Holding

Regulation 10 requires the Board to disclose to the noticee any material from the investigation report that influences the proposed action, subject only to limited redactions for third‑party or market‑sensitive information.

Summary

The appellant, former MD and CEO of Ricoh India Ltd., was served a show‑cause notice by SEBI alleging violations of the SEBI Act and the PFUTP Regulations based on an investigation report. The appellant demanded the full investigation report, but SEBI claimed it was an internal document not subject to disclosure. The Supreme Court held that Regulation 10 obliges the Board to consider the investigation report and therefore must disclose to the noticee any parts of the report that bear on the proposed action, subject only to limited redactions for third‑party privacy or market‑sensitive information. The Court balanced the appellant's right to a fair defence against the need to protect third‑party rights and market stability, placing the burden on SEBI to prima facie show that disclosure would harm such interests. SEBI failed to meet this burden, and the Court ordered that relevant portions of the report be provided, with a hearing to address any objections. The appeals were allowed, setting aside the High Court judgment.

Issues considered

The investigation report under Regulation 9 of the PFUTP Regulations must be disclosed to a person served with a show‑cause notice.
Whether SEBI can withhold the report on the ground that it is an internal document.
The extent of the duty to disclose, including permissible redactions for third‑party privacy and market‑sensitive information.
The allocation of the burden of proof regarding prejudice from non‑disclosure.

Legislation cited

Companies Act, 1956s. 235-241
Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003s. Regulation 10, s. Regulation 11, s. Regulation 12, s. Regulation 3(b), s. Regulation 3(c), s. Regulation 3(d), s. Regulation 4(1), s. Regulation 4(2)(e), s. Regulation 4(2)(k), s. Regulation 5, s. Regulation 6, s. Regulation 9
Right to Information Act, 2005s. Section 8(1)(d), s. Section 8(1)(e), s. Section 8(1)(h)
Securities and Exchange Board of India Act, 1992s. 11(1), s. 11(4), s. 11B, s. 11B(1), s. 11B(2), s. 11C, s. 15HA
Securities Contracts (Regulation) Act, 1956

Subjects

SEBIinvestigation report disclosurenatural justiceRegulation 9Regulation 10show cause noticethird‑party privacysecurities market stabilityPFUTP Regulationsprocedural fairness

Judgment

212 [2022]REPORTS
SUPREME COURT 16 S.C.R. 212 [2022] 16 S.C.R.

A T. TAKANO
v.
SECURITIES AND EXCHANGE BOARD OF INDIA & ANR.
(Civil Appeal Nos. 487-488 of 2022)
B FEBRUARY 18, 2022
[DR DHANANJAYA Y CHANDRACHUD AND
SANJIV KHANNA, JJ.]
Securities and Exchange Board of India Act 1992 (SEBI) –
ss. 11(1), 11(4), 11B, 11B(1), 11B(2), 11C and 15HA – SEBI
C
(Prohibition of Fraudulent and Unfair Trade Practices) Regulations
2003 (PFUTP Regulations) – Regn. 3(b), 3(c), 3(d), 4(1), 4(2)(e),
4(2)(k), 5, 6, 9, 10, 11 and 12 – Regn. 6 – Disclosure of investigation
report – Appellant was employed as MD and CEO in a public listed
company – Show cause notice issued to the appellant for violation
D of the provisions of the SEBI Act, SCRA and PFUTP Regulations –
Show cause notice specifically relied upon the report of the
investigation and invokes, inter alia, a violation of the PFUTP
Regulations by the appellant – Appellant responded to show cause
notice stating that he had not received the report of the investigation
conducted by SEBI – Respondent-SEBI stated that the investigation
E
report is an ‘internal document’ which cannot be shared – Appellant
reiterated the demand to receive report of the investigation
conducted by SEBI – Whether an investigation report under
Regulation 9 of the PFUTP Regulations must be disclosed to the
person to whom a notice to show cause is issued – Held: The Board
F should determine such parts of the investigation report u/Regn. 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 – The Board shall be duty-bound to provide copies
of such parts of the report which concern the specific allegations
which have been levelled against the appellant in the notice to show
G
cause – It can redact information that impinges on the privacy of
third parties – It cannot exercise unfettered discretion in redacting
information – The institution/authority/agency can withhold
disclosure of those sections of the report which deal with third party
personal information and strategic information bearing upon the
H
212
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 213
INDIA & ANR.

stable and orderly functioning of the securities market – Respondent A
should prima facie establish that the disclosure of the report would
affect third-party rights and the stability and orderly functioning of
the securities market – The onus then shifts to the appellant to prove
that the information is necessary to defend his case appropriately.
Allowing the appeals, the Court B
HELD: 1.1 The appellant is unable to prove that the
disclosure of the entire report is necessary for him to defend the
case. The first respondent made the following arguments making
a prima facie case that the disclosure of the report would violate
third party rights: (i) Investigation reports contain information C
on the volatile nature of the market; (ii) The report also contains
the personal information of various stakeholders. Disclosure will
violate the right to privacy of the third party individuals; and (iii)
It includes strategic information. [Para 47][255-B-D]
1.2 The appellant did not sufficiently discharge his burden D
by proving that the non-disclosure of the above information would
affect his ability to defend himself. However, merely because a
few portions of the enquiry report involve information on third-
parties or confidential information on the securities market, the
respondent does not have a right to withhold the disclosure of
the relevant portions of the report. The first respondent can only E
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 market. [Para 48][255-D-E]
1.3 The Board should determine such parts of the
investigation report under Regulation 9 which have a bearing on F
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 G
are necessary for the appellant 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

H
214 SUPREME COURT REPORTS [2022] 16 S.C.R.

A 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 appellant,
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
B
has been effectively complied with. [Para 49][255-F-H; 256-A]
1.4 The notice to show cause issued to the appellant is for
violation of the provisions of the SEBI Act, SCRA and PFUTP
Regulations. The show cause notice has specifically referred to
what was revealed during the course of the investigation and has
C invoked the provisions of the PFUTP Regulations in the
allegations against the appellant. Since the show cause notice
has specifically relied upon the report of the investigation and
invokes, inter alia, a violation of the PFUTP Regulations by the
appellant, the mandate of Regulation 10 must be complied with.
D However, while directing that there should be a disclosure of the
investigation report to the appellant, it needs to be clarified that
this would not permit the appellant to demand roving inspection
of the investigation report which may contain sensitive information
as regards unrelated entities and transactions [Para 50][256-B,
E-F]
E
1.5 This Court concludes that: (i)The appellant has a right
to disclosure of the material relevant to the proceedings initiated
against him. A deviation from the general rule of disclosure of
relevant information was made in Natwar Singh based on the stage
of the proceedings. It is sufficient to disclose the materials relied
F on if it is for the purpose of issuing a show cause notice for deciding
whether to initiate an inquiry. However, all information that is
relevant to the proceedings must be disclosed in adjudication
proceedings; (ii) The Board under Regulation 10 considers the
investigation report submitted by the Investigating Authority
G under Regulation 9, and if it is satisfied with the allegations, it
could issue punitive measures under Regulations 11 and 12.
Therefore, the investigation report is not merely an internal
document. In any event, the language of Regulation 10 makes it
clear that the Board forms an opinion regarding the

H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 215
INDIA & ANR.

violation of Regulations after considering the investigation report A
prepared under Regulation 9; (iii) The disclosure of material
serves a three- fold purpose of decreasing the error in the verdict,
protecting the fairness of the proceedings, and enhancing the
transparency of the investigatory bodies and judicial institutions;
(iv) A focus on the institutional impact of suppression of material
B
prioritises the process as opposed to the outcome. The direction
of the Constitution Bench of this Court in Karunakar that the
non-disclosure of relevant information would render the order of
punishment void only if the aggrieved person is able to prove
that prejudice has been caused to him due to non-disclosure is
founded both on the outcome and the process; C
(v) The right to disclosure is not absolute. The disclosure
of information may affect other third-party interests and the
stability and orderly functioning of the securities market. The
respondent should prima facie establish that the disclosure of
the report would affect third-party rights and the stability and D
orderly functioning of the securities market. The onus then shifts
to the appellant to prove that the information is necessary to defend
his case appropriately; and (vi) Where some portions of the enquiry
report involve information on third-parties or confidential
information on the securities market, the respondent cannot for
that reason assert a privilege against disclosing any part of the E
report. The respondents can withhold disclosure of those sections
of the report which deal with third-party personal information and
strategic information bearing upon the stable and orderly
functioning of the securities market. [Para 51][256-G-H; 257-A-
H; 258-A-B] F
1.7 The Board shall be duty-bound to provide copies of
such parts of the report which concern the specific allegations
which have been levelled against the appellant in the notice to
show cause. However, this does not entitle the appellant to receive
sensitive information regarding third parties and unrelated G
transactions that may form part of the investigation report. [Para
52][258-B-C]
Chandrama Tewari v. Union of India (1988) 1 SCR
1102 : [1988] SCR 1102; Natwar Singh v. Director of
H
216 SUPREME COURT REPORTS [2022] 16 S.C.R.

A Enforcement (2010) 13 SCC 255 : [2010] 13 SCR 99;
Krishna Chandra Tandon v. Union of India AIR 1974
SC 1589 – referred to.
Khudiram Das v. State of West Bengal (1975) 2 SCC
81 : [1975] 2 SCR 832; Union of India and Ors. v.
B Mohd. Ramzan Khan (1991) 1 SCC 588 : [1990] 3
Suppl. SCR 248; Managing Director, ECIL, Hyderabad
v. B. Karunakar (1993) 4 SCC 727 : [1993] 2 Suppl.
SCR 576; State Bank of Patiala v. S K Sharma (1996)
3 SCC 364 : [1996] 3 SCR 972; State of Uttar Pradesh
v. Ramesh Chandra Mangalik (2002) 3 SCC 443;
C Kothari Filaments v. Commr. of Customs (2009) 2 SCC
192 : [2008] 17 SCR 647 – relied on.
Case Law Reference
[1988] SCR 1102 referred to Para 14
D [1975] 2 SCR 832 relied on Para 13
[1990] 3 Suppl. SCR 248 relied on Para 35
[1993] 2 Suppl. SCR 576 relied on Para 35
[1996] 3 SCR 972 relied on Para 36
E (2002) 3 SCC 443 relied on Para 37
[2008] 17 SCR 647 relied on Para 38
[2010] 13 SCR 99 referred to Para 12
(1974) 4 SCC 374 referred to Para 14
F
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 487-
488 of 2022.
From the Judgment and Order dated 29.09.2020 of the High Court
of Judicature at Bombay in Writ Petition (L) No.3298 of 2020 and Order
dated 22.10.2020 in Review Petition (L) No.4780 of 2020 in Writ Petition
G
(L) No. 3298 of 2020.
Ashim Sood, Ms. Shreya Suri, Ms. Vaishnavi Rao, Ms. Swati
Mittal, Rhytham Buaria, Senu Nizar, Armaan Pratap Singh, Ekansh Gupta,
Kuberinder Bajaj, Ms. Aurica Bhattacharya, Samarth Mohanty, Rajat
Singh, Advs. for the Appellant.
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 217
INDIA & ANR.

C. U. Singh, Sr. Adv., Ashish Prasad, Mahfooz Ahsan Nazki, A
Pruthvi Dhinoja, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR DHANANJAYA Y CHANDRACHUD, J.
A. Factual Background ........................................................... 3* B
B Submissions of Counsel ..................................................... 10*
C. Analysis .......................................................................... 16*
C.1 Regulatory Framework of PFUTP Regulations ... 16*
C.2 Duty to Disclose Investigative Material ............... 23* C
C.3. Exceptions to the Duty to Disclose ..................... 43*
D. Conclusion ........................................................................ 47*

A. Factual Background D
1. By a judgment dated 29 September 2020, a Division Bench of
the Bombay High Court dismissed the petition instituted by the appellant
under Article 226 of the Constitution for challenging a show cause notice
which was issued by the first respondent1 alleging a violation of the
provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade E
Practices) Regulations 20032. A petition seeking a review of the judgment
of the Division Bench was disposed of by an order dated 22 October
2020. The appellant moved a Special Leave Petition against the judgment
in the writ petition and the order in review. The principal issue is whether
an investigation report under Regulation 9 of the PFUTP Regulations F
must be disclosed to the person to whom a notice to show cause is
issued.
2. The appellant was employed as the Managing Director3 and
Chief Executive Officer4 in Ricoh India Limited5, a public listed company,
for the financial years 2012-13, 2013-14 and 2014-15, till 31 March 2015.
G
* Ed.Note : Pagination as per the original Judgment
1
“SEBI” or the “Board”
2
“PFUTP Regulations”
3
“MD”
4
“CEO”
5
“Company” H
218 SUPREME COURT REPORTS [2022] 16 S.C.R.

A In 2016, BSR & Co. were appointed as statutory auditors of the Company.
The auditors raised a suspicion regarding the veracity of the financial
statements of the Company for the quarters that ended on June 30, 2015
and September 30, 2015. The Audit Committee of the Company appointed
Price Water House Coopers Private Limited6 to carry out a forensic
audit. PWC submitted a preliminary audit report on 20 April 2016. The
B
Company addressed a communication to the first respondent on the same
day stating that the financial statements for those quarters did not reflect
the true affairs of the Company and requested the first respondent to
carry out an independent investigation on possible violations of the
provisions of the PFUTP Regulations. The final report submitted by PWC
C was forwarded by the Company to the first respondent on 29 November
2016.
3. The first respondent initiated an investigation. During the course
of the investigation, summons was issued to Manoj Kumar (then MD &
CEO for the financial year of 2015-16), Arvind Singhal (then Chief
D Financial Officer) and Anil Saini (then Senior Vice President and Chief
Operating Officer). The Company in its letter dated 8 June 2016 submitted
that it suspected Manoj Kumar, Arvind Singhal and Anil Saini for their
involvement in misstating the financial affairs. The first respondent in its
ex parte interim order–cum–show cause notice prima facie found two
others, including the appellant, responsible for facilitating the
E misstatements of the financial position. With regard to the role of the
appellant, it was noted:
“On examination of the Organization Structure of Ricoh for past
years, it is noted that T. Takano was the MD & CEO of the
Company till March 31, 2015. It is also noted that the mandate for
F PwC investigation was restricted to the half-year ended September
30, 2015 and not extended to all the years when the misstatements
occurred. If Manoj Kumar, who was MD & CEO in FY 2015-16
was held responsible for the fraud, it is only logical that T. Takano
as the previous MD & CEO (during whose tenure the fraud
G actually started) was also responsible for the misstatements. It
appears that by restricting the investigation period mandated to
PwC, the Company intended to restrain PwC from examining the
transactions of the previous years and thereby ring-fence the earlier
MD & CEO, T. Takano.”
6
H “PWC”
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 219
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

4. Based on the investigation, it was noted that the financial A
misstatements commenced from 2012-13 and the Company suffered a
loss due to, inter alia, transfers to third parties, write-offs and a sale
made to Fourth Dimension Solutions Limited7 without inventory. It was
further noted that the share price of the Company had gone up due to
the misstatements. Hence, it was observed that the appellant, along with
B
five others, has prima facie violated the provisions of Section 12A(a),
12(A)(b) and 12A(c) of the Securities and Exchange Board of India Act
19928 read with Regulations 3(b), 3(c), 3(d), 4(1), 4(2)(e), 4(2)(k) and
4(2)(r) of the PFUTP Regulations. Hence, the first respondent issued
the following directions under Sections 11(1), 11(4) and 11B of the SEBI
Act and Regulation 11 of the PFUTP Regulations: C
(i) The appellant and the other five key managerial persons
were restrained from accessing the securities market or
buying, selling or otherwise dealing in the securities market;
(ii) An independent audit firm was appointed for conducting a
detailed forensic audit of the books of accounts of the D
company from the financial year 2012-13 ;
(iii) The independent audit firm was called upon to submit a
report to the first respondent within three months from the
date of appointment; and
E
(iv) A show cause notice for directions under Sections 11, 11(4)
and 11 (B) of the SEBI Act, including directions for
restraining/prohibiting him from accessing the securities
market and buying, selling or otherwise dealing in securities
in any manner.
F
5. By his letters dated 6 June 2018 and 28 June 2018, and at a
personal hearing on June 11, 2018 the appellant submitted that:
(i) He had no knowledge of the purported transactions and/or
the misstatements in the books of account;
(ii) The inclusion of his name in the interim order-cum-show G
cause notice was speculative, based on the premise that
since the MD and CEO of financial year 2015-16 has been
held prima facie responsible, the appellant who was the
7
“FDSL”
8
“SEBI Act” H
220 SUPREME COURT REPORTS [2022] 16 S.C.R.

A MD and CEO during the previous year must also be held
responsible; and
(iii) The financial team was solely responsible for preparing
financial statements. These statements were then examined
by the statutory auditors of the company. The version
B subsequently prepared was the final version of the financial
statement. Therefore, he had no knowledge of the intricacies
of the financial statements.
6. By an order dated 16 August 2018 9, the first respondent
confirmed the directions issued in the ex parte interim order dated 12
C February 2018. The order notes that though the facts indicate large-
scale irregularities in business transactions, the time span of the
irregularities and the exact role of the noticees are not fully ascertained,
and therefore, “it would be premature to give credence to the submissions
of the individual noticees”. It was also observed that “a clear picture
regarding the financial affairs of the company and the role of various
D noticees in the alleged fraud is yet to emerge pending such investigation.”
The time for submission of the forensic report by the first respondent
was extended to 30 September 2018. SEBI appointed Pipara & Co.
LLP on 20 February 2019 to conduct a forensic audit of the books of
account of the Company. The report of the forensic auditors was
E submitted on 25 October 2019.
7. The appellant challenged the confirmatory order before the
Securities Appellate Tribunal10, Mumbai. The appeals were allowed and
the order against the appellant was quashed on 29 January 2020 on the
grounds that:
F (i) The confirmatory order is based on a suspicion about the
role of the appellant;
(ii) The submissions of the appellant were not dealt with
appropriately;
(iii) Since the company is in liquidation, the appellant is not in a
G
position to influence decisions; and

9
“Confirmatory order”
10
H “Tribunal”
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 221
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

(iv) The appellant cannot be prevented from dealing in the securities A
market when the appellant is held to be vicariously liable due
to the position he held as MD/CEO.
The tribunal, however, directed that the first respondent is at liberty
to issue a fresh show cause notice if the evidence against the appellant
is made available through the forensic report or through the first B
respondent’s investigation.
8. A fresh show cause notice was issued to the appellant on 19
March 2020 under the provisions of Sections 11(1), 11(4), 11(4A), 11B(1)
and 11B(2) and 15HA of the SEBI Act and Section 12A(2) read with
Section 23H of the Securities Contracts (Regulation) Act 1956 11 based C
on the forensic audit report and investigation conducted by the first
respondent. With regard to the appellant, it was alleged that :
“… Mr. T. Takano, during whose tenure the business transactions
with FDSL started by virtue of his position as MD & CEO of
Ricoh during FY 2012-13 to FY 2014-15, was actively involved in D
committing the fraud and had knowingly restricted the mandate
given to PwC to six month so as to succeed in hiding his role in
the commission of fraud of publishing untrue financial statements
of Ricoh which resulted in misleading the investors about the
financial performance of the company and thereby resulted in
inducement to trades in the scrip. The said acts of the Noticee no. E
2 are alleged to be in violation of regulations 3 (b), (c), (d), 4(1)
and 4(2)(e), (f), (k) and (r) of SEBI (PFUTP) Regulations, 2003
and clause 49(V) read with 41(Il)(a) of the erstwhile Listing
Agreement.”
9. The appellant claims that he received the show cause notice by F
email on 4 August 2020. The appellant responded to the show cause
notice on 6 August 2020 stating that though he had received the forensic
audit report submitted by Pipara & Co. LLP, he had not received the
report of the investigation conducted by SEBI. The appellant sought an
opportunity to inspect the following records: G
“[…] including but not limited to all material on which reliance
was placed Pipara & Co. LLP for the purpose of preparing the
forensic audit report, all material on which reliance has been placed
while issuing the Show Cause Notice, and on which reliance is
11
“SCRA” H
222 SUPREME COURT REPORTS [2022] 16 S.C.R.

A intended to be placed while making any adjudication on the Show
Cause Notice (“material”).”
10. By its communication dated 13 August 2020, the first respondent
stated that the investigation report is an ‘internal document’ which cannot
be shared. The appellant was provided time until 9 August 2020 to inspect
B the other documents. The first respondent enclosed soft copies of the
annexures to the forensic report and called upon the appellant to submit
a reply. The appellant reiterated the demand to inspect the investigation
report. By an email dated 4 September 2020, the appellant was informed
that the investigation report of SEBI was not relied on to issue the show
cause notice and hence, would not be provided.
C
11. The appellant filed a writ petition before the Bombay High
Court challenging the show cause notice which was issued on 19 March
2020. In the alternative, inspection of all documents relied on to issue the
show cause notice was sought. The appellant submitted before the High
Court that to non-disclosure of all relevant documents relied on to issue
D the show cause notice violated the principles of natural justice.
12. By its judgment dated 29 September 2020, the High Court
held that the investigation report prepared under Regulation 9 of PFUTP
Regulations is solely for internal purposes. In concluding that the
investigation report need not be furnished while issuing a show cause
E notice, the High Court has relied on the decision of this Court in Natwar
Singh v. Director of Enforcement12. In sum and substance, the High
court has held that the report does not form the basis of the show cause
notice and therefore need not be disclosed. The review petition challenging
the judgment of the Division Bench of the High Court was rejected.
F B. Submissions of Counsel
13. Mr Ashim Sood, learned Counsel appearing for the appellant
made the following submissions:
(i) Regulation 10 has two synchronous requirements – (i)
consideration of the investigation report and satisfaction on
G
such consideration that there is a violation of the PFUTP
Regulations; and (ii) a hearing. The purpose of the
investigation report is to adjudicate whether there has been
a contravention of the Regulations. There is no intermediate
12
H (2010) 13 SCC 255
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 223
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

stage between the consideration of the report and the A
adjudication of liability. Both stages are synchronous, making
the investigation report the primary material on which the
adjudicator relies upon under the PFUTP Regulations;
(ii) The High Court erred in holding that the investigation report
is a preliminary report and is to be used for “internal B
administrative discipline”. The investigation report is not a
preliminary document and is compiled at the end of a
thorough and exhaustive investigation. The proviso to
Regulation 9, provides for an “interim report” making it clear
that the investigation report is not a preliminary document;
C
(iii) The investigation report is not a document to be used for
internal deliberations, which is a stage that is crossed at
Regulation 5. The investigation report is to be used for
adjudication of liability in terms of Regulation 10;
(iv) The High Court erred in observing that the investigation D
report was not used against the appellant and does not form
the basis of the show cause notice. The show cause notice
dated 19 March 2020 contains several references to the
investigation carried out by the first respondent. These
allegations differ from the ones listed in an earlier show
cause notice, which was issued to the appellant and was E
set aside by SAT on 29 January 2020 in Appeal No 427 of
2018. Further, the duty to disclose is not contingent on
whether the respondent relies on a document; rather the
duty is invoked when a request made for a document is
found to be reasonable and relevant for the defence to be F
mounted by the noticee;
(v) Regulation 10 mandates that the entire investigation report
be disclosed to the noticee. This mandate can only be subject
to certain well-recognized exceptions. Such exceptions must
be invoked with the utmost circumspection by SEBI and G
for reasons that are recorded in writing;
(vi) The decision of this Court in Natwar Singh (supra) supports
the principle that material relied upon in a quasi-judicial
proceeding must be disclosed to the person to whose
H
224 SUPREME COURT REPORTS [2022] 16 S.C.R.

A prejudice such material may be used for taking adverse
action;
(vii) In Khudiram Das v. State of West Bengal13, this Court
held that once a statute prescribes reliance on certain
material, such material should be disclosed to the opposite
B party. This principle has been followed in multiple contexts,
including proceedings under the Companies Act 1956 and
Special Courts Act 1979;
(viii) If the entire investigation report is not provided, it would be
difficult to come up with a metric for determining which
C parts of the report are relevant to the noticee;
(ix) Permitting the respondent to selectively disclose portions
of the investigation report carries with it the risk of
conferring unfettered discretion upon the first respondent.
The first respondent will attempt to disclose the least possible
D information in an adversarial proceeding, undermining the
mandate of Regulation 10;
(x) Without having access to the entirety of the investigation
report, the noticee will be incapable of effectively
challenging the decision of the first respondent. It will result
E in the adoption of an opaque process where SAT or the
High Courts would receive the report in sealed covers and
make ex parte determinations of whether the redactions
made by the first respondent are justified, impacting the
transparency of the judicial process;

F (xi) Regulation 9 imposes a qualitative requirement in relation
to the investigation. If the investigation report is not
disclosed, there is no incentive for the investigator to meet
that qualitative requirement. There would be no way,
therefore, to determine whether the investigation report was
properly compiled and whether the investigation was
G conducted in a regular manner, in accordance with the
standards of what a proper investigation entails;
(xii) Redaction of the investigation report can be carried out as
an exception for legitimate reasons. To reduce arbitrariness,
13
H (1975) 2 SCC 81
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 225
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

the redactions should be supported by written reasons A
indicating the necessity of the measure. The reasons should
have a certain degree of specificity;
(xiii) The exceptional situations in which redactions can be made
are known to law and include business secrets, personal
data and third-party confidential information; and B
(xiv) Laws in the United States and European Union also adopt
the default position that the noticee shall have access to the
file subject to certain exceptions relating to business secrets
and personal data, amongst others.
14. On behalf of the respondents, Mr CU Singh, learned senior C
counsel, made the following submissions:
(i) The appellant has raised the argument that the investigation
has been solely conducted under the PFUTP Regulations
and the failure to disclose the investigation report amounts
to a violation of Regulations 9 and 10. This is incorrect. D
The proceedings have been initiated under the provisions
of the SEBI Act and the SCRA as well for a violation of
the provisions of the PFUTP Regulations and the Listing
Agreement. The SEBI Act and the SCRA are wider in
scope than the PFUTP Regulations. Additionally, Regulation E
11 of PFUTP Regulations specifically provides that the
actions or directions may be issued without prejudice to the
provisions contained in sub-sections (1), (2), (2A) and (3)
of Sections 11 and 11B of the SEBI Act;
(ii) SEBI conducts an investigation under Section 11C of the F
SEBI Act, where, based on the findings arrived at during
the investigation, allegations are levelled in the show cause
notice. Together with the show cause notice all the
documents that have been relied upon by the investigator
are provided to the noticee. In the present, case all the
relevant documents have been provided to the noticee, G
including the report of Pipara and Co. which formed the
basis of the show cause notice. The appellant is not entitled
to any other documents;
(iii) The quasi-judicial proceedings that are initiated by SEBI
proceed on the basis of the allegations that are mentioned H
226 SUPREME COURT REPORTS [2022] 16 S.C.R.

A in the show cause notice and the documents that are
annexed to it. No other material, document or investigation
is considered for adjudication by the competent authority.
Orders are passed only after an opportunity to file a reply
is given and a personal hearing is provided to comply with
the principles of natural justice;
B
(iv) Regulation 9 of PFUTP Regulations requires the
Investigating Authority to submit the report, after completion
of the investigation, to the appointing authority. However,
the provision does not require the furnishing of the report to
the noticee. The report is only in the nature of an inter-
C departmental communication between officers investigating
the matter and the authority who decides if any enforcement
action is to be taken against an entity based on any prima
facie grounds. It is not a piece of evidence but is rather a
culmination of documents that the investigating authority
D relies upon or comes across during the investigation;
(v) This Court in several similar cases have held that internal
investigation reports are not required to be shared. (Krishna
Chandra Tandon v. Union of India14 and Chandrama
Tewari v. Union of India15);
E (vi) The investigations conducted by SEBI are highly sensitive
given the volatile nature of the market. Disclosure of such
information may adversely affect the market. Further, the
investigation reports also contain the personal information
of other stakeholders. They also include information relating
F to the commercial and business interests of third-parties.
Sharing such information with the noticee will raise concerns
regarding the privacy of third-parties and also affect their
competitive position in the market;
(vii) Clauses (d), (e) and (h) of sub-Section (1) of Section 8 of
G the Right to Information Act 200516 also exempt disclosure
of – (i) “information including commercial confidence, trade
secrets or intellectual property, the disclosure of which would
harm the competitive position of a third party”; (ii)
14
AIR 1974 SC 1589
15
(1988) 1 SCR 1102
H 16
“RTI Act”
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 227
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

“information available in fiduciary relationship”; and (iii) A
“information which would impede the process of
investigation”; and
(viii) The US Securities and Exchange Commission conducts its
investigations on a confidential basis to maximize their
effectiveness and protect the privacy of those involved. UK B
Financial Conduct Authority also does not share confidential
information even when the same is requested under the
Freedom of Information Act stating that a clear
confidentiality restriction encourages free flow of information
and ifconfidential information were to be made public,
sources would be less willing to give information. Article C
54 of Directive 2004/39 of the EU Parliament provides a
legal framework for securities market and mandates that
information of such nature ought not to be shared. Thus,
the refusal of SEBI to furnish the investigation report is in
line with established global practices. D
C. Analysis
C.1 Regulatory Framework of PFUTP Regulations
15. The PFUTP Regulations have been notified by SEBI in
exercise of powers conferred by Section 30 of the SEBI Act. Regulation E
2(c) defines the expression ‘fraud’ in the following terms:
“2(c) “fraud” includes any act, expression, omission or
concealment committed whether in a deceitful manner or not by
a person or by any other person with his connivance or by his
agent while dealing in securities in order to induce another person F
or his agent to deal in securities, whether or not there is any
wrongful gain or avoidance of any loss, and shall also include—
(1) a knowing misrepresentation of the truth or concealment of
material fact in order that another person may act to his detriment;
(2) a suggestion as to a fact which is not true by one who does not G
believe it to be true;
(3) an active concealment of a fact by a person having knowledge
or belief of the fact;
(4) a promise made without any intention of performing it;
H
228 SUPREME COURT REPORTS [2022] 16 S.C.R.

A (5) a representation made in a reckless and careless manner
whether it be true or false;
(6) any such act or omission as any other law specifically declares
to be fraudulent,
(7) deceptive behaviour by a person depriving another of informed
B consent or full participation,
(8) a false statement made without reasonable ground for believing
it to be true.
(9) the act of an issuer of securities giving out misinformation that
C affects the market price of the security, resulting in investors being
effectively misled even though they did not rely on the statement
itself or anything derived from it other than the market price.
And “fraudulent” shall be construed accordingly; Nothing contained
in this clause shall apply to any general comments made in good
D faith in regard to—
(a) the economic policy of the government
(b) the economic situation of the country
(c) trends in the securities market;
E (d) any other matter of a like nature
whether such comments are made in public or in private;”
16. Chapter II of the Regulations relates to the prohibition of
fraudulent and unfair trade practices relating to the securities market.
This includes Regulation 3 which deals with “Prohibition of certain dealings
F in securities” and Regulation 4 which deals with “Prohibition of
manipulative, fraudulent and unfair trade practices”. Chapter II pertains
to the power of the Board to order an investigation. Regulation 5 is
extracted below:
“5. Where the Board, the Chairman, the member or the Executive
G Director (hereinafter referred to as “appointing authority”) has
reasonable ground to believe that—
(a) the transactions in securities are being dealt with in a manner
detrimental to the investors or the securities market in violation of
these regulations;
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 229
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

(b) any intermediary or any person associated with the securities A
market has violated any of the provisions of the Act or the rules
or the regulations, it may, at any time by order in writing, direct
any officer not below the rank of Division Chief (hereinafter
referred to as the “Investigating Authority”) specified in the order
to investigate the affairs of such intermediary or persons associated
B
with the securities market or any other person and to report thereon
to the Board in the manner provided in section 11C of the Act.”
Regulation 6 enunciates the powers of the investigating authority.17
The powers of the investigating authority include:

17
6. Without prejudice to the powers conferred under the Act, the Investigating Authority
C
shall have the following powers for the conduct of investigation, namely :
(1) to call for information or records from any person specified in section 11(2)(i) of
the Act;
(2) to undertake inspection of any book, or register, or other document or record of any
listed public company or a public company (not being intermediaries referred to in
section 12 of the Act) which intends to get its securities listed on any recognized stock D
exchange where the Investigating Authority has reasonable grounds to believe that such
company has been conducting in violation of these regulations;
(3) to require any intermediary or any person associated with securities market in any
manner to furnish such information to, or produce such books, or registers, or other
documents, or record before him or any person authorized by him in this behalf as he
may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the E
purposes of the investigation;
(4) to keep in his custody any books, registers, other documents and record produced
under this regulation for a maximum period of one month which may be extended upto
a period of six months by the Board :
Provided that the Investigating Authority may call for any book, register, other document
or record if the same is needed again :
Provided further that if the person on whose behalf the books, registers, other documents F
and record are produced requires certified copies of the books, registers, other documents
and record produced before the Investigating Authority, he shall give certified copies of
such books, registers, other documents and record to such person or on whose behalf
the books, registers, other documents and record were produced;
(5) to examine orally and to record the statement of the person concerned or any
director, partner, member or employee of such person and to take notes of such oral
examination to be used as an evidence against such person :
G
Provided that the said notes shall be read over to, or by, and signed by, the person so
examined;
(6) to examine on oath any manager, managing director, officer or other employee of
any intermediary or any person associated with securities market in any manner in
relation to the affairs of his business and may administer an oath accordingly and for
that purpose may require any of those persons to appear before him personally. H
230 SUPREME COURT REPORTS [2022] 16 S.C.R.

A (i) Calling for information or records;
(ii) Undertaking inspection of books, registers and documents or
records of any public company;
(iii) Requiring the disclosure of information, documents or records
by any person associated with the securities market or by an
B intermediary;
(iv) Reservation and custody of books, registers, documents and
records for a stipulated period;
(v) Examination of and recording the statement of directors,
C partners, members or employees; and
(vi) Examination on oath.
17. Under Regulation 718 the investigating authority may exercise
certain specified powers after obtaining the specific approval of the
Chairman or Members of the Board. Regulation 819 imposes a duty to
D 18
7. The Investigating Authority may, after obtaining specific approval from the
Chairman or Member also exercise all or any of the following powers, namely :
(a) to call for information and record from any bank or any other authority or board or
corporation established or constituted by or under any Central, State or Provincial Act
in respect of any transaction in securities which are under investigation;
(b) to make an application to the Judicial Magistrate of the first class having jurisdiction
E for an order for the seizure of any books, registers, other documents and record, if in the
course of investigation, the Investigating Authority has reasonable ground to believe
that such books, registers, other documents and record of, or relating to, any intermediary
or any person associated with securities market in any manner may be destroyed,
mutilated, altered, falsified or secreted;
(c) to keep in his custody the books, registers, other documents and record seized under
these regulations for such period not later than the conclusion of the investigation as he
F considers necessary and thereafter to return the same to the person, the company or the
other body corporate, or, as the case may be, to the managing director or the manager or
any other person from whose custody or power they were seized :
Provided that the Investigating Authority may, before returning such books, registers,
other documents and record as aforesaid, place identification marks on them or any part
thereof;
(d) save as otherwise provided in this regulation, every search or seizure made under
G this regulation shall be carried out in accordance with the provisions of the Code of
Criminal Procedure, 1973 (2 of 1974) relating to searches or seizures made under that
Code.
19
8. (1) It shall be the duty of every person in respect of whom an investigation has
been ordered under regulation 7—
(a) to produce to the Investigating Authority or any person authorized by him such
books, accounts and other documents and record in his custody or control and to
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 231
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

cooperate upon every person in respect of whom an investigation has A
been ordered under Regulation 7.
18. Regulation 9 upon which the controversy in the present case
turns is extracted below:
“9. The Investigating Authority shall, on completion of investigation,
after taking into account all relevant facts, submit a report to the B
appointing authority:
Provided that the Investigating Authority may submit an interim
report pending completion of investigations if he considers
necessary in the interest of investors and the securities market or
as directed by the appointing authority.” C

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 D
directed by the appointing authority.

furnish such statements and information as the Investigating Authority or the person
so authorized by him may reasonably require for the purposes of the investigation;
(b) to appear before the Investigating Authority personally when required to do so by E
him under regulation 6 or regulation 7 to answer any question which is put to him by
the Investigating Authority in pursuance of the powers under the said regulations.
(2) Without prejudice to the provisions of sections 235 to 241 of the Companies Act,
1956 (1 of 1956), it shall be the duty of every manager, managing director, officer and
other employee of the company and every intermediary referred to in section 12 of the
Act or every person associated with the securities market to preserve and to produce
to the Investigating Authority or any person authorized by him in this behalf, all the F
books, registers, other documents and record of, or relating to, the company or, as the
case may be, of or relating to, the intermediary or such person, which are in their
custody or power.
(3) Without prejudice to the generality of the provisions of sub-regulations (1) and (2),
such person shall—
(a) allow the Investigating Authority to have access to the premises occupied by such
G
person at all reasonable times for the purpose of investigation;
(b) extend to the Investigating Authority reasonable facilities for examining any books,
accounts and other documents in his custody or control (whether kept manually or in
computer or in any other form) reasonably required for the purposes of the investigation;
(c) provide to such Investigating Authority any such books, accounts and records
which, in the opinion of the Investigating Authority, are relevant to the investigation or,
as the case may be, allow him to take out computer outprints thereof. H
232 SUPREME COURT REPORTS [2022] 16 S.C.R.

A 19. Regulation 10 deals with the Board’s power of enforcement.
According to Regulation 10:
“10. The Board may, 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
B concerned, issue such directions or take such action as mentioned
in regulation 11 and regulation 12 :
Provided that the Board may, in the interest of investors and the
securities market, pending the receipt of the report of the
investigating authority referred to in regulation 9, issue directions
C under regulation 11:
Provided further that the Board may, in the interest of investors
and securities market, dispense with the opportunity of pre-
decisional hearing by recording reasons in writing and shall give
an opportunity of post-decisional hearing to the persons concerned
D as expeditiously as possible.”
20. The directions or measures which can be adopted by the Board
are specified in Regulations 11 and 12 which read as follows: -
“11. (1) The Board may, without prejudice to the provisions
contained in subsections (1), (2), (2A) and (3) of section 11 and
E section 11B of the Act, by an order, for reasons to be recorded in
writing, in the interests of investors and securities market, issue
or take any of the following actions or directions, either pending
investigation or enquiry or on completion of such investigation or
enquiry, namely :—
F (a) suspend the trading of the security found to be or prima facie
found to be involved in fraudulent and unfair trade practice in a
recognized stock exchange;
(b) restrain persons from accessing the securities market and
prohibit any person associated with securities market to buy, sell
G or deal in securities;
(c) suspend any office-bearer of any stock exchange or self-
regulatory organization from holding such position;
(d) impound and retain the proceeds or securities in respect of
any transaction which is in violation or prima facie in violation of
H these regulations;
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 233
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

(e) direct and intermediary or any person associated with the A
securities market in any manner not to dispose of or alienate an
asset forming part of a fraudulent and unfair transaction;
(f) require the person concerned to call upon any of its officers,
other employees or representatives to refrain from dealing in
securities in any particular manner; B
(g) prohibit the person concerned from disposing of any of the
securities acquired in contravention of these regulations;
(h) direct the person concerned to dispose of any such securities
acquired in contravention of these regulations, in such manner as
the Board may deem fit, for restoring the status quo ante. C

(2) The Board shall issue a press release in respect of any final
order passed under sub-regulation (1) in at least two newspapers
of which one shall have nationwide circulation and shall also put
the order on the website of the Board.
D
12. (1) The Board may, without prejudice to the provisions
contained in subsections (1), (2), (2A) and (3) of section 11 and
section 11B of the Act, by an order, for reasons to be recorded in
writing, in the interests of investors and securities market take the
following action against an intermediary :
E
(a) issue a warning or censure
(b) suspend the registration of the intermediary; or
(c) cancel of the registration of the intermediary
Provided that no final order of suspension or cancellation of an
intermediary for violation of these regulations shall be passed unless F
the procedure specified in the regulations applicable to such
intermediary under the Securities and Exchange Board of India
(Procedure for Holding Enquiry by Enquiry Officer and Imposing
Penalty) Regulations, 2002 is complied with.”
21. Regulation 10 empowers the Board to either issue a direction G
or take action as is specified in Regulations 11 and 12. Before issuing
directions or taking action under Regulations 11 and 12, three steps have
to be traversed by the Board. The first stage is the consideration of the
report of the investigating authority which has been referred to in
Regulation 9. The second is the furnishing of a reasonable opportunity H
234 SUPREME COURT REPORTS [2022] 16 S.C.R.

A of being heard. The third is the satisfaction of the Board that there is a
violation of the regulations. Regulation 10 indicates in clear terms that
the report which has been submitted by the investigating authority under
Regulation 9 is an intrinsic component of the Board’s satisfaction for
determining whether there has been any violation of the regulations.
Regulation 10 contains a mandate for the Board to consider the report
B
which is referred to in Regulation 9. The submission which has been
urged on behalf of SEBI is to the effect that (i) the investigation report is
a part of the internal administrative deliberations of the Board; (ii) it
need not be disclosed; and that (iii) only those materials which are relied
on have to be disclosed misses a crucial part of Regulation 10. The
C language in which Regulation 10 is couched indicates that consideration
of the report of the investigating authority which is submitted under
Regulation 9 is one of the components guiding the Board’s satisfaction
on the violation of the regulations. 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
D
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.
E C.2 Duty to Disclose Investigative Material
22. 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
F 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
G the purpose of disclosure would lead us closer 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.
H The role of the court is not restricted to interpreting the
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 235
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

provisions of law but also determining the veracity and truth A
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 counter-arguments related to the information;
(ii) Fair Trial: Since a verdict of the Court has far reaching B
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 C
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 D
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 E
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 F
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.
23. The purpose of disclosure of information is not merely
individualistic, that is to prevent errors in the verdict but is also towards G
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
H
236 SUPREME COURT REPORTS [2022] 16 S.C.R.

A disclosure, only holds nexus to the outcome and not the process.
Therefore, as a default rule, all relevant material must be disclosed.
24. It would be fundamentally contrary to the principles of natural
justice if the relevant part of the investigation report which pertains to
the appellant is not disclosed. The appellant has to be given a reasonable
B 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
C disclosure of the report.
25. The consequence of the Board arriving at a satisfaction that
there has been a violation of the regulations is that the Board can take
recourse to the actions specified under Regulations 11 and 12. Regulation
11 empowers the Board to:
D
(i) Suspend the trading of the security found to be involved in a
fraudulent and unfair trade practice in a recognized stock
exchange;
(ii) Restraining persons from accessing the securities market and
E prohibiting any person associated with it from dealing in
securities;
(iii) Suspending an office bearer of a recognized stock exchange;
(iv) Impounding and retaining the proceeds or securities;
(v) Issuing a direction not to dispose of or alienate an asset
F
forming part of a fraudulent and unfair transaction;
(vi) Prohibit the disposal of any of the securities acquired in
contravention of these regulations; and
(vii) Directing the disposal of any securities in accordance with
G the mandate of the Board.
Under Regulation 11(2), a press release has to be issued by the
Board in respect of a final order which is passed under Regulation 11(1).
26. Regulation 12 empowers the Board to suspend or cancel the
registration of an intermediary among other things. The provisions of
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 237
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

Regulations 11 and 12 indicate that the consequences of the satisfaction A
which is arrived at by the Board under Regulation 10, if there is a violation
of the Regulations, are grave.
27. The submission of Mr C U Singh, learned senior counsel is
that only those materials which are relied upon should be disclosed to
the first respondent. Regulation 10, as we have noted earlier, stipulates B
that the satisfaction of the Board whether there has been a violation of
the regulations has to be arrived at:
(i) after considering the report of the investigating authority
referred to in Regulation 9; and
(ii) after giving a reasonable opportunity of hearing to the person C
concerned.
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.
D
28. Now in the above context, it would be material to advert to
the decision of this court in Natwar Singh (supra). The issue before the
two-judge Bench of this Court was whether a noticee who is served
with a show cause notice under Rule 4(1) of the Foreign Exchange
Management (Adjudication Proceedings and Appeal) Rules 200020, is
entitled to demand all the documents in the possession of the adjudicating E
authority including those documents upon which no reliance has been
placed while issuing a notice to show cause as to why an enquiry should
not be initiated against him. Rule 4 is in the following terms:
“4. Holding of inquiry.—
F
(1) For the purpose of Adjudicating under section 13 of the Act
whether any person has committed any contravention as specified
in that section of the Act, the Adjudicating Authority shall, issue a
notice to such person requiring him to show cause within such
period as may be specified in the notice (being not less than ten
days from the date of service thereof) why an inquiry should not G
be held against him.
(2) Every notice under sub-rule (1) to any such person shall indicate
the nature of contravention alleged to have been committed by

20
“FEMA Rules 2000” H
238 SUPREME COURT REPORTS [2022] 16 S.C.R.

A him. (3) After considering the cause, if any, shown by such person,
the Adjudicating Authority is of the opinion that an inquiry should
be held, he shall issue a notice fixing a date for the appearance of
that person either personally or through his legal practitioner or a
chartered accountant duly authorised by him.”
B Rule 4(1) of the FEMA Rules 2000 indicates that in the first
instance, the adjudicating authority has to issue a notice requiring the
person to show cause why an enquiry should not be held against him.
The stage of the notice under Rule 4(1) is not for adjudication but is for
the purpose of deciding whether an enquiry should be held. If after
considering the cause which is shown, the adjudicating authority is of
C the opinion that an enquiry should be held, thereupon under Rule 4(3), a
notice is issued for the appearance of the person. Sub-Rule (4) provides
that on the date fixed, the adjudicating authority shall explain the
contravention alleged to have been committed and under sub-Rule (5)
an opportunity of producing documents or evidence has to be given.
D Under sub-Rule (8), the adjudicating authority is empowered to impose
a penalty if it is satisfied, upon considering the evidence produced that
there has been a contravention.
29. Now in this backdrop, Justice B. Sudarshan Reddy speaking
for the two-judge Bench of this Court interpreted Rule 4 as follows:
E “23. The Rules do not provide and empower the Adjudicating
Authority to straightaway make any inquiry into allegations of
contravention against any person against whom a complaint has
been received by it. Rule 4 of the Rules mandates that for the
purpose of adjudication whether any person has committed any
contravention, the Adjudicating Authority shall issue a notice to
F
such person requiring him to show cause as to why an inquiry
should not be held against him. It is clear from a bare reading of
the rule that show cause notice to be so issued is not for the
purposes of making any adjudication into alleged contravention
but only for the purpose of deciding whether an inquiry should be
G held against him or not. Every such notice is required to indicate
the nature of contravention alleged to have been committed by
the person concerned. That after taking the cause, if any, shown
by such person, the Adjudicating Authority is required to form an
opinion as to whether an inquiry is required to be held into the
allegations of contravention. It is only then the real and substantial
H inquiry into allegations of contravention begins.”
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 239
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

The above extract clearly indicates that the show cause notice A
under Rule 4(1) is not for the purpose of making an adjudication into the
alleged contravention but only for deciding whether an enquiry must be
conducted. The stage when an enquiry is held is subsequent to the initial
stage contemplated by Rule 4(1). During the course of the adjudication,
the fundamental principle is that material which is used against a person
B
must be brought to notice. As this Court observed:
“30. The right to fair hearing is a guaranteed right. Every
person before an authority exercising the adjudicatory
powers has a right to know the evidence to be used against
him. This principle is firmly established and recognised by this
Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC C
65 : (1955) 1 SCR 941]. However, disclosure not necessarily
involves supply of the material. A person may be allowed to inspect
the file and take notes. Whatever mode is used, the fundamental
principle remains that nothing should be used against the person
which has not been brought to his notice. If relevant material is D
not disclosed to a party, there is prima facie unfairness
irrespective of whether the material in question arose
before, during or after the hearing. The law is fairly well settled
if prejudicial allegations are to be made against a person, he must
be given particulars of that before hearing so that he can prepare
his defence. However, there are various exceptions to this E
general rule where disclosure of evidential material might
inflict serious harm on the person directly concerned or
other persons or where disclosure would be breach of
confidence or might be injurious to the public interest
because it would involve the revelation of official secrets, F
inhibit frankness of comment and the detection of crime,
might make it impossible to obtain certain clauses of
essential information at all in the future (see R. v. Secy. of
State for Home Deptt., ex p H [1995 QB 43 : (1994) 3 WLR
1110 : (1995) 1 All ER 479 (CA)] ).
G
31. The concept of fairness may require the adjudicating authority
to furnish copies of those documents upon which reliance has
been placed by him to issue show-cause notice requiring the noticee
to explain as to why an inquiry under Section 16 of the Act should
not be initiated. To this extent, the principles of natural justice and
H
240 SUPREME COURT REPORTS [2022] 16 S.C.R.

A concept of fairness are required to be read into Rule 4(1) of the
Rules. Fair procedure and the principles of natural justice are in-
built into the Rules. A noticee is always entitled to satisfy the
adjudicating authority that those very documents upon which
reliance has been placed do not make out even a prima
facie case requiring any further inquiry. In such view of the
B
matter, we hold that all such documents relied on by the
authority are required to be furnished to the noticee enabling
him to show a proper cause as to why an inquiry should not
be held against him though the Rules do not provide for
the same. Such a fair reading of the provision would not amount
C to supplanting the procedure laid down and would in no manner
frustrate the apparent purpose of the statute.”
(emphasis supplied)
30. The decision of this Court distinguishes between the initial
stage under Rule 4(1) which is only for the purpose of deciding whether
D an enquiry has to be held and the subsequent stage of adjudication into
the allegations of contravention. This Court further held:
“34. As noticed, a reasonable opportunity of being heard is to be
provided by the adjudicating authority in the manner prescribed
for the purpose of imposing any penalty as provided for in the Act
E and not at the stage where the adjudicating authority is required
merely to decide as to whether an inquiry at all be held into the
matter. Imposing of penalty after the adjudication is fraught with
grave and serious consequences and therefore, the requirement
of providing a reasonable opportunity of being heard before
F imposition of any such penalty is to be met. In contradistinction,
the opinion formed by the adjudicating authority whether an inquiry
should be held into the allegations made in the complaint are not
fraught with such grave consequences and therefore the minimum
requirement of a show-cause notice and consideration of cause
shown would meet the ends of justice. A proper hearing always
G include, no doubt, a fair opportunity to those who are parties in the
controversy for correcting or contradicting anything prejudicial to
their view.”
31. On the facts of that case, the Court held that the enquiry
against the noticee was yet to commence:
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 241
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

“36. In the present case, the inquiry against the noticee is yet to A
commence. The evidence as may be available upon which
the adjudicating authority may place reliance, undoubtedly,
is required to be furnished to the person proceeded against
at the second stage of inquiry into allegations of
contravention. It is at that stage, the adjudicating authority is not
B
only required to give an opportunity to such person to produce
such documents as evidence as he may consider relevant to the
inquiry, but also enforce attendance of any person acquainted with
the facts of the case to give evidence or to produce any document
which in its opinion may be useful for or relevant to the subject-
matter of the inquiry. It is no doubt true that natural justice C
often requires the disclosure of the reports and evidence
in the possession of the deciding authority and such reports
and evidence relevant to the subject-matter of the inquiry
may have to be furnished unless the scheme of the Act
specifically prohibits such disclosure.”
D
(emphasis supplied)
This Court further noted that the documents which the appellant
wanted were documents upon which no reliance was placed by the
authority for setting the law into motion. Consequently, this Court
concluded that: E
“48. On a fair reading of the statute and the Rules suggests that
there is no duty of disclosure of all the documents in possession of
the adjudicating authority before forming an opinion that an inquiry
is required to be held into the alleged contraventions by a noticee.
Even the principles of natural justice and concept of fairness do F
not require the statute and the Rules to be so read. Any other
interpretation may result in defeat of the very object of the Act.
Concept of fairness is not a one-way street. The principles of
natural justice are not intended to operate as roadblocks to obstruct
statutory inquiries. Duty of adequate disclosure is only an additional
procedural safeguard in order to ensure the attainment of the G
fairness and it has its own limitations. The extent of its applicability
depends upon the statutory framework.”
32. The issue in Natwar Singh (supra) was whether the authority
was bound to disclose to the noticee all the documents in its possession
H
242 SUPREME COURT REPORTS [2022] 16 S.C.R.

A before forming an opinion on whether an enquiry is required to be held
into the alleged contravention by the noticee. The Court held that at that
stage there was no requirement of furnishing all such documents to the
noticee since the only purpose of the notice under Rule 4(1) was for
deciding whether an enquiry should be held. Rule 4(1), in other words,
was not a final adjudication and consequently the requirement of a
B
disclosure of all materials in the possession of the authority was not
attracted. At that stage, it was sufficient that only documents that have
been relied on are disclosed.
33. The High Court in the present case has palpably misconstrued
the judgment in Natwar Singh (supra). The High Court has failed to
C notice that the issue in that case was whether at the stage when the
authority decides under Rule 4(1) of the FEMA Rules 2000 whether an
enquiry should be held, a disclosure of all documents in the possession of
the authority to the noticee is warranted. This was answered in the
negative. This Court distinguished the stage of adjudication as distinct
D from the initial stage under Rule 4(1). At the stage of adjudication, all
documents useful or relevant to the subject-matter have to be disclosed
to the notice, subject to exceptions noticed by the court.
34. On behalf of the Board, it has been urged that the investigation
report is in the nature of an inter-departmental communication and need
E not be disclosed. Reliance was placed on the judgment of this Court in
Krishna Chandra Tandon (supra) to buttress the submission. However,
it is clear from the judgment that even if the documents are merely inter-
departmental communications, there is a duty to disclose such documents
if they have been relied upon by the enquiry officer. A two-Judge Bench
of this observed:
F
“16. Mr Hardy next contended that the appellant had really no
reasonable opportunity to defend himself and in this connection
he invited our attention to some of the points connected with the
enquiry with which we have now to deal. It was first contended
that inspection of relevant records and copies of documents were
G not granted to him. The High Court has dealt with the matter and
found that there was no substance in the complaint. All that
Mr Hardy was able to point out to us was that the reports received
by the CIT from his departmental subordinates before the charge-
sheet was served on the appellant had not been made available to
H the appellant. It appears that on complaints being received about
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 243
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

his work the CIT had asked the Inspecting Assistant Commissioner A
Shri R.N. Srivastava to make a report. He made a report. It is
obvious that the appellant was not entitled to a copy of the report
made by Mr Srivastava or any other officer unless the enquiry
officer relied on these reports. It is very necessary for an authority
which orders an enquiry to be satisfied that there are prima facie
B
grounds for holding a disciplinary enquiry and, therefore, before
he makes up his mind he will either himself investigate or direct
his subordinates to investigate in the matter and it is only after he
receives the result of these investigations that he can decide as to
whether disciplinary action is called for or not. Therefore, these
documents of the nature of inter-departmental C
communications between officers preliminary to the holding
of enquiry have really no importance unless the Enquiry
Officer wants to rely on them for his conclusions. In that
case it would only be right that copies of the same should
be given to the delinquent. It is not the case here that either
D
the Enquiry Officer or the CIT relied on the report of Shri R.N.
Srivastava or any other officer for his finding against the appellant.
Therefore, there is no substance in this submission.”
(emphasis supplied)
35. However, merely because the investigating authority has denied
placing reliance on the report would not mean that such material cannot E
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. The above
position was laid down by this Court in Khudiram Das v. State of F
West Bengal21. Ruling in the context of preventive detention, a four-
judge Bench of this Court observed:
“15. Now, the proposition can hardly be disputed that if there
is before the District Magistrate material against the detenu
which is of a highly damaging character and having nexus G
and relevancy with the object of detention, and proximity
with the time when the subjective satisfaction forming the
basis of the detention order was arrived at, it would be
legitimate for the Court to infer that such material must
21
(1975) 2 SCC 81 H
244 SUPREME COURT REPORTS [2022] 16 S.C.R.

A have influenced the District Magistrate in arriving at his
subjective satisfaction and in such a case the Court would
refuse to accept the bald statement of the District
Magistrate that he did not take such material into account
and excluded it from consideration. It is elementary that the
human mind does not function in compartments. When it receives
B
impressions from different sources, it is the totality of the
impressions which goes into the making of the decision and it is
not possible to analyse and dissect the impressions and predicate
which impressions went into the making of the decision and which
did not. Nor is it an easy exercise to erase the impression created
C by particular circumstances so as to exclude the influence of such
impression in the decision making process. Therefore, in a case
where the material before the District Magistrate is of a character
which would in all reasonable probability be likely to influence the
decision of any reasonable human being, the Court would be most
reluctant to accept the ipse dixit of the District Magistrate that he
D
was not so influenced and a fortiori, if such material is not disclosed
to the detenu, the order of detention would be vitiated, both on the
ground that all the basic facts and materials which influenced the
subjective satisfaction of the District Magistrate were not
communicated to the detenu as also on the ground that the detenu
E was denied an opportunity of making an effective representation
against the order of detention.”
(emphasis supplied)
The principle that the material that may influence the decision of
a quasi-judicial authority to award a penalty must be disclosed to a
F delinquent was affirmed by this Court in Union of India and Ors. v.
Mohd. Ramzan Khan22. In that case, this Court laid down that a
delinquent officer is entitled to receive the report of the enquiry officer
which has been furnished to the disciplinary authority. This principle
was affirmed by a Constitution Bench of this Court in Managing
G Director, ECIL, Hyderabad v. B. Karunakar23. The rationale behind
the right to receive the report of the enquiry officer was explained by
this Court in the following terms:

22
(1991) 1 SCC 588
23
H (1993) 4 SCC 727
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 245
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

“26. The reason why the right to receive the report of the A
enquiry officer is considered an essential part of the
reasonable opportunity at the first stage and also a principle
of natural justice is that the findings recorded by the enquiry
officer form an important material before the disciplinary
authority which along with the evidence is taken into
B
consideration by it to come to its conclusions. It is difficult
to say in advance, to what extent the said findings including
the punishment, if any, recommended in the report would
influence the disciplinary authority while drawing its
conclusions. The findings further might have been recorded
without considering the relevant evidence on record, or by C
misconstruing it or unsupported by it. If such a finding is to
be one of the documents to be considered by the disciplinary
authority, the principles of natural justice require that the
employee should have a fair opportunity to meet, explain
and controvert it before he is condemned. It is negation of
D
the tenets of justice and a denial of fair opportunity to the
employee to consider the findings recorded by a third party
like the enquiry officer without giving the employee an
opportunity to reply to it. Although it is true that the
disciplinary authority is supposed to arrive at its own
findings on the basis of the evidence recorded in the inquiry, E
it is also equally true that the disciplinary authority takes
into consideration the findings recorded by the enquiry
officer along with the evidence on record. In the
circumstances, the findings of the enquiry officer do
constitute an important material before the disciplinary
F
authority which is likely to influence its conclusions. If the
enquiry officer were only to record the evidence and forward the
same to the disciplinary authority, that would not constitute any
additional material before the disciplinary authority of which the
delinquent employee has no knowledge. However, when the
enquiry officer goes further and records his findings, as stated G
above, which may or may not be based on the evidence on record
or are contrary to the same or in ignorance of it, such findings are
an additional material unknown to the employee but are taken into
consideration by the disciplinary authority while arriving at its
conclusions. Both the dictates of the reasonable opportunity as
H
246 SUPREME COURT REPORTS [2022] 16 S.C.R.

A well as the principles of natural justice, therefore, require that
before the disciplinary authority comes to its own conclusions, the
delinquent employee should have an opportunity to reply to the
enquiry officer’s findings. The disciplinary authority is then
required to consider the evidence, the report of the enquiry officer
and the representation of the employee against it.”
B
(emphasis supplied)
For the purpose of determining if prejudice has been caused by a
non-disclosure, this Court held that the report must be furnished to the
aggrieved person and the employee must shoulder the burden of proving
C on facts that his case was prejudiced – either the outcome or the
punishment – by the non-disclosure:
“30. [v] ] The next question to be answered is what is the effect
on the order of punishment when the report of the enquiry officer
is not furnished to the employee and what relief should be granted
D to him in such cases. The answer to this question has to be relative
to the punishment awarded. When the employee is dismissed or
removed from service and the inquiry is set aside because the
report is not furnished to him, in some cases the non-furnishing of
the report may have prejudiced him gravely while in other cases it
may have made no difference to the ultimate punishment awarded
E to him. Hence to direct reinstatement of the employee with back-
wages in all cases is to reduce the rules of justice to a mechanical
ritual. The theory of reasonable opportunity and the principles of
natural justice have been evolved to uphold the rule of law and to
assist the individual to vindicate his just rights. They are not
F incantations to be invoked nor rites to be performed on all and
sundry occasions. Whether in fact, prejudice has been caused
to the employee or not on account of the denial to him of
the report, has to be considered on the facts and
circumstances of each case. Where, therefore, even after
the furnishing of the report, no different consequence would
G have followed, it would be a perversion of justice to permit
the employee to resume duty and to get all the
consequential benefits. It amounts to rewarding the dishonest
and the guilty and thus to stretching the concept of justice to illogical
and exasperating limits. It amounts to an “unnatural expansion of
H natural justice” which in itself is antithetical to justice.
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 247
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

31. Hence, in all cases where the enquiry officer’s report is not A
furnished to the delinquent employee in the disciplinary
proceedings, the Courts and Tribunals should cause the copy of
the report to be furnished to the aggrieved employee if he has not
already secured it before coming to the Court/Tribunal and give
the employee an opportunity to show how his or her case
B
was prejudiced because of the non-supply of the report. If
after hearing the parties, the Court/Tribunal comes to the
conclusion that the non-supply of the report would have
made no difference to the ultimate findings and the
punishment given, the Court/Tribunal should not interfere
with the order of punishment. The Court/Tribunal should not C
mechanically set aside the order of punishment on the ground that
the report was not furnished as is regrettably being done at present.
(emphasis supplied)
36. In State Bank of Patiala v. SK Sharma24, this Court noted
that if a facet of a rule of natural justice is violated on grounds of D
preserving public interest, the entire proceeding is not vitiated unless
prejudice has been caused to the delinquent. A distinction was made
between the complete non-abidance of the principles of natural justice,
that is where no information was disclosed and arguments of insufficient
disclosure. It was held that when the latter argument is made, the Court E
must determine if the insufficient disclosure caused prejudice. This Court
observed:
“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 F
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. G
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
24
(1996) 3 SCC 364 H
248 SUPREME COURT REPORTS [2022] 16 S.C.R.

A 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.
B
Whichever the case, it is from the standpoint of fair hearing —
applying the test of prejudice, as it may be called — that any and
every complaint of violation of the rule of audi alteram partem
should be examined. Indeed, there may be situations where
observance of the requirement of prior notice/hearing may defeat
C the very proceeding — which may result in grave prejudice to
public interest. It is for this reason that the rule of post-decisional
hearing as a sufficient compliance with natural justice was evolved
in some of the cases, e.g., Liberty Oil Mills v. Union of
India [(1984) 3 SCC 465] . There may also be cases where
the public interest or the interests of the security of State
D
or other similar considerations may make it inadvisable to
observe the rule of audi alteram partem altogether [as in
the case of situations contemplated by clauses (b) and (c)
of the proviso to Article 311(2)] or to disclose the material
on which a particular action is being taken. There may indeed
E be any number of varying situations which it is not possible for
anyone to foresee. In our respectful opinion, the principles emerging
from the decided cases can be stated in the following terms in
relation to the disciplinary orders and enquiries: a distinction ought
to be made between violation of the principle of natural justice,
audi alteram partem, as such and violation of a facet of the said
F
principle. In other words, distinction is between “no notice”/”no
hearing” and “no adequate hearing” or to put it in different words,
“no opportunity” and “no adequate opportunity”. To illustrate —
take a case where the person is dismissed from service without
hearing him altogether (as in Ridge v. Baldwin [1964 AC 40 :
G (1963) 2 All ER 66 : (1963) 2 WLR 935] ). It would be a case
falling under the first category and the order of dismissal would
be invalid — or void, if one chooses to use that expression
(Calvin v. Carr [1980 AC 574 : (1979) 2 All ER 440 : (1979) 2
WLR 755, PC] ). But where the person is dismissed from service,
say, without supplying him a copy of the enquiry officer’s report
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 249
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

(Managing Director, ECIL v. B. Karunakar [(1993) 4 SCC 727 : A
1993 SCC (L&S) 1184 : (1993) 25 ATC 704] ) or without affording
him a due opportunity of cross-examining a witness (K.L.
Tripathi [(1984) 1 SCC 43 : 1984 SCC (L&S) 62] ) it would be a
case falling in the latter category — violation of a facet of the
said rule of natural justice — in which case, the validity of the
B
order has to be tested on the touchstone of prejudice, i.e., whether,
all in all, the person concerned did or did not have a fair hearing.
It would not be correct — in the light of the above decisions
to say that for any and every violation of a facet of natural
justice or of a rule incorporating such facet, the order passed
is altogether void and ought to be set aside without further C
enquiry. In our opinion, the approach and test adopted in B.
Karunakar [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 :
(1993) 25 ATC 704] should govern all cases where the
complaint is not that there was no hearing (no notice, no
opportunity and no hearing) but one of not affording a proper
D
hearing (i.e., adequate or a full hearing) or of violation of a
procedural rule or requirement governing the enquiry; the
complaint should be examined on the touchstone of
prejudice as aforesaid.”
(emphasis supplied)
E
37. In State of Uttar Pradesh v. Ramesh Chandra Mangalik25,
it was held that the duty to disclose is confined only to material and
relevant documents which may have been relied upon in support of the
charges. In that case, the personal file of other officers was not supplied
to the delinquent officer. It was noted that such documents have not
been relied upon by the enquiry officer. The delinquent officer was not F
able to prove the relevance of the documents that were suppressed.
This Court observed:
“11. Learned counsel for the appellant has further submitted that
particular documents, copies of which are said to have not been
supplied are not indicated by the respondent, much less in the G
order of the High Court nor has their relevance been pointed out.
The submission is that the delinquent will also have to show as to
in what manner any particular document was relevant in
connection with the inquiry and what prejudice was caused to
25
(2002) 3 SCC 443 H
250 SUPREME COURT REPORTS [2022] 16 S.C.R.

A him by non-furnishing of a copy of the document. In support of
this contention, reliance has been placed upon a case reported
in Chandrama Tewari v. Union of India [1987 Supp SCC 518 :
1988 SCC (L&S) 226 : (1987) 5 ATC 369] . It has been observed
in this case that the obligation to supply copies of
documents is confined only to material and relevant
B
documents which may have been relied upon in support of
the charges. It is further observed that if a document even
though mentioned in the memo of charges, has no bearing
on the charges or if it is not relied upon or it may not be
necessary for cross-examination of any witness, non-supply
C of such a document will not cause any prejudice to the
delinquent. The inquiry would not be vitiated in such
circumstances. In State of T.N. v. Thiru K.V. Perumal [(1996)
5 SCC 474 : 1996 SCC (L&S) 1280] relied upon by the appellant,
it is held that it is for the delinquent to show the relevance of
a document a copy of which he insists to be supplied to
D
him. Prejudice caused by non-supply of document has also
to be seen. In yet another case relied upon by the learned counsel
for the appellant, reported in State of U.P. v. Harendra
Arora [(2001) 6 SCC 392 : 2001 SCC (L&S) 959] it has been
held that a delinquent must show the prejudice caused to him by
E non-supply of a copy of the document where order of punishment
is challenged on that ground.”
(emphasis supplied)
38. In Kothari Filaments v. Commr. Of Customs26, this Court
held that the Commissioner of Customs in the exercise of its quasi-
F judicial powers cannot pass an order on the basis of material which is
only known to the authorities. This Court held:
“14. The statutory authorities under the Act exercise quasi-judicial
function. By reason of the impugned order, the properties could
be confiscated, redemption fine and personal fine could be imposed
G in the event an importer was found guilty of violation of the
provisions of the Act. In the event a finding as regards violation of
the provisions of the Act is arrived at, several steps resulting in
civil or evil consequences may be taken. The principles of natural
justice, therefore, were required to be complied with.
H 26
(2009) 2 SCC 192
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 251
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

15. The Act does not prohibit application of the principles of natural A
justice. The Commissioner of Customs either could not have passed
the order on the basis of the materials which were known only to
them, copies whereof were not supplied or inspection thereto had
not been given. He, thus, could not have adverted to the report of
the overseas enquiries. A person charged with misdeclaration is
B
entitled to know the ground on the basis whereof he would be
penalised. He may have an answer to the charges or may not
have. But there cannot be any doubt whatsoever that in law he is
entitled to a proper hearing which would include supply of the
documents. Only on knowing the contents of the documents, he
could furnish an effective reply….” C
39. The following principles emerge from the above discussion:
(i) A quasi-judicial authority has a duty to disclose the material
that has been relied upon at the stage of adjudication; and
(ii) An ipse dixit of the authority that it has not relied on certain D
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.
E
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.
40. The investigation report forms the material considering which,
the Board arrives at a satisfaction regarding whether there has been a F
violation of the regulations. If it is satisfied that there has been a violation
of the regulations, after giving a reasonable opportunity to be heard, the
Board is empowered to take action according to Regulations 11 and 12.
It would not suffice for the first respondent to claim as it did before the
High Court that it did not rely on the investigation report. The ipse dixit
of the authority that it was not influenced by certain material would not G
suffice. 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. The written
submissions of the Board clearly state that the findings of the investigation
report are important for the authority to decide whether there are any
H
252 SUPREME COURT REPORTS [2022] 16 S.C.R.

A prima facie grounds to initiate enforcement proceedings under Regulation
10. The relevant extract of the submissions is reproduced below:
“It is submitted that Regulation 9 of PFUTP Regulations require
the Investigating Authority to submit the report after completion
of the investigation to the appointing authority. However, the
B provision does not require furnishing of the report to the Noticee.
Further, the investigation report is merely a culmination of
documents which the investigating authority relies on/come across
while conducting the investigation and is not a piece of evidence
in itself. It is a report which is necessary for an authority,
who orders an investigation, to decide as to whether there
C are prima-facie grounds to initiate enforcement proceedings
or not. Therefore, before the authority makes up his mind,
he will either himself investigate or direct his subordinates
to investigate in the matter. It is only after the authority
receives the report of the investigation that he can decide
D as to whether action is called for or not. Therefore, the
investigation report is in the nature of inter-departmental
communications between officers investigating the matter and
authority who can decide any enforcement action against the entity.
…..
E The findings recorded in the investigation report against
the Noticee are brought out in the SCN and the copies of all the
documents that are relied upon by SEBI, while issuing the SCN
are always shared with the concerned. The present case is no
exception.”
F (emphasis supplied)
41. The above extracts indicate that the findings of the investigation
report are relevant for the Board to arrive at the satisfaction on whether
the Regulations have been violated. Even if it is assumed that the report
is an inter-departmental communication, as held in Krishna Chandra
G Tandon (supra), there is a duty to disclose such report if it is relevant
for the satisfaction of the enforcement authority for the determination of
the alleged violation.
42. In Khudiram Das (supra), a four-Judge Bench of this Court
laid down a two-prong test for the standard of ‘relevancy’; firstly, the
H material must have nexus with the order and secondly, the material
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 253
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

might have influenced the decision of the authority. A Constitution Bench A
of this Court in Karunakar (supra) held that the non-disclosure of the
relevant information is not in itself sufficient to warrant the setting aside
of the order of punishment. It was held that in order to set aside the
order of punishment, the aggrieved person must be able prove that
prejudice has been caused to him due to non-disclosure. To prove
B
prejudice, he must prove that had the material been disclosed to him the
outcome or the punishment would have been different. The test for the
extent of disclosure and the corresponding remedy for non-disclosure is
dependent on the objective that the disclosure seeks to achieve.
Therefore, the impact of non-disclosure on the reliability of the verdict
must also be determined vis-à-vis, the overall fairness of the proceeding. C
While determining the reliability of the verdict and punishment, the court
must also look into the possible uses of the undisclosed information for
purposes ancillary to the outcome, but that which might have impacted
the verdict.
43. In Natwar Singh (supra), it was held that material which is D
relevant to the subject-matter of the proceedings must be disclosed,
unless the scheme of the statute indicates to the contrary. The non-
disclosure of such material is prima facie arbitrary. A deviation from
this general rule was made based on the stage of the proceedings. It
was held that it is sufficient to disclose the materials relied on if it is for
the purpose of issuing a show cause notice for initiating inquiry. However, E
in the present case, since the report of the investigating authority under
Regulation 9 enters into the calculus of circumstances borne in mind by
the Board in arriving at its satisfaction under Regulation 10 for taking
actions as specified in Regulations 11 and 12, it would be contrary to the
Regulations to assert that the investigation report is merely an internal F
document of which a disclosure is not warranted. In any event, the
language of Regulation 10 makes it clear that the Board forms an opinion
regarding the violation of Regulations after considering the investigation
report prepared under Regulation 9. Thus, the investigation report has to
be duly disclosed to the noticee. However, the right to disclosure is not
absolute. It needs to be determined if the non-disclosure of the G
investigative report is protected by any of the exceptions to the rule.
C.3. Exceptions to the Duty to Disclose
44. The contention of the respondents is that since the investigation
report under Regulation 9 would also include information on “commercial H
254 SUPREME COURT REPORTS [2022] 16 S.C.R.

A and business interests, documents involving strategic information,
investment strategies, rationale for investments, commercial information
and information regarding the business affairs of the entities/persons
concerned” affecting the privacy and the competitive position of other
entities, it should not be disclosed. Buttressing this argument, the
respondent referred to clauses (d), (e) and (h) of the sub-Section (1) of
B
the RTI Act which states there shall be no duty to disclose information
affecting the commercial confidence or that which could harm the
competitive position of a third party or impede the process of investigation,
unless there is a larger public interest in the disclosure of information.
The RTI Act attempts to balance the interests of third party individuals
C whose information may be disclosed and public interest in ensuring
transparency and accountability. The RTI Act is reflective of the
parliamentary intent to facilitate transparency in the administration, which
is the rationale for the disclosure of information. This is subject to certain
defined exceptions.
D 45. We cannot be oblivious to the 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
E market. 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.
F The right of the noticee to disclosure must be balanced with a need to
preserve any other third-party rights that may be affected.
46. In Natwar Singh (supra), this Court has observed that there
are exceptions to the general rule of disclosing evidentiary material. This
Court held that such exceptions can be invoked if the disclosure of material
G causes harm to others, is injurious to public health or breaches
confidentiality. While identifying the purpose of disclosure, we have held
that one of the crucial objectives of the right to disclosure is securing the
transparency of institutions. The claims of third party rights vis-à-vis the
right to disclosure cannot be pitted as an issue of public interest and fair
adjudication. The creation of such a binary reduces and limits the purpose
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 255
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

that disclosure of information serves. The respondent should prima facie A
establish that the disclosure of the report would affect third party rights.
The onus then shifts to the appellant to prove that the information is
necessary to defend his case appropriately.
47. Applying this test to the facts, we find that the appellant is
unable to prove that the disclosure of the entire report is necessary for B
him to defend the case. The first respondent made the following arguments
making a prima facie case that the disclosure of the report would violate
third party rights:
(i) Investigation reports contain information on the volatile
nature of the market; C
(ii) The report also contains the personal information of various
stakeholders. Disclosure will violate the right to privacy of
the third party individuals; and
(iii) It includes strategic information.
D
48. The appellant did not sufficiently discharge his burden by
proving that the non-disclosure of the above information would affect
his ability to defend himself. However, merely because a few portions
of the enquiry report involve information on third-parties or confidential
information on the securities market, the respondent does not have a
right to withhold the disclosure of the relevant portions of the report. E
The first respondent 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 market.
49. Therefore, the Board should determine such parts of the
investigation report under Regulation 9 which have a bearing on the F
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 appellant to defend his
G
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 appellant, it will be in violation
H
256 SUPREME COURT REPORTS [2022] 16 S.C.R.

A 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.
50. The notice to show cause issued to the appellant is for violation
of the provisions of the SEBI Act, SCRA and PFUTP Regulations. The
B show cause notice has specifically referred to what was revealed during
the course of the investigation and has invoked the provisions of the
PFUTP Regulations in the allegations against the appellant. Para 8 (2)
of the show cause notice is extracted below:
“(II) It is alleged that Mr. T. Takano, during whose tenure the
C business transactions with FDSL started by virtue of his position
as MD & CEO of Ricoh during FY 2012-13 to FY 2014-15, was
actively involved in committing the fraud and had knowingly
restricted the mandate given to PwC to six month so as to succeed
in hiding his role in the commission of fraud of publishing untrue
financial statement of Ricoh which resulted in misleading the
D investors about the financial performance of the company and
thereby resulted in inducement of traders in the scrip. The said
acts of the Noticee no. 2 are alleged to be violation of regulations
3 (b), (c), (d), 4(1) and 4(2)(e), (f), (k) and (r) of SEBI (PFUTP)
Regulations, 2003 and clause 49 (V) read with 41 (II)(a) of the
E erstwhile Listing Agreement.”
Since the show cause notice has specifically relied upon the report
of the investigation and invokes, inter alia, a violation of the PFUTP
Regulations by the appellant, the mandate of Regulation 10 must be
complied with. However, while directing that there should be a disclosure
F of the investigation report to the appellant, it needs to be clarified that
this would not permit the appellant to demand roving inspection of the
investigation report which may contain sensitive information as regards
unrelated entities and transactions.
D. Conclusion
G 51. The conclusions are summarised below:
(i) The appellant has a right to disclosure of the material
relevant to the proceedings initiated against him. A deviation
from the general rule of disclosure of relevant information
was made in Natwar Singh (supra) based on the stage of
H
T. TAKANO v. SECURITIES AND EXCHANGE BOARD OF 257
INDIA & ANR. [DR DHANANJAYA Y CHANDRACHUD, J.]

the proceedings. It is sufficient to disclose the materials A
relied on if it is for the purpose of issuing a show cause
notice for deciding whether to initiate an inquiry. However,
all information that is relevant to the proceedings must be
disclosed in adjudication proceedings;
(ii) The Board under Regulation 10 considers the investigation B
report submitted by the Investigating Authority under
Regulation 9, and if it is satisfied with the allegations, it
could issue punitive measures under Regulations 11 and 12.
Therefore, the investigation report is not merely an internal
document. In any event, the language of Regulation 10
makes it clear that the Board forms an opinion regarding C
the violation of Regulations after considering the investigation
report prepared under Regulation 9;
(iii) The disclosure of material serves a three- fold purpose of
decreasing the error in the verdict, protecting the fairness
of the proceedings, and enhancing the transparency of the D
investigatory bodies and judicial institutions;
(iv) A focus on the institutional impact of suppression of material
prioritises the process as opposed to the outcome. The
direction of the Constitution Bench of this Court in
Karunakar (supra) that the non-disclosure of relevant E
information would render the order of punishment void only
if the aggrieved person is able to prove that prejudice has
been caused to him due to non-disclosure is founded both
on the outcome and the process;
(v) The right to disclosure is not absolute. The disclosure of F
information may affect other third-party interests and the
stability and orderly functioning of the securities market.
The respondent should prima facie establish that the
disclosure of the report would affect third-party rights and
the stability and orderly functioning of the securities market. G
The onus then shifts to the appellant to prove that the
information is necessary to defend his case appropriately;
and
(vi) Where some portions of the enquiry report involve
information on third-parties or confidential information on
H
258 SUPREME COURT REPORTS [2022] 16 S.C.R.

A the securities market, the respondent cannot for that reason
assert a privilege against disclosing any part of the report.
The respondents can withhold disclosure of those sections
of the report which deal with third-party personal information
and strategic information bearing upon the stable and orderly
functioning of the securities market.
B
52. The Board shall be duty-bound to provide copies of such parts
of the report which concern the specific allegations which have been
levelled against the appellant in the notice to show cause. However, this
does not entitle the appellant to receive sensitive information regarding
third parties and unrelated transactions that may form part of the
C investigation report.
53. During the course of the hearing, the Court has been apprised
of the fact that though the hearing before the designated officer has
been held, no orders have been passed in deference to the pendency of
the present proceedings. Having regard to the conclusion which has
D been arrived at above, we direct that after a due disclosure is made to
the appellant in terms as noted above, a reasonable opportunity shall be
granted to the appellant of being heard with reference to the matters of
disclosure in compliance with the principles of natural justice before a
final decision is arrived at.
E 54. The disclosure in terms of the present judgment shall be
communicated to the appellant within one month from the date of this
judgment and the appellant shall be given a period of one month to respond.
The officer concerned in charge of the enquiry shall fix a date for personal
hearing before taking a final decision. The appeals are allowed in the
F above terms.
55. The judgment of the Division Bench of the High Court of
Judicature at Bombay dated 29 September 2020 is accordingly set aside.
In the circumstances of the case, there shall be no order as to costs.
56. Pending application(s), if any, shall stand disposed of.
G
Ankit Gyan and Amarendra Kumar Appeals allowed.
(Assisted by : Adnan Khan, LCRA)

H