BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

            Appeal No. 8 of 2011 
            Date of decision: 01.06.2011 

Price Waterhouse
a partnership firm registered with the
Institute of Chartered Accountants of
India bearing Registration No. 007568S
having address at 5th Floor, Tower D,
The Millennia, 1 & 2 Murphy Road,
Ulsoor, Bangalore – 560 008.

……Appellant

                      Versus 

Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051. ……Respondent
Mr. Janak Dwarkadas, Senior Advocat e with Mr. Navroz Seervai, Se nior Advocate,
Mr. Somasekhar Sundaresan, Mr. Farhad Sorabj ee, Mr. Zerick Dastur, Ms. Sneha Sheth
and Ms. Prerna Arora, Advocates for the Appellant.
Mr. Ravi Kadam, Advocate General with Mr. Shiraz Rustomjee and Mr. Mihir Mody,
Advocates for the Respondent.
CORAM : Justice N.K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S.S.N. Moorthy, Member

Per : P.K. Malhotra (for self and S.S.N. Moorthy)
The short question that arises in these two connected Appeals no. 8 and 9 of 2011
arising out of the same order is whether the appellants are entitled to the copies of the
statements / documents referred to / relied upon in the show cause notice issued by the
Securities and Exchange Board of India (hereina fter referred to as ‘the Board’) to the
appellants and whether they are also entitled to cross-examine the persons whose
statements are either relied upon or referred to in the show cause notice. Before we deal

2
with this issue, it is necessary to refer to the background in which these appeals have
been filed.

2. The Board, among others, received on January 7, 2009 an email from one
   B. Ramalinga Raju, the then Chairman of Sa tyam Computer Services Limited (for short
   ‘Satyam’) revealing that statements of accounts of Satyam furnished to the stock
   exchanges were not true and fair. The email, inter alia, stated that balance-sheet of
   Satyam as on September 30, 2008 had inflated (non-existent) cash and bank balances of 5040 crores as against 5361 crores reflected in the books, accrued interest of 376 crores which was non-existent, understated liability of 1230 crores on account of funds
   arranged by him and overstated debtor position of 490 crores as against 2651 crores
   reflected in the books. The email also men tioned about the artificial cash and bank
   balances for the quarter ending September 30, 2008 and that the gap in the balance-sheet
   had arisen on account of inflated profits over a period of last several years. On receipt of
   this email, the Board ordered investigations into the affairs of Satyam in order to
   ascertain whether the provisions of the Securities and Exchange Board of India Act, 1992
   (for short the Act) and the rules and regulations made thereunder had been violated. The
   Board also ordered inspection of the books of accounts of Satyam. Since Price
   Waterhouse, the appellant in Appeal no. 8 of 2011, was the auditor of Satyam, the Board
   ordered inspection of the documents that we re available with the appellant also.
   Investigations revealed that Satyam had more than 125 bank accounts with different
   banks including the Bank of Baroda, New York Branch. Since the email had stated that
   the balances as refl ected in the books of accounts we re not correct, the Board sought
   confirmation of the balances from the ba nks including the Bank of Baroda, New York
   Branch. It transpired that there was substantial difference in the balance as per the books
   and the balance as per the confirmation sent by the bank. Investigations further revealed
   that Satyam received two sets of bank st atements – daily bank statement and monthly
   bank statement and that the daily bank statem ent received through email was printed and
   filed in the accounts wing and the monthly bank statement was being received through
   internal courier from the office of Ramalinga Raju (the then Chairman of Satyam). The
   Board found that the debit and credit entrie s in the two sets of statements were 3
   substantially different and that the books of account of Satyam were being prepared on
   the basis of monthly statements which were in correct. Investigations also revealed that
   sales/revenue were inflated through insertion of large number of fictitious invoices raised
   in respect of fake customers and/or transa ctions and that the appellants had obtained
   direct bank confirmations on 13 occasions from various banks during six quarters. The
   bank confirmations received by the auditors from Satyam and which had been relied
   upon by them showed balances which were at variance with those given in the
   confirmations directly receiv ed from the banks. Price Waterhouse, the appellant in
   Appeal no.8 of 2011 is a partnership firm re gistered with the Institute of Chartered
   Accountants of India (ICAI) with its office in Bangalore and it was the auditor of Satyam
   from April 1, 2000 to September, 2008. S. Gopa lakrishnan, a partner of the firm had
   certified the audit reports for the period from April, 2000 to March, 2007 and Srinivas
   Talluri, another partner of the firm had certif ied the audit report(s) for the period from
   April, 2007 to September, 2008. Since the inaccu rate financial results of Satyam were
   being published quarter after quarter, this, according to the Bo ard, distorted the decision
   of millions of investors and induced them to trade in the securities of Satyam. It is,
   therefore, alleged that the appellant had not properly audited the financial statements of
   Satyam and there was no reasonable basis for the opinion expressed by it in its report in
   view of the serious irregularit ies. The financial statements presented, did not present
   fairly and accurately the financial position of Satyam which was manipulated and false.
   It is further alleged that the appellant did not maintain control over the process of sending
   and receiving confirmations, ignored the differences between the two sets of
   confirmations and the discre pancies in the indirect c onfirmation, did not make any
   examination or enquiry in this regard in violation of stipulated norms and practices which
   indicates its complicity or acquiescence in misreporting and manipulating the books of
   accounts of Satyam. It is further alleged that the appellant is liable to be treated as having
   participated in the fraud perpetrated by Rama linga Raju, Chairman of Satyam and others
   or as having aided and abetted the same. Accordingly, the appellants were asked to show
   cause as to why appropriate action should not be taken against them under Section 11 and
   11B of the Act and Regulation 11 of the Securities and Exchange Board of India 4
   (Prohibition of Fraudulent and Unfair Trad e Practices relating to Securities Market)
   Regulations, 2003 (for short the FUTP Regulations).
3. The appellants replied to the show cause notices and inter alia raised the point of
   jurisdiction of the Board to proceed against the appellants who are members of the
   Institute of Chartered Account ants of India and are regulat ed by the provisions of the
   Chartered Accountants Act, 1949. According to the appellants, the Board lacked inherent
   jurisdiction to enquire into the conduct of the appellan ts who are professional chartered
   accountants. The appellants filed writ petitions no.5249 and 5256 of 2010 before the
   High Court of Judicature at Bombay challeng ing the show cause notices issued by the
   Board. The said writ petitions were reje cted by the High Court by its judgment dated
   August 13, 2010 holding inter alia that the Board has power under the Act to take
   regulatory measures in the matter of safeguardi ng the interest of inve stors and securities
   market and in order to achieve the same, it can take appropriate remedial steps which
   may include keeping a person including a chartered accountant at a safe distance from the
   securities market. The relevant portions of the said j udgment are reproduced for facility
   of reference:-
   “It cannot be said that in a given cas e if there is material against any
   Chartered Accountant to the effect that he was instrumental in preparing
   false and fabricated accounts, the SEBI has absolutely no power to take
   any remedial or preventive measures in such a case. It cannot be said that
   the SEBI cannot give appropriate directions in safeguarding the interest of
   the investors of a listed Company. Whether such directions and orders are
   required to be issued or not is a matter of inquiry. In our view, the
   jurisdiction of SEBI would also depend upon the evidence which is
   available during such inquiry. It is true, as argu ed by the learned counsel
   for the petitioners, that the SEBI cannot regulate the profession of
   Chartered Accountants. This proposition cannot be disputed in any
   manner. It is required to be noted th at by taking remedial and preventive
   measures in the interest of invest ors and for regulating the securities
   market, if any steps are taken by the SE BI, it can never be said that it is
   regulating the profession of the Char tered Accountants. So far as listed
   Companies are concerned, the SEBI ha s all the powers under the Act and
   the Regulations to take a ll remedial and protective measures to safeguard
   the interest of investors and securities market. So far as the role of
   Auditors is concerned, it is a very important role under the Companies
   Act. As posited in Section 227 of th e Companies Act, every auditor of a
   company shall have a right of access at all times to the books and accounts
   and vouchers of the Company, whether kept at the head office of the
   company or elsewhere, and shall be entitled to require from the officers of
   the Company such information and expl anations as the auditor may think
   necessary for the performance of his duties. The auditors in the Company
   are functioning as statutory auditors. They have been appointed by the
   shareholders by majority. They owe a duty to the shareholders and are
   required to give a correct picture of the financial a ffairs of the Company.
   It is not uncommon nowadays that for financial gains even small investors 5
   are investing money in the share ma rket. Mr. Ravi Kadam has rightly
   pointed out that there are cases wher e even retired persons are investing
   their retirel dues in the purchase of shares and ultimately if such a person
   is defrauded, he will be totally ruined and may be put in a situation where
   his life savings are wiped out. With a view to safeguard the interests of
   such investors, in our view, it is the duty of the SEBI to see that maximum
   care is required to be taken to protect the interest of such investors so that
   they may not be subjected to any fraud or cheating in the matter of their
   investments in the securities market. Normally, an investor invests his
   money by considering the financial health of the Company and in order to
   find out the same, one will natura lly would bank upon the accounts and
   balance-sheets of the Company. If it is unearthed during inquiry before
   SEBI that a particular Chartere d Accountant in connivance and in
   collusion with the Officers/Directors of the Company has concocted false
   accounts, in our view, there is no reason as to why to protect the interests
   of investors and regulate the securities market, such a person cannot be
   prevented from dealing with the auditing of such a public listed Company.
   In our view, the SEBI has got inherent powers to take all ancillary steps to
   safeguard the interest of investors and securities market. The powers
   conferred under various provisions of the Act are wide enough to cover
   such an eventuality and it cannot be given any restrictive meaning as
   suggested by the learned counsel for th e petitioners. It is the statutory
   duty of the SEBI to see that the interests of the investors are protected and
   remedial and preventive measures are required to be taken in this behalf.”
   ………………………………..
   “In a given case, if there is prima facie evidence in connection with the
   conduct of a Chartered Accountant such as fabricating the books of
   accounts, etc., the SEBI can certainly give appropriate direction not to
   utilize the services of such a Charte red Accountant in the matter of audit
   of a listed Company. At this stage we would like to put a word of caution
   that these observations have been made by us only with a view to find out
   whether SEBI lacks inherent jurisdicti on and it should not mean that this
   Court has expressed any opinion rega rding the conduct of a particular
   Chartered Accountant involved in the case. However, in order to find out
   whether there is total lack of jurisdiction or whether SEBI has jurisdiction
   to adjudicate the matter and in order to examine this question that these
   observations have been made by us. Since the inquiry has not
   commenced, we have merely confined ourselves to the allegations made in
   the show cause notices to find out as to whether SEBI has jurisdiction to
   proceed further with the inquiry and nothing more. However, on
   conclusion of inquiry, if no evidence is available regarding fabrication and
   falsification of accounts, etc., then naturally SEBI cannot give any
   direction in any manner and ultimatel y its jurisdiction will depend upon
   the evidence which may be available in the inquiry and SEBI has to decide
   as to whether any directions can be given on the basis of available
   evidence on record. In our view, such a question is required to be
   considered only after th e evidence is availabl e during the enquiry but
   surely it cannot be said that SEBI has no power even to inquire about the
   same and that on the face of it the ju risdiction is barred, as submitted by
   the learned counsel for the petitioners.”
   It is seen from the records that before ap proaching the Hon’ble High Court challenging
   the jurisdiction of the Board to initiate action against the appellants under the Act, the
   appellants had made certain requests for copies of documents and statements of witnesses
   relied upon by the Board in the show cause notice and the Board had responded thereto. 6
   After the High Court order was passed, anot her application date d November 22, 2010
   was filed on behalf of the appellants to th e Board requesting for statements of certain
   persons recorded by the Board during invest igations and also requesting for cross-
   examination of certain witnesses whose statements have been relied upon. The said
   application is reproduced hereunder for easy reference:-
   “1. The Applicant refers to the Show Cause Notice dated February14,
   2009 and Supplementary Show Cause Notice dated February 19,
   2010 (collectively, “the Show Caus e Notices”) issued by Securities
   and Exchange Board of India (“SEBI”).
4. As already mentioned in th e replies dated August 10, 2009 and April
   26, 2010, the conclusions arrived by SEBI in the Show Cause
   Notices are largely based on and rely upon statements of certain
   persons. The Applicant has sought to examine/cross-examine the
   persons whose statements are basis of the allegations against the
   Applicant. In order to enable the Applicant to meet the charges
   leveled against the Applicant, cross-examination of the following
   persons is requested:

(a) Shri Ramalinga Raju, former Chairman, Satyam;
(b) Shri Rama Raju, former Managing Directing, Satyam;
(c) Mr. Vadlamani Srinivas, former Senior Vice President and
Chief Financial Officer; and
(d) Mr. G. Rama Krishna, former Vice President (Finance), Satyam
(e) Please also note that the Show Cause Notice dated February 14,
2010 refers to and relied upon statements made by various
undisclosed persons in paragraphs 3.1.3.1, 3.1.3.2, 3.1.4.9,
3.1.4.10, 3.2.2 and 3.3.1. We now call upon you to disclose the
identity of the persons whose st atements are so referred to and
relied upon against the Applicant and also keep these persons
present and available for cross-examination.

3. The above list is a preliminary lis t of persons that the Applicant
   believes it needs to cross-examine. The Applicant reserves the
   right to add, supplement or modi fy the above list as may be
   required.
4. Statements of the following persons have been recorded by SEBI
   and have been sought to be interpreted and relied upon in the Show
   Cause Notices and the Applicant se eks the right to examine/cross-
   examine the said persons:
   (a) Mr. Srinivas Talluri, PW partner
   (b) Mr. C. H. Ravindranath, PW engagement team
   (c) Mr. P. Siva Prasad, PW engagement team
   (d) Mr. Prekki Srinivasa Sudhakar, PW engagement team
   (e) Ms. Madduri Negi Venkata Gayatri, PW engagement team
   (f) Mr. Samvit Durga, PW engagement team
   (g) Mr. Girish Bala Kishore Tallam, PW engagement team
   (h) Mr. N. Ramu, PW engagement team
   (i) Shri V.V. K. Raju, Senior Vice President (Finance), Satyam;
   (j) Shri Srinivas Kishan Anapu, head of Internal Information
   Systems, Satyam;
5. You will appreciate that the refusal to grant examination / cross
   examination of all these persons wo uld result not only in a denial
   of natural justice but to a denial of a fair trial now interpreted by 7
   the Supreme Court as being a facet of the right to life under Article
   21 of the Constitution. Needless to say, this would severely impair
   and prejudice the ability of the Applicant to defend itself in the
   proceedings before SEBI.
6. It is therefore prayed that the persons referred to in paragraphs 2
   and 4 above be made available for examination / cross-
   examination with sufficient prior intimation to us of all the
   individuals you intend to produce. We may state that we do not
   expect you to produce/make available all the persons referred to in
   paragraphs 2 & 4 above at one and the same time for examination /
   cross-examination. Equally this request must not be understood to
   mean that we insist on examination / cross-examination of the
   aforesaid persons in any particular order of priority.”
   The whole time member of the Board disposed of the said application by his order dated
   December 15, 2010 wherein he accepted the request of the appellants for
   cross-examination of some of the witnesses and making available some of the documents
   but rejected the requests in resp ect of others. It is agains t this order of the whole time
   member that the appellants have come up in appeal before us. L earned counsel for the
   appellants has placed on record a note indica ting the status with regard to each of the
   requests which is not disputed by learned c ounsel for the respondents and is reproduced
   hereunder:-

“The infirmities in the Impugned Order can be classified into the following
categories:-
a) statements of persons denied; cross-examination too denied:
Mr. Ramalinga Raju Paragraph 14(a) – Page 31, Appeal Paperbook
Mr. Rama Raju Paragraph 14(b) – Page 32, Appeal Paperbook
Mr. Vadlamani Srinivas Paragraph 14(b) – Page 32, Appeal Paperbook
b) statements not given; cross examination allowed but curtailed – restricted to
such portions of the statement which in the opinion of SEBI are prejudicial:

Mr. G. Ramakrishna Paragraph 14(c) – Page 32, read with Paragraph 18(b) –
Page, 38, Appeal Paperbook
Mr. Venkatapathi Dhantuluri Paragraph 14(d)(iii) – Page 33, read with Paragraph 18(b)
– Page, 38, Appeal Paperbook
c) statements relied upon in the SCN and provided; cross-examination refused:

Mr. Srinivas Talluri Paragraph 14(e)(i) – Page 34
Mr. C.H. Ravindranath Paragraph 14(e)(ii) – Page 34
Mr. P. Siva Prasad Paragraph 14(f) – Page 36
Mr. N. Ramu Paragraph 14(g) – Page 36

8
d) statements relied upon in the SCN and provided; cross examination curtailed – restricted
to such portions of the statement which in the opinion of SEBI are prejudicial:

Mr. P.S. Sudhakar Paragraph 14(e)(iii) – Page 34
Ms. M. Gayatri Paragraph 14(e)(iv) – Page 35
Mr. Samvit Durga Paragraph 14(e)(v) – Page 35
Mr. Girish Tallam Paragraph 14(e)(vi) – Page 35
Mr. V.V.K. Raju Paragraph 14(h) – Page 36
Mr. Anapu Paragraph 14(i) – Page 36

e) statements of undisclosed pers ons relied upon in the SCN; cross
examination denied – Impugned Order does not disclose the identities.

For example, Mr. Venkatapathi Dhantuluri referred to in (b) above
is one such undisclosed person, whose identity came to light in the
Impugned Order, for the first time.”

4. Mr. Janak Dwarkadas, senior counsel in Appeal no. 8 of 2011 and Mr. Navroz
   Seervai, senior counsel in Appeal no. 9 of 2011 vehemently argued that the impugned
   order is in breach of principles of natural justic e in as much as there is absolute denial of
   opportunity to cross-examine the witnesses. Reference has been made to the statement
   made by Ramalinga Raju Chairman, Rama Raju, Managing Director and Vadlamani
   Srinivas CFO of Satyam but cross-examination of these witnesses has been denied. It is
   further alleged that in respect of G. Rama krishna and Venkatapathi Dhantuluri, although
   the statements have been provided, the whol e time member has allowed only restricted
   cross-examination which is against the principles of natural justice and fair play in action.
   The show cause notice also refers to th e statements of Srinivas Talluri, C.H.
   Ravindranath, P. Siva Prasad and N. Ramu but their cross-examination has been denied
   by the whole time member. It is further alleged that there is reference in the show cause
   notice to the statements of undisclosed persons but, in spite of request made to the whole
   time member, neither the identity of these persons has been disclosed nor their statements
   have been made available. It was furt her argued that in terms of the High Court
   judgment, referred to above, the jurisdiction of the Board to investigate the matter is
   restricted only to find out whether the appe llants had connived with Ramalinga Raju and
   its associates in manipulating the accounts/a udit report. It will be impossible for the
   appellants to defend themselves if they are denied access to the statements or are not
   allowed cross-examination of the witnesses on whose statements the case of the Board is
   based. It was argued that the whole time member of the Board, while conducting an
   enquiry, is discharging quasi j udicial functions and, therefore, he is bound to follow the 9
   procedure prescribed for tria l of action in Courts although he is not bound by the strict
   rules of evidence. The persons against whom a charge is made should know the evidence
   which is given against them so that they might be in a position to give their explanation.
   Mr. Seervai learned senior counsel for the appellants in Appeal no. 9 of 2011 further
   argued that so far as his clients are concerned they are not involved in the case at all.
   Each office of the Price Water House is an independent partnership firm registered under
   the relevant laws of the State in which their office is situated. It was the Banglore office
   of the Price Water House, an independent partnership, which was assigned the work of
   auditing by the Satyam. The whole time member , while passing the order, has not dealt
   with this aspect of the matter and has re jected the argument without recording any
   reasons. He, therefore, argued that the whol e time member has grossly erred in issuing
   show cause notice to other offices of th e Price Water House which are independent
   entities vis-a-vis Price Water House, Banga lore. On the issue of right to cross-
   examination, learned counsel for the appellants have relied on the following judgments:-
   I. Necessity and importance of cross-examination:-
   1) State of Mysore v. Shivabasappa AIR 1963 SC 375 (paras 3, 6 and 9)
   2) Meenglas Tea Estate v. Workmen AIR 1963 SC 1719 (para 4)
   3) Bareilly Electric Supply Co. v. Workmen AIR 1972 SC 330 (para 14)
   4) New India Assurance Co. Ltd. v. Nu sli Neville Wadia & Anr. AIR 2008 SC
   876 (paras 44-46)
   5) Bharat Jayantilal Patel v. Securities and Exchange Board of India Appeal no.
   126 of 2010 (para 7)
   6) B. Surinder Singh Kanda v. Government of the Federation of Malaya 1962 PC
   322 (page 337)
   7) K. L. Tripathi v. State Bank of India AIR 1984 SC 273 (paras 30-34, 39 and
   41)
   8) A. K. Roy v. Union of India AIR 1982 SC 710 (para 99)
   9) Noor Aga v. State of Punjab and Another, (2008) 16 SCC 417 (para 113)
   10) A. K. Dutta v. Union of India (1978) II LLJ Cal 337 (para 5)
   11) Middolla Harijana Thimmaiah v. St ate of A. P. 2005 (1) ALD (Cri) 286
   (paras 27-28)
   12) S. J. Chaudhary v. CBI (2009) DLT 673 (DB) (para 103)
   II. Inspection of relevant documents and statements :-
   1) State of Madhya Pradesh v. Chintaman Sadashiva Waishampayan AIR 1961
   SC 1623 (paras 6, 8 and 10)
   2) Kashinath Dikshita v. Union of India & Ors. 1986 3 SCC 229 (para 12)
   3) State of Uttar Pradesh v. Mohd. Sharif 1982 2 SCC 376 (para 3)
   4) State of Punjab v. Bhagat Ram 1975 1 SCC 155 (paras 3, 4 and 7)
   5) State of Uttar Pradesh v. Shatrughan Lal 1998 6 SCC 651 (paras 9 and 10)
   6) Tirlok Nath v. Union of India 1967 SLR 759 (SC) (page 764)
   7) M. L. Sethi v. Shri R. P. Kapur AIR 1972 SC 2379 (para 5)
   8) M. S. Naina v. Collector of Custom s, West Bengal 1975 TAX LR 1351
   (para 11) 10
   9) M/s. Kishandchand Chellaram v. IT Commissioner, Bombay AIR 1980 SC
   2117 (paras 6 and 7)
   10) Dhakeswari Cotton Mills Ltd. v. CIT AIR 1955 SC 65 (paras 9 and 10)
   11) State of Uttar Pradesh v. Saroj Kumar Sinha 2010 2 SCC 771 (paras 31-39)
   III. Manner of recording evidence :-

1) Bipin Shantilal Panchal v. St ate of Gujarat & Ors. (2001) 3 SCC 1
(paras 12-15)
IV. Meaning of evidence:-

1) Smt. Shivrani v. Suryanarain 1994 CriLJ 2026 (para 4, 6-7 and 11)
2) Rakesh v. State of Haryana 2001 6 SCC 248 (paras 4, 10, 13)
V. An unfair trial cannot be cured by a fair appeal:-

1) Institute of Chartered Accountants of India v. L. K. Ratna & Ors. (1986) 4
SCC 537 (paras 17 and 18)
2) Leary v. National Union of Vehicle Builders 1970 2 AII ER (page 720)
3) Swadeshi Cotton Mills v. Union of India AIR 1981 SC 818 (para 92)
VI. A judge must be unbiased:-
1) Jones v. National Coal Board 1957 2 QB 55 (page 4)
2) Union of India v. R. Gandhi (2010) 11 SCC 1 (para 46, 49, 101-102 and 108-
110)

5. Mr. Ravi Kadam learned Advocate Gene ral, who appeared on behalf of the
   respondent Board supported the order passed by the whole time member and argued that
   a selected cross-examination with only some witnesses whose statements have been
   recorded and relied upon is permissible in law and does not constitute violation of
   principles of natural justice. It was furt her argued by him that unless the appellants can
   point out the prejudice caused to them, th e permission/refusal to supply documents
   specifically obtained in the course of the investigation though relevant to the enquiry, but
   not specifically relied upon by the Board in the show cau se notice or the supplementary
   show cause notice to make their case against th e appellants does not vi tiate the enquiry.
   It was further submitted by him that deliberat ely withholding the documents which have
   not been relied upon by the Board in the show cause notice would not constitute a breach
   of natural justice and would not vitiate the proceedings. He forcefully argued that the
   Board is entitled to refuse cross-examination of the witnesses if no prejudice is caused to
   the appellant. He also made a reference to the judgment of the Bombay High Court in the
   case referred to above, and submitted that ju risdiction of the Board in the present case
   would depend on the evidence available on re cord and relied upon in the show cause 11
   notice. In support of his c ontentions, learned Advocate General has relied on the
   following judgments:-
   1) Transmission Corpn. Of A. P. Lt d. 7 Ors. Vs. Sri Ramakrishna Rice Mills
   2006 3 SCC 74.
   2) Krishna Chandra Tandon v. The Union of India 1974 4 SCC 374.
   3) Dr. Mahachandra Prasad Singh v. H on. Chairman, Bihar Legislative Counsil
   & Ors. 2004 8 SCC 747.
   4) Kishanlal Agarwalla v. Collector of Land Customs AIR 1967 Cal 80
   5) State of Tamil Nadu v. Thir u KV Perumal AIR 1996 SC 2474, 1996 5 SCC
   474
   6) State of Uttar Pradesh & Ors. v. Ramesh Chandra Mangalik 2002 3 SCC 433,
   AIR 2002 SC 1241.
   7) State of Andhra Pradesh & Ors. v. Nagam Chandrasekhara Lingam & Ors.
   AIR 1998 SC 1309, 1988 3 SCC 534
   8) Kanungo & Co. v. Collector of Customs & Ors. AIR 1972 SC 2136, 1973 2
   SCC 438
   9) Haryana Financial Corporation & Anr. V. Kailash Chandra Ahuja 2008 9 SCC
6. 10) Chandrama Tewari v. Union of India AIR 1988 SC 117, 1997 Supp (1) SCC
   518
   11) K. L. Tripathi v. State Bank of India, AIR 1984 SC 273
7. We have gone through the judgments cited by both the parties and will be dealing
   with them as and when it becomes necessary wh ile dealing with their arguments. At the
   outset, let us make it clear that we do not nor mally interfere at the stage of enquiry for
   two reasons, namely; (i) it delays the enquiry process and (ii) any observations made by
   us for or against either party may prejudice the proceedings. But in the instant case, it
   has become necessary to intervene because the violation of principles of natural justice is
   writ large on the face of the impugned order. We may also make it clear that we are not
   intending to make any observations on the me rits of the enquiry proceedings in this
   appeal which will be looked into by the w hole time member at the time of inquiry.
   Therefore, our observations in this order are confined only to the legality of the procedure
   adopted by the whole time member while holding the inquiry.
8. After hearing learned counsel on both sides and having perused the record, we are
   of the considered view that there has been viol ation of principles of natural justice in not
   allowing cross-examination of the witnesses whose statements are being relied upon in
   the show cause notice and also in not making available copies of the statements which
   have been relied upon by the Board in issuin g the show cause notice. The Board issued
   show cause notice in exercise of powers unde r sections 11 and 11B of the Act to the
   appellants to show cause as to why directions should not be issued prohibiting them from 12
   issuing certificate regarding compliance of obligations of listed companies and/or
   restraining them from accessing the securities market. Before the rival contentions of the
   parties are examined, it is necessary to refe r to the provisions of Section 11 and 11B of
   the Act.
   “11. (1) Subject to the provisions of this Act, it shall be the duty of
   the Board to protect the interests of investors in securities and to promote
   the development of, and to regulat e the securities market, by such
   measures as it thinks fit.
   (2) Without prejudice to the genera lity of the foregoing provisions,
   the measures referred to therein may provide for-
   (a) regulating the business in stock exchanges and any other
   securities markets;
   (b) registering and regulating the working of stock brokers,
   sub-brokers, share transfer agents, bankers to an issue,
   trustees of trust deeds, regist rars to an issue, merchant
   bankers, underwriters, portfo lio managers, investment
   advisers and such other intermediaries who may be
   associated with securities markets in any manner;
   [(ba) registering and regulating the working of the depositories
   [, participants], custodian s of securities, foreign
   institutional investors, credit rating agencies and such
   other intermediaries as the Board may, by notification,
   specify in this behalf;]
   (c) registering and regulating th e working of [venture capital
   funds and collective invest ment schemes], including
   mutual funds;
   (d) promoting and regulating self-regulatory organizations;
   (e) prohibiting fraudulent and unf air trade practices relating
   to securities markets;
   (f) promoting investors’ e ducation and training of
   intermediaries of securities markets;
   (g) prohibiting insider trading in securities;
   (h) regulating substantial acquisition of shares and take over
   of companies;
   (i) calling for information from, undertaking inspection,
   conducting inquiries and audits of the [stock exchanges,
   mutual funds, other persons associated with the securities
   market], intermediaries and self-regulatory organizations
   in the securities market;
   [(ia) calling for information and record from any bank or any
   other authority or board or corporation established or
   constituted by or under any Ce ntral, State or Provincial
   Act in respect of any transaction in securities which is
   under investigation or inquiry by the Board;]
   (j) performing such functions and exercising such powers
   under the provisions of [***] the Securities Contracts
   (Regulation) Act, 1956 (42 of 1956), as may be delegated
   to it by the Central Government;
   (k) levying fees or other charges for carrying out the purposes
   of this section;
   (l) conducting research for the above purpose;
   [(la) calling from or furnishing to any such agencies, as may be
   specified by the Board, such information as may be
   considered necessary by it for the efficient discharge of its
   functions;]
   (m) performing such other functions as may be prescribed. 13
   (2A) Without prejudice to the provisi ons contained in sub-section (2),
   the Board may take measures to undertake inspection of any book, or
   register, or other document or record of any listed public company or a
   public company (not being intermedia ries referred to in section 12)
   which intends to get its securities listed on any recognised stock
   exchange where the Board has reasona ble grounds to believe that such
   company has been indulging in inside r trading or fraudulent and unfair
   trade practices relating to securities market.
   (3) Notwithstanding anything contained in any other law for the time
   being in force while exercising the powers under [claus e (i) or clause,
   (ia) of sub-section (2) or sub-section (2A)], the Board shall have the
   same powers as are vested in a ci vil court under the Code of Civil
   Procedure, 1908 (5 of 1908), while tr ying a suit, in respect of the
   following matters, namely:-

(i) the discovery and producti on of books of account and
other documents, at such place and such time as may be
specified by the Board;
(ii) summoning and enforcing the attendance of persons and
examining them on oath;
(iii) inspection of any books, registers and other documents of
any person referred to in section 12, at any place;]
[(iv) inspection of any book, or re gister, or other document or
record of the company referred to in sub-section (2A);
(v) issuing commissions for the examination of witnesses or
documents.
(4) Without prejudice to the provision s contained in sub-section (1),
(2), (2A) and (3) and section 11B, the Board may, by an order, for
reasons to be recorded in writing, in the interests of investors or
securities market, take any of th e following measures, either pending
investigation or inquiry or on completion of such investigation or
inquiry., namely:-

(a) suspend the trading of any security in a recognised stock
exchange;
(b) retrain persons from accessing the securities market and
prohibit any person associated with securities market to
buy, sell or deal in securities;
(c) suspend any office-bearer of any stock exchange or self-
regulatory organisation from holding such position;
(d) impound and retain the proceed s or securities in respect
of any transactions which is under investigation;
(e) attach, after passi ng of an order on an application made
for approval by the Judicial Ma gistrate of eth first class
having jurisdiction, for a period not exceeding one month,
one or more bank account or accounts of any intermediary
or any person associated with the securities market in any
manner involved in violation of any of the provisions of
this Act, or the rules or the regulations made thereunder :
Provided that only the bank account or accounts or any
transaction entered therein, so far as it relates to the
proceeds actually involved in violation of any of the
provisions of this Act, or the rules or the regulations made
thereunder shall be allowed to be attached;
(f) direct any intermediary or any person associated with the
securities market in any ma nner not to dispose of or
alienate an asset forming part of any transaction which is
under investigation :

14
Provided that the Board may, without prejudice to the provisions
contained in sub-section (2) or sub-section (2A), take any of the
measures specified in clause (d) or clau se (e) or clause (f), in respect of
any listed public company or a public company (not being intermediaries
referred to in section 12) which intends to get its securities listed on any
recognised stock exchange where th e Board has reasonable grounds to
believe that such company has been indulging in insider trading or
fraudulent and unfair trade practices relating to securities market :
Provided further that the Board shall, either before or after passing such
orders, give an opportunity of hearing to such intermediaries or persons
concerned.
……………………………..
Board to regulate or prohibit issu e or prospects, offer document or
advertisement soliciting money for issue of securities.

11B. Save as otherwise provided in section 11, if after making or
causing to be made an enquiry, the Board is satisfied that it is necessary,-

(i) in the interest of investors, or orderly development of
securities market; or
(ii) to prevent the affairs of any intermediary or other persons
referred to in section 12 being conducted in a manner
detrimental to the interest of investors or securities
market; or
(iii) to secure the proper management of any such
intermediary or person, it may issue such directions,-
(a) to any person or class of persons referred to in
section 12, or associated with the securities
market; or
(b) to any company in respect of matter specified in
section 11A, as may be appropriate in the interests
of investors in securities market.”
A perusal of the aforesaid provisions shows th at the Board is enjoined with the duty of
protecting the interest of investors in the securities market and to promote the
development of and regulate the securities mark et by such measures as it thinks fit. Sub-
section (2) of Section 11 provides that Board may undertake various measures as
provided under clause (a) to (m). Sub-sect ion (3) of Section 11 provides the enabling
power of the Board like that of a civil court under the Code of Civil Procedure for trial of
the suit is respect to discovery or produc tion of books of account etc. summoning and
enforcing the attendance of person and exam ining them on oath and inspection of any
books or register or other documents etc. Se ction 11B of the Act provides that when the
Board is satisfied that it is necessary in the interest of investors or orderly development of
securities market or to prevent the affairs of any intermediary or other persons or to
secure the proper management of any such intermediary or person, the Board may issue
such directions to any person or class of pe rsons or to any company in respect of the
matters specified in Section 11A of the Act. A dispute was raised by the appellant

15
challenging the powers of the Bo ard to initiate proceedings against them under sections
11 and 11B of the Act which has been negatived by the High Court by its order dated
31.08.2010 making it clear that under section 11B, powers have been conferred on the
Board to give appropriate directions even to any person or cla ss of persons referred to in
Section 12 or associated with the securities market. The powers available to the Board
under that Act are to be exercised in the inte rest of investors and in the interest of
securities market. In order to safeguard the inte rest of investor or in terest of securities
market, the Board is entitled to take all ancillary steps and measures to see that the
interest of investors is prot ected. Any inquiry that is to be conducted before issuing a
direction in terms of Section 11 and 11B of the Act must comply with the bare minimum
principles of natural justice. When a fact is sought to be establishe d on the basis of the
statement of a person which is refused by the delinquent, the latter has a right to cross
examine the person whose statement is soug ht to be relied upon. This is the bare
minimum requirement of the principles of natural justice which needs to be complied
with in all quasi-judicial proceedings that are conducted by the Board.

8. The Rules of natural justice have been st ated and restated a number of times by
   the academics, jurists, courts and by the quasi judicial authorities. These rules, inter alia,
   provide:-
   a) An authority should decide, only, if it hears;
   b) It cannot be a judge in its own cause;
   c) A party should have an opportunity of adducing evidence on which it
   relies; the evidence of his opponent should not be taken on his back and he
   should be given a right of cross-examination; and
   d) The authority itself should not produce evidence on the basis of which the
   matter is decided.

These rules are required to be followed not only by the Tribunals but also by the
administrative authorities and bodies conduc ting enquiries. The charges against the
delinquent should be made known to him, the au thority should listen to him, give him a
fair chance to contradict any statement prejud icial to him and offer a fair opportunity to
adduce evidence in his favour. The witnesses appearing against him should be examined
in his presence and he should be permitted to cross-examine them. The question whether
in any particular case, these rules have been violated can be answer ed in the context of
that case, the statutory provisions and the material circumstances brought to the notice of

16
the competent authority. The principles of natural justice know no exclusionary rule
dependent on whether it would have made any difference if these had been observed.

9. Learned counsel on both sides have not disputed the legal pos ition that certain
   principles had remained relatively immutable in our jurisprudence. One of these is that
   where action by an authority seriously injures an individual and the reasonableness of the
   action depends on fact findings, the evidence used to prove the case must be disclosed to
   the individual so that he has an opportunity to show that it is untrue. In this background
   the question that arises for consideration in this case is whether the right of cross
   examination is an integral part of the principles of natural justice. This has been
   answered by the Apex Court in a number of decisions cited by both parties and we would
   like to refer to one such decision in the case of A.K. Roy vs. Union of India AIR 1982
   SC 710. This is a case which relates to prev entive detention. Although, in the facts of
   the case, the accused was not allowed to cross examine the witnesses who made
   statements against him in the case, the Apex Court discussed the law relating to the right
   of cross examination and observed as under:-
   “The principle that witnesses mu st be confronted and offered for
   cross-examination applies generally to proceedings in which witnesses are
   examined or documents are adduced in ev idence in order to prove a point.
   Corss-examination then becomes a powerful weapon for showing the
   untruthfulness of that evidence.”
   It will thus be seen that when an enquiry is conducted by an authority against an
   individual visiting civ il consequences, it cannot be tr eated as a casual exercise. The
   enquiry proceedings also cannot be conducted with a closed mind. The rules of natural
   justice are required to be observed to ensure that not only justice is done but is manifestly
   seen to be done. The object of rules of natural just ice is to ensure that the delinquent is
   treated fairly in proceedings which may culmin ate in imposition of a civil liability. In a
   case reported as Kashinath Dikshita vs. Union of India (1986) 3 SCC 229 , the Apex
   Court was considering the importance of access to documents and statement of witnesses
   to meet the charges in an effective manne r in disciplinary proceedings against a
   government servant. The court observed as under:-
   “10. …. When a government servant is facing a disciplinary proceeding,
   he is entitled to be afforded a reas onable opportunity to meet the charges
   against him in an effective manner. And no one facing a departmental
   enquiry can effectively meet the charge s unless the copies of the relevant
   statements and documents to be used against him are made available to 17
   him. In the absence of such copies, how can the employee concerned
   prepare his defence, cross-examine the witnesses, and point out the
   inconsistencies with a view to show th at the allegations are incredible? It
   is difficult to comprehend why the disciplinary authority assumed an
   intransigent posture and refused to furnish the copies notwithstanding the
   specific request made by the appellant in this behalf. Perhaps the
   disciplinary authority made it a presti ge issue. If only the disciplinary
   authority had asked itself the questi on: ‘What is the harm in making
   available the material?’ and weighed the pros and cons, the disciplinary
   authority could not reasonably have adopted such a rigid and adamant
   attitude. On the one hand there was the risk of the time and effort invested
   in the departmental enquiry being wasted if the courts came to the
   conclusion that failure to supply thes e materials would be tantamount to
   denial of reasonable oppor tunity to the appellant to defend himself. On
   the other hand by making available th e copies of the documents and
   statements the disciplinary authority was not running any risk. There was
   nothing confidential or privileged in it.”

The said observations have been quoted with approval in a later decision of the Supreme
Court in the case of State of Uttar Pradesh vs. Saroj Kumar Sinha (2010) 2 SCC 772 .
The Apex Court has further dealt with the ar gument that no prejudice has been caused to
the appellant in the following words:-
“12. Be that as it may, even without going into minute details it is evident
that the appellant was entitled to have an access to the documents and
statements throughout the course of th e inquiry. He would have needed
these documents and statements in order to cross-examine the 38
witnesses who were produced at the inquiry to establish the charges
against him. So also at the time of arguments, he would have needed the
copies of the documents. So also he would have needed the copies of the
documents to enable him to effectively cross-examine the witnesses with
reference to the contents of the documents. It is obvious that he could not
have done so if copies had not been made available to him. Taking an
overall view of the matter we have no doubt in our mind that the appellant
has been denied a reasonable opportunity of exonerating himself.”
The above observations of Hon’ble Supreme Court squarely apply to the facts and
circumstances of the case under considerat ion. Non-disclosure of documents and
refusing cross-examination of the witnesse s whose statements are being relied upon
causes prejudice to the case of the appellants and is a clear denial of reasonable
opportunity to submit plausible and effective rebuttal to the charges being enquired into.

10. We would also like to re fer to the judgment of the Hon’ble Supreme Court in the
    case of K.L. Tripathi vs. State Bank of India AIR 1984 SC 273 where the Apex court
    has quoted with approval extract from Wade on Administrative law (Fifth Edition on
    page 472-475) stating that it is not possible to lay down rigid rules as to when the
    principles of natural justice are to apply nor as to their scope and extent. Everything 18
    depends on the subject-matter, the application of principles of natural justice, resting as it
    does upon statutory provisions, must always be in conformity with the scheme of the Act
    and with the subject-matter of the case. It is further observed that in the application of the
    concept of the fair play there must have been real flexibility. The requirement of natural
    justice must depend on the facts and the circumstances of the case, the nature of the
    inquiry, the rules under which the authority is acting and the subject-matter to be dealt
    with. In Bareilly Electric Supply Co. vs. Workmen AIR 1972 SC 330 , this is what the
    learned Judges have held:-
    “the application of the principles of natural justice does not imply that
    what is not evidence can be acted upon. On the other hand what it
    means is that no material can be relied upon and to establish a
    contested fact which are not spoke n to by persons who are competent
    to speak about them and are subjected to cross-examination by the
    party against whom they are sought to be used.”
    The scope of the rules of natural justice has also been summarized by M P Jain in his
    book on Administrative Law (1994 Edition) in the following words:-
    “The aim of the rules of natural justi ce is to secure justice or to put it
    negatively to prevent miscarriage of justice. These rules can operate
    only in areas not covered by any law validly made. In other words they
    do not supplant the law of the land but supplement it. The concept of
    natural justice has undergone a great deal of change in recent years. In
    the past it was thought that it include d just two rules, namely (1) no
    one shall be a judge in his own cause (Nemo debet esse judex propria
    causa), and (2) no decision shall be given against a party without
    affording him a reasonable hearing (audi alteram partem). Very soon
    thereafter a third rule was envisaged and that is that quasi-judicial
    enquiries must be held in good faith, without bias and not arbitrarily or
    unreasonably. But in the course of years many more subsidiary rules
    came to be added to the rules of natural justice. Till very recently it
    was the opinion of the courts that unless the authority concerned was
    required by the law under which it f unctioned to act judicially there
    was no room for the application of the rules of natural justice. The
    validity of that limitation is not que stioned. If the purpose of the rules
    of natural justice is to prevent miscarriage of justice one fails to see
    why those rules should be made inapplicable to administrative
    enquiries. Often times it is not easy to draw the line that demarcates
    administrative enquiries from quasi-judicial enquiries. Enquiries which
    were considered administrative at one time are now being considered
    as quasi-judicial in character. Arriving at a just decision is the aim of
    both quasi-judicial enquiries as we ll administrative enquiries. An
    unjust decision in an administra tive enquiry may have more far
    reaching effect than a decision in a quasi-judicial enquiry. As observed
    by this Court in Suresh Koshy George v. University of Kerala , the
    rules of natural justice are not embodied rules. What particular rule
    of natural justice should apply to a given case must depend to a
    great extent on the facts and circumstances of that case, the frame-
    work of the law under which the enquiry is held and the
    constitution of the Tribunal or bo dy of persons appointed for that
    purpose. Whenever a complaint is made before a court that some 19
    principle of natural justice had b een contravened the court has to
    decide whether the observance of that rule was necessary for a just
    decision on the facts of that case…” (emphasis supplied)
    In the case of Ravi S. Naik vs. Union of India AIR 1994 SC 1558 , the Apex Court had
    observed that the principles of natural justice have an im portant place in administrative
    law. They have been defined to mean “fair play in action”. An or der of an authority
    exercising judicial or quasi-judicial functions passed in violat ion of principles of natural
    justice is procedurally ultra vires and, therefore, suffers from a jurisdictional error. That is
    the reason why, in spite of finality imparted to the decision of the Speaker / Chairman by
    paragraph 6(1) of the Tenth Schedule of the Constitution, such a decision is subject to
    judicial review on the ground of non-complia nce with rules of natural justice. The Apex

Court has observed that while applying the principles of natural justice it must be

borne in mind that they are not immutable but flexible and they are not cast in a

rigid mould and they cannot be put in legal straight jacket. Whether the

requirements of natural justice have been complied with or not has to be considered

in the context of the facts and circumstances of a particular case (emphasis supplied).
There are catena of decisions on the aforesaid subject and the law settled on the point.
The ingredient of principles of natural ju stice vary from facts of each case and there
cannot be any straight jacket formula.

11. Let us now examine the show cause no tice issued to the appellant in the
    background of the aforesaid legal propositio n. Admittedly, there is reference to the
    statements of Rama Raju and Vadlamani Sr inivas in the show cause notice. In the
    impugned order, cross-examination of these pers ons has been denied. It is interesting to
    note that cross-examination of G. Ramakris hna and Venkatapathi Dhantuluri has been
    allowed by the impugned order but copies of their statements had been denied. We fail to
    understand how can there be an effective cross-examination without the statement being
    made available to the appellant which have been recorded behind their back. Admittedly,
    the allegations in the show cause notice are supported by th e statements of Srinivas
    Talluri, C.H. Ravindranath, P. Siva Prasad a nd N. Ramu but their cross-examination has
    been refused. In respect of P.S. Sudhakar, M. Gayatri, Samvit Durga, Girish Tallam,
    V.V.K. Raju and Anapu, a restricted cross- examination has been allowed. We fail to 20
    understand how the whole time member of th e Board can restrict the cross-examination
    even before examination-in-chief of these persons. Such a right is available only after the
    examination-in-chief is over and that too under limited circumstances as laid down by the
    Apex Court in the case of Bipin Shantilal Panchal vs. State of Gujarat (2001) 3 SCC
12. A three Judges Bench, which heard the case, observed that whenever an objection is
    raised during evidence taking stage regarding the admissibility of any material or item of
    oral evidence, the trial Court can make a no te of such objections and mark the objected
    document tentatively as an exhibit in the case subject to such objections to be decided at
    the last stage in the final judgm ent. If the Courts find at the final stage that the objection
    so raised is sustainable, the Judge or Ma gistrate can keep such evidence excluded from
    considerations. This judgment ha s been followed by the Court in State vs. Navjot
    Sandhu (2003) 6 SCC 641. Again in Boman P. Irani vs. Manilal P. Gala AIR 2004
    Bombay 123, it has been held by the Bombay High C ourt that these observations of the
    Supreme Court do not restrict th e ratio to proceedings in criminal cases but it equally
    apply to civil cases also. By allowing restricted examinations in the impugned order even
    before the examination-in-chief, the whole time member has not only violated the
    principles of natural justice, but also acted contrary to law laid down by the Apex Court.
13. Learned Advocate General appearing on beha lf of the Board has tried to justify
    the limited cross examination and non supply of certain statements to the appellants and
    relied on certain judgments referred to a bove. We do not find ourselves in agreement
    with the submissions made by him in this regard. The judgments relied upon by him were
    given on different facts and justified the sta nd taken in the facts and circumstances of
    those cases and not in the facts and circumstances of the present case. Let us look at some
    of the judgments cited on behalf of the respondents. In the case of Transmission
    Corporation (2006) 3 SCC 74, the inquiry was into alleged pilferage of electricity which
    was based on the report of disinterested officers of the department. Hence the Court held
    that it could not be laid down as a rule of universal applications that whenever the
    statements of departmental officers were pressed into service for the purpose of
    adjudications a right of cross examination is inbuilt. In K.C. Tandon’s case (1974) 4
    SCC 374, the Court rejected the pl ea of denial of natural justice as the inspection of
    records and copies of documents were denied to the appellant and the Inquiry Officer has 21
    not relied upon those documents. In the case of Dr. Mahochandra Prasad Singh (2004)
    8 SCC 747, the Court rejected the plea of denial of natural justice as order was passed on
    the basis of admitted facts. None of the judgments cited on behalf of the respondents deal
    with a case where the Court might have upheld limited cross-examination or denial of
    documents or refusal to cross examine the witnesses where the accusation is based on
    statements of witnesses or documents referred to or relied upon in the show cause notice.
14. The foundation of the show cause notice in the case under consideration is the
    statements of witnesses which have been re ferred to and relied upon in the show cause
    notice and in case the appellants are not allowed copies of the statement and cross-
    examination of the witnesses relied upon in the show cause notice, it will lead to gross
    violation of the principles of natural justice. It is an elementary principle of law that a
    person who is required to an swer the charge must know not only the accusation but also
    the testimony by which the accusa tion is supported. He must be given a fair chance to
    hear the evidence in su pport of the charge and to put su ch relevant questions by way of
    cross-examination as he desires. He must also be given a chance to rebut the evidence led
    against him. For the reasons stated above, we answer the question formulated in the
    opening part of the order in the affirmative.
15. Let us now deal with the argument of Mr. Seervai, learned senior counsel for the
    appellant in appeal no. 9 of 2011 that his clients are not invol ved in the case at all and
    that the audit of Satyam was conducted by th e Bangalore office of the Price Waterhouse,
    an independent partnership firm and has nothi ng to do with appellants in appeal no. 8 of
16. We find that similar arguments was adva nced before the Bombay High Court also
    in the case referred to above. The Court has not given any decision on the issue. The
    reason seems to be that the Court was dealing with the preliminary objections with regard
    to the jurisdiction of the Board to conduct an inquiry against the chartered accountants
    who conducted audit of accounts of Satyam which were found to be deficient in
    accordance with laid down norms. Here, we are concerned with the basic issue of
    principles of natural justice to be followed by the whole time member of the Board while
    conducting an inquiry. We are not going into th e merits of the case at all. It will,
    therefore, be appropriate for the appellants to put up their defence before the whole time 22
    member of the Board and let him decide the i ssue on the basis of material / evidence that
    may be placed before him. If the appellants find themselves aggrieved by the order that
    may be passed by the Board they are free to avail the legal remedies available to them.
17. We may now deal with a nother argument of learned counsel for the appellants
    that they should be allowed to inspect all the material / documents that might have been
    collected by the Board during the course of investigation. Mr. Dwarkadas, learned senior
    counsel for the appellants in Appeal no. 8 of 2011, contended that this case is sui generis.
    The ratio of the judgment of the Bombay High Court in this case has to be followed. The
    nature of inquiry will decide the scope of principles of na tural justice. This case has no
    parallel. The Board carried out investigations and collected evidence, documentary and
    by recording statement of witnesses. To enable the appellants to defend themselves, they
    are entitled to inspection of all the material and documents that might have been collected
    by the Board during the course of inquiry, wh ether the same has been relied upon in the
    show cause notice or not. According to learned counsel, in the inquiry proceedings under
    consideration, the Board is not acting as a prosecutor but as an adjudicator. Any material
    / evidence collected by it must be made avai lable to the appellants to defend their case.
    According to him evidence is not confined to proof only but it includes all material
    collected by the Board. In support of his ar gument, he referred to the definition of
    ‘evidence’ as discussed in the book ‘Sarkar on Evidence’ and also relied upon decisions
    reported as Smt. Shivani vs. Suryanarain 1994 Crl. L.J. 2026 and Rakesh vs.
    Haryana (2001) 6 SCC 248 . Learned Advocate General and Mr. Shiraz Rustomjee
    appearing for the respondent Board seriously disputed the claim of the appellant
    contending that inspection of all the records collected by the Board during the course of
    examination is not an issue before the Tribunal. In fact such a request was never made to
    the Board. The appellants ha ve filed appeal before this Tribunal against the impugned
    order in which ruling is given by the Boar d on the application dated November 22, 2010
    requesting for cross-examination of certain persons. There are no pleadings in the appeal
    and no prayer has been made for allowing insp ection of all the material that might have
    been collected by the Board during the course of investigations. The Board issued the
    first show cause notice on February 14, 2009. By a letter dated March 13, 2009, the
    appellant requested inspection and copies of documents and records referred to and relied 23
    upon in the show cause notice. As per appellant’s own admission by its letter dated
    March 19, 2009 the Board granted appellant an opportunity to conduct inspection of the
    documents on April 9, 2009. In their furt her letter dated May 12, 2009 again it is
    admitted that the Board provided them with certain documents as requested at the time of
    inspection. In the letter dated May 12, 2009 the appellants requested for further
    documents relied upon in the show cause notice. There is no request at all asking for
    inspection of all the material that Board might have collected during the course of
    investigation. This letter too was replie d by the Board on June 24, 2009. There is some
    further correspondence on record which indicat e that as and when request was made by
    the appellant asking for certain information relating to the show cause notice, the Board
    had responded to the same. It is for the first time before this Tribunal and that too during
    the course of argument that the learned counsels have made a prayer that inspection of all
    the documents should be allowed. Be that as it may, there is no rule of law which permit
    appellants to have access to all the material available with the Board which has not been
    relied upon or referred to in the show cause notice issued to the appellants.
18. We have given our thoughtful consideration to the prayer made by the appellants.
    After hearing both the parties and perusing the record, we are inclined to agree with
    learned Advocate General that in the facts and circumstances of this case, it is not
    appropriate nor it is the requirement of principles of na tural justice that appellant should
    be allowed inspection of all the material that might have been collected during the course
    of investigation but has not been relied upon in the show cause notice. In the case law
    discussed above, it has been abundantly made cl ear that what particular rule of natural
    justice should apply to a given case must depend to a great extent on the facts and
    circumstances of the case, the framework of the law under which the inquiry is held and
    the constitution of the Tribunal or body of persons appointed for the purpose. There is no
    provision in the Act that all material collec ted during the course of investigation should
    be made available to the appellant. Mr. Janak Dwarkadas is right when he argues that this
    case is sui generis. As per promoter’s ow n admission, the accounts were manipulated /
    forged for a number of years. A fraud of worst kind was perpetrated in the affairs of a
    listed company which had international ramifica tions. The shares of Satyam are listed in
    the stock exchanges outside the country also. It is a matter of r ecord that even the 24
    Government had to intervene and handover the affairs of Satyam to a Board constituted
    by the Central Government to ensure that country’s internationa l reputation is not
    adversely affected. It is also a matter of r ecord that many government agencies including
    the Central Bureau of Investigation, Enfo rcement Directorate and the Income Tax
    Department are investigating into the affairs of Satyam to see what kind of violation of
    law has been committed so that appropriate action can be taken against persons involved
    in the fraud. The present show cause notice has been issued by the Board on the basis of
    evidence collected by it which prima-facie show s that there might have been complicity
    of the auditors in manipulation of accounts and they might have aided and abetted the
    company in making such a large scale manipulation and that too for a number of years. If
    any material collected during th e course of investigation ha s not been relied upon in the
    show cause notice, it will not deprive the appellant to produce its defence before the
    Board to show that it was not a party to th e fraud. In our this view, we are supported by
    the judgment of the Supreme Court in the case of Natwar Singh vs Director of
    Enforcement (2010) 13 SCC 255 where the Ap ex Court has observed that even the
    principles of natural justice do not require supply of documents upon which no reliance
    has been placed by the authority to set the law into motion. Supply of relied on
    documents based on which the law has been set into motion would meet the requirements
    of the principles of natural justice. The situation may be different in a criminal case
    where the investigation report is placed befo re the court and the accused person asks for
    copy of the material collected du ring the course of investigat ion. This is not so here. In
    the facts and circumstances of the present case , we are of the considered view that the
    appellants are not entitled to the material co llected during the course of investigation by
    the Board which has not been relied upon in th e show cause notice. This prayer of the
    appellants is, therefore, rejected.
19. In the result, the appeals are allowed and the impugned order set aside. The
    question formulated in paragraph one is answer ed in the affirmative. The prayers made
    in paragraph 7(b) and (c) of the memorandum of appeal are allowed. In addition the
    Board is directed to allow the appellants to cross-examine the persons whose names are
    mentioned in paragraph 4 of the applica tion dated November 22, 2010 and also furnish
    copies of their statements to the appellants, if not already furnished. We further direct the 25
    Board to complete the enquiry as expeditiously as possible preferably within four months
    from the date of this order. The appellan ts should also cooperate with the Board in
    conducting enquiry in a time bound manner. No costs.
    Sd/-
    P.K. Malhotra
    Member
    Sd/-
    S.S.N. Moorthy
    Member
    Per : Justice N. K. Sodhi, Presiding Officer
20. I have gone through the order prepared by the learned Members and I agree that
    both the appeals deserve to be allowed and that the wholetime member has grossly
    violated the principles of na tural justice. I also agree w ith the directions which the
    Members propose to issue. However, I have not been able to persuade myself to agree
    with the observations and fi ndings recorded in paragraphs 15 and 16 of their order
    particularly when they observe “Be that as it may, there is no rule of law which permit
    appellants to have access to all the material available with the Board which has not been
    relied upon or referred to in the show cause notice issued to the appellants.” Again, I
    cannot agree with their finding that “If any material collected during the course of
    investigation has not been relied upon in th e show cause notice, it will not deprive the
    appellant to produce its defence before the Board to show that it was not a party to the
    fraud.” Facts giving rise to th e appeals as stated in paragraph 2 of their order have been
    taken from the draft prepared earlier and it is not necessary to st ate those again. The
    appellants were served with a show cause notice dated February 14, 2009 and shorn of all
    other details, the gravamen of the charge levelled against th em is that it is “logically
    presumed that there has been implicitly a complicity of the Partners in the admitted
    fabrication of the books raised in the conf ession made through the email by one of the
    promoters”. The show cause notice goes on to allege that “By totally abnegating its duties
    as the audit firm which took up the work of auditing entrusted to it through a legal
    mandate from the company under a shareholde r resolution, PW shares the responsibility
    of PW as much as any other body or individual or the audit team or its individual partners 26
    in perpetrating the fraud on investors. The noticees, singly and jointly are responsible for
    manipulation of the financial statements as they certified the financial statements of
    Satyam in clear violation of well establishe d auditing standards and practices, which in
    turn has led to misleading investors in the company.” On the basis of their alleged acts of
    omission and commission as referred to in th e show cause notice, the appellants are said
    to have violated Section 12A of the Ac t and Regulations 3 and 4 of the FUTP
    Regulations. These provisions prohibit pe rsons from indulging in manipulative,
    fraudulent and unfair trade practices. The appellant s filed an application dated
    March 13, 2009 seeking inspection of a number of documents and records referred to and
    relied upon in the show cause notice that did not form part of the annexures to that notice.
    Only partial inspection of the documents and records sought for by the appellants was
    given to them and some of the material was supplied to them in a compact disc as it was
    quite voluminous. On receipt of the show cause notice and the supplementary show cause
    notices, the appellants challenged the initiation of proceedings against them by filing writ
    petitions no.5249 and 5256 of 2010 in the High Court of Bombay questioning the
    jurisdiction of the Board to pr oceed against them on the ground that they were chartered
    accountants by profession which is regulated by the Institute of Chartered Accountants of
    India. The writ petitions were rejected by the High Court observing that even though it is
    the Institute of Chartered A ccountants that regulates the professional norms to be
    observed by a Chartered Accountant, “However , in a given case if there is prima facie
    evidence in connection with the conduct of a Chartered Acc ountant such as fabricating
    the books of accounts, etc., the SEBI can certa inly give appropriate directions not to
    utilize services of such a Chartered Accountant in the ma tter of audit of a listed
    company.” The learned Judges of the High Court further observed:
    “Since the inquiry has not commenced, we have merely confined
    ourselves to the allegations made in the show cause notices to find out as
    to whether SEBI has jurisdiction to proceed further with the inquiry and
    nothing more. However, on conclusi on of inquiry, if no evidence is
    available regarding fabrication and falsification of accounts etc, then
    naturally SEBI cannot give any direction in any manner and ultimately its
    jurisdiction will depend upon the evidence which may be available in the
    inquiry and SEBI has to d ecide as to whether any directions can be given
    on the basis of available evidence on r ecord. In our view such a question
    is required to be considered only after the evidence is available during the
    inquiry but surely it cannot be said that SEBI has no power even to inquire
    about the same and that on the face of it the jurisdiction is barred…….” 27
    And finally the learned Judges of the High Court recorded their fi ndings in para 39 of their
    order the relevant part of which reads as under:-
    “Whether any of the petitioners with an intention and knowledge tried
    to fabricate and fudge the books of accounts is a matter of
    investigation and inquiry by the SEBI. Ultimately if any evidence in
    this behalf is brought on record be fore the SEBI during the inquiry,
    appropriate steps can be taken in this behalf as provided for by the SEBI
    Act…………………………………………………………….…………….
    ………………………………………………………………………………
    ……………………………………………………………………………….
    In a given case, if ultimately it is found that there was only some
    omission without any mens rea or connivance with any one in any
    manner, naturally on the basis of such evidence the SEBI cannot give
    any further directions. If there is available evidence, SEBI can
    proceed further in the matter of gi ving direction against a particular
    Chartered Accountant as envisaged by Sections 11 and 12 of the SEBI
    Act and Regulations in this behalf. On the basis of detailed evidence on
    record, this aspect is required to be considered by SEBI. The question of
    jurisdictional fact depends upon th e facts which may be available at
    the time of evidence before the SEBI . SEBI will have to answer the
    question as to whether on the basis of evidence on record, it has any
    power to give directions as provided under the SEBI Act. This aspect
    will depend upon the evidence which may be available at the time of
    Inquiry. All these aspects are therefore left to the consideration of SEBI at
    the time of passing final order in enquiry.” (emphasis supplied)
    It is thus clear from the aforesaid observ ations and findings recorded by the High Court
    that the Board has first to determine the juri sdictional fact as to whether the appellants
    had connived with the then management of Satyam to fabricate and fudge its books of
    accounts. Only if the finding on this issue is recorded in the affirm ative that the Board
    will get jurisdiction to proceed against the appe llants. It is pertinent to mention that the
    appellant in Appeal no. 8 of 2011 has taken the stand th at B. Ramalinga Raju and
    Satyam’s top management orchestrated and conducted a fraud to deceive all including not
    only the investors but also the auditor, viz., the appellant. The other appellants claim that
    they are independent partnership firms and that they did not audit the accounts of Satyam
    and that they have no concern with that co mpany and have been roped in without any
    justification.
21. After the dismissal of the writ peti tions, the whole time member of the Board
    commenced the enquiry proceedings. The a ppellants filed an application dated
    November 22, 2010 seeking cross examinati on of the persons mentioned therein.
    Admittedly, they had been allowed partial insp ection of the documents referred to in the
    show cause notice and copies of only some of those documents had been furnished to 28
    them while others had been denied. The appellants have made a grievance before us that
    copies of the statements of some of the pe rsons referred to and re lied upon in the show
    cause notice had not been furnished to them and even the identity of some of the persons
    whose statements were recorded during the cour se of the investigatio ns and relied upon
    in the show cause notice had been withheld. It is also their grievance that the Board has
    allowed some of the persons to be cross exam ined but their statements recorded earlier
    during the investigations have been denied to them. I wonder how those persons could be
    cross examined without their statements bei ng furnished to the appellants. Again, the
    Board has curtailed the cross examination of some of the persons and the appellants have
    been told that the same would be restricted to such portions of the statements which, in
    the opinion of the Board, are prejudicial to the appellants. One can understand that
    irrelevant questions would not be allowed to be asked in cross examination but how could
    it be restricted in the manner even before the witness comes in the witness box. All this is
    unheard of and I agree with the learned Member s that it has resulted in the violation of
    the principles of natural justice thereby depriving the appellan ts from defending
    themselves properly against the charges levelled against them.
22. During the course of the hearing of th ese appeals, the learned senior counsel
    appearing for the appellants ve ry strenuously argued that the appellants were entitled to
    inspect the entire material that has been co llected by the Board during the course of the
    investigations irrespective of the fact whethe r the same has been referred to or not and
    whether relied upon or not in the show cause notices issued to the appellants. It is urged
    that the appellants do not know what material the Board has collec ted during the course
    of the investigations some of which may even support th eir case and unless they are
    allowed to inspect the whole of that material , the principles of na tural justice would be
    grossly violated. The learned senior counsel for the appell ants vehemently argued that
    the Board in the show cause notices would rely only on the material that goes against the
    appellants and withholding the material, if any, that may support the appellants would be
    most unfair and unjust. The learned Advocate General appearing on behalf of the Board
    has been equally vehement in opposing the pray er made on behalf of the appellants. He
    argued that the rules of natura l justice do not require that the appellants be allowed an
    examination of the entire material collected by the Board and that they are entitled to 29
    only such material upon which the Board relies and they cannot be allowed to make a
    fishing inquiry and, in any case, they had not made a prayer in this regard at any stage of
    the proceedings. Having heard the learned se nior counsel on both sides, I find merit in
    the arguments raised on behalf of the appe llants. It is not in dispute that the
    investigations in the present case started on receipt of an email from B. Ramalinga Raju,
    the then chairman of Satyam which has been referred to earlier. On receipt of the email,
    the Board exercised its stat utory powers under Section 11 C of the Act and ordered
    investigations into the affairs of Satyam with a view to find out whether the provisions of
    the Act or any of the Regulations framed thereunder had been violated. To facilitate such
    investigations, it also ordered inspection of the books of accounts of Satyam. During the
    course of these investigati ons the Board has collected a plethora of documents/material
    and recorded statements of very large numbe r of persons and basing itself on a part of
    that material and relying on some of the statements recorded, it has issued the show cause
    notices levelling very serious charges against the appellants. The appellants have a
    lurking fear that the Board has selectively picked up that material and relied upon those
    statements which go against the former and left out the rest wh ich could support the
    appellants. During the course of hearing, we directed the Boar d by our order dated
    16.3.2011 to produce for our perusal in a sealed cover copies of the statements of B.
    Ramalinga Raju, Rama Raju and Vadlaman i Srinivas who then constituted the top
    management of Satyam. Reference to the statements of these persons has been
    extensively made in the show cause notice but copies thereof have not been furnished to
    the appellants nor have they been allowed to cross examine them on the ground that the
    Board is not relying upon their statements. I have perused these statements and find no
    reason why copies thereof shoul d not be given to the appella nts. They should also be
    allowed to cross examine these persons as, in my opinion, their cr oss examination is
    crucial. I am also of the view that fairne ss demands that the entire material collected
    during the course of investigations should be made available for inspection to the person
    whose conduct is in question. Whether it he lps him or not is irrelevant. Equally
    immaterial is the fact that the authority is or is not relying upon the same. The authority
    may not rely upon it but the delinquent could in support of his case. The reason is that
    every enquiry has to conform to the basic rules of natural just ice and one of the 30
    elementary principles is that every action mu st be fair, just and reasonable. Withholding
    evidence whether exculpatory or incriminatory is neither fair nor just. In Kashinath
    Dikshita v. Union of India AIR 1986 S.C. 2118 the Supreme Court in similar
    circumstances very aptly observed in para 9 of their order as under:
    “If only the disciplinary authority had asked itself the question :
    “What is the harm in making available the material?” and weighed
    the pros and cons, the disciplinar y authority could not reasonably
    have adopted such a rigid and adamant attitude. On the one hand
    there was the risk of the time and effort invested in the
    departmental enquiry being wasted if the Courts came to the
    conclusion that failure to supp ly these materials would be
    tantamount to denial of reasonable opportunity to the appellant to
    defend himself. On the other ha nd by making available the copies
    of the documents and statements the disciplinary authority was not
    running any risk. There was nothing confidential or privileged in it.
    It is not even the case of the respondent that there was involved
    any consideration of security of State or privilege.”
    The aforesaid observations apply with full fo rce to the case in hand. I wonder what
    prejudice would be caused to the Board if th e entire material collected by it is shown to
    the appellants. It could only advance the cau se of justice. The purpose of the enquiry
    which the Board is conducting, li ke any other enquiry, is to reach at the truth and in
    pursuit of this purpose evidence which is oral and documentary has been collected. It is
    possible that the whole evidence is against th e appellants. Equally, it may be that the
    evidence is partly in their favour and the rest of it is overwhelmingly against them. Some
    of it may even seem irrelevant to the Board. Yet, the issue is whether the Board can sift
    and select the material to be provided to the appellants and base the show cause notice on
    that and withhold the rest on the plea that it is not relying on the same. I am of the firm
    view that the Board is not en titled to select and supply as that would be most unfair and
    unjust. In the very nature of things, th e Board would rely upon only the material that
    supports its case against the appellants and not on the one that supports them and if this
    position is accepted as correct, the Board might succeed but the truth shall be sacrificed
    and justice shall be the casualty. Such a cour se shall be unjust and unfair and I cannot
    persuade myself to uphold it. As already observed, the Board is under a duty to find the
    truth and if it is permitted to keep back any material, the truth may not be found resulting
    in injustice. In Regina v. Leyland Justices, Ex parte Hawthorn (1979) Q.B. 283 , the
    applicant was the driver of a car which col lided with another car being driven in the
    opposite direction. Two witnesses gave statemen ts to the police, bu t those statements 31
    were not disclosed to the applicant, who did not know of the existen ce of the witnesses.
    He was charged with driving without due care a nd attention, contrary to section 3 of the
    Road Traffic Act 1972. The prosecution did not call the witnesses to give evidence and
    the applicant was convicted. His insurers th en received the police report on the accident
    which referred to the statements of those witnesses. On an application for an order of
    certiorari to quash the conviction, Lord Widgery C.J. of the Divisional Court with whom
    May and Tudor Evans JJ concurred, held that there was a clear denial of natural justice to
    a defendant which had deprived him of a fair trial and certiorari was the appropriate
    remedy even when it was the prosecution and no t the tribunal which had erred by failing
    to observe the rules of natura l justice. The learned Judges held that when a defendant
    was deprived of the elementary right to be notified of material witnesses known to the
    police, certiorari should issue to quash th e conviction. This view was followed in R v.
    Blundeston Prison Board of Visitors, ex parte Fox-Taylor (1982) 1 All ER 646
    where, as a result of a fight with a fellow prisoner, the applicant was charged with an
    offence against discipline and brought before the board of visitors of the prison. He
    denied that he was guilty of the charge. He gave evidence in his defence but called no
    witnesses to support his account of what had happened because he was unaware that there
    were any. After hearing evidence from the other prisoner involved in the fight and the
    prison officer in charge of the case, th e board found the applicant guilty and, in
    consequence, he lost 90 days’ remission. Th e applicant subsequently discovered that
    another prisoner had witnessed the fight and that, prior to the hearing before the board of
    visitors, that prisoner had reported the fact to the prison officer in charge of the case. The
    prison authorities never brought the existence of the other prisoner as a potential witness
    to the attention of the applicant or the board of visitors. The applicant applied to the
    court for an order of certiorari to quash th e board’s decision contending that because he
    had been denied the opportuni ty of having a witness who c ould have given evidence in
    support of his defence, there had been a breach of the rules of natural justice. Upholding
    the plea of the applicant, Phillips J of the Queen’s Bench Division held that where there
    was an inquiry by a board of visitors, the prison authorities were under a duty to take
    such steps as were reasonably practicable in the circumstances to see that the names of
    potential witnesses were brought to the atten tion of the board so that the board could 32
    make a full and fair investigation. Since there was no reason why the board should not
    have been informed of the witness’s exis tence and since the inaction of the prison
    authorities had substantially prejudiced the applicant by depriving him of an opportunity
    of calling the witness and thereby caused him to lose 90 days’ remission, there had been a
    breach of the rules of natural justice. The view taken in the aforesaid cases including that
    of the Supreme Court in Kashinath Diksh ita’s case (supra) suppor ts the submissions
    made on behalf of the appellants. Moreover, Board is a statutory authority and it is ‘State’
    as defined in Article 12 of the Constitution and its actions must conform to Part III
    thereof which can be tested on the touchstone of Article 14. It ca nnot act arbitrarily and
    its actions must be just and fair. I cannot agree with the learned Advocate General that
    since no request had been made on behalf of th e appellants, they are not entitled to have
    access to the entire material. How could they make such a request when they were not
    aware of the material that was collected by the Board behind their back during the course
    of the investigations. The rule s of natural justice would have been met if the Board had
    allowed them full access to the material co llected by it during the course of the
    investigations while giving them inspection le aving it to them to use that material in
    whatever manner they wanted to. In this view of the matter, I hold that the Board was not
    justified in allowing partial inspection of the material to the appellants and that they
    should have been given access to the entire ma terial collected during the investigations.
    Not having done this, the principles of natural justice have been violated. While allowing
    the appeals and in addition to the directions proposed by th e learned Members, I direct
    the Board to allow to the appellants full inspection of the material collected by it during
    the course of the investigations.
    Sd/-
    Justice N. K. Sodhi
    Presiding Officer

Order of the Tribunal:
The appeals are allowed and the impugned order set aside. The prayers made in
paragraphs 7(b) and 7(c) of the memorandu m of appeals are allowed. The Board is
directed to allow the appellants to cross examine the persons whose names are mentioned
in paragraph 4 of the application dated N ovember 22, 2010 and also furnish copies of

33
their statements to the appellants, if not already furnished. The Board is further directed
to complete the enquiry expeditiously preferably within four months from the date of the
order. The appellants shoul d cooperate in concluding the enquiry in a time bound
manner. There is no order as to costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer

                                                                                                     Sd/- 
            P.K. Malhotra  
                Member  
                                                                                                     Sd/- 
            S.S.N. Moorthy 
                Member  

01.06.2011
ptm/rhn/msb/ddg

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