Constitutional Law, Posts, Securities

Whatsapp Leak Case: A Struggle Between Right & Duty

By: Chitresh Baheti

INTRODUCTION

Reuters, on 16th November 2017, reported that the quarterly results of 12 giant MNCs[1] were being circulated on WhatsApp groups even before they were declared. This information was being circulated under the title ‘HOS: Heard on Street’.[2] This prompted the Indian security regulator board, SEBI, to carry forward investigations which came to be known as the WhatsApp Leak case.[3] SEBI conducted ‘search and seizure’ at the premises of more than 30 market analysts & dealers.[4] Till date, SEBI has directed companies such as HDFC Bank[5], Bata India[6], Tata Motors[7] to probe into the matter via internal enquiries.

Under SEBI (Prohibition of Insider Trading) Regulation 2015, this information is regarded as ‘unpublished price sensitive information’[8] i.e any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities. Such information which has bearing on the performance/operation of listed entity and price sensitive information needs to be promptly disclosed to stock exchange(s).[9]

In furtherance of curbing the practice and finding the real culprits behind this leak, SEBI asked WhatsApp to provide information as to how quarterly results of companies got leaked, which WhatsApp reportedly refused to share as it would infringe its privacy norms. This was the result of Delhi High Court judgement in case of Karmanya Singh Sareen & Anr. v. Union of India[10] where WhatsApp was restrained from sharing the information of WhatsApp users with Facebook or any other group companies.

CONSTITUTIONAL MANDATE OF RIGHT TO PRIVACY

In the watermark judgement on Privacy[11] which declared the right to privacy a fundamental right under Part III of the Constitution of India with certain limitations, Justice Chelameashwar held that:

“There are different standards of review to test infractions of fundamental rights. While the concept of reasonableness overarches Part III, it operates differently across Articles (even if only slightly differently across some of them)… to begin with, the options canvassed for limiting the right to privacy include an Article 14 type reasonableness enquiry; limitation as per the express provisions of Article 19; a just, fair and reasonable basis (that is, substantive due process) for limitation per Article 21…”

Attention must be drawn to the Bombay High Court judgement where a similar situation arose.[12] A PIL was filed by ICI seeking the SEBI to follow the below-mentioned guidelines, alleging that the action of calling CDRs from TSP by SEBI violates and infringes the fundamental right of privacy:

  1. To cease, desist and refrain from calling for Call Data Records (CDRs) and details of tower location from Telecom Service Providers (TSP);
  2. To disclose the names of its officials who had called for such information from TSP and to take necessary action against such officials; and
  3. To disclose on oath all investigation, adjudication, prosecution and other action that may have been taken and is being taken on the basis of CDRs collected.[13]

However, the court held that such power of calling information under the provisions of Section 11(1), 11(2)(i) & (ia), 11(3), 11C(3) and 11C(8) can only be exercised after complying with the following safeguards:

  1. Only in respect of the person against whom any investigation or enquiry is being conducted by SEBI,
  2. Such information may be called for only by an officer who is duly authorized by SEBI as per the delegation order,
  3. Before calling for such information, the opinion of such authorized officer should be recorded in the file indicating the application of mind to the effect,
  4. In accordance with law.[14]

The courts in a plethora of judgements have laid down certain criteria which need to be fulfilled before the privacy of any person can be legally infringed. The law which permits the infringement of privacy must be legal. Moreover, the restriction must be reasonable. A reasonable restriction is a restriction which isn’t arbitrary or unjust. This shows that the encroachment must be with a ‘legitimate state aim’. Further, the encroachment must be proportional to the justice which is aimed to be achieved. This prohibits the arbitrary actions of the state by balancing the interests of the holder and the controller.[15]

SEBI’s DUTY TO PROTECT & PROMOTE SECURITY MARKET

It is the duty of SEBI to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit.[16] Section 2(ia) provides that SEBI can call “information and records from any person including any bank or any other authority or board or corporation established or constituted by or under any Central or State Act which, in the opinion of the Board shall be relevant to any investigation or enquiry by the Board in respect of any transaction in securities.”[17] The powers of SEBI were largely dealt with by Hon’ble Supreme Court.[18] It held that:

“From a collective perusal of sections 11, 11A, 11B and 11C of the SEBI Act, the conclusions drawn by the SAT, that on the subject of regulating the securities market and protecting interest of investors in securities, the SEBI Act is a stand-alone enactment, and the SEBI’s powers thereunder are not fettered by any other law including the Companies Act, is fully justified.”

A consultation paper released by SEBI[19] proposed to forbid any person from sharing trading tips the to general public. It read as:

“4.5.1 – It is observed that, many persons are engaged in providing/sending the trading tips/securities specific recommendations, etc., using various electronic modes such as bulk short message services (SMSs), e-mails, blogs, internet or through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. The general public is getting attracted or lured by such trading tips, securities specific recommendations and their investment decisions are being influenced by such messages which solicit investments and/ or promise unrealistic returns in the securities market.

4.5.2 – In order to curb such practice of providing trading tips/messages containing buy/sell/hold recommendations on securities, it is proposed that:

  1. a) No person shall be allowed to provide trading tips, stock specific recommendations to the general public through short message services (SMSs), email, telephonic calls, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration.
  2. b) No person shall be allowed to provide trading tips, stock specific recommendations to the general public through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration.
  3. c) A provision or clause shall be added in the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 {PFUTP Regulations} to restrict such activities by making necessary amendments to PFTUP Regulations.”

Moreover, the apex court has decided to constitute a Committee of Experts under the Chairmanship of Justice B.N. Srikrishna, to identify key data protection issues in India and recommend methods of addressing them. The need to ensure growth of the digital economy while keeping personal data of citizens secure and protected was given utmost importance.[20]

CONCLUSION

The impediments to person’s right side to protection as for arraignment of salaried violations have not been beforehand managed in India. WhatsApp may end up pursuing intense fights in court with SEBI because of such open insubordination. Moreover, if SEBI prevails with regards to extricating information from WhatsApp, it may lead to a dangerous slant, with other government offices making comparative cases. The Legislature and the Judiciary need to strike a fragile harmony between the premiums of the market controller and that of the people. With financial outrages standing out as truly newsworthy and the consistent expansion of the use and headway of innovation, the issue needs a quick solution.

[1] Rafeal Nam, ‘Exclusive: Prescient Messages About Indian Companies Circulate in WhatsApp Groups’ (Reuters, 16 November 2016) <https://in.reuters.com/article/india-whatsapp/exclusive-prescient-messages-about-indian-companies-circulate-in-whatsapp-groups-idINKBN1DG0IQ&gt;.

[2] Rashi Varshney, ‘SEBI Probes 40 Companies for Information Leak on WhatsApp: Report’ (Medinama, 5 January 2018) <https://www.medianama.com/2018/01/223-sebi-probes-40-companies-for-information-leak-on-whatsapp/&gt;.

[3] ‘WhatsApp Leaks Force SEBI to Scale Up War on Insider Trading’ (Rediff, 7 April 2018) <http://www.rediff.com/business/report/whatsapp-leaks-force-sebi-to-scale-up-war-on insidertrading/20180407.html>.

[4] ‘SEBI Conducts Search and Seizure at Premises of More Than 30 Market Analysts, Dealers in WhatsApp Leak Case’ (Firstpost, 22 December 2017) <https://www.firstpost.com/business/sebi-conducts-search-and-seizure-at-premises-of-more-than-30-market-analysts-dealers-in-whatsapp-leak-case-4271083.html&gt;.

[5] ‘Probe Earnings Leak in Three Months: SEBI to HDFC Bank’ (Indian Express, 24 February 2018) <http://indianexpress.com/article/business/banking-and-finance/probe-earnings-leak-in-three-months-sebi-to-hdfc-bank-5076016/&gt;.

[6] Abhirup Roy, ‘WhatsApp Leak Case: SEBI Orders Bata To Probe Suspected Results leak’ (Livemint, 12 March 2018) <https://www.livemint.com/Money/W7eCyxIufXlQ82Xn7oKp8N/WhatsApp-leak-case-Sebi-orders-Bata-to-probe-suspected-resu.html&gt;.

[7] ‘Whatsapp Leak Case: SEBI Directs Tata Motors to Conduct Internal Probe’ (Business Line, 6 Mar 2018) <https://www.thehindubusinessline.com/markets/whatsapp-leak-case-sebi-directs/article22951360.ece&gt;.

[8] SEBI (Prohibition of Insider Trading) Regulation 2015, reg 3.

[9] SEBI (Listing Obligation and Disclosure Scheme) Regulation 2015, reg 83.

[10] Karmanya Singh Sareen v Union of India (2017) 10 SCC 638.

[11] KS Puttaswamy v Union of India (2017) 10 SCC 1.

[12] Indian Council of Investor v Union of India PIL No 29 of 2013.

[13] ibid [1].

[14] ibid [19].

[15] MP Jain, Indian Constitutional Law (6th edn, LexisNexis 2013) 1643.

[16] SEBI Act 1992, s 11.

[17] SEBI Act 1992, s 11(2)(ia).

[18] Sahara India Real Estate Corporation Ltd v SEBI (2012) 10 SCC 603, para 107.

[19] SEBI, Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations 2013 para 4.5.

[20] Karmanya Singh Sareen v Union of India (2017) 10 SCC 638.

(Chitresh is currently a student at Dr. Ram Manohar Lohiya National Law University, Lucknow.)