2012-13 to FY 2014-15, was actively involved in
committing the fraud and had knowingly restricted the mandate
given to PwC to six month so as to succeed in hiding his role in
the commission of fraud of publishing untrue financial statements
of Ricoh which resulted in misleading the investors about the
financial performance of the company and thereby resulted in
inducement to trades in the scrip. The said acts of the Noticee no.
2 are alleged to be in violation of regulations 3 (b), (c), (d), 4(1)
and 4(2)(e), (f), (k) and (r) of SEBI (PFUTP) Regulations, 2003
and clause 49(V) read with 41(Il)(a) of the erstwhile Listing
Agreement."
9. The appellant claims that he received the show cause notice by
email on 4 August 2020. The appellant responded to the show cause
notice on 6 August 2020 stating that though he had received the forensic
audit report submitted by Pipara & Co. LLP, he had not received the
report of the investigation conducted by SEBI. The appellant sought an
opportunity to inspect the following records:
"[...] including but not limited to all material on which reliance
was placed Pipara & Co. LLP for the purpose of preparing the
forensic audit report, all material on which reliance has been placed
while issuing the Show Cause Notice, and on which reliance is
11 "SCRA"
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
222
SUPREME COURT REPORTS
[2022] 16 S.C.R.
intended to be placed while making any adjudication on the Show
Cause Notice ("material")."
10. By its communication dated 13 August 2020, the first respondent
stated that the investigation report is an 'internal document' which cannot
be shared. The appellant was provided time until 9 August 2020 to inspect
the other documents. The first respondent enclosed soft copies of the
annexures to the forensic report and called upon the appellant to submit
a reply. The appellant reiterated the demand to inspect the investigation
report. By an email dated 4 September 2020, the appellant was informed
that the investigation report of SEBI was not relied on to issue the show
cause notice and hence, would not be provided.
11. The appellant filed a writ petition before the Bombay High
Court challenging the show cause notice which was issued on 19 March
2020. In the alternative, inspection of all documents relied on to issue the
show cause notice was sought. The appellant submitted before the High
Court that to non-disclosure of all relevant documents relied on to issue
the show cause notice violated the principles of natural justice.
12. By its judgment dated 29 September 2020, the High Court
held that the investigation report prepared under Regulation 9 of PFUTP
Regulations is solely for internal purposes. In concluding that the
investigation report need not be furnished while issuing a show cause
notice, the High Court has relied on the decision of this Court in Natwar
Singh v. Director of Enforcement12. In sum and substance, the High
court has held that the report does not form the basis of the show cause
notice and therefore need not be disclosed. The review petition challenging
the judgment of the Division Bench of the High Court was rejected.
B. Submissions of Counsel
13. Mr Ashim Sood, learned Counsel appearing for the appellant
made the following submissions:
(i)
Regulation 10 has two synchronous requirements - (i)
consideration of the investigation report and satisfaction on
such consideration that there is a violation of the PFUTP
Regulations; and (ii) a hearing. The purpose of the
investigation report is to adjudicate whether there has been
a contravention of the Regulations. There is no intermediate
12 (2010) 13 SCC 255
A
B
C
D
E
F
G
H
223
stage between the consideration of the report and the
adjudication of liability. Both stages are synchronous, making
the investigation report the primary material on which the
adjudicator relies upon under the PFUTP Regulations;
(ii)
The High Court erred in holding that the investigation report
is a preliminary report and is to be used for "internal
administrative discipline". The investigation report is not a
preliminary document and is compiled at the end of a
thorough and exhaustive investigation. The proviso to
Regulation 9, provides for an "interim report" making it clear
that the investigation report is not a preliminary document;
(iii)
 The investigation report is not a document to be used for
internal deliberations, which is a stage that is crossed at
Regulation 5. The investigation report is to be used for
adjudication of liability in terms of Regulation 10;
(iv)
The High Court erred in observing that the investigation
report was not used against the appellant and does not form
the basis of the show cause notice. The show cause notice
dated 19 March 2020 contains several references to the
investigation carried out by the first respondent. These
allegations differ from the ones listed in an earlier show
cause notice, which was issued to the appellant and was
set aside by SAT on 29 January 2020 in Appeal No 427 of
2018. Further, the duty to disclose is not contingent on
whether the respondent relies on a document; rather the
duty is invoked when a request made for a document is
found to be reasonable and relevant for the defence to be
mounted by the noticee;
(v)
Regulation 10 mandates that the entire investigation report
be disclosed to the noticee. This mandate can only be subject
to certain well-recognized exceptions. Such exceptions must
be invoked with the utmost circumspection by SEBI and
for reasons that are recorded in writing;
(vi)
The decision of this Court in Natwar Singh (supra) supports
the principle that material relied upon in a quasi-judicial
proceeding must be disclosed to the person to whose
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
224
SUPREME COURT REPORTS
[2022] 16 S.C.R.
prejudice such material may be used for taking adverse
action;
(vii)
In Khudiram Das v. State of West Bengal13, this Court
held that once a statute prescribes reliance on certain
material, such material should be disclosed to the opposite
party. This principle has been followed in multiple contexts,
including proceedings under the Companies Act 1956 and
Special Courts Act 1979;
(viii) If the entire investigation report is not provided, it would be
difficult to come up with a metric for determining which
parts of the report are relevant to the noticee;
(ix)
Permitting the respondent to selectively disclose portions
of the investigation report carries with it the risk of
conferring unfettered discretion upon the first respondent.
The first respondent will attempt to disclose the least possible
information in an adversarial proceeding, undermining the
mandate of Regulation 10;
(x)
Without having access to the entirety of the investigation
report, the noticee will be incapable of effectively
challenging the decision of the first respondent. It will result
in the adoption of an opaque process where SAT or the
High Courts would receive the report in sealed covers and
make ex parte determinations of whether the redactions
made by the first respondent are justified, impacting the
transparency of the judicial process;
(xi)
Regulation 9 imposes a qualitative requirement in relation
to the investigation. If the investigation report is not
disclosed, there is no incentive for the investigator to meet
that qualitative requirement. There would be no way,
therefore, to determine whether the investigation report was
properly compiled and whether the investigation was
conducted in a regular manner, in accordance with the
standards of what a proper investigation entails;
(xii)
Redaction of the investigation report can be carried out as
an exception for legitimate reasons. To reduce arbitrariness,
13 (1975) 2 SCC 81
A
B
C
D
E
F
G
H
225
the redactions should be supported by written reasons
indicating the necessity of the measure. The reasons should
have a certain degree of specificity;
(xiii) The exceptional situations in which redactions can be made
are known to law and include business secrets, personal
data and third-party confidential information; and
(xiv) Laws in the United States and European Union also adopt
the default position that the noticee shall have access to the
file subject to certain exceptions relating to business secrets
and personal data, amongst others.
14. On behalf of the respondents, Mr CU Singh, learned senior
counsel, made the following submissions:
(i)
The appellant has raised the argument that the investigation
has been solely conducted under the PFUTP Regulations
and the failure to disclose the investigation report amounts
to a violation of Regulations 9 and 10. This is incorrect.
The proceedings have been initiated under the provisions
of the SEBI Act and the SCRA as well for a violation of
the provisions of the PFUTP Regulations and the Listing
Agreement. The SEBI Act and the SCRA are wider in
scope than the PFUTP Regulations. Additionally, Regulation
11 of PFUTP Regulations specifically provides that the
actions or directions may be issued without prejudice to the
provisions contained in sub-sections (1), (2), (2A) and (3)
of Sections 11 and 11B of the SEBI Act;
(ii)
SEBI conducts an investigation under Section 11C of the
SEBI Act, where, based on the findings arrived at during
the investigation, allegations are levelled in the show cause
notice. Together with the show cause notice all the
documents that have been relied upon by the investigator
are provided to the noticee. In the present, case all the
relevant documents have been provided to the noticee,
including the report of Pipara and Co. which formed the
basis of the show cause notice. The appellant is not entitled
to any other documents;
(iii)
The quasi-judicial proceedings that are initiated by SEBI
proceed on the basis of the allegations that are mentioned
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
226
SUPREME COURT REPORTS
[2022] 16 S.C.R.
in the show cause notice and the documents that are
annexed to it. No other material, document or investigation
is considered for adjudication by the competent authority.
Orders are passed only after an opportunity to file a reply
is given and a personal hearing is provided to comply with
the principles of natural justice;
(iv)
Regulation 9 of PFUTP Regulations requires the
Investigating Authority to submit the report, after completion
of the investigation, to the appointing authority. However,
the provision does not require the furnishing of the report to
the noticee. The report is only in the nature of an interdepartmental communication between officers investigating
the matter and the authority who decides if any enforcement
action is to be taken against an entity based on any prima
facie grounds. It is not a piece of evidence but is rather a
culmination of documents that the investigating authority
relies upon or comes across during the investigation;
(v)
This Court in several similar cases have held that internal
investigation reports are not required to be shared. (Krishna
Chandra Tandon v. Union of India14 and Chandrama
Tewari v. Union of India15);
(vi)
The investigations conducted by SEBI are highly sensitive
given the volatile nature of the market. Disclosure of such
information may adversely affect the market. Further, the
investigation reports also contain the personal information
of other stakeholders. They also include information relating
to the commercial and business interests of third-parties.
Sharing such information with the noticee will raise concerns
regarding the privacy of third-parties and also affect their
competitive position in the market;
(vii)
Clauses (d), (e) and (h) of sub-Section (1) of Section 8 of
the Right to Information Act 200516 also exempt disclosure
of - (i) "information including commercial confidence, trade
secrets or intellectual property, the disclosure of which would
harm the competitive position of a third party"; (ii)
14 AIR 1974 SC 1589
15 (1988) 1 SCR 1102
16 "RTI Act"
A
B
C
D
E
F
G
H
227
"information available in fiduciary relationship"; and (iii)
"information which would impede the process of
investigation"; and
(viii) The US Securities and Exchange Commission conducts its
investigations on a confidential basis to maximize their
effectiveness and protect the privacy of those involved. UK
Financial Conduct Authority also does not share confidential
information even when the same is requested under the
Freedom of Information Act stating that a clear
confidentiality restriction encourages free flow of information
and ifconfidential information were to be made public,
sources would be less willing to give information. Article
54 of Directive 2004/39 of the EU Parliament provides a
legal framework for securities market and mandates that
information of such nature ought not to be shared. Thus,
the refusal of SEBI to furnish the investigation report is in
line with established global practices.
C. Analysis
C.1 Regulatory Framework of PFUTP Regulations
15. The PFUTP Regulations have been notified by SEBI in
exercise of powers conferred by Section 30 of the SEBI Act. Regulation
2(c) defines the expression 'fraud' in the following terms:
"2(c) "fraud" includes any act, expression, omission or
concealment committed whether in a deceitful manner or not by
a person or by any other person with his connivance or by his
agent while dealing in securities in order to induce another person
or his agent to deal in securities, whether or not there is any
wrongful gain or avoidance of any loss, and shall also include-
(1) a knowing misrepresentation of the truth or concealment of
material fact in order that another person may act to his detriment;
(2) a suggestion as to a fact which is not true by one who does not
believe it to be true;
(3) an active concealment of a fact by a person having knowledge
or belief of the fact;
(4) a promise made without any intention of performing it;
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
228
SUPREME COURT REPORTS
[2022] 16 S.C.R.
(5) a representation made in a reckless and careless manner
whether it be true or false;
(6) any such act or omission as any other law specifically declares
to be fraudulent,
(7) deceptive behaviour by a person depriving another of informed
consent or full participation,
(8) a false statement made without reasonable ground for believing
it to be true.
(9) the act of an issuer of securities giving out misinformation that
affects the market price of the security, resulting in investors being
effectively misled even though they did not rely on the statement
itself or anything derived from it other than the market price.
And "fraudulent" shall be construed accordingly; Nothing contained
in this clause shall apply to any general comments made in good
faith in regard to-
(a) the economic policy of the government
(b) the economic situation of the country
(c) trends in the securities market;
(d) any other matter of a like nature
whether such comments are made in public or in private;"
16. Chapter II of the Regulations relates to the prohibition of
fraudulent and unfair trade practices relating to the securities market.
This includes Regulation 3 which deals with "Prohibition of certain dealings
in securities" and Regulation 4 which deals with "Prohibition of
manipulative, fraudulent and unfair trade practices". Chapter II pertains
to the power of the Board to order an investigation. Regulation 5 is
extracted below:
"5. Where the Board, the Chairman, the member or the Executive
Director (hereinafter referred to as "appointing authority") has
reasonable ground to believe that-
(a) the transactions in securities are being dealt with in a manner
detrimental to the investors or the securities market in violation of
these regulations;
A
B
C
D
E
F
G
H
229
(b) any intermediary or any person associated with the securities
market has violated any of the provisions of the Act or the rules
or the regulations, it may, at any time by order in writing, direct
any officer not below the rank of Division Chief (hereinafter
referred to as the "Investigating Authority") specified in the order
to investigate the affairs of such intermediary or persons associated
with the securities market or any other person and to report thereon
to the Board in the manner provided in section 11C of the Act."
Regulation 6 enunciates the powers of the investigating authority.17
The powers of the investigating authority include:
17 6. Without prejudice to the powers conferred under the Act, the Investigating Authority
shall have the following powers for the conduct of investigation, namely :
(1) to call for information or records from any person specified in section 11(2)(i) of
the Act;
(2) to undertake inspection of any book, or register, or other document or record of any
listed public company or a public company (not being intermediaries referred to in
section 12 of the Act) which intends to get its securities listed on any recognized stock
exchange where the Investigating Authority has reasonable grounds to believe that such
company has been conducting in violation of these regulations;
(3) to require any intermediary or any person associated with securities market in any
manner to furnish such information to, or produce such books, or registers, or other
documents, or record before him or any person authorized by him in this behalf as he
may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the
purposes of the investigation;
(4) to keep in his custody any books, registers, other documents and record produced
under this regulation for a maximum period of one month which may be extended upto
a period of six months by the Board :
Provided that the Investigating Authority may call for any book, register, other document
or record if the same is needed again :
Provided further that if the person on whose behalf the books, registers, other documents
and record are produced requires certified copies of the books, registers, other documents
and record produced before the Investigating Authority, he shall give certified copies of
such books, registers, other documents and record to such person or on whose behalf
the books, registers, other documents and record were produced;
(5) to examine orally and to record the statement of the person concerned or any
director, partner, member or employee of such person and to take notes of such oral
examination to be used as an evidence against such person :
Provided that the said notes shall be read over to, or by, and signed by, the person so
examined;
(6) to examine on oath any manager, managing director, officer or other employee of
any intermediary or any person associated with securities market in any manner in
relation to the affairs of his business and may administer an oath accordingly and for
that purpose may require any of those persons to appear before him personally.
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]
A
B
C
D
E
F
G
H
230
SUPREME COURT REPORTS
[2022] 16 S.C.R.
(i) Calling for information or records;
(ii) Undertaking inspection of books, registers and documents or
records of any public company;
(iii) Requiring the disclosure of information, documents or records
by any person associated with the securities market or by an
intermediary;
(iv) Reservation and custody of books, registers, documents and
records for a stipulated period;
(v) Examination of and recording the statement of directors,
partners, members or employees; and
(vi) Examination on oath.
17.