RTI Act and SEBI Investigations

This is
a bit dated (academic duties prevented regular blogging over the last few
weeks), but on November 6, 2012, the Chief Information Commissioner (CIC) passed
an order requiring SEBI to
provide information regarding its investigation “into allegations of insider
trading and short sale of shares pertaining to the shares of Reliance Petroleum
in 2007”. The order was passed in response to an application in public interest
by Mr. Arun Kumar Agrawal.
The key
questions pertained to whether any such obligations would interfere with the
regulatory and investigative functioning of SEBI and how these would pan out in
the context of SEBI’s consent order process. The CIC was unconvinced by SEBI’s
arguments on this count and rationalized his decision as follows:
carefully considering the facts of the case and the submissions made before us,
we are inclined to agree to the demand of the Appellant that the disclosure of
this information would serve a larger public interest. If as a regulator, the
SEBI took cognizance of allegations of any breach of law, rules or regulations
by one or more entities for unlawful private gain, the information generated in
the process of its investigation needs to be disclosed in the public domain.
Such disclosure would keep the general public informed and educated about the risks
they may confront in making investments in the market. It would also prevent
many entities from adopting shortcuts to make profit through unlawful means.
The argument that at the end of the quasi-judicial proceedings, the charged
entities may be found innocent cannot be an argument against disclosing the information.
This becomes especially important as the SEBI has also initiated consent order
mechanism on the request of party involved and the breach and violations found
in the investigation could be settled through a consent order thereby
nullifying the likely penalty which would have visited the party involved at
the end of the quasi-judicial proceedings.
There is
a dichotomy in terms of the concerns this raises. On the one hand, it is
clearly in public interest that the process is carried out in a transparent
manner. On the other hand, it is equally important that the process is carried
out smoothly in the interests of justice in a given case without excessive
interference. Moreover, the consent order norms have been recently revised (as
discussed here)
and would in any case induce greater certainty and transparency in the process
and eschew a possibility of arbitrariness.

These are important
questions, and will likely be considered when they are taken up by the Delhi
High Court and the Bombay High Court, where appeals have been preferred against
the orders of the CIC. In the meanwhile, there is an interesting
on this issue in the recent episode of The Firm.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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