The strange case of Sanjay Pandey, IPS officer who ran his own firm

ED's questioning may reveal some truths about one of the biggest scams in corporate governance India, but it will also shine a light on relations between the police and Maharashtra government

Maharashtra is rapidly becoming the killing fields for the careers of officers from the Indian Police Service (IPS). Senior retired IPS officers hold back from saying that Maharashtra is the worst state in terms of political pulls and pressures, but concede that it is a very difficult environment to work in.

However, there is cautious ‘no comment’ on Sanjay Pandey, a software engineer by training who joined the IPS; “quit” it; amazingly, rejoined it; launched his own business somewhere along the way, and is now in Enforcement Directorate (ED) custody on charges of money-laundering in the National Stock Exchange (NSE) co-location scam that saw several NSE officials including MD Chitra Ramakrishna also in prison on the same charge.

The case is in court and the outcome cannot be pre-judged. But ED’s charge is that Pandey’s company, ISec Securities Private Limited, that was set up in 2003 and describes itself as an information security consulting company, helped NSE officials tap employee telephones. How tapping phones helped perpetrate the co-location scam is not clear.

What was the co-location scam and what was Pandey’s role in it? The co-location story was broken by well-known financial journalist Sucheta Dalal in 2015, on the basis of a letter from a whistle-blower, known only as “Ken Fong”.

Co-location is a system of trading that enables a market participant to place his server next to the exchange server rack, allowing him to execute orders and get exchange price feeds before the others. The other mode of trading involves a leased line, multiprotocol label switching, internet, computer-to-computer link, etc. Those few seconds or minutes gained via swift co-location access can help traders make millions. NSE set up co-location facilities during 2009-13, allowing brokers to use it for a fee. It turned out to be a cash cow.

Until Ken Fong’s allegations surfaced and market regulator Sebi stepped in to investigate the charge that NSE had enabled some brokers to gain access unfairly over others. When Dalal reported Ken Fong’s allegations, NSE filed a defamation case against her that it was forced to withdraw. In the meantime, Pandey had already floated his company and Sebi asked Pandey to investigate the National Securities Depository Ltd (NSDL) in 2005. NSDL is a subsidiary of NSE. NSE itself had asked him to be part of an investigation committee with regard to a trading glitch, Dalal says.

But Pandey’s company’s role in the affairs of the NSE apparently went beyond that. ED claims he has told them he did tap phones of NSE employees at its request. But the equipment was all provided by NSE.

Pandey joined the police force in 1986 as Assistant Superintendent of Police (ASP) and was promoted to the position of Superintendent of Police (SP) in 1990. He was posted as Deputy Commissioner of Police (DCP), Zone 8, in Mumbai’s Dharavi when he handled the post-1992 riots. His work was commended by Amnesty International for absence of bias.

Later, Pandey was posted in the Economic Offences Wing of Mumbai Police. He stepped on many toes and was allegedly transferred to Jalna due to his investigation into scams involving a former Sheriff of Mumbai and powerful businessmen-politicians.

 It was not the posting that irked Pandey, it was political interference, and he took a sabbatical at the Kennedy School of Government, Harvard (1998 - 1999). He also interned at the Kennedy School Computer Lab and Harvard Student Agencies as a software engineer. It is possible that this gave him the idea of setting up an IT security company. He initiated a soft landing by ‘resigning’ from the service in April 2000 and became Global Head, Cyber Security Practice at Tata Consultancy Services. He alleged that he was forced to do this because of political interference in postings.

This is the crux. His resignation was not accepted. The state government put him on extraordinary leave for almost three years. Then, Pandey petitioned courts and the Central Administrative Tribunal (CAT) asking that if his resignation was not being accepted he should be taken back in the force. He was: But once again, sidelined for promotions. He should have become Director General of Police (DGP) in 2017, but the state government –led by the Bharatiya Janata Party (BJP) at the time - took a series of steps to ensure he was put out of contention.

Maharashtra is a “snake-pit of corruption,” says retired police officer Yashovardhan Azad, where lobbies of real estate developers have replaced the traditional nexus of smuggling, as gold is no longer as lucrative, though drug smuggling continues. IT crime has become more sophisticated. He hastens to add that it is not just Maharashtra but states like Karnataka and West Bengal as well: “In places like Bengaluru, pressure is very high. There are huge issues…huge. Every day something or other comes up... and the direction is given by politicians. The departments of mining, transport and excise are the most ‘lucrative’,” he says.

 In the circumstances, choices for police officers, especially in the top echelons, are limited. The travails of top Maharashtra cop Param Bir Singh are well known: he retired on 1 July but after a protracted struggle with the Maharashtra Vikas Aghadi (MVA) government and while still being suspended from the force. A junior police officer, Sachin Vaze, had claimed a minister in the government, Anil Deshmukh, had set a target of Rs 100 crore for Vaze via extortion and that his seniors including Singh knew about this. The mystery around an explosives-laden vehicle parked outside the residence of Mukesh Ambani is yet to be resolved.

As the controversy swirls, Pandey’s questioning will bring up the truth in one of the biggest scams in corporate governance India has known in recent times. But it will also shine the light on relations between the police and the state government.