Chanda Kochhar vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The appellant has challenged the notice dated April 15, 2021 issued under Rule 4(3) of the Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005 (‘SCR Rules 2005’ for short) wherein the appellant was intimated that the matter would be heard on May 4, 2021.

The facts leading to the filing of the present appeal is, that the respondent issued a show cause notice dated May 23, 2018 raising allegations of inter alia conflict of interest in respect of approvals of loans / credit facilities by the Bank to the Videocon Group.

The appellant submitted a detailed response to the show cause notice on August 24, 2018. A personal hearing was held on November 19, 2018 and thereafter, the appellant submitted its written submissions on December 19, 2018. The matter thereafter was reserved for orders.

On November 19, 2020 the appellant received an e-mail from the respondent in which an amended show cause notice dated November 19, 2020 was enclosed. In this e-mail, the appellant was directed to respond to the amended show cause notice.

It is alleged that the amended show cause notice which was sent was incomplete as it was not accompanied by any enclosures / annexures / exhibits / appendices.

The appellant addressed a letter requesting the respondent to provide inspection and copies of the complete file relating to the amended show cause notice including copies of the annexures / appendices / enclosures / exhibits and underlying material.

It transpires that inspection was held on January 6, 2021. It is alleged that inspection of incomplete documents was provided and this fact was put in writing by the appellant. Subsequently by letter dated January 13, 2021 the appellant contended that the respondent did not provide complete inspection and that inspection of only one document was furnished minus the annexures / appendices, etc.

In this regard, the appellant further requested by a letter dated January 31, 2021 requesting the respondent to supply complete Project Indus Report along with all annexures / appendices and all underlying material and also provide inspection of the said report.

It transpires that the respondent vide letter dated February 26, 2021 informed the appellant that in terms of Section 23-I(2) of the SCRA read with Rule 4 of the SCR Rules 2005, the respondent has directed ICICI Bank to produce the Project Indus Report along with its appendices in its entirety. According to the appellant in spite of the request of the respondent to ICICI Bank the said documents were not furnished nor any inspection was provided and subsequently on April 15, 2021 the notice was issued for hearing. It is at this stage that the appellant has filed the present appeal.

When the appeal was entertained, the learned senior counsel for the respondent sought an adjournment in order to seek necessary instructions in the matter. This fact was recorded in our order dated May 4, 2021. When the matter was again taken up by this Tribunal on May 10, 2021 the Tribunal recorded the submissions of the respondent as under:-

“3. Shri Shyam Mehta, the learned senior counsel for the respondent on the last date sought adjournment of the hearing of the appeal on the ground that he would like to seek instructions and to find out as to whether actual documents were supplied to the appellant or not.

Today a statement has been made by Shri Shyam Mehta, the learned senior counsel for the respondent contending that a letter has been written to ICICI Bank to supply the report along with its annexure etc. and, in this regard, May 12, 2021 has been fixed for the supply of the documents by ICICI Bank and consequently the inspection to be made by the appellant. It has also been stated by the learned senior counsel that ICICI Bank has sought further time on the ground that it is not possible to supply in the short time on account of the ensuing pandemic.”

On July 5, 2021 this Tribunal passed the following order:-

“1. Let an affidavit be filed by the respondent within 24 hours to the effect that they have supplied all the documents as per the directions of this Tribunal’s order dated 10th May, 2021. Put up this matter on 8th July, 2021.”

A reply dated July 8, 2021 was filed by the respondent indicating that the Adjudicating Officer (‘AO’ for short) of the Securities and Exchange Board of India (‘SEBI’ for short) had provided inspection of the documents as available to them and considered relevant by the AO. The reply also contended that the documents which have not been provided will not be relied upon by the AO. On this basis, the respondent contended that the appeal may be disposed of on such terms. Since the affidavit was found to be lacking, we had directed the respondent to file a detailed reply.

We have heard Shri Somasekhar Sundaresan, the learned counsel for the appellant and Shri Shyam Mehta, the learned senior counsel for the respondent.

At the outset, the learned senior counsel for the respondent submitted that the AO will pass a fresh order as to whether the documents sought by the appellant are relevant or not and thereafter will proceed to decide the matter finally. It was urged that on these terms the appeal could be disposed of.

The contention raised by the learned senior counsel for the respondent cannot be accepted. At the outset, the appellant is required to file a reply to the amended show cause notice. The appellant is entitled to seek inspection of documents and apply for a copy of those documents so that an efficacious reply is filed by the appellant. In the absence of inspection or supply of the documents, an efficacious reply cannot be filed. Thus, it is neither feasible nor appropriate for the AO to decide the request of the appellant and proceed with the hearing simultaneously.

We also find that the request of the appellant for furnishing the documents was acceded to by the AO in as much as the AO vide letter dated February 26, 2021 had directed ICICI Bank to produce the Project Indus Report along with its appendices / annexures / exhibits in its entirety. This direction was issued in terms of Section 23-I(2) of the SCRA read with Rule 4 of the SCR Rules 2005. Nothing has come on record to show as to why ICICI Bank has not provided the documents sought for by the AO.

In this regard the decision of the Supreme Court in the case of T. Takano vs Securities and Exchange Board of India, Civil Appeal Nos. 487-488 of 2022 decided on February 18, 2022 becomes relevant. One of the contentions raised in T. Takano was that he was entitled to a copy of the investigation report which was not provided. SEBI took a stand that only those material which have been relied upon is required to be disclosed and that the investigative report being an internal document is not required to be disclosed. The Supreme Court found that if the report of the investigating authority is considered by the Board before satisfaction is arrived at on a possible violation of the Regulations, then the principles of natural justice require due disclosure of the report. Further, the Supreme Court held that once the subordinate legislation mandates that the investigating authority’s report is an essential ingredient for the Board to arrive at the satisfaction, it requires due disclosure. The Supreme Court consequently held that the appellant had a right to disclosure of the material relevant to the proceedings initiated and that all information relevant to the proceedings must be disclosed in adjudication proceedings.

In the instant case, the amended show cause notice is based on Justice Srikrisha’s report which in turn appears to consider Project Indus Report along with its appendices / annexures / exhibits. Such report along with appendices / annexures etc has not been provided to the appellant.

It is the contention of the appellant that Justice Srikrishna report analyses these appendices / annexures / exhibits on the basis of which the conclusion has been drawn.

Whether these annexures / exhibits / appendices and underlying material etc. are essential or not and whether the analysis of these documents forms the basis of the report is a question which is required to be considered by the AO. It is not possible nor appropriate for this Tribunal to delve into this arena and hold as to which document is necessary and which document is irrelevant. We, however, hold that the respondent acted in haste in fixing a date for hearing without supplying the requisite documents to the appellant. If such documents were not relevant appropriate orders ought to have been passed.

Consequently, we dispose of the appeal with the following directions:-

(i) The appellant shall file a fresh application indicating with clarity and precision the documents sought for inspection and / or supply of the said documents.

(ii) This application shall be filed within two weeks from today.

(iii) Upon receipt of the application, the AO shall pass an appropriate order either providing inspection and / or supply of the documents sought for or pass appropriate order giving reasons as to why the appellant cannot be provided inspection or provided copy of the documents.

(iv) Such order, if any, shall be passed within 4 weeks from the date of providing an opportunity of hearing.

(v) While passing the order the AO will also take into consideration the decision of the Supreme Court in T. Takano vs SEBI dated February 18, 2022.

In the circumstances of the case, parties shall bear their own costs.

This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.