Srinivas Talluri, In Re (Abeyance Of The Proceeding)

1. The present proceedings emanate from the show cause notices dated February 14, 2009 and February 19, 2010 (SCNs) issued, among others, to the noticees, namely, Shri Srinivas Talluri and Shri S. Gopalakrishnan in the matter of Satyam Computer Services Limited (SCSL).

2. Shri Talluri responded, vide letter dated March 8, 2010, seeking abeyance of the present proceedings till the trial in three criminal cases, for which charge sheets had been filed by CBI on April 7, 2009, November 22, 2009 and January 7, 2010 respectively, were completed. Vide letter dated March 10, 2010, SEBI declined to do so and advised him to reply to the SCNs. It also informed that if no reply was received from him, it would be presumed that he had nothing to say in the matter. No reply to the SCNs was received. Thereafter, vide letter dated May 14, 2010, SEBI offered an opportunity of personal hearing on June 4, 2010. Shri Talluri appeared for the personal hearing through the learned Advocate Shri R. Sudhinder and filed a written submission dated June 3, 2010 at the hearing. The learned Advocate submitted that the issuance of the SCNs was beyond the purview of the SEBI Act as Shri Talluri is a Chartered Accountant under the control of Institute of Chartered Accountants of India (ICAI). He stated that he adopted the submissions made on behalf of the Price Waterhouse (PW) entities, of which the noticees are partners, regarding jurisdiction of SEBI over Chartered Accountants. He made an alternative submission that the proceedings may be kept in abeyance till the conclusion of the criminal trials. The allegations in the SCNs are substantially similar to the charges filed by CBI against Shri Talluri in three criminal proceedings before the Special Court and, therefore, his reply in the present proceedings on merits would amount to disclosing his defence which would seriously prejudice him in the criminal trials. The hearing could not be completed on that day and was adjourned to 18 June, 2010, which was postponed to June 25, 2010. Shri Talluri did not appear for the hearing on June 25, 2010.

3. Shri Gopalakrishnan made, vide letter dated March 18, 2010, a request similar to that of Shri Talluri, seeking abeyance of the present proceedings till the trial in three criminal cases were completed. Vide letter dated May 14, 2010, SEBI granted an opportunity of personal hearing on June 4, 2010. He did not appear for the personal hearing. He, however, made certain submissions vide his letter dated May 29, 2010. Vide his letters, he submitted as under:

a. He was in judicial custody and hence was completely incapacitated to furnish a reply to the SCNs or avail the opportunity of personal hearing.

b. He, being a chartered accountant, could not be lawfully subjected to SEBI's jurisdiction in any manner whatsoever.

c. Reply to the SCNs, if submitted at that stage, would severely prejudice his position in the criminal cases pending trial.

Vide letter dated June 14, 2010, SEBI declined to keep the proceedings pending. It scheduled the next hearing on June 25, 2010. It informed that if no reply to the SCNs was received and the personal hearing was not availed, it would be presumed that he did not have anything to say in the matter and order would be passed based on material available on records. Shri Gopalakrishnan neither replied to the SCNs nor availed the personal hearing.

4. In the mean time, the issue of jurisdiction of SEBI to issue the SCNs was raised by the PW entities by filing writ petitions before the Hon'ble Bombay High Court and the present proceedings was kept on hold pending the High Court's decision on these petitions. The Hon'ble High Court dismissed the writ petitions on August, 8, 2010. Thereafter, vide letter dated November 18, 2010, a fresh hearing was given to the noticees on November 30, 2010. Both the noticees were represented by the learned Advocate, Shri Sudhinder at this hearing and common submissions were made on their behalf.

5. The learned Advocate accepted the position that the jurisdiction issue had been decided by the Hon'ble Bombay High Court against the noticees and that this issue no longer survived. He also stated that the noticees were no more in custody and that the issue of incapacity to respond to the SCNs no longer survived. However, he submitted that the proceedings by SEBI may be kept in abeyance till the conclusion of criminal trials as the rights of the noticees available under Article 20(3) of the Constitution would be violated and their defence in criminal proceedings would be prejudiced if they were to make any submission on merits of the matter raised in the SCNs before the conclusion of the criminal trials. In support of his contention, he relied on the judgment of the Hon'ble Supreme Court in the case of Capt. M. Paul Anthony v. Bharat Gold Mines Ltd., (1999) 3 SCC 679 (Anthony case).

6. The learned Advocate for SEBI on the other hand submitted that the adjudication of the matter should not be kept in abeyance any further. He submitted that the case laws cited on behalf of the noticees related mainly to permissibility of continuing departmental proceedings simultaneously with criminal proceedings. The present proceedings against the noticees could not be equated with such departmental proceedings. Further, there was no bar to the continuance of departmental proceedings merely because a criminal trial was pending. He cited several case laws in support of his contention.

7. After hearing as above, I was not inclined to stay the present proceedings. I advised the learned Advocate for the noticees to proceed on merits. He, however, refused to do so. Both the noticees followed up by filing written submissions vide their letters dated December 6, 2010 seeking abeyance of the present proceedings until the conclusion of the criminal trials or alternatively, until the prosecution closed its evidence in the trials.

8. I have carefully considered the noticees' request to keep the adjudication of the present proceedings in abeyance and their written and oral submissions in this regard as well as the submissions of the learned Advocate for SEBI. I am issuing this ruling in view of persistent refusal by the noticees to proceed on merits.

9. First, does replying to SCNs on merits amount to self incrimination prohibited under Article 20(3) of the Constitution? The noticees have neither cited any law or authority to this effect nor demonstrated how responding to SCNs issued under a statute such as the SEBI Act would amount to self incrimination. On the contrary, I find from the case laws that the Article 20(3) is not applicable to the present proceedings where there is no compulsion on the noticees to make a defence. In the matter of Apeejay Private Limited v. Raghavachari Narasinhan, (1997) 1 CAL LT 255 HC, the Division Bench of the Hon'ble High Court of Calcutta held:

“In the circumstances, can there be any scope of arguing that if the accused defendant files any written statement or examines himself as a witness in a civil suit, that would be tantamount to compelling him to be a witness against himself in respect of the criminal charge that may be pending against him? The answer cannot but be an emphatic ‘no’. The cardinal point involved in the protection of Article 20(3) relates to the question of compulsion. There is no question of compulsion in the defendant's filing a written statement in the civil suit or in examining himself as a witness to protect his own interest in such suit…..

These decisions of the Supreme Court in Dushyant Somal v. Sushma Somal (supra) and T.G Gaokar v. R.N Shukla (supra), amongst others, demonstrate that it is wholly untenable to say that the continuance of a civil suit or a departmental proceeding during the pendency of the criminal case relating to the same matter will be violative of Article 20(3) which affords protection against testimonial compulsion. The position in law is very clear that if an accused makes any statement not under any compulsion in the sense in which the term has been referred to in Article 20(3) but voluntarily for the purpose of his own convenience or for protecting his own interest or for any reason whatsoever including the purpose of inviting punishment even, as happens when he voluntarily pleads guilty or makes confession under Section 164 Cr. PC, that does not bring the case within the ambit of Article 20(3). We therefore reiterate that the accused cannot stall a civil suit or a departmental proceeding during the pendency of a criminal proceeding on the ground of Article 20(3) of the Constitution which is not at all available for such purpose for reasons elaborately discussed above. The assumption of the trial court that the continuance of the civil suit during the pendency of the criminal proceeding would be a violation of Article 20(3) of the Constitution is not correct.”

10. Second, should the present proceedings be stayed till the conclusion of the related criminal trials? I note that the Anthony case cited by the learned Advocate for the noticees deals with the permissibility of continuing departmental proceedings simultaneously with criminal proceedings. I agree with the learned Advocate for SEBI that the present proceedings, which are under Section 11 and 11-B of the SEBI Act, cannot be equated with departmental proceedings. The present proceedings are intended to serve the public purpose of protecting the interests of investors, which is a purpose very different from that served by disciplinary action against an employee. I, therefore, do not think that the ratio in Anthony case can be applied to the proceedings under the SEBI Act.

11. Even assuming that SEBI proceedings are at par with the departmental proceedings, I note from the case laws cited by the learned Advocates for the parties that the Hon'ble Supreme Court has been consistently holding the view that the departmental proceedings and the criminal proceedings arising out of same facts can and should ordinarily proceed simultaneously and the departmental proceedings cannot be postponed indefinitely till the conclusion of criminal trials. In State of Rajasthan v. Kalyan Sundaram Cement Industries Ltd., (1996) 3 SCC 87, the Hon'ble Supreme Court considered the order of the High Court of Rajasthan which had stayed the civil proceedings pending disposal of criminal cases and held: “It is settled law that pendency of the criminal matters would not be an impediment to proceed with the civil suits. The criminal court would deal with the offence punishable under the Act. On the other hand, the courts rarely stay the criminal cases and only when the compelling circumstances require the exercise of their power. We have never come across stay of any civil suits by the courts so far. …. The High court proceeded on a wrong premise that the accused would be expected to disclose their defence in the criminal case by asking them to proceed with the trial of the suit. It is not a correct principle of law”.

12. In State of Rajasthan v. B.K Meena, (1996) 6 SCC 417 (Rajasthan case), where the entire case law was reviewed by the Hon'ble Supreme Court, it was held:

“14. It would be evident from the above decisions that each of them starts with the indisputable proposition that there is no legal bar for both proceedings to go on simultaneously and then say that in certain situations, it may not be ‘desirable’, ‘advisable or ‘appropriate’ to proceed with the disciplinary enquiry when a criminal case is pending on identical charges. The staying of disciplinary proceedings, it is emphasised, is a matter to be determined having regard to the facts and circumstances of a given case and that no hard and fast rules can be enunciated in that behalf. The only ground suggested in the above decisions as constituting a valid ground for staying the disciplinary proceedings is “that the defence of the employee in the criminal case may not be prejudiced.” This ground has, however, been hedged in by providing further that this may be done in cases of grave nature involving questions of fact and law. In our respectful opinion, it means that not only the charges must be grave but that the case must involve complicated questions of law and fact.”

13. In Anthony case, the Hon'ble Supreme Court again reviewed the case laws up to that point and enunciated certain principles as under:

“22. The conclusions which are deducible from various decisions of this Court referred to above are:

(i) Departmental proceedings and proceedings in a criminal case can proceed simultaneously as there is no bar in their being conducted simultaneously, though separately.

(ii) If the departmental proceedings and the criminal case are based on identical and similar set of facts and the charge in the criminal case against the delinquent employee is of a grave nature which involves complicated questions of law and fact, it would be desirable to stay the departmental proceedings till the conclusion of the criminal case.

(iii) Whether the nature of a charge in a criminal case is grave and whether complicated questions of fact and law are involved in that case, will depend upon the nature of offence, the nature of the case launched against the employee on the basis of evidence and material collected against him during investigation or as reflected in the charge sheet.

(iv) The factors mentioned at (ii) and (iii) above cannot be considered in isolation to stay the Departmental proceedings but due regard has to be given to the fact that the departmental proceedings cannot be unduly delayed.

(v) If the criminal case does not proceed or its disposal is being unduly delayed, the departmental proceedings, even if they were stayed on account of the pendency of the criminal case, can be resumed and proceeded with so as to conclude them at an early date, so that if the employee is found not guilty his honour may be vindicated and in case he is found guilty, administration may get rid of him at the earliest.”

14. In Kendriya Vidyalaya Sangathan v. T. Srinivas, (2004) 7 SCC 442, the Hon'ble Supreme Court considered the order of the High Court of Andhra Pradesh which had confirmed the order of CAT staying the disciplinary proceedings till the disposal of the trial before the criminal court. The Hon'ble Supreme Court set aside the order of the High Court relying on the ratio laid down by it in Rajasthan case and reiterated in Anthony case. In Rumi Dhar v. State of West Bengal, (2009) 6 SCC 364, the Hon'ble Supreme Court held: “It is now a well-settled principle of law that in a given case, a civil proceeding and a criminal proceeding can proceed simultaneously.” In Hindustan Petroleum Corporation Ltd. v. Sarvesh Berry, (2005) 10 SCC 471, the Hon'ble Supreme Court observed: “… what is required to be seen is whether the departmental enquiry would seriously prejudice the delinquent in his defence at the trial in a criminal case. It is always a question of fact to be considered in each case depending on its own facts and circumstances”.

15. The case laws cited above make it clear that there is no bar to proceed with the departmental proceedings and the criminal proceedings simultaneously and that a stay of the departmental proceedings is not a matter of course. It is desirable not to proceed with departmental proceedings in certain cases and no hard and fast rules have been laid in this regard. The desirability needs to be determined in each case taking into consideration all the facts and circumstances. The departmental proceedings may be stayed if it severely prejudices the defence of the delinquent in criminal proceedings only when the charges in the criminal proceedings and the departmental proceedings are identical, the criminal charges are of a grave nature and the criminal charges involve complicated questions of law and fact. However, such stay should not unduly delay conclusion of the departmental proceedings.

16. The noticees have not even attempted to demonstrate whether and in what manner their defence in the present proceedings would prejudice their defence in the criminal proceedings. I do not, therefore, accept that proceeding with the SCNs would seriously prejudice their defence in the criminal proceedings.

17. I find that the criminal proceedings and the present proceedings have been initiated based on separate investigations by CBI and SEBI respectively and hence much of the evidence in the two proceedings is different. An examination of the two proceedings reveals that while there may be some degree of commonality, charges in the two proceedings are not identical and each proceeding raises different aspects and nuances of the matter. The noticees have filed a tabular statement along with their letter dated June 3, 2010 to indicate that the charges in both the proceedings are identical. According to the tabular statement, the charge in the present proceedings is: “The auditor PW has failed to exercise even a minimum level of diligence in verifying the accounting systems and internal controls in the company. PW has erred in its assessment of the internal controls and in its evaluation of the adequacy of internal audit. PW's comments in the annual reports of Satyam relating to internal control systems and internal audit are unsubstantiated and false”, while the charge in the criminal proceedings is: “Misleading presentations made to the audit committee about the health of the company, giving good certification of the financial discipline and controls available in the company. Did not comment on the control deficiencies in the audit report, even though they were material in nature.” Since these two charges, brought to my notice by the noticees, are not identical, I conclude that the charges in the two proceedings are not identical, though there is some overlap. There is no second opinion that the charges in criminal proceedings are grave in nature. But the noticees have not demonstrated how the criminal charges involve complicated questions of law and fact. Hence the three requirements of the circumstance where the departmental proceedings can be stayed are not satisfied.

18. I note that almost two years have elapsed since the issue of the first SCN dated February 14, 2009 and we have not moved an inch. If the submission of the noticees are accepted, it would have the effect of unduly delaying and, therefore, frustrating the present proceedings. The Hon'ble Supreme Court has clearly stated that such a situation is not to be countenanced under the law. It is apt here to reproduce the observations of Hon'ble Supreme Court in Rajasthan case:

“One of the contending considerations is that the disciplinary enquiry cannot be and should not be delayed unduly. So far as criminal cases are concerned, it is well-known that they drag on endlessly where high officials or persons holding high public offices are involved. They get bogged down on one or the other ground. They hardly ever reach a prompt conclusion. That is the reality in spite of repeated advice and admonitions from this Court and the High Courts. If a criminal case is unduly delayed that may itself be a good ground for going ahead with the disciplinary enquiry even where the disciplinary proceedings are held over at an earlier stage. The interests of administration and good government demand that these proceedings are concluded expeditiously.”

It is already almost two years since the filing of the first charge sheet by CBI. It is any body's guess as to when the criminal trials would be finally concluded. The noticees have submitted a copy of the order of the Hon'ble Supreme Court dated October 26, 2010 which directs the trial court to conclude the trial at the latest by July 31, 2011. It also states that if the trial is not completed for any reason by July 31, 2011, the respondents would be at liberty to apply afresh for bail. Under the circumstances, if the present proceedings, which is already delayed, are kept pending till the conclusion of criminal trials, they would be unduly delayed and delayed to such an extent that they would lose much of their meaning.

19. An important statutory intent underlying the provisions of the SEBI Act and Section 11 and 11-B in particular, is that proceedings should be completed expeditiously and effectively. If, for example, these proceedings were to result in debarring the noticees from undertaking audit of listed companies in the interest of investors, this ought to be done expeditiously so that investors do not suffer any further from the audit of the noticees. Keeping these proceedings in abeyance, as requested by the noticees, would cause continued suffering of investors and thereby defeat the statutory purpose. In fact, SEBI itself launches criminal prosecutions in appropriate cases where Section 11/11-B proceedings have also been initiated. The law does not contemplate holding Section 11/11-B proceedings in abeyance till completion of the criminal trials. This is so because the remedial or preventive measures contemplated under Sections 11 and 11-B cannot be postponed till the conclusion of related criminal trials. Further, I cannot lose sight of the fact that this case involves an unprecedented fraud which had a devastating impact on the securities market and caused enormous loss to lakhs of investors. It is absolutely necessary that such cases be decided as expeditiously as possible and not unduly delayed. It would cause severe prejudice to the interests of investors, if the present proceedings are delayed any further.

20. The present proceedings do not attract Article 20(3) of the Constitution. The case laws allow staying of departmental proceedings in very exceptional cases. SEBI proceedings are not departmental proceedings. Hence these cannot be stayed even in very exceptional cases. Even assuming that SEBI proceedings are at par with the departmental proceedings, these cannot be stayed because all the requirements of the exception are not satisfied. There is no evidence that proceeding with the present proceedings would seriously prejudice the defence of the noticees in criminal proceedings. The charges in the criminal proceedings and the present proceedings are not identical. There is no evidence to indicate that the criminal charges involve complicated questions of law and fact. Staying the present proceeding till the conclusion of the criminal trials would unduly delay disposal and deprive investors of the relief envisaged under Sections 11 and 11-B of the SEBI Act. Further, the SEBI Act, which provides for simultaneous criminal and civil proceedings on the same facts, does not contemplate stay of the civil proceedings till the conclusion of the criminal proceedings. It rather expects the civil proceedings to be concluded as expeditiously as possible so that the market and investors do not continue to suffer in the hands of unscrupulous elements.

21. I find that the noticees had filed two writ petitions (W.P (C) No. 2505 of 2010 and W.P (C) No. 5352 of 2010) before the Hon'ble High Court of Delhi seeking a direction to ICAI to keep the disciplinary proceedings against the noticees in abeyance till the conclusion of the criminal cases against each of them. This is similar to the request to keep the present proceedings against the noticees in abeyance till the conclusion of the very same criminal trials. The noticees adduced similar arguments before the Hon'ble Delhi High Court as they have made before me seeking abeyance of the present proceedings. The Hon'ble High Court dismissed both the petitions vide its judgment date November 22, 2010. The ratio in this judgment squarely applies to the noticees' request to stay the present proceedings, which is not even a departmental proceeding.

22. In view of the above and on consideration of the entire facts and circumstances of the case, I am unable to accept the noticees' request to keep the present proceedings in abeyance. The hearing of the SCNs shall proceed on merits. For that purpose, the next hearing of the matter is fixed on February 5, 2011 at 11 AM at SEBI Head Office in Mumbai. The hearing has been fixed on a Saturday as the noticees have pointed out that the hearing of the criminal trial is proceeding on day-to-day basis and that they are required to remain present at the trial each day. In case the noticees fail to appear in person or through any representative and make arguments on merits of the case on the given date and time, the SEBI proceedings shall be concluded exparte, on the basis of the material available on records.