Alerts & Updates 26th Feb 2022

ELP Capital Markets Update: February 2022


Jitendra Motwani Partner | Mumbai

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  • Takano v. Securities and Exchange Board of India

    Apex Court directs SEBI to disclose investigation report: mere ipse dixit that it was not relied upon no longer a valid excuse


    The Supreme Court of India has recently held in the matter of T. Takano v. Securities and Exchange Board of India (SEBI)[1], that SEBI is obligated to disclose the Investigation Report prepared by an Investigating Authority [under Regulation 9 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations)] to a person who has been issued a Show Cause Notice (Noticee). This has been done on account of the report being “an intrinsic component of the Board’s satisfaction for determining whether there has been any violation of the regulations.”

    The judgment was delivered on February 18, 2022 and is accessible here..


    Mr. Takano (Appellant) was the MD and CEO of Ricoh India Limited (the Company) till March 31, 2015. Statutory Auditors of the Company raised suspicion regarding the veracity of financial statements for the quarters ending June 2015 and September 2015. A forensic audit was carried out at the behest of the Audit Committee of the Company and subsequently SEBI initiated an investigation.

    SEBI had appointed Pipara & Co. LLC (Pipara) to conduct a forensic audit of the Company’s books. SEBI had issued a Show Cause Notice (SCN) to the Appellant on the basis of its investigation. The allegation against the Appellant was that he has violated PFUTP Regulations and the Listing Agreement. The Appellant requested inspection of the Investigation Report that formed the basis of the SCN which SEBI refused on the ground that the investigation report was an ‘internal document’.

    The Appellant approached the Hon’ble Bombay High Court under its writ jurisdiction seeking disclosure of the Investigation Report from SEBI. When the High Court declined to direct disclosure by SEBI[2], he assailed the decision in a Review Petition which also came to be dismissed[3].  The judgment of the High Court in the Writ Petition is accessible here and in the Review Petition is accessible here. The decisions of the High Court were impugned before the Hon’ble Supreme Court of India, which over-turned them.


    The Court examined the relationship between Regulations 9, 10, 11 and 12 of the PFUTP Regulations and observed that Regulation 10 mandates that SEBI consider the report of the Investigating Authority under Regulation 9. The scheme of the provisions therefore was that 3 steps had to be traversed before SEBI can issue directions under Regulation 11 and 12 of the PFUTP Regulations. They are:

    • consideration of the report of the Investigating Authority referred to in Regulation 9;
    • providing the Noticee with a reasonable opportunity to be heard; and
    • satisfying itself that the regulations have been violated.

    The investigation report, therefore, forms an intrinsic element in SEBI’s satisfaction on whether a violation has occurred, and so, in the interest of:

    • reliability of the record in assisting the adjudicator and decreasing the error in a verdict;
    • a fair trial with the legitimate expectation that parties shall have all material on record to effectively participate in proceedings;
    • transparency of adjudicatory proceedings and accountability to the Rule of Law, it would be essential to disclose the report as it is ‘relevant’ to the proceedings.

    SEBI’s argument that they were obligated to disclose only material that was ‘relied upon’ in its SCN was rejected by the Court. The Court observed that a mere ipse dixit of SEBI that the report had not been relied upon was insufficient. Regulation 10 necessitated consideration of the Investigation Report for adjudication, thereby making it relevant and mandating its disclosure. It was held that in all reasonable probability the investigation report would have influenced the decision of SEBI. Therefore,  keeping a party bereft of information – that influenced the decision of the authority undertaking an adjudicatory function-  undermined the transparency of the judicial process and violated the principles of natural justice. Therefore, SEBI was duty-bound to provide copies of such parts of the report whereby specific allegations have been levelled against the Noticee and findings have been made against them.

    It was submitted that where the case is not of complete non-disclosure, prejudice is required to be proved to unsettle the decision of a quasi-judicial authority. The test would be one that focuses on how the outcome would have differed had the disclosure been granted. The Bench dealt with this by holding that the sanctity of the ‘process’ must be prioritized over the ‘outcome’ and that “the impact of non-disclosure on the reliability of a verdict must also be determined vis-à-vis the overall fairness of the proceeding.” This can be taken to mean that prejudice to an appellant is inherent when the principles of natural justice are violated, because it would tarnish the reliability of a verdict. Therefore, so long as the non-disclosure “might have impacted the verdict”, the prejudice can be said to be apparent.

    The Court has caveated its judgment by saying that the right to disclosure is not absolute and must give way to third-party interests and stability and orderly functioning of the securities market. This balancing act must be achieved through redaction of sensitive portions and not through complete non-disclosure. The burden would then shift on the Noticee to prove that the redacted material is necessary to its defence.


    Earlier, the Hon’ble Supreme Court had dealt with the question of disclosure in SEBI in the matter of SEBI v Price Waterhouse.[4]In this matter, the Supreme Court dealt with a statutory appeal against an order of the Hon’ble Securities Appellate Tribunal (SAT) order[5] wherein the majority had held that only documents said to be relied upon were required to be disclosed by SEBI. However, the minority judgment by Justice Sodhi had emphasized the need to disclose the entire material collected during investigations in the interest of natural justice. The Hon’ble Supreme Court in the appeal directed SEBI to disclose the statements recorded during the course of investigations.

    The question about disclosure resurfaced in the matters of Shruti Vora[6] and Anand Sathe[7] this time in the context of the Investigation Report, which SEBI has consistently held to be an internal document. Relying on an interpretation of the judgment of Natwar Singh [8] that has now been declared to be erroneous in this case, the SAT had ruled there that all material collected by the Authority need not be disclosed. However, the Supreme Court found fault with the reliance placed on Natwar Singh which was not delivered in the context of an adjudication, but rather at the earlier stage of setting the law in motion. In Pooja Wadhawan[9] the SAT held that the material that is relied on for an audit report that in turn forms the basis of an SCN, need not be disclosed. It can be argued in light of the present judgment that such material is relevant to the scrutiny of the report and thereby relevant to the defence of the Noticee to the SCN.

    This judgment is a welcome change as the Regulator will now have to disclose its Investigation Report unless exceptions exist. SEBI can no longer cherry-pick documents to be disclosed at the stage of adjudication. The Supreme Court has unequivocally ruled that the test for disclosure is ‘relevance’ and a mere ipse dixit of SEBI on that front will not suffice in the face of a party’s right to have the material being used against it placed on the record. In doing so, the Supreme Court has brought the Regulator and the Noticee on a more equal footing by reducing information asymmetry during adjudication. However, a likelihood exists that in leveling the playing field this judgment has opened up an avenue for dilatory tactics by Noticees.

    In no uncertain terms, and in the interest of Rule of Law, the Regulator is now bound to practice what it preaches and align its obligation to disclose with its demands of disclosures from Noticees at the time of adjudication.


    The Supreme Court held that the investigation report ought to be held up to scrutiny and redaction of sensitive personal information, business secrets or third-party information from the report can be resorted to in exceptional circumstances.

    As the law stands, disclosure is the norm in an adversarial adjudicatory process, and a Noticee has every right to seek disclosure of material that is relevant to the adjudicatory proceedings initiated against them. A mere ipse dixit of the regulator that such material was not ‘relied on’ in arriving at its decision is insufficient and a contestable ground to challenge an adjudicatory order premised on such non-disclosure.

    We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at or write to our authors:

    Jitendra Motwani, Partner – Email –
    Abhiraj Arora, Associate Partner – Email –
    Harshvardhan Nankani, Associate – Email –


    [1] Civil Appeal Nos. 487-488 of 2022 in the Supreme Court of India, Civil Appellate Jurisdiction
    [2] Writ Petition (L) No. 3298 of 2020 in the High Court of Judicature at Bombay, Original Side, Bombay Bench
    [3] Review Petition (L) No. 4780 of 2020 in the High Court of Judicature at Bombay, O.O.C.J., Bombay Bench
    [4] Order dated January 10, 2017 in Civil Appeal Nos. 6000, 6001, 6003 and 6004 of 2012
    [5] Order dated June 01, 2011 Appeal No. 8 of 2011 before the Hon’ble Securities Appellate Tribunal, Mumbai
    [6] Order dated February 12, 2020 in Appeal (L) No. 28 of 2020 before the Hon’ble Securities Appellate Tribunal, Mumbai
    [7] Order dated July 17, 2020 in Appeal No. 150 of 2020 before the Hon’ble Securities Appellate Tribunal, Mumbai
    [8] Natwar Singh v. Directorate of Enforcement (2010) 13 SCC 255
    [9] Order dated September 13, 2020 in Appeal No. 487 of 2021 before the Hon’ble Securities Appellate Tribunal, Mumbai

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice.