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Kavi Arora vs. Securities and Exchange Board of India

Special Leave Petition (Civil) · 2022 INSC 959Decided 14 Sept 2022
Special Leave Petition (Civil) No. 15149 of 2021
Indira Banerjee · A.S. Bopanna · M.M. Sundresh

Background

Kavi Arora, a former Managing Director and CEO of Religare Finvest Limited (RFL), was one of 13 noticees issued a Show Cause Notice by SEBI alleging diversion of about Rs. 2315.66 crores of funds from RFL through conduit entities for the benefit of promoters of Religare Enterprises Ltd. and RFL. Arora repeatedly sought inspection and copies of all documents relied on by SEBI, including a forensic auditor's report and its enclosures, but SEBI withheld certain documents on grounds of confidentiality. His writ petition before the Bombay High Court seeking a direction to furnish these documents was dismissed, and he approached the Supreme Court by special leave.

Decision Breakdown

The Supreme Court held that at the stage of Rule 3 of the SEBI Adjudication Rules (the Board forming an opinion on whether to initiate an inquiry), there is no requirement to disclose all documents to the noticee, only documents actually relied upon in the inquiry itself must be furnished, following the Court's earlier rulings in Natwar Singh v. Directorate of Enforcement and T. Takano v. SEBI. The Court noted SEBI had already undertaken (recorded in an earlier interim order) not to rely on any document not supplied to the petitioner, and that this undertaking would govern the inquiry going forward. Finding no procedural infirmity up to the stage of fixing a hearing date, and noting the petitioner could approach the appropriate forum later if actually prejudiced by any undisclosed material being used against him, the Court upheld the High Court's refusal to interfere at the show-cause stage and dismissed the special leave petition.

Lesson Learnt

In regulatory/administrative inquiries, a person facing a show-cause notice is entitled to documents the authority actually relies on to proceed against them, but not to every document in the authority's possession, and courts generally will not intervene mid-inquiry unless real prejudice from non-disclosure can be shown.

Official source (sci.gov.in)View Judgment (PDF)

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