top of page

Right of Cross-Examination is not an inviolable Principle in all Cases: SC


Cause Title: Securities and Exchange Board of India v. Mega Corporation Limited

Case Number: Civil Appeal No. 2104/2009

Quorum: Justice L. Nageswara Rao and Justice Pamidighantam Sri Narasimha

Judgment Date: 25/03/2022

Counsel appearing for the SEBI: Shri C.U. Singh, Senior Advocate, assisted by Shri Pratap Venugopal

Counsel appearing for the Company: Shri Vaibhav Gaggar

Author: Pragash B, Advocate, Madurai Bench of Madras High Court

Background of the Case

M/S Mega Corporation Limited is engaged in the business of radio taxi service, couple with trading of shares in a small measure till 2004. The attention of the SEBI was drawn towards the unusual price movement of the scrip of the company between January 2005 to September 2005 in which the company’s shares traded between Rs. 4.25 to Rs. 43.85 and in turn resulted in an increase in the average monthly volume of shares to 1,56,22,583 shares. The SEBI directed investigation while passing an ex parte and interim order under Sections 11B, 11(4)(b) and 11(D) of the Securities and Exchange Board of India Act, 1992 against 36 entities, its promoter-directors, some clients, stockbrokers and depositors. After hearing the objections, the interim orders were confirmed, and a show cause notice for violation of Regulations 3(1), (v), (c) & (d) and 4(1), 4(2)(k) & 4(2)(r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 was issued on 10.10.2007.

Contents of the Show Cause Notice

i) The company made huge profits from undeclared business and sale of scrips and there is uncertainty about the source of income. It is not known whether the company has amended its Memorandum and Articles for undertaking the activity of trading. The surge in the profits is unusual, and there is no reasonable explanation for the same. This is violative of Regulation 3 of the PFUTP Regulations.

ii) Between April 2005 to September 2005, the company and other notices issued public statements in the form of advertisements and other notifications to lure the public in investing in the company. This activity was undertaken to create an artificial demand knowing fully well that this is not the truth of the matter. This is in violation of Regulation 4(2)(k) and 4(2)(r) of the PFUTP Regulations.

iii) The Company manipulated its profits by selling shares through orchestrated deals which were detected in the investigation. The manipulations led to an artificial increase of the scrip to a phenomenal extent sub-serving the fraudulent intention of the Company, and this is again violative of Regulation 3 of the PFUTP Regulations.

The Company and other notices filed their responses. After hearing all parties, the SEBI passed the final order dated 28.02.2008 holding that the Company has violated the provisions of the Act and the PFUTP Regulations. In the exercise of its powers under Sections 11 and 11B read with Section 19 of the Act and the PFUTP Regulations, SEBI restrained the Company from accessing the capital market in any manner and its directors from dealing in securities for one year.

The Company filed an appeal under Section 15T of the Act in Appeal No. 60/2008 before the Securities Appellate Tribunal. The Tribunal allowed the appeal by its judgment dated 15.10.2008 on points that:

a) Extraordinary profits in itself cannot be the basis for concluding that the Company’s accounts are manipulated with a specific objective to mislead the investors.

b) The advertisements were for entering into the business of foreign exchange with the launch of ‘Mega Forex Brand’ and announcement related to tour services based on the agreement with Gems Tours and Travels Private Limited which were in the ordinary course of business.

c) SEBI relied on the letter of the stockbroker but the company was not given the opportunity to cross-examine him and hence the principles of natural justice stood violated.

The Present Appeal is filed under Section 15Z before the Honourable Supreme Court of India against the findings of the Tribunal.


1. What is the scope and ambit of statutory appeal to the Supreme Court under Section 15Z of the Act against an order passed by the Securities Appellate Tribunal?

2. Whether the advertisements dated 07.04.2005 and 20.04.2005 are in violation of Regulations 3(a), (b), (c), (d) read with Regulation 4(1), (2)(k) and (r) as amounting to misleading and defrauding the investors.

3. Whether the company has violated Regulations 3(1), (b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2)(r) of the SEBI (PFUTP) Regulations 2003 by manipulating the share prices and accounts?

4. Whether there is a right to cross-examine the author of a document if SEBI seeks to rely on that document which is against the interest of the company?

Findings of the Honourable Court

Issue 1

The jurisdiction of the Supreme Court under Section 15Z to consider any question of law arising from the orders of the tribunal should therefore be seen in the ‘context’ of the powers and jurisdiction of the Tribunal under Sections 15K, 15L, 15M, 15T, 15U and 15Y of the Act. It is in the functioning of the Tribunal to re-examine all questions of fact at the appellate stage while exercising jurisdiction under Section 15T of the Act. (Para 17).

It is in the above-referred context that the Supreme Court while exercising appellate jurisdiction under Section 15Z of the Act would be measured in its approach while entertaining any appeal from the decision of the Tribunal. This freedom to evolve and interpret laws must belong to the Tribunals to subserve the regulatory regime for clarity and consistency and it is with this perspective that the Supreme Court will consider appeals against judgment of the Tribunals on questions of law arising from its orders.

The Honourable Apex Court held that

“20. The scope of appeal under Section 15Z may be formulated as under:

20.1. The Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate.

20.2. However, not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z.”

Issue 2

The Honourable Supreme Court of India held that

…the Tribunal has reversed the findings of SEBI on the basis of its own inference drawn from the documents on record. The decision of the Tribunal is fact-based and does not give rise to any question of law for invoking the jurisdiction of the Supreme Court under Section 15Z. For this reason, we are not inclined to interfere with the finding of fact, which must rest with the conclusions drawn by the Tribunal.” (Para 24).

The conclusion is drawn by the Tribunal, being factual, not giving rise to any question of law, the jurisdiction of this Court under Section 15Z cannot be invoked. For this reason, we affirm the finding of the Tribunal and there is no occasion for this court to interfere with the decision of the Tribunal. The issue is answered against the appellant” (Para 26).

Issue 3

The Honourable Apex Court observed that

It is evident from the above that the findings are based on the Tribunal’s inferences drawn from the material available on record. The conclusions drawn by the Tribunal do not give rise to any question of law warranting interference of this court under Section 15Z of the Act. This issue is answered against the appellant.” (Para 29).

Issue 4

As per the principles laid down in the above referred case (T. Takano case), there is a right of disclosure of the relevant material. However, such a right is not absolute and is subject to other considerations as indicated under paragraph 62(v) of the judgment above refereed. In this judgment, there is no specific discussion on the issue of a right to cross-examination but the broad principles laid down therein are sufficient guidance for the Tribunal to follow. There is no need for us to elaborate on this point any further.” (Para 35)

We are also of the opinion that, there was no necessity for the Tribunal to lay down as an inviolable principle that there is a right of cross-examination in all cases. In fact, the conclusion of the Tribunal based on evidence on record did no require such a finding. We, therefore, set aside the findings of the Tribunal to this extent while upholding its decision on all other grounds. We would also leave the question of law relating to the right of cross-examination open and to be decided in an appropriate case by this Court.” (Para 37)

For the reasons stated above, while we dismiss Civil Appeal No. 2104 of 2009 against the judgment of the Securities Appellate Tribunal in Appeal No. 60 of 2008 dated 15.10.2008, the general observations of the Tribunal that there is a right of cross-examination is hereby set aside. (Para 38)

Parties to bear their own costs. (Para 39).

Cases Referred

1. K.L. Tripathi v. State Bank of India and Ors.. (1984) 1 SCC 43.

2. Tara Chand Vyas v. Chairman & Disciplinary Authority and Ors., (1997) 4 SCC 565.

3. State Bank of India v. Jah Developers Private Limited and Ors., (2019) 6 SCC 787.

4. M/S Vijay Textile v. Securities and Exchange Board of India, (2011) SCC Online SAT 50.

5. Securities and Exchange Board of India v. Rakhi Trading Private Limited, (2018) 13 SCC 753.

6. Securities and Exchange Board of India v. Kishore R. Ajmera, (2016) 6 SCC 368.

7. Meenglas Tea Estate v. Workmen, (!964) 2 SCR 165.

8. Bareilly Electricity Supply Co. Limited v. Workmen and Others, (1971) 2 SCC 617.

9. Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664.

10. Videocon International Ltd. v. Securities Exchange Board of India (2015) 4 SCC 33.

11. Reserve Bank of India v. Peerless General Finance Investment Company Ltd. & Ors., (1987) 1 SCC 424.

12. Clariant International Limited and Another v. Securities and Exchange Board of India, (2004) 8 SCC 524.

13. National Securities Depository Limited v. Securities Exchange Board of India, (2017) 5 SCC 517.

14. Jones v. First Tier Tribunal [2013] UKSC 19

15. Regina (Privacy International) v. Investigating Powers Tribunal [2019] UKSC 22.

16. Aligarh Muslim University v. Mansoon Ali Khan, (2000) 7 SCC 529.

17. A.S. Motors Private Limited v. Union of India, (2013) 10 SCC 114.

18. T. Takano v. SEBI, (2022) SCC OnLine SC 210.