Tuesday, December 4, 2012

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:

After 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 conversation on this issue in the recent episode of The Firm.

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