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TMI Blog2015 (9) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... mpted this action at all. Except where it is shown that the article complained of is facially defamatory, that is to say, it is prima facie intended to defame or libel, an injunction will not readily be granted. Every criticism is not defamation. Every person criticized is not defamed. We forget that it is these persons we are so wont to mock who are, truly, the watchdogs of our body politic, the voice of our collective conscience, the sentinels on our ramparts. They may annoy. They may irritate. They certainly distress and cause discomfort. That is not only their job. It is their burden. Watchdogs respond to whistles and whistles need whistleblowers; and between them if they can ask what others have not dared, if they can, if I may be permitted this, boldly go where none have gone before; if they can, as they say, rattle a few cages, then that is all to the good. Neither of our principal stock exchanges are strangers to scandal; no matter what the NSE may think of itself, and even if Dr. Tulzapurkar insists that the past is the past and irrelevant today, public memory is not that short. The scams that beleaguered our exchanges in the past, and those that continue to occupy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . JUDGMENT 1. This is an application for injunction in a defamation action brought by the National Stock Exchange ( NSE ), one of the two premier Stock Exchanges of this country. The NSE complains that an article published on 19th June 2015 by Defendants Nos. 2 and 3, Ms. Sucheta Dalal and Mr. Debashish Basu, on their online news and analysis journal or website moneylife.in, is per se defamatory. Ms. Dalal is the Managing Editor of Moneylife; Mr. Basu is its Executive Editor. Their article accuses the NSE of actively permitting, in circumstances that I will describe in somewhat greater detail shortly, illicit trading advantages being afforded to a 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is investigation. [Emphasis supplied] 16(i) For several months, I shared the letter with key market-players and investigators to find out more; but the NSE operates like a fortress and outsiders had no details. (ii) Nobody we spoke to was surprised to know that the system was manipulated and each one speculated about the likely beneficiaries; but no proof was forthcoming. (iii) The reason for this is best explained on the jacket of Michael Lewis's book Flash Boys. It says Now, the world's money is traded by computer code, inside black boxes in heavily guarded buildings. Even the experts entrusted with your money don't know what 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, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f scale, more advanced infrastructure, lower latency (lag times), upgraded system security and so on. In the present variant, I understand the complaint in the anonymous letter to mean that the NSE permitted, for a significant rental, premium co-location access. This is allowed at a very high premium to persons or entities engaged in high volume and high value transactions. It is, in my understanding of it, intended to be nothing more than a convenience (Co-location service offerings and details are available on the NSE website.). Where the co-location server is allowed to be installed at a subscriber's or renter's premises, this is, if I might be 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 ant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SE then apparently had limited servers with unbalanced loads, and this in turn generated what is called a latency (the time required for transmission of data packets) for the last user. At the time, this gave the first mover (or connector), who accessed a server then least loaded with traffic, the fastest access; those downstream had to deal with increasingly burdened servers as more and more persons connected, with a corresponding increase in latency. Switching on servers ahead of time allowed some to gain an advantage and a priority. To mitigate this, the NSE took steps to balance its server loads and to more evenly distribute them. Technically, the letter 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 acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To begin with, I believe this paragraph is yet another attempt at misdirection. Curiously, the anonymous letter seems to presage or anticipate precisely such a response. The last paragraph on page 4 of the letter (Motion paperbook, p. 84) deals exactly with these fractional time frames and in terms alleges that 50 micro-seconds are all it takes to effect the illicit trade. The question is also not of a person ensured a particular position in a port queue; the issue is of certain entities being among the early-birds to connect to the server at low-load and low-traffic times to ensure minimal latency and fastest data inflow. The anonymous letter specifically 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 adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as to character, conduct or professional behaviour. Newspapers are no exception. They have no special right or privilege in civil law, and I am mindful of the fact that while the Defendants have attempted to place this in the context of a fundamental right to freedom of expression and Constitutional guarantees, that is not my direct remit in a civil suit, though Courts seem to have often juxtaposed the two concerns. If the imputation or the conclusion remains unwarranted by the facts, it cannot be fair comment. The Defendants must show, to claim a qualified privilege, that they had some duty public or private, legal, moral or social to their intended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 2015. What is it that Ms. Dalal and Mr. Basu did in that time? Did they merely sit silent for all those months and come out with the article without any further acts? The plaint is curiously silent, though it could not possibly have been. Ms. Dalal in her note and in her Affidavit in Reply points out that after she received the anonymous letter she did make enquiries with various regulators, Stock Exchanges, and traders. She does not provide details of these. Dr. Tulzapurkar says that this is the information that ought to have been disclosed. Maybe so. However, there is other material that Ms. Dalal has disclosed but the Plaintiffs have not though, in my 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquires significance only for this limited purpose: Ms. Dalal's query to Mr. Ravi Narayan and Ms. Chitra Ramakrishan was no idle accusation. She had then not gone to press with her article. She took the trouble firstly to make her own investigations, and then specifically to solicit the views of the two persons who manage and run the NSE. I do not believe she was duty-bound to do more. She had with her a damning letter, albeit anonymous, but one that contained a welter of detail that could not be denied and that, on my reading of it, certainly calls for a response, irrespective of the source. To decry this as the handiwork of a disgruntled individual 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g investigated, and this is being done at the highest possible level, including the chairman of SEBI. Some of this material is appended to the note and to the Affidavit in Reply filed by Defendants Nos. 2 and 3.( Exhibits J and K to Mr. Basu s compilation.) 19. What of the duty that Wadia J alluded to, and what of the material that is required to be placed to substantiate justification? As a responsible journalist, one who is not some sensationalist muck-raker, Ms. Dalal certainly had and has a duty to the common investor, the everyday trader. That is her social and moral duty. But she also has a perhaps more profound ethical duty, and that is to 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roats of public the NSE is meant to serve. The NSE is after all a public institution and it is in some sense or the other a custodian if not of public funds then at least of an undeniable public trust. This demands, I think, the most complete transparency, accountability and openness in its actions, dealing and operations. I include in this its duty to respond in a measured fashion to a question that has been placed in a measured fashion. It has no duty to respond to a wild or reckless allegation. But when a person, having made some enquiries, and herself having something of an established track record, makes a politely worded and pointed enquiry, not to respond 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who asserts privilege to prove it. But where there is a factual demonstration of sufficient steps being taken to ascertain the 'other side of the story' and this opportunity, when presented, has been ignored, no more can be expected if it is also shown that the article when published was not unreasonable in its content, tone and tenor. This decision gave us the 'Reynolds defence', one that can be raised where it is established that the journalist in question had a duty to pubish an allegation even if it ultimately turned out to be wrong. The fact that this has now been abolished by a subsequent statute in England is I think immaterial to 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even pointed criticism or criticism that is harshly worded; nor should it be allowed to choke a fair warning to the public if its interest stands threatened in some way. It is to me a matter of very great dismay that the NSE should have attempted this action at all. Except where it is shown that the article complained of is facially defamatory, that is to say, it is prima facie intended to defame or libel, an injunction will not readily be granted. Every criticism is not defamation. Every person criticized is not defamed. 25. Defamation law is not to be used to gag, to silence, to suppress, to subjugate. Ms. Dalal and Mr. Basu are I think correct generally 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 appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of our principal stock exchanges are strangers to scandal; no matter what the NSE may think of itself, and even if Dr. Tulzapurkar insists that the past is the past and irrelevant today, public memory is not that short. The scams that beleaguered our exchanges in the past, and those that continue to occupy the time of this Court have at least in part come to light because of persons like Ms. Dalal and her fellow travellers. If regulatory agencies have been compelled to make changes, and if our own Supreme Court has felt it necessary to step in with drastic orders, it is because every oversight process has either failed or been subverted. The Plaintiffs are 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or less for granted that our Courts are too easily cowed by self-congratulatory assertions and overblown claims of rectitude to even consider refusing their claim. This is an approach that must be deprecated, and there is only one way to do that when dealing with an institution like the NSE. I intend to award costs in two parts. I am aware that as a matter of law, the second of these is one that is normally not done and is perhaps even frowned on. There are, however, in my view exceptional circumstances in which an action that is entirely and deliberately mala fide in its intent ought to receive an award of costs, if nothing else then at least as a matter of conveying to such a Plaintiff that Courts do not view these matters lightly. To any protest that an award of costs is unjustified because these costs represent 'public funds', the answer is simply that so do the considerable legal costs and court fees incurred by the NSE. Our Courts are not to be treated as playgrounds for imagined and imaginary slights for those who command considerable resources. 29. There will be an order of costs in the amount of ₹ 1.5 lakhs each in favour of Ms. Dalal and Ms. Basu separate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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