Sebi must disclose probe report before punitive action: Supreme Court - Times of India

Sebi must disclose probe report before punitive action: Supreme Court – Times of India

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NEW DELHI: The Supreme Court has ordered market regulator Sebi to disclose details of its investigation report to the company or its directors prior to taking punitive steps, including barring them from dealing in the stock market.
Reversing a Bombay HC order that had rejected a plea for disclosure of SEBI investigation report, which formed the basis for interim order barring a ex-MD and CEO from dealing in stock market, a bench of Justices D Y Chandrachud and Sanjiv Khanna said no person can be proceeded against without she/he knowing the details of the cause behind it.
Writing the judgement, Justice Chandrachud said, “The investigative agencies and the judicial institution are held accountable through transparency and not opaqueness of proceedings. Opaqueness furthers a culture of prejudice, bias, and impunity – principles that are antithetical to transparency. It is of utmost importance that in a country grounded in the Rule of Law, the institutions adopt those procedures that further the democratic principles of transparency and accountability.”
“The principles of fairness and transparency of adjudicatory proceedings are the cornerstones of the principle of open justice… Keeping a party bereft of the information that influenced the decision of an authority undertaking an adjudicatory function also undermines the transparency of the judicial process. It denies the concerned party and the public at large the ability to effectively scrutinise the decisions of the authority since it creates an information asymmetry,” he said.
However, the bench said that since the investigation report, which is the trigger for punitive action under SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, could contain sensitive market related informations pertaining to third parties, the market regulator could redact those portions while giving the investigation report to the person being proceeded against.
The bench said SEBI cannot plead that the investigation report is an internal document to deny it to the concerned company or person. “If the material is relevant to and has a nexus to the stage at which satisfaction is reached by an authority, such material would be deemed to be important for the purpose of adjudication,” it said.
Allowing redaction of information from the investigation report, the bench said, “The requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or as regards the dealings of third parties. The investigating authority may acquire information of sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected.”



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