TaxTMI 
TaxTMI 
2022 (12) TMI 454
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..... Armaan Pandey; (iv) Sh. Manish Mittal; (v) Sh. Naman Chaturvedi; (vi) Sh. Ravi Varanasi; (vii) Sh. Mahesh Haldipur; (viii) Sh. Ravi Narain; (ix) Ms. Chitra Ramkrishna; (x) Sh. Arun Kumar Singh; and (xi) Other unknown persons. 3. It is stated that ISEC SERVICES PVT. LTD. in conspiracy with other accused illegally intercepted MTNL lines at National Stock Exchange (hereinafter referred to as 'NSE') between 2009 to 2017 and recorded calls by various NSE officials. The transcript of these calls was thereafter made available by ISEC to NSE officials. No other phone lines outside NSE are alleged to have been recorded or monitored. It is further stated that the telephone monitoring was carried out by ISEC without taking permission of the competent authority as required under Section 5 of the Indian Telegraph Act, 1885 and also it was without the knowledge and consent of NSE employees. It has further been stated that for the work carried out between 2009 to 2017, ISEC was paid a sum of Rs. 4.54 crores by NSE. The FIR No. RC2212022E0030 dated 07.07.2022 was registered on the allegations levelled by CBI under Section....
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....were utilized for pre-existing arrangement of monitoring and analysis of the calls. The applicant entered into a duly signed contract wherein Rs. 4.5 crores were paid for the services rendered by ISEC on which the applicant has duly paid tax. He states that it is not a prohibited activity and the NSE was doing it since 1997. Mr Sibal has taken me through the statements of Mr Mahesh Haldipur and Ms. Suguna Pappaiah in this regard. He states that none of the ingredients of the sections leveled against the applicant make it a cognizable offence. The submission of Mr. Sibal as regards the various charge sections are concerned, is as follows: Telegraph Act Section 5 reads as under: "5. Power for Government to take possession of licensed telegraphs and to order interception of messages. - (1) On the occurrence of any public emergency, or in the interest of the public safety, the Central Government or a State Government or any officer specially authorized in this behalf by the Central Government or a State Government may, if satisfied that it is necessary or expedient so to do, take temporary possession (for so long as the public emergency exists or the interest of the public ....
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....n its prosecution complaint seeks to assert that such recording was illegal in the absence of permission under Section 5 of the Telegraph Act. This submission is wholly misplaced as is evident from a bare perusal of Section 5 read with Rule 419A of the Telegraph Act, which prescribes a method through which the Central Government or a State Government can intercept third party communications only on a 'public emergency' or 'in the interest of public safety'. The said provision is specific to interception of third party communications by the State. The licensing scheme does not envisage a private entity obtaining a licence to install a recording device to monitor internal phones on internal lines. The falsity of the submission of the ED is evident from its failure to produce any cogent material in the form of particular guidelines or rules to show that the licensing regime envisages and mandates obtaining such a licence. (iv) It is submitted that Section 20 of the Telegraph Act which punishes the act of establishing, maintaining or working a Telegraph in violation of the provisions contained in Section 4 of the Telegraph Act cannot be invoked in the facts of the instant case....
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....tion 72 of the IT Act has no application. (ii) Section 72 A of the Information Technology Act is inapplicable since the information collected was not 'personal information', and instead pertained to the internal workings of the NSE. Admittedly, only the work telephones at the NSE were being monitored, and thus there is no occasion for any information relating to personal or of a personal/sensitive nature being misused. In any event there is no allegation made that such information was used to cause 'wrongful loss' or 'wrongful gain'. Section 72-A is bailable and non-cognizable offence and anyways, the applicant had the consent of the owner of the line i.e. NSE. 11. As regards PC Act is concerned, Mr. Sibal submits that the contract is with the NSE. He states that at best even assuming that the contract between the NSE and the applicant is unlawful, there is no dishonest purpose or intention. 12. He states that Section 13(1)(d) read with Section 13(2) of the PC Act (PMLA Scheduled Offences) cannot be invoked as there is no allegation of giving or receiving a bribe or giving of illegal gratification. Nor is this a case of 'criminal misconduct'. This is a case where the....
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....mstances can it be alleged that these call recordings, even if assumed to be 'property' under section 409 IPC, were misappropriated by M/s ISEC. (v) He states that under section 120-B of the IPC, there is no illegal act and assuming that there was an illegal act, there is no conspiracy as there is no meeting of minds between the various accused. 14. Learned senior counsel also states that provisions of PMLA are inapplicable as none of the offences alleged in the said FIR (much less scheduled offences as per PMLA) are made out. In such circumstances, there is no occasion to assert the existence of any 'proceeds of crime'; accordingly, no offence of money laundering within the meaning of Section 3 has been committed. 15. He has further drawn my attention to SEBI circulars which itself mentions for keeping phone recording between a broker and customer. The operative portion of the circular reads as under: "Securities and Exchange Board of India CIRCULAR CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108 September 26, 2017 To All recognized Stock Exchanges, Dear Sir / Madam, Sub: Prevention of Unauthorised Trading by Stock Brokers I. SE....
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....oard of India Act, 1992 to protect the interest of investors in securities and to promote the development of and to regulate the securities market. Yours faithfully, Debashis Bandyopadhyay General Manager" "Securities and Exchange Board of India CIRCULAR CIR/HO/MIRSD/MIRSD2/CIR/P/2017/124 November 30, 2017 To All Recognized Stock Exchanges Dear Sir / Madam, Sub: Clarification to Circular on Prevention of Unauthorised Trading by Stock Brokers 1. SEBI vide circular no. CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108 dated September 26, 2017 has inter-alia specified that brokers shall execute trades of clients only after keeping evidence of the client placing such order. Further, SEBI has made it mandatory to use telephone recording system to record client instructions and maintain telephone recordings wherever the order instructions are received from clients through the telephone. 2. Subsequently, SEBI has received representations from stock brokers and their associations expressing operational difficulties caused to stock brokers. Accordingly, in view of operational difficulties faced by stock brokers, it has been decided as un....
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.....H. King v. Republic of India that when a statue creates an offence and imposed a penalty of fine and imprisonment, the words of the section must be strictly construed in favour of the subject. This view has been consistently adopted by this Court over the last, more than sixty years." 17. Per contra, Mr. Raju, learned ASG, states that a bare perusal of the FIR and Prosecution Complaint will disclose that under the garb of study of cyber vulnerabilities at NSE, a criminal conspiracy was entered into for telephone tapping without any authorization as required under the Indian Telegraph Act, 1885. The phone calls of employees of NSE were illegally intercepted without their consent or knowledge. The comparison by petitioner of call centres is misleading since there is a due disclosure in call centres and consent is taken prior to monitoring and recording of calls which is absent in this case. 18. He states that Section 3(1AA) of the Indian Telegraph Act, provides for the definition of Telegraph, which will show that telegraph means any apparatus capable of use for reception of signals. The device installed by ISEC recorded all incoming and outgoing calls of all Primary Rate Inte....
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.... such call recordings deemed suspicious by the company employees were prepared and a report was submitted to NSE on a periodic basis along with suspicious call recordings in a storage media. The e-mail communications also prove that the system used for recording the calls between 2009 to 2012 was maintained by the company employees, numbers were hooked by them, ports were monitored by them and regular back up i.e. call recordings were taken out by the employees of the company only. Sanjay Pandey was regularly monitoring the said work and even had prepared and forwarded the call monitoring reports to NSE. He had even issued instructions not to send email regarding it and instead call on his phone. It is also a proven fact that in 2012, iSec Services Private Limited had procured a new and better system for the said illegal activity. Sanjay Pandey was also involved in finalizing the said product and the cost of hardware/software from Nexsus Techno Solutions Private Limited. The said system was got installed by the company at NSE premises. The same was run by its employees. The contents of e-mail dated 1.09.212 from [email protected] [email protected] clearly show tha....
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....both of acts which are dishonest and acts which are fraudulent. Where no pecuniary question arises the element of dishonesty need not be established and it would be sufficient to establish that the act was fraudulent and, therefore, it may be, as the learned Judge has held, that where an act is fraudulent the intention to cause injury to the person defrauded must be established. But where the allegation is that a person has dishonestly induced another to part with property something different has to be considered and that is whether he has thereby caused a wrongful loss to the person who parted with property or has made a wrongful gain to himself. These are the two facets of the definition of dishonesty and it is enough to establish the existence of one of them. The law does not require that both should be established. The decision relied upon by learned counsel is, therefore, distinguishable. Learned counsel then referred to the dissenting judgment of Subrahmania Ayyar, J., in Katamraju Venkatarayudu v. Emperor to the effect that in regard to offences falling under Sections 465 and 461 it must be established that the deception involved some loss or risk of loss to the individual a....
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....s that based on the evidence collected so far, it is seen that the applicant by way of criminal activity related to a scheduled offence has indulged in or actually involved in or knowingly assisted in process or activity connected with the proceeds of crime including its acquisition, use and projection thereof as untainted property, thereby, has committed an offence of money-laundering as defined under Section 3 of PMLA, 2002. 25. He further states that investigation in the instant case has revealed the role of the applicant in the commission of the offence of money laundering. Based on the evidence and material in possession against the said applicant, it can be safely concluded that he is involved in the offence of money laundering. Further investigation is being conducted to trace the Proceeds of Crime and crack the modus operandi of the Accused person(s). Hence, he states that there is sufficient material on record to show that no satisfaction under 45 of the PMLA can be reached. 26. He states that the argument that the scheduled offences in the present case are bailable and non-cognizable is without merit since the offence of money laundering is non-bailable and cognizab....
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....to analyze data and check for cyber vulnerabilities within the NSE. As per the agreed arrangement between NSE and ISEC, NSE would provide ISEC with a hard drive (on a weekly basis) which contained the pre-recorded call data that ISEC was to analyse. ISEC would conclude its analysis and submit its weekly report to the NSE. ISEC would identify and isolate suspicious calls bearing on the issue of data and information security and cyber and process vulnerability. Until 2012, such call-recording took place via a system installed by one M/s Comtel. Subsequently, from the year 2012, such call-recording was done using a set-up installed by one NEXSUS Techno Solutions Pvt. Ltd. ("NEXSUS"). 31. I am prima facie of the view that tapping phone lines or recording calls without consent is a breach of privacy. The right to privacy enshrined under Article 21 of the Constitution demands that phone calls not be recorded. Only with consent of the individuals concerned, can such activity be carried out otherwise it will amount to breach of the fundamental right to privacy. 32. The Apex Court in K.S. Puttaswamy v. Union Of India (2017) 10 SCC 1 holds right to privacy inheres in every individual a....
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....the given case, NSE mandates to record conversations since SEBI has mandated brokers to execute trades only after maintaining inter alia telephonic recordings. The same is duly found in the SEBI circulars dated 26.09.2017 and 30.11.2017 which are detailed above. Hence, on one hand, the circulars mandate calls be recorded for the purposes of adjudication of disputes while on the other hand, it prosecutes for complying with the circulars. 37. The scheduled offences against the applicant are the following: ACT SECTION PUNISHMENT COGNIZABLE BAILABLE IT Act Section 72 2 years and/or fine Non-Cognizable Bailable IPC Section 420 1 year (min.) to 7 years (max.) and fine Cognizable Non-Bailable IPC Section 120-B 6 months and/or fine Cognizable Non-Bailable PC Act Section 13(2) r/w 13(1)(d) 1 year (min.) to 7 years (max.) and fine Cognizable Non-Bailable 38. For the purposes of deciding the present Bail Application, I am only to see the scheduled offences in the FIR. The other offences are not relevant for this bail application and would be subject matter of quashing petitions which are yet to be argued. 39. ....
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....tion 72 of the IT Act is made out because firstly, the Applicant or ISEC had never been conferred with any powers in terms of the IT Act or rules and regulations made therein and secondly, there is no allegation in the FIR or the Prosecution Complaint that the Applicant or ISEC was acting in pursuance of powers conferred under the IT Act or rules and regulations made therein. 44. The act of tapping and recording phone calls without consent of the concerned person can be penalised under various sections of the Indian Telegraph Act and Indian Wireless Telegraphy Act but the offences under the said statutes are not scheduled offences. On the other hand, invocation of sec. 72 of the IT Act is only limited to breach of confidentiality and privacy, which offence has not been made out. 45. As regards offences under the IPC are concerned, I am of the opinion that prima facie the ingredients of the alleged offences are not made out in the present case. 46. The scheduled offences under section 120B read with 409 and 420 IPC are not made out. NSE and ISEC, both knew the purport of the agreement and obligations of the contracting parties was clear from the beginning. ISEC did not indu....
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.... property.-Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine." 52. The essential ingredients of Section 420 IPC as enunciated by the Hon'ble Supreme Court in Prof. R.K. Vijayasarathy v. Sudha Seetharam (2019) 16 SCC 739 are as under : "19. The ingredients to constitute an offence under Section 420 are as follows: 19.1. i) A person must commit the offence of cheating under Section 415; and 19.2. ii) The person cheated must be dishonestly induced to (a) deliver property to any person; or (b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security. 20. Cheating is an essential ingredient for an act to constitute an offence under Section 420." 53. The Apex court in V.Y. Jose & Anr. v. State of Gu....
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.... misused, to cause any wrongful loss or wrongful gain. Moreover, no 'customers' have filed any complaint or been made witnesses in the Complaint. 57. Section 120B of IPC reads as under: "120B. Punishment of criminal conspiracy. - (1) Whoever is a party to a criminal conspiracy to commit an offence punishable with death, 2[imprisonment for life] or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Code for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence. (2) Whoever is a party to a criminal conspiracy other than a criminal conspiracy to commit an offence punishable as aforesaid shall be punished with imprisonment of either description for a term not exceeding six months, or with fine or with both." 58. The offence under section 120-B IPC (which is also a PMLA scheduled offence) is also not made out in so far as the criminal intent i.e., agreement to do an illegal act as defined under sec.120-A IPC is not established. NSE has been involved in call-recording since 1997 through other vendors such as M/s Comtel, prior to ISEC being brought into....
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....u/s section 120B r/w 409 & 420 of IPC, 1860, Section 20, 21, 24 & 26 of Indian Telegraph Act, 1885, Section 3 & 6 of Indian Wireless Telegraphy Act, 1933, Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act,1988 and Section 69B, 72 & 72A of Information Technology Act, 2000 at EO-III, CBI, New Delhi against M/s iSec Private Limited and other accused including Sh. Sanjay Pandey, regarding illegal interception/monitoring of telephone calls of NSE employees." 61. The remand application filed by the ED dated 20.07.2022 also reads section 120B to be read with 420 IPC. The relevant portion reads as under: "2. The Central Bureau of Investigation registered FIR/RC bearing no. RC2212022E0030 dated 07.07.2022 inter-alia for the commission of offences punishable u/s section 120B r/w 409 & 420 of IPC, 1860, Section 20, 21, 24 & 26 of Indian Telegraph Act, 1885, Section 3 & 6 of Indian Wireless Telegraphy Act, 1933, Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act,1988 and Section 69B, 72 & 72A of Information Technology Act, 2000 at EO-III, CBI, New Delhi against M/s iSec Private Limited and other accused including Mr. Sanjay Pandey, regarding illegal interception/ m....
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....ts essential ingredients are: • that he should have been a public servant; • that he should have used corrupt or illegal means or otherwise abused his position as such public servant, and • that he should have obtained a valuable or pecuniary advantage for himself or for any other person." 66. As regards the offences under sec. 13(2) read with 13(1)(d) PC Act are concerned, which are PMLA Scheduled Offences, the same cannot be invoked since there is no allegation in the prosecution case of giving or receiving a bribe or illegal gratification. NSE is a private entity, thus no offences under section 13 of the PC Act, can be said to have been committed over the course of ISEC's contractual dealings with it. 67. This is a case where the NSE, which is a private company, engaged ISEC to perform a service. Payments were made in lieu of receipt of such services. ISEC duly showed amounts in tax returns and paid income tax on said income. Therefore, I find merit in the petitioner's submission that contractual compensation of Rs. 4.54 crores for services rendered cannot amount to a "pecuniary advantage" in terms of the PC Act. 68. No call record....
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....g grant of bail under section 45 PMLA has observed that provisions of PMLA would apply when a person has derived or obtained property as a result of a scheduled offence, and then indulged in any process or activity connected with such property. 76. Since I have prima facie given a finding that none of the ingredients of the scheduled offence are made out, the provisions of PMLA are not attracted. 77. I am of the view that in the present case, no scheduled offence is prima facie made out, concomitantly there cannot be proceeds of crime having been generated as there is no criminal activity relating to a scheduled offence. This position is in consonance with the dicta of Vijay Madanlal Choudhary (supra) where the Hon'ble Supreme Court held as under: "406.... The fact that the proceeds of crime have been generated as a result of criminal activity relating to a scheduled offence, which incidentally happens to be a non-cognizable offence, would make no difference. The person is not prosecuted for the scheduled offence by invoking provisions of the 2002 Act, but only when he has derived or obtained property as a result of criminal activity relating to or in relation to a s....