SEBI is repeatedly refused access to phone data for its investigations
Moneylife Digital Team 29 November 2010

As the debate over the right to privacy in the case of phone tapping hots up, it seems that the stock market regulator is not easily given access to phone data

In the recent 2G spectrum allocation scam surrounding the former telecom minister A Raja, some journalists and corporate lobbyists are now also under the scanner. Their alleged involvement in this matter has been revealed in phone conversations with lobbyist Niira Radia, whose phone was under surveillance by the income-tax department through 2008 and 2009.

But the question that arises now is, how many and which are the government investigative departments that are allowed to tap phone calls for an investigation? Because, whenever the Securities and Exchange Board of India (SEBI), the stock market regulator, has tried to employ its sleuths to tap phones, it has found itself at the receiving end of the stick.

This matter is regulated under the Indian Telegraph Act (1885), an antiquated piece of legislation that has been subsequently modified by various governments. The Department of Telecommunications (DoT) has a list of government agencies and regulators who can seek data through this means and the circumstances under which the data can be demanded are described in the Indian Telegraph Act.

However, it is appears strange that SEBI is not among the agencies allowed to use this means. DoT has said in a letter, dated 10 December 2009 (a copy of which is available with Moneylife), that SEBI is not an authorised enforcement agency for intercepting or monitoring calls.

Call data records are often demanded by enforcement agencies for the purpose of investigations. Of course, such interception of telephonic communication should be reasonable without breaching the right to privacy. 

It seems that demanding telecom data has become a regular practise by the regulators, particularly SEBI. Moneylife has learned that the stock market regulator, although not authorised to receive such data, seeks phone call records time and again. SEBI had earlier approached the Ministry of Finance and other relevant government ministries seeking to be included as a designated monitoring agency. But the ministry rejected its plea.

The Income-tax department, which is an authorised agency and can seek call records data, is required to take the permission of the Director General of Income-Tax (Investigation) before seeking the interception of phone calls. Whereas, SEBI officials have been try to get data without even taking the approval of the SEBI board for this purpose. In many cases there have been demands for such information on phone calls even before an investigation has been initiated.

It would be relevant to mention the infamous Pyramid Saimira Theatre Limited case, where SEBI's investigative team used phone call data as part of its investigations to crack the case.

The case involved a manager in SEBI's investigation department, J D'Souza, who allegedly forged a letter to the company's chairman, asking him to make an open offer within 14 days. Nirmal Kotecha, a co-promoter, planted a report about the SEBI order in a couple of newspapers, causing the share price to shoot up. This followed the decision of the chairman, PS Saminathan to acquire the 25% stake held by the two co-promoters.

When the price flared up, many people, including Mr Kotecha, made a killing. The case was solved through detection of the phone records of which revealed the repeated conversations of Mr Kotecha with many of the people involved.  Moneylife  has repeatedly reported on this case.

Moneylife tried to contact SEBI officials for their reaction through e-mail and SMS, but received no response.

Is such an investigation enough grounds to seek phone records that may breach the right to privacy of an individual? In the current Niira Radia tapes episode, is there something called 'public interest' that should get importance over the right to privacy. There is a thin line between the right to privacy and national interest that needs to be addressed.

1 decade ago
you should take up the cause of pyramid saimira small investors. lot of us are caught in this stock. we got shares in ipo after sebi approved it.

its only kotecha who did wrong and not saminathan. do somethign and save small investors like us.All my retirement money is gone..
M Zubin
1 decade ago
Dear Sucheta

I think the issue is very clear. In this country, as per our constitution, we have a system of Legislature, Executive and Judiciary. It is the job of Legislature to lay down the law. Neither the executive nor the judiciary is empowered to make the law. Executive is merely to administer the law.

If we are sure that, as DOT says, SEBI is not authorized to seek CDR from telecom cos, then it is not upto SEBI or any of us to decide that SEBI should get that power or not.

The crux today is, how can SEBI seek CDRs of thousands of subscribers without being authorized?

Or the police culture has seeped into SEBI also, and SEBI has become a law unto itself?
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