In the past, we have discussed
issues with the onerous evidentiary burden carried by the Securities Exchange
Board of India (SEBI) in relation to various securities offences such as
insider trading. Following from past experience, SEBI has been conferred
additional powers to seek further information in the course of investigation of
such offences. Much of these additional powers came by way of the Securities
Laws (Amendment) Ordinance in 2013, which then had to be re-promulgated, once
in 2013 and again in 2014. Apart from various additional powers, SEBI was
conferred the ability to call for information and records in connection with
any investigation or inquiry.
issues with the onerous evidentiary burden carried by the Securities Exchange
Board of India (SEBI) in relation to various securities offences such as
insider trading. Following from past experience, SEBI has been conferred
additional powers to seek further information in the course of investigation of
such offences. Much of these additional powers came by way of the Securities
Laws (Amendment) Ordinance in 2013, which then had to be re-promulgated, once
in 2013 and again in 2014. Apart from various additional powers, SEBI was
conferred the ability to call for information and records in connection with
any investigation or inquiry.
In this background, the power of
SEBI to seek call data records (CDRs) and details of tower location from
telecom service providers (TSPs) was called into question in a public interest
litigation filed before the Bombay High Court on the ground that this power of
SEBI “violates and infringes the fundamental right of privacy available to
citizens of India”. In Indian
Council of Investors v. Union of India, the Bombay High Court upheld
these powers of SEBI on the condition that they are exercised in a careful
manner as stipulated by the court.
SEBI to seek call data records (CDRs) and details of tower location from
telecom service providers (TSPs) was called into question in a public interest
litigation filed before the Bombay High Court on the ground that this power of
SEBI “violates and infringes the fundamental right of privacy available to
citizens of India”. In Indian
Council of Investors v. Union of India, the Bombay High Court upheld
these powers of SEBI on the condition that they are exercised in a careful
manner as stipulated by the court.
Interestingly, the court found that
the powers to call for CDRs from TSPs existed with SEBI under section 11 of the
SEBI Act, 1992 even prior to the conferment of additional powers by way of the
Ordinances. This is because SEBI is empowered to take a wide array of actions
as it deems fit to protect the interest of investors. Reliance was also placed
on the Supreme Court decision in Sahara
India Real Estate Corporation Limited and others v/s. Securities and Exchange
Board of India and another, 2013(1) SCC 1. Any ambiguity in this regard has
been set to rest by the Ordinances issued in 2013 and 2014, which therefore
assume the character of clarificatory provisions. The court also found that
section 5(2) of the Indian Telegraph Act, 1885 does not constitute a
prohibition on the exercise of power by SEBI.
the powers to call for CDRs from TSPs existed with SEBI under section 11 of the
SEBI Act, 1992 even prior to the conferment of additional powers by way of the
Ordinances. This is because SEBI is empowered to take a wide array of actions
as it deems fit to protect the interest of investors. Reliance was also placed
on the Supreme Court decision in Sahara
India Real Estate Corporation Limited and others v/s. Securities and Exchange
Board of India and another, 2013(1) SCC 1. Any ambiguity in this regard has
been set to rest by the Ordinances issued in 2013 and 2014, which therefore
assume the character of clarificatory provisions. The court also found that
section 5(2) of the Indian Telegraph Act, 1885 does not constitute a
prohibition on the exercise of power by SEBI.
While upholding the validity of
SEBI’s power, the court stressed the importance of the manner in which they are
exercised. It noted:
SEBI’s power, the court stressed the importance of the manner in which they are
exercised. It noted:
Thus, there can be
no dispute that the SEBI is authorized under the SEBI Act to call for CDRs from
the TSP. However, this power is capable of misuse and can violate a citizen’s
right to privacy guaranteed by Article 21 of the Constitution. Therefore, it is
made clear that such a power cannot be exercised by SEBI for conducting a
fishing enquiry. It cannot be a blanket power to hunt out information without
any pending inquiry or investigation. This power can only be exercised by SEBI
in respect of any person against whom any investigation or enquiry is being
conducted. Further, such information can be called for only by an officer duly
authorized by SEBI to call for information with regard to CDRs from the TSP.
no dispute that the SEBI is authorized under the SEBI Act to call for CDRs from
the TSP. However, this power is capable of misuse and can violate a citizen’s
right to privacy guaranteed by Article 21 of the Constitution. Therefore, it is
made clear that such a power cannot be exercised by SEBI for conducting a
fishing enquiry. It cannot be a blanket power to hunt out information without
any pending inquiry or investigation. This power can only be exercised by SEBI
in respect of any person against whom any investigation or enquiry is being
conducted. Further, such information can be called for only by an officer duly
authorized by SEBI to call for information with regard to CDRs from the TSP.
In all, this decision of the Bombay
High Court confirms the extensive powers of SEBI to call for CDRs, which are
important in investigations relating to securities offences such as insider
trading and market manipulation. Increasingly, any legal hurdles are being
removed through measures such as the Ordinances and now the judicial seal of
approval. However, much will depend on the manner in which the powers are in
fact exercised by SEBI in the facts and circumstances of each case.
High Court confirms the extensive powers of SEBI to call for CDRs, which are
important in investigations relating to securities offences such as insider
trading and market manipulation. Increasingly, any legal hurdles are being
removed through measures such as the Ordinances and now the judicial seal of
approval. However, much will depend on the manner in which the powers are in
fact exercised by SEBI in the facts and circumstances of each case.
SECC Regulations and Exit Circulars Upheld: In a separate case, Nikhil
T Parikh v. Union of India, the Gujarat High Court upheld the legality
and validity of the Securities
Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations,
2012 (the SECC Regulations) and the Exit
Policy for De-recognized / Non-operational Stock Exchanges dated May 30,
2012.
T Parikh v. Union of India, the Gujarat High Court upheld the legality
and validity of the Securities
Contracts (Regulation) (Stock Exchange and Clearing Corporations) Regulations,
2012 (the SECC Regulations) and the Exit
Policy for De-recognized / Non-operational Stock Exchanges dated May 30,
2012.
Update – May 27, 2014: In
another decision
earlier this week, the Allahabad High Court upheld the validity of the SECC Regulations
on
the ground that they are not ultra vires the Securities
Contracts (Regulation) Act, 1956 (SCRA) and that they do not supplant the SCRA
or travel beyond the bounds which are set by the statute or rules made
thereunder. It was also held that the SECC Regulations do not infringe the fundamental
rights guaranteed under Articles 19 (1) (c) or 19 (1) (g) of the Constitution.
(I
would like to acknowledge a regular reader for bringing these decisions to our
attention)
