In one of the first and most recent invocations of the judgment of the Hon’ble Supreme Court in T. Takano v. SEBI, the Hon’ble Securities Appellate Tribunal (‘SAT’) has set aside a decision passed by the Adjudicating Officer, SEBI (‘AO’) denying cross-examination to a Show Cause Noticee.
Rana Kapoor’s grounds for challenging SEBI’s decision were that he was being denied his right to an opportunity to defend himself appropriately and adequately. In the absence of an opportunity to cross-examine a fact-witness whose statements allegedly formed the sole basis of the charge, the inevitable reliance placed on such a statement would taint the record. Cross-examination would serve the essential purpose of verifying the veracity of the statement and credibility of the witness and was essential to his defence, it was argued. Reliance was placed on T. Takano v. SEBI where SEBI was directed to disclose an Investigation Report against the Appellant during adjudicatory proceedings. The Supreme Court has clarified that the principle of audi alterem partem (no person shall be condemned before being heard) would encompass the right to fair disclosure for the sake of procedural fairness, reliability of the record and transparency. The fairness of the ‘process’ was prioritized over the fairness of the ‘outcome’ in judging whether principles of natural justice had been transgressed, meriting the interference of an appellate forum. The argument in Rana Kapoor’s case is that cross-examination would achieve the very same purpose by satisfying these principles and thus, should be mandatorily allowed in proceedings before the AO.
In T.Takano, the Supreme Court preferred the standard of ‘relevant’ over ‘relied upon’ as the test for disclosure to satisfy principles of natural justice at the adjudicatory stage and held that a mere ipse dixit of SEBI that the material is not ‘relied upon’ is insufficient. To see if something is ‘relevant’ its nexus to the order and reasonable likelihood to influence the order must be gauged. The statement of this witness is undeniably relevant. The requested cross-examination is concededly to determine a question of fact. The argument of SEBI that the statement of the witness in question was not ‘relied upon’ by the Ld. AO has been rejected.
The SAT, after hearing the parties held in favour of Rana Kapoor on this procedural point without venturing into the merits of the case. The matter was remanded to the Ld. AO to be decided afresh after taking into consideration the decision in T.Takano.
This is of significance as the order to come will have to be a reasoned one and will have to deal with the principles laid down in T.Takano by the Supreme Court. It will be one of the first demonstrable cases where a decision of SEBI will be tested against the touchstone of this seminal judgment. It will also go a long way in allaying the anxieties of Show Cause Noticees before SEBI by providing clarity as to their procedural rights. It is about time the mist around the right to cross-examination in proceedings before SEBI clears. A 2022 judgment of the Supreme Court in SEBI v. Mega Corporation Ltd. has left this question open. It will be interesting to see how the AO decides and for what reasons in its de-novo decision.
We are witnessing a watershed moment in capital markets jurisprudence. T.Takano is very clear on the application of principles of natural justice to applications for disclosure. The question really is, “Can T.Takano come to the rescue of a Show Cause Noticee seeking cross-examination?”
The decision of SEBI is awaited with eager anticipation.
For more about the T.Takano judgment, kindly refer to our coverage of the decision here.
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