TaxTMI 
TaxTMI 
2015 (9) TMI 1193
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.... select few using high-end technology. Much of what is alleged is very technical indeed, but the NSE's case as presented by Dr. Tulzapurkar is that the assertions made by Ms. Dalal and Mr. Basu, even allowing for the fact that they were based on an anonymous letter dated 14th January 2015 addressed to the Securities & Exchange Board of India ("SEBI") with a copy to Ms. Dalal, are in themselves reckless and defamatory of the NSE. The article clearly alleges illegality and criminality in the actions of the NSE. It goes further and accuses the NSE of being "like a fortress" and unwilling to part with any information or to provide any clarification. 2. On 14th January 2015 an anonymous letter in hard copy was sent to Mr. B.K. Gupta, the Deputy General Manager of the Market Regulation Department of SEBI.( Plaint, Exhibit "A1", p. 44) This document was copied to Ms. Dalal. It is a most technical eight page letter and it appears to detail at very considerable length what it describes as the illegality or impropriety in "high-frequency trades" ("HFT") or algorithmic trades ("algo trades") facilitated by NSE's allowing co-location of its servers. I do not claim to be able to unde....
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.... is happening and those who do aren't about to tell because they are making a killing." (iv) These high-frequency trades contributed to the huge froth of trading volumes on the Exchange. Since top management salaries at the NSE are linked to the turnover and profit generated by the Exchange, there may have been a reluctance to upset the applecart. The NSE is unique in having had the same senior management for the entire 20+ years of its existence." 18(i) We expected the whistle-blower's letter to trigger, at least, an investigation"... (ii) "...we published the letter on 19th June on our website."... (iii) "Action started only after that. We now have information from credible sources that the finance ministry has desired that, apart from SEBI, the Reserve Bank of India (RBI) also take a detailed look at the implications of continuing HFT without adequate safeguards. Government sources also tell us that NSE's management of HFT servers in the initial years until 2013 (which are the subject of the whistle-blower's letter) may need a detailed review by SEBI or an investigation agency." (iv) Soon, SEBI and RBI dutifully responded to the finance ministry....
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....permitted a parallel, more or less like arranging to have a dedicated branch of a bank in one's own building if one is on a daily basis engaged in a large number of high value banking transactions. The system allows the users at these locations quick and reasonably disruption-free access to the servers. This is useful in an age when the trades are no longer done manually but are all done digitally and online. 7. Algo trades are the product of very high end mathematical modelling. These are models devised specifically to anticipate the most microscopic changes in markets and to respond to those changes in a matter of seconds. This is done not through any human intervention, an aspect that is totally eliminated, but in a wholly automated fashion by computer-generated or triggered transactions. In high value transactions the number of such transactions that can be put through is very considerable indeed. A most rudimentary example might be this: an 'algo' is designed to detect the most minute changes in stock prices and to respond accordingly. In anticipation of a rise in a particular stock's value, say, with no manual intervention but by a computer program respondi....
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....er suggests, this should have been enough. But (and this appears to be the nub of it) some started connecting to backup real-time servers with nil traffic, even though these were to be used only in emergencies, thus enabling quicker access to market data; and the NSE's co-location services facilitated this early-bird data or information receipt. 9. It is in this scenario that we have to assess the concern that seems to have been expressed by the Defendants in their articles. They say that entities permitted co-location access gained a small and perhaps infinitesimal time advantage in receiving advance market information. This allowed a select handful to, as the Defendants put it, 'front-run' the rest of the market. In other words, knowing that a stock was likely to move, say, in a particular direction, algo trades would be triggered to take advantage of that advance information long before other individual traders lacking the advantage of co-location could capitalize or move on that information. The result is not as negligible, the Defendants say, as might appear. There is, firstly, some question of whether these algo trades worked to inject liquidity into the market....
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....y mentions the advantages that paragraph 18A tries to deny, possibly in the hope that the judicial mind can safely be presumed to be ignorant of all matters technical and too easily overawed by an outpouring of technical jargon. The issue is also not about ensuring a prior place but, as the letter says, whether it is possible to 'game the system' through a variety of means, including continuous server-pinging to test when the server comes online, to gain even a minute advantage. The issue is also not about an absolute advantage, but rather one of degree, i.e., of gaining an advantage ahead of the rest of the market. Pages 5 and 6 of the letter deal with an earlier point in time. Pages 6 and 7 however make a very direct reference to a new evolution in the process of 'gaming the system', and that is by connecting to the backup servers, ones that had zero load and much improved latency. I note that paragraph 18A does not even begin to address the very many technical questions pointedly raised in the letter and to which Ms. Dalal drew the NSE's attention. Instead, that paragraph cherry-picks one isolated facet that possibly relates to an earlier point in the history....
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....audience. They must show they had a duty to convey the information. They must also show that the information that they conveyed was published in the context of this moral, social or other duty, public or private, and that it was relevant or pertinent to that duty and not completely alien to it. If there is no discernible nexus between what is stated and what is intended or what is now claimed to have been intended, the action must succeed. This is true whether or not the target audience is a select niche audience or the public at large. Dr. Tulzapurkar also refers to a Division Bench decision of the Calcutta High Court in Tushar Kanti Ghose v. Bina Bhowmick 57 CWN 378 to much the same effect and most importantly saying that fair comment is not the private preserve of newspapers but is a right of other citizens and persons in the country. 14. In Shree Maheshwar Hydel Power Corporation Ltd. v. Chitroopa Palit & Anr., 2004 Vol. 106(1) Bom.L.R. 186 a learned Single Judge of this Court (S. Radhakrishnan J, as he then was) was concerned with an expression said to be defamatory and contained in a press note issued in some newspapers. This related to the Narmada River Valley Project. Th....
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.... view, they were obliged to do so. This is the fact that on 11th June 2015, well before the article appeared, Ms. Dalal emailed the Chairman of SEBI with a copy to the two persons at the helm of the NSE's affairs, Mr. Ravi Narayan and Ms. Chitra Ramakrishan, persons who have been in those positions for a very long time indeed and who can reasonably be supposed to be au courant with the NSE's dealings, processes and affairs, seeking their response to the anonymous letter, with a copy of it (Motion paperbook, p. 89). There was no answer. Nothing in the nature of what is stated now in paragraph 18A was returned to Ms. Dalal. She sent a reminder a few days later on 15th June 2015 (Motion paperbook, p. 90). This too met with silence. The next day she sent an SMS to Mr. Ravi Narayan and Ms. Chitra Ramakrishan asking specifically whether the NSE had anything to say on these emails (Motion paperbook, p. 91). Again: no response. There are, thus, three distinct communications from Ms. Dalal to the two persons at the NSE best placed to answer the questions she raised. There is not even a whisper of these communications in the plaint. Even today, despite the amendment, there is no expl....
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....or to belittle the anonymous author is, I think, in this day and age of the statutory recognition of what are called 'whistleblowers', to attempt to deny the undeniable. To say that there must be material from which a person may draw a conclusion is only half the story. Very often, as in such cases, while silence might not quite be 'consent' as Mr. Malcolm for the 1st Defendant would have it, it might certainly be enough to lead one to a conclusion that the addressees of this letter had nothing in fact to say in response at all. The only alternative to that view is again a point that Ms. Dalal makes in her articles, viz., that the persons in charge at the NSE felt it beneath them to deign to respond to what is indubitably a very serious case made manifestly in the public interest. The question of paragraph 18A of the plaint not having received a reply on affidavit, is, I think, somewhat misplaced. That is not the issue. The question is why was this so-called answer not provided at a time when the NSE had a opportunity to provide it? Had that been done, and had that answer not been further investigated or controverted and had the present offending article then been p....
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....take all possible steps to ascertain her position before she goes to press. Had she not sought the NSE's views, and merely accepted as gospel what the anonymous communication to her said, matters might be very different indeed. But she did abide by that ethical standard. She did her investigations, and she did first solicit the NSE's response. Had there been a response, of the nature now suggested, or something in that vein, I imagine she would have followed this up with further investigations and correspondence before committing herself. I do not see how it can possibly be open to the NSE to accuse her of a lapse in ethical and journalistic standards when, despite the opportunity, it chose not to respond. Was Ms. Dalal supposed to imagine and speculate what that response might be? I find it exceedingly odd, too, that despite having received these communications, the NSE does not even mention them in the plaint. It gives instead the impression that Ms. Dalal acted immediately and solely on the anonymous letter and rushed to print. Nothing could be further from the truth. The elision of that correspondence from the plaint is neither irrelevant nor minor. Today, once the Affi....
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....espond to it seems to me either to be an example of the most egregious hubris and arrogance or, alternatively, an admission that there is an element of truth in what was being said. There is no third alternative. 21. In his written submissions, Mr. Basu makes this telling point: that despite the articles of which it complains, the NSE has suffered no loss or damage at all. He produces some documents that prima facie so indicate (Exhibits "A" and "A-1" to Mr. Basu's compilation.). It is one thing to contend that damage must be presumed if defamation be shown; but where it is affirmatively shown that no damage has resulted, then I do not see how any case in 'defamation' can be said to have been made out. After all, at the heart of defamation lies denigration, the lowering of the plaintiff in the public estimation. 22. Mr. Basu has also done some quite formidable legal research. The point he makes is this: that there is a material difference when the complainant plaintiff is a public persona or figure or institution, as the NSE undoubtedly is, as opposed to a private citizen. He cites, of course, the classic decision in New York Times Co. v. Sullivan 376 US 254, for its ....
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.... this discussion (The Defamation Act, 2013). Nicholls LJ set out ten criteria against which attempts to use the Reynolds defence might be assessed. This list, reproduced below, was even then said to be not exhaustive and very largely fact-dependent: 1. The seriousness of the allegation. The more serious the charge, the more the public is misinformed and the individual harmed, if the allegation is not true. 2. The nature of the information, and the extent to which the subject-matter is a matter of public concern. 3. The source of the information. Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories. 4. The steps taken to verify the information. 5. The status of the information. The allegation may have already been the subject of an investigation which commands respect. 6. The urgency of the matter. News is often a perishable commodity. 7. Whether comment was sought from the plaintiff. He may have information others do not possess or have not disclosed. An approach to the plaintiff will not always be necessary. 8. Whether the article contained the gist of the plaintiff's side of the ....
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....lly when they say that of all the freedoms guaranteed by Article 19 of the Constitution, the freedom of speech and expression is arguably the most volatile, the most sensitive to assault, and the most precious. Its restrictions, and defamation law is indeed such a restriction, are to be narrowly construed (Devidas Ramachandra Tuljapurkar v State of Maharashtra, (2015) 6 SCC 1; Shreya Singhal v Union of India, 2015 5 SCC 1). Defamation is a very thin red line. It must not be crossed, but it is not actionable only because it is approached, however closely. It is indeed protected fair comment when questions are raised in the public interest after due care is shown to have been taken to elicit a response. It is no answer at all to then say that no question of muzzling free speech arises, or to simply allege that there might indeed yet be an answer, and it matters not that that answer, or what passes for it, was not provided when an opportunity presented itself, and the fact of that answer being sought is so wholly concealed. More and more, in the name of security or reputation, we are increasingly too eager to surrender this, and its sister, freedoms. When we do so we forget: we forget....
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....re in error when they describe Ms. Dalal as some out-of-control lone wolf. The nation may or may not want to know; Ms. Dalal does. So do her readers. And, as it happens, so do I. She is certainly entitled to ask, to question, to doubt and to draw legitimate conclusions. 26. Today, all our institutions face the crisis of dwindling public confidence. Neither the NSE nor the judiciary are exceptions to this. It presents a very real dilemma, for the existence of our institutions is posited on that very public confidence and faith and its continuance. The challenge is, I think, in finding legitimate methods of restoring that public trust, that balance. Hence the cries for transparency and accountability everywhere; and I see no reason why the NSE should be any exception to this. Quelling dissent and doubt by strong-arming seems to me a decidedly odd way of going about restoring that public faith. It is not a move that, from a public institution, readily commends itself. For public bodies and figures, I would suggest that the legal standard is set higher to demonstrated actual malice and a wanton and reckless embracing of falsehood though countered at the first available opportunity. ....