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The Securities and Exchange Board of India’s (Sebi) long-standing practice of withholding full investigative records is once again under scrutiny after US-based proprietary trading firm Jane Street appealed to the Securities Appellate Tribunal (SAT) for complete access to documents used in a probe into its alleged index manipulation.

The case highlights an ongoing clash between the regulator’s confidentiality policies and companies’ rights to due process, a tension that has repeatedly drawn intervention from India’s top courts.

Jane Street has argued that Sebi denied it full access to materials generated during the National Stock Exchange’s (NSE) probe in November 2024, which it says are critical to mounting an effective defence.

Senior counsel Darius Khambata told the tribunal, “I am entitled to see those complaints…What is so significant in the complaint made by the hedge fund why mask the information?"

The firm has sought SAT direction requiring Sebi to allow a full inspection of the investigation record, rather than just the parts the regulator deems relevant.

Sebi’s standard practice is to provide companies only the documents it relies on when framing charges, not the entire investigative record. The regulator argues that disclosing all materials could compromise ongoing probes by revealing internal assessments, third-party inputs, or sensitive market intelligence. It also says disclosure could endanger confidential sources and whistleblowers.

Lawyers counter that withholding records can invite “fishing inquiries," where entities seek to prolong proceedings or divert attention from the main charges.

Senior counsel Gaurav Joshi, representing Sebi in the Jane Street matter on 9 September, told the tribunal, “Sebi is under no legal obligation to share internal reports, draft findings, or confidential correspondence not relied upon in its ex-parte interim order," while refusing what it called a “fishing and roving enquiry."

Still, courts have repeatedly challenged Sebi’s selective disclosure approach.

Several high-profile cases highlight Sebi’s selective disclosure policy, including those involving Reliance Industries Ltd, T. Takano, and former Axis Mutual Fund dealer Viresh Joshi.

In 2022, Reliance Industries sought access to documents relied upon by Sebi in a probe into its share acquisitions between 1994 and 2000. Sebi refused, citing the Settlement Proceedings Regulations, which it said do not grant accused companies a right to access such privileged materials.

In the case of T. Takano, Sebi issued a show-cause notice for alleged regulatory violations but only provided the forensic audit report, withholding the full investigation report. Takano subsequently challenged the decision before the Bombay High Court.

Viresh Joshi, accused of front-running—a practice where brokers or fund managers act on advance knowledge of large client orders—also requested documents relied upon by Sebi during its investigation. Last week, an appellate tribunal reprimanded Sebi for failing to share the relevant documents, despite a formal court order.

In the T. Takano vs Sebi case, India’s Supreme Court set a key precedent, ruling that quasi-judicial bodies like Sebi have a “duty to disclose" investigation reports to individuals facing charges, as such documents are essential for adjudication and the right to a fair trial.

The court held that regulators cannot withhold an entire report simply by claiming they did not rely on it; any relevant portions must be disclosed.

Later, in the Reliance Industries Ltd matter, the Supreme Court directed Sebi to share legal opinions and expert reports it had relied upon when initiating criminal proceedings, saying a fair regulator cannot claim privilege over such material or “cherry-pick" excerpts. In both cases, Sebi had repeatedly resisted disclosing the documents despite multiple requests.

Diviay Chadha, partner at Singhania & Co., noted that while withholding certain documents can hinder a party’s ability to understand allegations and mount a defence, Sebi also has legitimate objectives in preserving market integrity and protecting confidential information.

“The challenge lies in striking the right balance between transparency requirements and necessary confidentiality measures," Chadha said.

Amit Tungare, managing partner at Asahi Legal, added that Sebi’s selective disclosure policy raises fundamental questions about natural justice, which requires that parties have a fair opportunity to know and respond to the case against them.

Restricting access to investigative records can cripple a company’s ability to contest Sebi’s findings, potentially leading to wrongful penalties or operational curbs.

“Companies may face reputational damage and financial losses without being able to adequately defend themselves against charges," said Chadha of Singhania & Co. “This creates an uneven playing field where regulatory actions may go unchallenged due to procedural disadvantages rather than merit."

Amit Tungare of Asahi Legal added that despite repeated court directives, Sebi’s resistance to full disclosure seems driven by concerns over market stability, protection of sensitive information, and enforcement effectiveness. “However, this lack of transparency can significantly handicap companies and individuals facing interim or final orders by restricting their ability to effectively challenge allegations," he said.

The SAT’s ruling in the Jane Street case could become a turning point, potentially pushing Sebi toward greater disclosure and reinforcing due process and natural justice in securities regulation.

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