Back in 2017, several media reports emerged about the circulation of Unpublished Price Sensitive Information [Hereinafter “UPSI”] of about 12 listed companies in various private WhatsApp group chats. On 29th May, 2020, Securities and Exchange Board of India [Hereinafter “SEBI”] through its Adjudication Order imposed a penalty of Rs. 45 lakh and Rs. 15 lakh on Shruti Vohra and Parthiv Dalal, for circulating UPSI about Wipro Limited. Both violators used to work for the sales team of Antique Stock Broking and had purportedly shared sensitive data relating to the third-quarter earnings of certain listed entities, with a select group of investors, before it was disclosed publicly. This SEBI order was in pursuance of a marathon investigation involving multiple raids and seizure of about 190 devices and records. This order sets a new tone of precedent for insider trading since this penalty imposed was not on the basis of actual insider trading but, it was for the communication of UPSI via WhatsApp chat. SEBI could not trace the primary tipper of such UPSI in the present case owing to end-to-end encryption of chats, but the preliminary investigation made it clear that any attempt to even perpetuate such circulation of UPSI is sufficient to be penalised.
Balancing Act : Tracing Messages and Data Privacy
This case is a classic example of coexistence of SEBI’s insider trading framework and the Right to Privacy. In Sahara India Real Estate Corporation Limited and others v. Securities and Exchange Board of India SEBI was stated to be having unfettered powers immune to any other legislations, for enforcing the Securities framework in India since it was the sole authority. It is argued that such powers however wide, cannot be enforced in a manner which is against the basic constitutional principles like the Right to Privacy. SEBI’s insider trading framework does not have a balancing mechanism which takes into consideration the accused’s Right to privacy and the larger outlook of SEBI’s agenda to protect investor interests.
UPSI essentially means any information which is not published by the company and if published, will likely affect the market value of its securities. Section 12A (d) and (e) of the Securities and Exchange Board of India Act, 1992 bars any person from indulging in insider trading and dealing with securities while being in possession of unpublished information. Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations, 2015, prohibits any leakage of earning figures and other financial details about companies. There is another obligation to disclose such UPSI as mentioned in regulation 83 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Before proceeding further, remember the essence of this case is mere communications of UPSI and not actual trade.
SEBI Actions Justified?
Access to personal devices is considered a gross invasion of privacy in the United States (Riley v. California), but our precedents “carefully” tend to differ. Hon’ble Bombay High Court in Indian Council of Investors v. Union of India & Ors., while cautioning a possibility of misuse, has allowed for the power of SEBI to gain private information which is ‘specifically’ about the persons involved in any such investigation. This matter presided by Hon’ble Bombay High Court was dealing with access to CDRs, but the general takeaway for SEBI was that, it can well violate the Fundamental Right to Privacy for its investigation whereby it is assured to be ‘careful’.
Back in August 2018, Justice B.N. Srikrishna’s Committee Report on Data Protection had stated that disclosure of personal data in any manner should be in pursuance of a ‘specific and lawful purpose’. Section 11(1) of the Securities and Exchange Board of India Act, 1992, acts as a compulsory obligation on SEBI to protect investor interests and promote healthy trading. Keeping in mind the stringent framework around insider trading, the Indian Council of Investors guidelines and the broad objective of SEBI to protect the investor interests, we can reasonably argue that SEBI’s act was justified but is deeply problematic.
SEBI’s Missing Sense of Practical Arguments
Some practical arguments about UPSI circulated via chats have been comfortably ignored by SEBI. In the present case, SEBI has concluded that the UPSI published was not based on any market research and it was indeed a privileged information which was communicated to a select few. Now, practically, there is no guarantee that anything circulating on chats can be a valid reason for a trade to take place. SEBI has not proved that the same UPSI was used for actual trade and benefit. Their emphasis is merely on the alleged communication via WhatsApp which might have led to a potential trade, but clearly hasn’t. This order sets forth a new threshold which was never sought for, by implicating insider trading charges merely on chat irrespective of such UPSI coming to someone’s benefit. SEBI has not proved ‘mens rea’ of both alleged violators, through the nature of such exchange of messages, but in a hurry, it fastened the liability only on the moral hazard towards market. This means, if you are a member of any WhatsApp group whereby a ‘heard-on-street’ trade tip is passed off, SEBI can well classify you as an insider.
The Way Forward
Moving ahead, if remain unchallenged, this SEBI order can be a befitting precedent of fear for any gossip and speculations being shared on chats with no ulterior motives of profit. SEBI’s act of tracing chats and proving the liability this time was only fair given the insider trading framework and the absence of any balancing regulations in India. To conclude, this is a rather pure indication towards the legislature to fill this void of balancing legitimate interest of investors, their money, and the privacy and security of individuals. It is always better for SEBI to settle it once and for all, rather than getting into bittersweet battles every time a possible economic scandal makes headlines.
The author is a 4th Year B.A.-LL.B Student at Gujarat National Law University, Gandhinagar.
 SEBI, Adjudicating Order in respect of Parthiv Dalal and Shruti Vohra in the matter of Circulation of UPSI through Whatsapp messages with respect to Wipro Limited – BD/VS/2020-21/7823-7824 (Jul. 8, 2020), https://www.sebi.gov.in/enforcement/orders/may-2020/adjudication-order-in-respect-of-parthiv-dalal-and-shruti-vora-in-the-matter-of-circulation-of-upsi-through-whatsapp-messages-with-respect-to-wipro-limited_46741.html.
 Securities and Exchange Board of India Order concerning Sahara India Real Estate Corporation Limited and Others,, https://www.sebi.gov.in/sebi_data/attachdocs/1351500106870.pdf
 Securities and Exchange Board of India Act, 1992 [As amended by the Securities Laws (Amendment) Act, 2014] ( Jul.8,2020), https://www.sebi.gov.in/sebi_data/attachdocs/1456380272563.pdf.
 SEBI (Prohibition of Insider Trading) Regulations, 2015 (Jul.8,2020), https://www.sebi.gov.in/legal/regulations/jan-2015/sebi-prohibition-of-insider-trading-regulations-2015-issued-on-15-jan-2015-_28884.html.
 Securities And Exchange Board Of India (Listing Obligations And Disclosure Requirements) Regulations, 2015 (Jul.8,2020), https://www.sebi.gov.in/sebi_data/attachdocs/1441284401427.pdf.
 K.S. Puttaswamy v. Union of India, (2018) 1SCC 809
 India Const. art 21.
 Riley v. California, 573 U.S 373 (2014).
 Indian Council of Investors v. Union of India & Ors ,(2014) 123 CLA 267.
 MEITY Govt of India, A Free and Fair Digital Economy – Protecting Privacy, Empowering Indians, Committee of Experts under the Chairmanship of Justice B.N. Srikrishna (Jul.8,2020), https://meity.gov.in/writereaddata/files/Data_Protection_Committee_Report.pdf.
 Supra note ii.