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.
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.
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.
While upholding the validity of 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.
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.
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.
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.