even res judicate cannot prevent disclosure of complaint by a quasi judicial body
However, the findings of the High Court in the aforesaid case are of no avail to the SEBI, as we are at a stage when SEBI has invoked the provisions under the criminal law to prosecute the appellant herein.
35. At this juncture, SEBI relies on Regulation 29 of Securities and Exchange Board of India (Settlement Proceedings) Regulations 2018, which notes as under : CONFIDENTIALITY OF INFORMATION . 29. (1) All information submitted and discussions held in pursuance of the settlement proceedings under these regulations shall be deemed to have been received or made in a fiduciary capacity and the same may not be released to the public, if the same prejudices the Board and/or the applicant. 2) Where an application is rejected or withdrawn, the applicant and the Board shall not rely upon or introduce as evidence before any court or Tribunal, any proposals made or information submitted or representation made by the applicant under these regulations: Provided that this sub-regulation shall not apply where the settlement order is revoked or withdrawn under these regulations. Explanation. – When any fact is discovered in consequence of information received from a person in pursuance of an application, so much of such information, whether it amounts to an admission or not, as relates distinctly to the fact thereby discovered, may be proved. 10 Reliance on the above provision is misconceived, as both the clauses must be interpreted to deter usage of the applicant’s proposals/representations and allied information before Courts/Tribunals, in the event the settlement fails. It does not deal with the disclosure obligations cast on SEBI. In any case, the purpose of settlement is to ensure that parties come to an understanding having assessed their relative merits. It is expected that parties in such proceedings are transparent, more so for Regulators like SEBI, who are expected to share all the documents, which are necessary for understanding the issue.
36. It is a matter of record that subsequently, the settlement proceedings were terminated by SEBI and thereafter SEBI has decided to initiate a criminal complaint against the appellant herein.
37. In this context, 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.
38. This brings us to the right of the accused-appellant to seek document disclosure in the present case. In this case, the appellant has been pursuing SEBI for these documents as they believe that an attempt is being made by SEBI to suppress the Opinions and Reports as they are adverse to the cause of SEBI.
39. A cursory glance at the background of the matter would reveal that initially, a complaint was submitted to SEBI on 21.01.2002, wherein the appellant and its directors were purportedly involved in irregularities in allotment of NonConvertible Debentures in the year 1994. Accordingly, an Investigation Report was submitted by the Investigating Authority on 04.02.2005. SEBI in its counter-affidavit has admitted that the aforesaid Report was inconclusive and recommended further enquiry in this regard.
40. In pursuance thereof, SEBI approached Justice (Retd.) B. N. Srikrishna in the year 2009. He is supposed to have given his first Opinion, which formed the basis of initiating action against the appellant herein. It is SEBI’s case that during the Settlement proceedings, the appellant had disclosed numerous documents, which mandated SEBI to re-examine its stand. Accordingly, the matter was referred to Justice (Retd.) B. N. Srikrishna for a second time.
41. Thereafter, Justice (Retd.) B. N. Srikrishna wrote back to SEBI asking them to consult Sh. Y. H. Malegam, a renowned Chartered Accountant to determine the culpability of the appellant and various directors. It is reported that this exercise had culminated in the Second opinion of Justice (Retd.) B. N. Srikrishna.
42. 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.
43. 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. In State Bank of Patiala v. SK Sharma, (1996) 3 SCC 364, this Court while dealing with document disclosure and natural justice held as under: 11 “28. The decisions cited above make one thing clear, viz., principles of natural justice cannot be reduced to any hard and fast formulae. As said in Russell v. Duke of Norfolk [(1949) 1 All ER 109 : 65 TLR 225] way back in 1949, these principles cannot be put in a strait-jacket. Their applicability depends upon the context and the facts and circumstances of each case. (See Mohinder Singh Gill v. Chief Election Commr. [(1978) 1 SCC 405 : (1978) 2 SCR 272] ) The objective is to ensure a fair hearing, a fair deal, to the person whose rights are going to be affected. (See A.K. Roy v. Union of India [(1982) 1 SCC 271 : 1982 SCC (Cri) 152] and Swadeshi Cotton Mills v. Union of India[(1981) 1 SCC 664] .) As pointed out by this Court in A.K. Kraipak v. Union of India [(1969) 2 SCC 262] , the dividing line between quasi-judicial function and administrative function (affecting the rights of a party) has become quite thin and almost indistinguishable — a fact also emphasised by House of Lords in Council of Civil Service Unions v. Minister for the Civil Service [(1984) 3 All ER 935 : (1984) 3 WLR 1174 : 1985 AC 374, HL] where the principles of natural justice and a fair hearing were treated as synonymous. …”
44. At this juncture, the appellant has pressed into service the ratio laid down by this Court in Takano case (supra), 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 we agree with the respondents that the Takano Case (supra) was rendered under the aforesaid Regulations, however, we are 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 (supra) 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. Keeping a party abreast of the information that influenced the decision promotes transparency of the judicial process which was discussed in the aforesaid case in the following manner: “24. While the respondents have submitted that only materials that have been relied on by the Board need to be disclosed, the appellant has contended that all relevant materials need to be disclosed. While trying to answer this issue, we are faced with a multitude of other equally important issues. These issues, all paramount in shaping the jurisprudence surrounding the principles of access to justice and transparency, range from identifying the purpose and extent of disclosure required, to balancing the conflicting claims of access to justice and grounds of public interest such as privacy, confidentiality and market interest. An identification of the purpose of disclosure would lead us closer to identifying the extent of required disclosure. There are three key purposes that disclosure of information serves: (i) Reliability: The possession of information by both the parties can aid the courts in determining the truth of the contentions. The role of the court is not restricted to interpreting the provisions of law but also determining the veracity and truth of the allegations made before it. The court would be able to perform this function accurately only if both parties have access to information and possess the opportunity to address arguments and counterarguments related to the information; (ii) Fair Trial: Since a verdict of the Court has far reaching repercussions on the life and liberty of an individual, it is only fair that there is a legitimate expectation that the parties are provided all the aid in order for them to effectively participate in the proceedings; (iii) Transparency and accountability: The investigative agencies and the judicial institution are held accountable through transparency and not opaqueness of proceedings. Opaqueness furthers 12 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. This is the reason why an adjudicatory authority is required to record its reasons for every judgement or order it passes. However, the duty to be transparent in the adjudicatory process does not begin and end at providing a reasoned order. 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. 25. The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed.”
45. There is no doubt that the set of facts portrayed herein are unique. The impugned action of the appellant hails back to the year 1994, and almost three decades have gone by without there 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. Recently, in S. P. Velumani v. Arappor Iyakkam, 2022 SCC Online SC 663, while dealing with the necessity of document disclosure in cases where prosecuting authorities blow hot and cold, this Court has held as under: “22…The principles of natural justice demanded that the appellant be afforded an opportunity to defend his case based on the material that had exonerated him initially, which was originally accepted by the State.”
46. 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.
47. Even for adjudication of condonation of delay under Section 473, CrPC, the modus of initiation of criminal complaint and the conclusions reached therein are relevant in the facts and circumstance of the case.
48. Viewed from a different angle, the respondents have vehemently relied on litigation privilege under Section 129 of the Evidence Act, 1872 to claim exemption from document disclosure. Section 129 of the Evidence Act reads as under: 129. Confidential communications with legal advisers.—No one shall be compelled to disclose to the Court any confidential communication which has taken place between him and his legal professional adviser, unless he offers himself as a witness, in which case he may be compelled to 13 disclose any such communications as may appear to the Court necessary to be known in order to explain any evidence which he has given, but no others.
49. The rationale of such a provision has been well known to common law since ages. Sir George Mackenzie's Observations upon the 18th Act of the 23rd Parliament of King James the Sixth against Dispositions made in Defraud of Creditors etc (1675), in Sir George Mackenzie's Works Vol 2 (1755), p1 are significant. He said this, at p 44: "An Advocate is by the Nature of his employment tied to the same Faithfulness that any Depositor is: For his Client has depositate in his Breast his greatest Secrets; and it is the Interest of the Common-wealth, to have that Freedom allowed and secured without which Men cannot manage their Affairs and private Business: And who would use that Freedom if they might be ensnared by it? This were to beget a Diffidence betwixt such who should, of all others, have the greatest mutual Confidence with one another; and this will make Men so jealous of their Advocates that they will lose their private Business, or succumb in their just Defence, rather than Hazard the opening of their Secrets to those who can give them no Advice when the case is Half concealed, or may be forced to discover them when revealed." In England, the Legal professional privilege is often classified under two sub-headings: legal advice privilege and litigation privilege. Legal advice privilege comprises of communications between a client and his legal adviser, and is available when proceedings are in existence or contemplated. Litigation privilege on the other hand, covers a wider class of communications, such as those between the legal adviser and potential witnesses.
50. Coming to legal advice privilege in England, the House of Lords through Justice Carswell in Three Rivers District Council and others (Respondents) v. Governor and Company of the Bank of England (Appellants), [2004] UKHL 48, has summarized the law as under: “The conclusion to be drawn from the trilogy of 19th century cases to which I have referred and the qualifications expressed in the modern case-law is that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or incontemplation; (b) the communications must have been madefor the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, notinvestigative or inquisitorial.”
51. The distinction in application of this privilege qua adversarial and investigative litigation/inquisitorial litigation is reasoned by English Courts in In Re K (Infants), [1965] AC 201 as under: “Where the judge is not sitting purely, or even primarily, as an arbiter but is charged with the paramount duty of protecting the interests of one outside the conflict, a rule that is designed for just arbitrament cannot in all circumstances prevail.”
52. Further, In Re E (S.A.) (a Minor) (Wardship: Court’s Duty), [1984] 1 WLR 156, while pointing out that a court in wardship proceedings was not exercising an adversarial jurisdiction and that: “Its duty is not limited to the dispute between the parties: on the contrary, its duty is to act in the way best suited in its judgment to serve the true interest and welfare of the ward. In exercising wardship jurisdiction, the Court is a true family court. Its paramount concern is the welfare of the ward. It will, 14 therefore, sometimes be the duty of the court to look beyond the submissions of the parties in the endeavor to do what it judges to be necessary”
53. 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 Justice (retd.) B. N. Srikrishna. iv. The first opinion of Justice (retd.) B. N. Srikrishna is a part and parcel of the investigation and documents connected therewith. v. Moreover, certain documents have already been disclosed to the appellant herein.
54. 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 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.
55. For the above reasons, we do not agree with the contention of the learned Senior Counsel for SEBI that the first opinion of Justice (Retd.) B. N. Srikrishna is covered by ‘legal privilege’ under Section 129 of the Evidence Act. Same is the case with the second opinion of Justice (Retd.) B. N. Srikrishna and the Report of Sh. Y. H. Malegam, which are nothing but a continuation of the fact-finding exercise undertaken by SEBI to determine culpability.
56. Moreover, learned Senior counsel, Mr. Arvind Datar, 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. This Court, in S. P. Velumani (supra), while rejecting a similar contention, held as under: “26. We may note that the contention of the State may be appropriate under normal circumstances wherein the accused is entitled to all the documents relied upon by the prosecution after the Magistrate takes cognizance in terms of Section 207 of CrPC. However, this case is easily distinguishable on its facts. Initiation of the FIR in the present case stems from the writ proceedings before the High Court, wherein the State has opted to re-examine the issue in contradiction of their own affidavit and the preliminary report submitted earlier before the High Court stating that commission of cognizable offence had not been made out. It is in this background we hold that the mandate of Section 207 of CrPC cannot be read as a provision etched in stone to cause serious violation of the rights of the appellantaccused as well as to the principles of natural justice.” 15 Observing the facts and circumstances of this case, which have been adumbrated above, we are 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.
57. Before we part with the present appeal, 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 Justice (Retd.) B. N. 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. In Nea Karteria Maritime Co Ltd v. Atlantic and Great Lakes Steamship Corporation, [1981] Com LR 138 at 139, Mustill J. held as under: ‘I believe that the principle underlying the rule of practice exemplified in Burnell v British Transport Commission [1956] 1 QB 187 is that where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.’ The aforesaid principle is often referred to as the ‘Cherrypicking’ principle.
58. 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. 59. In view of the aforesaid discussion, we allow the present appeal and direct the respondents to furnish a copy of the following documents to the appellant forthwith:- (i) First opinion of Justice (Retired) B.N. Srikrishna (ii) Report of Y.H. Malegam (iii) Second opinion of Justice (Retired) B.N. Srikrishn
IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION N.V. RAMANA; CJI., J.K. MAHESHWARI; J., HIMA KOHLI; J. AUGUST 05, 2022 CRIMINAL APPEAL No. 1167 of 2022 [@ SPECIAL LEAVE PETITION (CRL) NO. 3417/2022
https://main.sci.gov.in/supremecourt/2022/10692/10692_2022_1_1501_36837_Judgement_05-Aug-2022.pdf