Case BriefsSupreme Court

Supreme Court: In a case where the Court was dealing with the violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 [PFUTP Regulations], the bench of Dr. DY Chandrachud* and Sanjiv Khanna, JJ has held that as a general rule, SEBI is duty bound to disclose all the relevant material, including the Investigation Report, in order to give reasonable opportunity to be heard to the notice. However, as an exception, it can redact information that impinges on the privacy of third parties.

Regulatory Framework of PFUTP Regulations

Regulation 9 envisages that the investigating authority must submit a report to the appointing authority upon the completion of its investigation in the course of which all relevant facts have to be taken into account. The investigating authority may even submit an interim report, if necessary, in the interest of investors and the securities market or, if directed by the appointing authority.

Regulation 10 empowers the Board to either issue a direction or take action as is specified in Regulations 11 and 12. The words of Regulation 10 indicate that the Board “after consideration of the report referred to in regulation 9, if satisfied that there is a violation of these regulations and after giving a reasonable opportunity of hearing to the persons concerned”, takes action under Regulations 11 and 12. As a result of the mandate of Regulation 10, the Board has to consider the investigation report as an intrinsic element in arriving at its satisfaction on whether there has been a violation of the regulations.

Duty to Disclose Investigative Material

After going through a number of judgments, the Court summarized the following principles:

  1. A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication; and
  2. An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority.

In all reasonable probability, such material would have influenced the decision reached by the authority. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure.

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.

It would be fundamentally contrary to the principles of natural justice if the relevant part of the investigation report which pertains to the noticee is not disclosed. The noticee has to be given a reasonable opportunity of hearing. The requirement of a reasonable opportunity would postulate that such material which has been and has to be taken into account under Regulation 10 must be disclosed to the noticee. If the report of the investigation authority under Regulation 9 has to be considered by the Board before satisfaction is arrived at on a possible violation of the regulations, the principles of natural justice require due disclosure of the report.

“Merely because the investigating authority has denied placing reliance on the report would not mean that such material cannot be disclosed to the noticee. The court may look into the relevance of the material to the proposed action and its nexus to the stage of adjudication. Simply put, this entails evaluating whether the material in all reasonable probability would influence the decision of the authority.”

However, it was held that the right to disclosure is not absolute. It needs to be determined if the non-disclosure of the investigative report is protected by any of the exceptions to the rule.

Exceptions to the Duty to Disclose

The Court noticed that there could be a wide range of sensitive information that the investigation report submitted under Regulation 9 may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities market. Hence,

“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 thirdparty rights that may be affected.”

However, merely because a few portions of the enquiry report involve information on third-parties or confidential information on the securities market, the SEBI does not have a right to withhold the disclosure of the relevant portions of the report. SEBI 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 mark.

Therefore, SEBI 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 noticee 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 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 noticee, 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.

[T. Takano v. SEBI, 2022 SCC OnLine SC 210, decided on 18.02.2022]

*Judgment by: Justice Dr. DY Chandrachud


For appellant: Advocate Ashim Sood

For SEBI: Senior Advocate CU Singh

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): G Mahalingam, (Whole Time Member) while revising the recommendations made by the Designated Authority (DA) considering the serious lapses of the Noticee (Book Running Lead Manager) in regards with carrying out due diligence, were taken note of. Resultantly, Noticee is prohibited from accepting any new clients for a period of three months.

The present matter was brought out from an investigation carried out by SEBI into the IPO of Sudar Industries Ltd. (SIL), for which Ashika Capital Limited (Noticee) was the Book Running Lead Manager (BRLM), in which certain lapses were found on account of BRLM. In the instant case the Delegated Authority had observed that the issuer company did not disclose the transactions of Addon Exports, A R Fabrics, Elim Traders, RJ Traders and Shalom Fashion, which were proprietorship firms of employees of SIL and persons connected to it, in the related party transaction. The Noticee contended that there was nothing on record that could have raised an iota of suspicion that the proprietorships in question were connected with the employees and there were no standard guidelines for the due diligence process.

Issues raised were:

  1. Non-disclosure of Independent director’s involvement in key strategic and financial decisions
  2. Heavy dependence on few buyers/suppliers and non-disclosure of the buyers and suppliers being related to the promoters and the promoter group
  3. Wrong disclosures made in the offer document regarding KMPs
  4. Non – Disclosure of Related Party Transactions

The enquiry report indicated clearly that SIL was very much dependent on its clients for around 80% of its revenues and further established a cogent pecuniary relationship.

It was thus held, “…It was further noted that the Noticee had merely relied on an undertaking and information given by the issuer company instead of independently verifying the facts by examination of documents. Thus, the merchant banker in the present case has mechanically disclosed the information provided by the issuer without exercising reasonable diligence to ensure adequate, true and fair disclosures in the prospectus. The Noticee by not independtly exercising adequate diligence has deprived the investors of material information to enable them to make a balanced and well informed decision, which clearly breached the obligations imposed…”.

While stressing on the need for diligence, a landmark judgment of the Supreme Court was referred to, Chander Kanta Bansal V. Rajinder Singh Anand (2008) 5 SCC 117 “…According to Oxford Dictionary (Edn. 2006),the word “diligence” means careful and persistent application or effort. “Diligent” means careful and steady in application to one’s work and duties, showing care and effort. As per Black’s law Dictionary (18thEdn), “Due Diligence” means the diligence reasonably expected from, and ordinarily exercised by, a person who seeks to satisfy a legal requirement or to discharge an obligation. According to Words and Pharses by Drain-Dyspnea (PermanentEdn.13-A)“due diligence”, in law, means doing everything reasonable, not everything possible.“ Due Diligence” means reasonable diligence. It means such diligence as a prudent man would exercise in the conduct of his own affairs…”.

Further stated that, “…I find that the recommendation is not commensurate with the gravity of the lapses/acts of negligence attributable to the Noticee. Hence, I am inclined to appropriately revise the recommendation and pass suitable directions…”.

[Sudar Industries Limited, In re, 2021 SCC OnLine SEBI 62, decided on 17-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, (Whole Time Member) while holding the Noticees liable for manipulative trade practises explained,

“Establishment of direct quantified damage/loss to an investor in personam is not an essential ingredient to prove the charges of the price manipulation. The very acts of marking up the price of scrip higher by manipulative trading practices even by a selected few persons can induce the investors in rem.”


 A show caused notice (SCN) was issued by SEBI against the Noticees to ascertain whether the unusual price movement noticed in the scrip of Anukaran Commercial Enterprises Ltd.(“the Company”) was normal or it was caused by unscrupulous acts leading to any possible manipulation of the price of the scrip of the Company. The shares of the Company were listed on BSE. The price of the scrip saw an abnormal rise, which was not supported by any corporate announcements or material changes in the business activities of the Company. In this period, the first trade was executed at INR 35.15 whereas the last trade was executed at INR 256.25 and the scrip witnessed a sharp increase in price by INR 221.20 with just 60 trades executed within a period of 43 trading days. It is noticed that 16 entities sold the shares of the Company at a price higher than the last traded price (“LTP”) and contributed to the positive LTP. The investigation further revealed that out of the said 16 sellers, top 03 sellers have contributed more than 65% to the market positive LTP variance of the scrip.


 Regarding allegations against Noticee 1, the Board observed that, he had executed trades in minuscule quantities as over the period of 20 days, he had sold only 12 shares and further over a period of 15 trading days, and he preferred to sell only 1 share at a time aggregating to 15 shares. The notice 1 had been indulged in execution of sell trades with a minimum possible lot on each day, with an apparent motive to set a high closing price of the scrip, by contributing to the LTP variance to maximum possible limit, fixed by the Stock Exchange. It was also observed that, transfer of 100 shares of the Company to Noticee 1 by Noticee 2 was not genuine and was done only for the purpose of enabling manipulation in the price of the shares. Noticing the unique and unusual pattern of selling 01 share at a time on a continuous basis over a long period, trading in miniscule quantities by the Noticee no. 1 immediately after receipt of those 100 shares from notice 2, that consistently resulted in contributing to the LTP etc., the Board had reached to the findings that, the transactions were carried out with some ulterior motive to disturb market mechanism by artificially raising the price of shares of the Company.

It was further noticed that, Noticee 3 and Noticee 4 were involved in short selling of the shares, and by executing such trades in minimal quantities, they had indulged in the manipulation of the price of the scrip of the Company. Noticee 3 and 4 were involved in a series of unusual elements such as, absence of any other sellers on those trading days; execution of (short sale) trades at the fag end of the day leaving no time to off-set the contract; no intention of making profits; all trades being executed at prices higher than the LTP, no genuine effort to consolidate their shares stock when the scrip was witnessing price rise on a continuous basis etc. Therefore, there could not be any motive except; intention to carry out an agenda to manipulate the price.

The Board, while holding the Noticees liable for violating Regulation 3 (a), (b), (c), (d) and 4 (1), 4(2), (a) and (e) of PFUTP Regulations expressed,  “The market is governed by written rules and well established market practices have evolved over the period of time and any person resorting to any peculiar pattern of trading which has a cascading effect of distorting the market mechanism by way of creating artificial trading, leading to rise in the price of a scrip through manipulative trades by no means can be held as normal and fair trading in the market.”


On the basis of above considerations, the Board restrained all the Noticees from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities or being associated with the securities market in any manner, for a period of six months. It was directed that, the existing holding of securities including the holding of units of mutual funds of the Noticees shall remain frozen. Further, all open positions, if any, of the aforesaid Noticees in the F&O segment of the stock exchange, were permitted to be squared off, irrespective of the prohibition imposed by this Order.[Anukarana Commercial Enterprises Ltd., In Re., 2021 SCC OnLine SEBI 3, decided on 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): Madhabi Puri Buch, (Whole Time Member) imposed certain restrictions on GJ Advisory Services and Profit Ideas Advisory Services (“Noticees”) for indulging in unregistered Portfolio Management Services.

SEBI received several complaints against noticees alleging unregistered portfolio management activities. On examination, the Board noticed that the noticees had undertaken the management of funds as well as securities of their clients and the fees/funds were collected through the Banks Accounts of the noticees. It was found out that both the noticees were engaged in ‘portfolio management services. The Board observed that by virtue of providing unregistered Portfolio Management Services, the noticees had collected an amount of Rs 8,89,23,049 as fees towards the management of funds and securities of clients.  Thus, the activities noticees were prima facie, in violation of Section 12(1) of SEBI Act read with Regulation 3 of Portfolio Management Services (“PMS”) Regulations.

The Board opined that permitting the investors to receive a portfolio management service from an unregistered entity would cause irreparable injury to the development of the securities market as the objective of SEBI is not only the protection of investors but also orderly development of securities market. Hence, the Board held that Gourav Jain and Poonam Jain who were the proprietors of GJ advisory and Profit Ideas respectively, were liable for unregistered portfolio management services and, therefore, the Board issued following orders against the noticees:

  1. to cease and desist from acting as a portfolio manager and to solicit or undertake such activity or any other activities in the securities market.
  2. Not to divert any funds raised from investors.
  3. Not to dispose of or alienate any assets, or any interest or investment or charge on any of such assets held in their name, except with the prior permission of SEBI.
  4. Immediately withdraw and remove all advertisements, materials etc. in relation to their portfolio management activity or any other unregistered activity in the securities market.
  5. Not to access the securities market and buy, sell or otherwise deal in securities in any manner.

Consequently, the directions were made to the Banks not to allow any debits/ withdrawals and not to allow any credits to the accounts of the noticees, without permission of SEBI. The Depositories were also directed to ensure, till further directions, that no debit or credit be permitted in the demat accounts held by noticees. [GJ Advisory services and Profit Ideas Advisory Services, In Re., 2021 SCC OnLine SEBI 2, decided on 04-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): V.S. Sundaresan, Adjudicating Officer, quashed the adjudicating proceedings initiated against ABG Shipyard Limited, holding them to be infructuous. 

SEBI examined the status of compliance with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, by ABG Shipyard (“Noticee”), whose equity shares are listed on BSE and NSE. During the examination, SEBI observed that the Noticee did not make requisite disclosure under Regulation 40(10) read with 40(9), Regulation 7(3) and 13(3) of LODR Regulations. 

On 8-8-2019, V.S. Sundaresan was appointed as Adjudicating Officer to inquire into and adjudge in the manner specified under Rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 read with Section 15-I (1) and (2) of SEBI Act, and if satisfied, impose a penalty. Accordingly, Notice was issued ABG Shipyard. 

During enquiry, it was observed that the National Company Law Tribunal, vide its order dated 25-4-2019, had ordered the commencement of liquidation of Noticee and also appointed a liquidator therefor under Section 34(2) of the Insolvency and Bankruptcy Code, 2016; whereas, the instant adjudication proceedings were initiated vide order dated 8-8-2019. 

In order to examine the maintainability of the instant adjudication proceedings against the Noticee, the Board referred to Section 446 of the Companies Act, 1956, and its corresponding Section 279 of the Companies Act, 2013, whose provisions are in pari materia, insofar as the commencement or continuation of any “other legal proceedings”, after appointment of liquidator, are concerned.

Referring also to the decision of the Bombay High Court in Deutsche Bank v. S.P. Kala, (1990) 67 Com Cases, the Board observed: “… it is mandatory and a pre-condition to obtain the leave of NCLT for commencing the instant proceedings against the Noticee, which is under liquidation in terms of order dated April 25, 2019 passed by NCLT. It is pertinent to note that there is no material on record to suggest that leave of NCLT has been taken in the instant proceedings.”. It was concluded that instant adjudication proceedings against the Noticee had been initiated after the order of commencement of liquidation and, that too, without the leave of the NCLT.

In view of the foregoing, the Board held that the adjudication proceedings initiated against ABG Shipyard Limited, vide order dated 8-8-2019, and show cause notice dated 18-10-2019 are infructuous and, therefore, cannot be proceeded with. [ABG Shipyard Ltd., In re, 2019 SCC OnLine SEBI 248, decided on 11-11-2019]     

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India, Mumbai: The present case was remanded to SEBI from the order of Securities Appellant Tribunal before G. Mahalingam (Whole Time Member).

The question before SEBI was how to compute disgorgement amount based on inputs provided by the noticees and the period for which the noticees are to be restrained from accessing in the securities market and dealing in securities.

The facts of the case were that SEBI had passed its order against V. Srinivas (CFO), G. Ramakrishna (VP Finance) and Prabhakara Gupta (Head, Internal Audit), Ramalinga Raju and Rama Raju holding them liable under Sections 12A (a), (b), (c), (d) and (e) of the SEBI Act; regulations 3(b),(c) and (d), regulations 4(1) and regulations 4(2)(a),(e),(f),(k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003; and regulations 3 and 4 of the SEBI (Prohibition of Insider Trading) Regulations, 1992. Thereafter an appeal was preferred to the Securities Appellant Tribunal which affirmed the finding of SEBI on merits but remanded the case on grounds that the amount of disgorgement has been arrived at were based on closing price on the date of sales while it should be on the date of actual sales proceeds and that the cost of acquisition and taxes paid were not deducted. It was also alleged that SEBI uniformly restrained all the appellants from accessing the securities market for a period of 14 years without any reasonable cause. SEBI viewed that SAT in its order had observed Ramalinga Raju and Rama Raju to have created fictitious invoices and receipts whereas V. Srinivas, G. Ramakrishna, and Prabhakara Gupta though knew about the above fictitious documents allowed books of Satyam to be formed on the basis of these documents.

Board observed that the role of all the accused were different and similar restraint order could not have been given therefore SEBI directed to restrain the two noticee V. Srinivas and G. Ramakrishna from accessing securities market and dealing in securities for 7 years but for noticee VS Prabhakara accessing securities market and dealing in securities was restrained for 4 years deducting the time period already restrained for. The matter was disposed of with the above direction. [In the matter of Satyam Computer Services Ltd. (SCSL), 2018 SCC OnLine SEBI 165, order dated 16-10-2018]

Case Briefs

Securities and Exchange Board of India (SEBI): A single member bench comprising of Satya Ranjan Prasad, Adjudicating Officer ordered to abate the adjudication proceedings initiated against the noticee, since deceased.

The SEBI had initiated adjudication proceedings against the noticee – Prabir Chakravarti, Member of Board of Directors of Bhoruka Aluminum Limited (BAL). The adjudication was in pursuance of alleged violations of provisions of Section 12-A of the SEBI Act, 1992 read with Regulations 3 and 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003; the violation alleged being in the matter of issue of Global Depository Receipts (GDR) issued by BAL. The investigations conducted revealed that BAL issued certain GDRs all of which were subscribed by Vintage FZE. The subscription amount was paid by Vintage FZE by a loan taken from European American Investment Bank AG. As a security towards the said loan, BAL pledged the GDR proceeds received from Vintage FZE. The resolution for the same was approved by the Board of Directors of BAL, and the noticee was a part of the said Board. It was alleged that the Board including the noticee herein who approved the resolution were parties to the alleged fraudulent scheme.

The Adjudicating Officer appointed under Section 15-HA of the Act issued a show cause notice to the noticee in terms of Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officers) Rules, 1995 read with Section 15-I of the Act. However, the notice returned undelivered and it was informed that the noticee had passed away, a copy of his death certificate was also filed. The Adjudicating Officer noted that the noticee had expired even before the initiation of instanct proceedings against him. It was observed that actions where the relief sought is personal to the deceased, the right to sue does not survive to or against the representatives and in such cases the maxim actio personalis moritor cum persona (personal action dies with death of the person) would apply. Accordingly, the proceedings against the noticee, since deceased, were ordered to stand abated. The proceedings were, thus, disposed of without going into merits of the case. [Global Depository Receipts Issue of Bhoruka Aluminum Ltd., In re, Adjudication Order No. ORDER/SRP/HKS/2018-19/1188, dated 23-08-2018]