TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 454
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....edi; (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 Sections 120-B read with 409 and 420 of the Indian Penal Code, 1860 ("IPC") and Sections 69B, 72, 72A of the Information Technology....
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....act 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 safety requires the taking of such action) of any telegraph established, maintained or worked by any person licensed under this Act. (2) ....
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.... 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 as the device of the applicant is not a telegraph. (v) He further states that the offence under Section 21 of the Telegraph Act is not attracted as no 'telegraph' has been used to tr....
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....f 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 NSE, which is a private company, engaged ISEC to perform a service. Payments were made in lieu of receipt of such services. It is not the case of the prosecution that the contract was entered into to provide a 'pecuniary advantage' to....
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.... 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. SEBI in the past has taken several steps to tackle the menace of "Unauthorized Trades" viz Periodic Running Account Settlement, Post transactions SMS/email by exchanges/Depositories, Ticker on broker/DP websites etc. It was observed that in spite of measures taken, a considerable proportion of investor complaints i....
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....thorised 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 under. i. Brokers are required to maintain the records specified at para III of aforementioned circular for a minimum period for which the arbitration accepts investor complaints as notified from time to time, currently three years. However in cases where dispute has been raised, such records shall be kept till final resolution of the dispute. ii. If SEBI desires that specific records be preserved then such records shall be kept till further intimation by SEBI. iii. Th....
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....ation 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 Interface (PRI) lines which are connected to the voice logging system. Investigation has revealed that the PRI lines coming from the service provider were split into two with the help of a splitter. Out of these two lines, one went to the EPBAX and the other went to the Voice Logging System. Therefore, the tapping was done prior to the line entering the EPBAX at the stage of PRI line coming from MTNL itself which is a clear breach of the Telegraph Act in terms of Section 20 read with section 4 of the Telegraph Act apart from Section 25(b). 19. As pe....
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....d 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 that it was decided between iSec Services Private Limited and Nexsus Techno Solutions Private Limited for customization of the product which would enable the employee of the company deployed at NSE to choose which lines would be recorded and which won't and also to show the NSE higher-ups which lines are being recorded and which were completely secure. During the brief period in 2012-2013, when the call monitoring work was suspended for a brief period, he was regularly exhorting his employees for resumption of the said work. He held regular meetings with NS....
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....s 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 and to the public and that it was not enough to show that the deception was intended to secure advantage to the deceived. This decision as well as some other decisions referred to by learned counsel are therefore distinguishable for the same reason which distinguishes Sanjiv Ratanappa Ronad's case from the one before us. We are, therefore, of the view, that the offence of cheating has been established." 21. He states that the Information Technology Act is also breached as there is a violation of Sec. 69B(2) read with sub-section 4 since ISEC is not an authorized agency....
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.... 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 cognizable and the Hon'ble Supreme Court in Vijay Madanlal Chaudhary &Ors. vs. Union of India & Ors. 2022 SCC OnLine SC 929 at Para 406 has held as under: "406. It was urged that the scheduled offence in a given case may be a non cognizable offence and yet rigors of Section 45 of the 2002 Act would result in denial of bail even to such accused. This argument is founded on clear misunderstanding of the scheme of the 2002 Act. As we have repeatedly mentioned in the earlier part of this judgment that the offence of money-laundering is one wherein a person, directly or indirectly, attempts to indulge or knowingly assi....
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....lled 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 as a natural right. It is inalienable and attached to every individual as a pre-condition for being able to exercise their freedom. The Apex Court held that "Privacy is a concomitant of the right of the individual to exercise control over his or her personality. It finds an origin in the notion that there are certain rights which are natural to or inherent in a human being. Natural rights are inalienable because they are inseparable from the human personality. The human element in life is impossible to conceive without the existence of natural rights..." The Supreme Court also discussed the right to privacy with respect to protec....
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....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. Section 72 of the IT Act reads as under: "72. Penalty for breach of confidentiality and privacy Save as otherwise provided in this Act or any other law for the time being in force, if any person who, in pursuance of any of the powers conferred under this Act, rules or regulations made thereunder, has secured access to any electronic record, book, register, correspondence, information, document or other material without the consent of the person concerned discloses such electronic record, book, register, correspondence, information, document or other material to any other person shall be punished with imprisonment for a term which may extend to two years, or with fine which may extend to ....
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....ality 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 induce or deceive NSE to part with money. Section 409 IPC reads as under: "409. Criminal breach of trust by public servant, or by banker, merchant or agent.-Whoever, being in any manner entrusted with property, or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with 1[imprisonment for life], or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine." 47. For an offence of criminal breach of trust under section 409 IPC to have been committed, the following ingredients need to be satisfied: ....
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....ust 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 Gujarat, (2009) 3 SCC 78 observed the pre-requisites for determining offence under Section 420 IPC and more particularly, paragraph 14 which reads as under: "14. An offence of cheating cannot be said to be made out unless the following ingredients are satisfied: (i) deception of a person either by making a false or misleading representation or by other action or omission; (ii) fraudulently or dishonestly inducing any person to deliver any property; or to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which would not do or omit. For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise of representation. Even in a case where allegation....
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....o 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 the picture to analyse recorded calls. Since call recording was being done prior to the arrival of ISEC, there is no criminal conspiracy entered into between ISEC and NSE with the intention of committing an illegal act, namely, call recording. Thus, the element of criminal intent is not made out in the present case and no offence under section 120 B read with 409 and 420 IPC is established. 59. In addition, even though 120B IPC is a standalone scheduled offence under PMLA, in the present case, the offences under section 120B is alleged along with section 409 and 420 IPC. It has been stated in para 3 of the Prosecution Complaint that 120B is read with 420 IPC: "3. Brief facts of the offence/ allegation/ charge/ amount involved under PMLA: a. That an investigation under PMLA was initiated vide F. No. ECIR/DLZO-I/28/2022 in Enforcement Directorate, Delhi Zone-I and is under investigation i....
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....ion 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/ monitoring of telephone calls of NSE employees." 62. In fact, the ED whilst seeking further remand custody of the applicant has stated under para 4 that 120 B is read with 420 IPC: "4. 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/ monitoring of telephone calls of NSE employees." 63. Hence, prima facie, for the reasons stated above, ingredients of section 120B read with section 409 and 420 IPC have not been ma....
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....ompensation of Rs. 4.54 crores for services rendered cannot amount to a "pecuniary advantage" in terms of the PC Act. 68. No call recordings were ever entrusted to the Applicant on account of his capacity as a 'public servant'. The Applicant was a director of ISEC only from 2003 till 17.05.2006. After resigning, his role was peripheral and supervisory in nature. 69. At the time the NSE entered into a contractual relationship with M/s ISEC in 2009, the Applicant was not holding public office. Thus, under no circumstances can an offence under section 13(1)(d) of the PC Act be alleged to have been made out. It was subsequently on account of ISEC's successful and satisfactory performance, that NSE was pleased to periodically renew ISEC's contractual mandate. 70. After December 2011 (viz. when the Applicant was finally reinstated as a public servant), he has received rental income from ISEC. Post 2011, the Applicant has not received any emoluments from ISEC. Payments received have largely been on account of rent paid to the Applicant. Thus, the applicant has not received any pecuniary advantage. 71. Nothing has been produced before me to demonstrate that the Applicant employed any c....
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....ed or obtained property as a result of criminal activity relating to or in relation to a scheduled offence and then indulges in process or activity connected with such proceeds of crime. Suffice it to observe that the argument under consideration is completely misplaced and needs to be rejected." 78. Since none of the ingredients of the scheduled offences viz., Section 72 IT Act, Section 120B r/w 409 and 420 IPC, Section 13(2) read with 13(1)(d) PC Act are made out, there is no occasion to allege acquisition or retention of 'proceeds of crime', which under Section 2(u) of PMLA is defined to mean proceeds arising out of 'scheduled offences.' 79. In view of the above discussion, the Applicant cannot be held to have derived or obtained property as a result of criminal activity relating to or in relation to a scheduled offence. 80. Reliance is placed on Vijay Madanlal Choudhary (supra)wherein the Hon'ble Supreme Court has held that: "388. ...The successive decisions of this Court dealing with analogous provision have stated that the Court at the stage of considering the application for grant of bail, is expected to consider the question from the angle as to whether the accused was....