SC to Sebi: Let RIL access papers on share buy case

The Supreme Court on Friday directed the Securities and Exchange Board of India (Sebi) to provide Reliance Industries (RIL) certain documents the regulator had relied on in connection with a probe into a case of acquisition of shares by the conglomerate.

A bench headed by Chief Justice of India NV Ramana agreed with RIL’s contention that Sebi’s decision to provide it with only parts of the probe papers amounted to cherry picking.

“There is a dispute about the fact that certain excerpts of the opinion of Justice (Retd.) BN Srikrishna were disclosed to the appellant herein. It is the allegation of the appellant that while the parts which were disclosed, vaguely point to the culpability of the appellant, Sebi is refusing to divulge the information which exonerate it. Such cherry picking by Sebi only derogates the commitment to a fair trial”, the bench, also comprising Justices JK Maheshwari and Hima Kohli, said in the judgement.

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“In the case at hand, Sebi could not have claimed privilege over certain parts of the documents and at the same time, agreeing to disclose some part. Such selective disclosure cannot be countenanced in law as it clearly amounts to cherrypicking”, the Chief Justice writing for the bench said.

The order added that “the approach of Sebi, in failing to disclose the documents, also raises concerns of transparency and fair trial. Opaqueness only propagates prejudice and partiality. Opaqueness is antithetical to transparency. It is of utmost importance that in a country grounded in the Rule of Law, institutions ought to adopt procedures that further the democratic principles of transparency and accountability. Principles of fairness and transparency of adjudicatory proceedings are the cornerstone of the principles of open justice”.

The case has its origins in a complaint filed with Sebi in January 2002 by S Gurumurthy against RIL, its associate companies and its directors. It alleged that they fraudulently allotted 12 crore equity shares of the conglomerate to entities — that were purportedly connected with the promoters of Reliance Industries as well as funded by RIL and other group companies — in 1994.

Sebi initiated an investigation into the complaint and the investigating officer submitted a report on February 4, 2005.

RIL contended that a note was prepared by Sebi’s Legal Affairs Department on May 17, 2006, wherein it was noted that the report had not brought out any specific violation of any legal provision by the group.

However, the note was said to have observed that there was a requirement of an opinion by an external expert on the possibility of initiating appropriate criminal proceedings against RIL. Accordingly, retired SC Judge Justice BN Srikrishna was approached.

Justice Srikrishna gave his opinion, which RIL contended was only disclosed to it in parts by Sebi.

On April 16, 2010, the markets watchdog sent a letter to RIL alleging that the group 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.

In 2017-18, Sebi decided to reexamine the issue and sought advice of Justice Srikrishna for the second time, but he suggested that the regulator approach approach chartered accountant YH Malegam.

Malegam examined the records of RIL and various other companies and submitted his report to Sebi, based on which the regulator sought a report from Justice Srikrishna again.

RIL contended that Sebi rejected its request for the first and second opinions of Justice Srikrishna as well as the report by Malegam, citing litigation privilege.

The apex court, however turned down Sebi’s objections and directed it to provide the reports to RIL.

The court said that “… 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”.
RIL had first approached the Bombay High Court against the denial of the documents but failed to get any relief, following which it moved to the SC.

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