Behind The Mystery Surrounding The NSE Phone Tapping Case
Nearly four years had passed after the Central Bureau of Investigations (CBI) registered its first information report in 2018 in the co-location trading scandal at the National Stock Exchange (NSE). The premier investigative agency had failed to make any headway in the co-location matter due to lack of sincere efforts. But the sleuths were forced into action as the case gathered steam on the back of outlandish confession by NSE's former MD and CEO Chitra Ramkrishna, who when caught passing crucial exchange information to an outsider, said she was giving it to a mystic Himalayan Yogi since he was helping her run the exchange. Following Ramkrishna's clumsy slip-up during her interrogations by market regulator SEBI, when the CBI officials landed at the NSE premises in Mumbai for a search, they found records of the exchange having disposed-of an automatic voice recording machine in 2019 as E-waste. This fuelled the narrative of illegal phone tapping at NSE.
The machine was supplied to NSE by ISEC, a company promoted by IPS officer and former Mumbai police commissioner Sanjay Pandey, a techie. The CBI came across details of payments by NSE to ISEC, for transcribing telephone calls located within the exchange premises. Pandey had started this company when he was out of public service. As a digression from the co-location scandal and unmasking the real face behind Ramkrishna's mysterious Yogi, the CBI in July 2022 booked Pandey for illegally tapping phone lines inside NSE premises since 2009. Next came the Enforcement Directorate (ED). Moving in swiftly and wieding the law with an iron fist, the ED arrested Pandey on money laundering charges for benefiting from ISEC's professional fees, which two of India's prime investigative agencies presumed was through the alleged act of illegal phone tapping at India's largest stock exchange. But was it a conspiracy as big as was made out?
A meticulous research and study of the court documents, in possession of BW, reveal that NSE was in the habit of recording internal phone lines at its BKC headquarters since 1997, more than a decade before Pandey's company ISEC came into the picture.
A document trail and court observations
Documents show that NSE had first given a contract to install a digital voice recorder (DVR) system inside its premises in 1997 to a M/s. ComTel (the name of the company itself is a testimony that it was involved in telecom equipment related work) with a view to record phone lines. Original copy of the initial approval by NSE for the installation of a 16 port DVR set-up at a cost of Rs 4,08,500 was signed by Ramkrishna and her subordinates Bhupesh Mistry, Mahesh Haldipur and SB Thosar. Not only NSE, but ComTel had even supplied DVR equipment in 1998 for the National Securities and Clearing Corporation (NSCCL), the trade clearing and settlement arm of the NSE. The approval for the same had signatures of NSE's then MD Ravi Narain along with Mistry, Haldipur and Thosar. Later, ComTel had also installed AVR systems to tap NSE phone lines. From 1997 up to 2009, ComTel won several such contracts from the NSE for installation of systems, some of which could record the phone lines and for which huge money was paid to the company.
Yet, the CBI and ED's suspicion fell only on ISEC and Pandey and he was made a kingpin of the phone tapping scandal at the NSE, shortly after he retired as city police chief in 2022. The agencies alleged that ISEC illegally intercepted the MTNL lines at the NSE between 2009 and 2017 and recorded calls of various NSE officials. CBI alleged that ISEC was monitoring and analysing such calls and sending periodic reports to the NSE, which was an offence. Although ISEC was providing cyber security related services, the ED termed the revenue of Rs. 4.54 crores generated by ISEC through its legitimate contract as the proceeds of crime and made out the case of money laundering. This was in stark contrast where the investigative agencies have failed to act in the co-location case against researchers who were extracting data from the NSE on 'fake contract papers' that had no date, sign or stamp.
But what did the court observe?
In the bail order of Pandey in the ED case, justice Jasmeet Singh of the Delhi High Court said, "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. Until 2012, such call-recording took place via a system installed by one M/s Comtel."
CBI alleged that ISEC illegally intercepted MTNL lines at NSE between 2009 and 2017. Previously, the Supreme Court judgement had held that phone-tapping or wiretapping is an invasion of privacy under Article 21 of the Constitution. The Indian Telegraph Act and Indian Wireless Telegraphy Act deal with tapping and recording phone calls without consent. But ISEC was recording phone lines owned by NSE inside its premises under a contractual agreement with the exchange. A diagram attached by the CBI in its charge sheet showed that phone lines were being recorded at NSE's private set-up known as EPABX room and not the room with MTNL connections.
The court observed that invocation of Sec. 72 of the IT Act is only limited to breach of confidentiality and privacy, which offence was not made out (by the agencies). As per a circular by market regulator SEBI, even stock brokers are required to record all their phones where conservation happens with clients and the same has to be preserved.
Further, the court observed that for an offence of cheating to establish, there must be a dishonest intent to cause a wrongful loss or wrongful gain or an intention to defraud. "In the present case, there was a business arrangement between ISEC and NSE by virtue of a contract under which the entire work was being executed. 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."
Moreover, the court also observed that ISEC duly showed amounts in tax returns and paid income tax on said income. "Therefore, I find merit in submission that contractual compensation of Rs4.54 crores for services rendered cannot amount to a "pecuniary advantage" in terms of the PC Act.(prevention of Corruption Act). No call recordings were ever entrusted to Pandey on account of his capacity as a public servant," Justice Singh observed.
An investigator-par-excellence, how Pandey made powerful foes
A 1986-batch Indian Police Service (IPS) officer, Pandey graduated from IIT-Kanpur (1979-1983) where he completed his Bachelor of Technology in Computer Science. When the stock markets were rocked by the multi-crore fake demat accounts scam in 2006 at National Securities Depository Ltd (NSDL), the then SEBI chief M Damodaran roped in Pandey to investigate the technology lapses at India's largest share depository. Pandey was meticulous in detailing the procedural and technology lapses at NSDL. His report, which was crucial evidence of NSDL's hollow and mediocre standards, was so incriminating against the depository that it got suppressed with the brutal force of politico-bureaucratic nexus. A few privy to the NSDL investigations say that Pandey was stonewalled in his probe by those in the upper echelons of power amidst absolute lack of cooperation by NSDL's top management that enjoyed a strong backing from then finance minister P Chidambaram.
As a DCP in Mumbai in 1997, Pandey took on his political bosses, when entrusted with investigations into the Shoe Scam or the Cobbler Scam, where hundreds of crores of Rupees meant for cobblers was siphoned off by politicians, bureaucrats and shoe manufacturers. While he was still probing the scandal and getting close to the key culprits, Pandey was transferred outside of Mumbai city. When on central deputation, Pandey served in PM Atal Bihari Vajpyee's special protection group (SPG) tasked with the PM's security. Pandey launched ISEC when he remained shunted out of police force and returned to job when the courts granted him relief, post a long battle against the Maharashtra state government.
Pandey's long list of enemies only grew as he was appointed as the Mumbai police commissioner in 2022, as he was the senior most IPS officer in Maharashtra. He was tasked with investigating a high profile case involving another powerful IPS officer, who had levelled charges of corruption against former Maharashtra Home Minister Anil Deshmukh. Pandey was instrumental in filing FIRs and conducting enquiries against his predecessor, who was the Mumbai police commissioner during the bomb scare incident outside billionaire Mukesh Ambani’s multi-storey home. Under Pandey's tenure in 2022, before he was arrested in the NSE phone taping case, the Mumbai police also registered a slew of FIRs against powerful politicians for misappropriation of public funds and alleged bank frauds.
"June 1 is your time, July 1 will be ours," a powerful Mumbai politician had told Pandey, just a month before his retirement from the police force and subsequent arrest in the NSE phone taping case.
Pandey got bail from the Delhi High Court but his case has lingered in the higher courts.
