Devangshu Datta: The other victims of defamation

In cases where the interests of a large number of shareholders are involved, there is every reason to seek very quick legal resolution

Several recent high-profile defamation cases suggest that the laws of defamation are now being used to throttle the flow of corporate information. For example, the Sahara group initially blocked the publication of Tamal Bandyopadhyay's Sahara: The Untold Story. (The book was later released after an out-of-court settlement.)

Jitender Bhargava's book, The Descent of Air India, also ran into a defamation case filed by former civil aviation minister Praful Patel. Gas Wars: Crony Capitalism and the Ambanis, by Paranjoy Guha Thakurta, Subir Ghosh and Jyotirmoy Chaudhuri, has also been targeted for legal action. Infosys has filed defamation suits against several media publications.

Defamation is a concept that is easy to intuit but difficult to define in bulletproof legal ways. Somebody (a corporate entity, an individual, a religious group, a race, a nation, etc) feels a loss of reputation is suffered due to a false statement (or statements) being put into the public domain. That "somebody" can sue for defamation to have the controversial content removed, and to claim damages. To add to the confusion, defamation can be a criminal offence as well as a civil offence, and two actions could run concurrently for the same content.

The "victim" of defamation can set a monetary value to damage caused, while filing a suit. In the cases referred to above, Sahara assessed the defamation damage at Rs 200 crore and Infosys has assessed damages at a whopping Rs 2,000 crore. These are self-assessments. Courts may not concur with the assessments. But the numbers induce a fear factor in defendants.

Defamation suits are accompanied by orders to remove controversial content for an indeterminate period, while the case winds through the legal system. Even if the case is dismissed, and the content made freely available again, this means price-sensitive information may be pulled out of the public domain for critical periods. As a result, huge losses could be suffered by shareholders.

The laws are complex and I am certainly not competent to make judgements about the merits of specific defamation cases. But there are some broad principles involved. The defendant is in the clear if he or she can prove that the specific content is substantially true and that it is fairly presented.

There is also the question of public good and the weighing of the interests of different entities. The interests of one entity - say, the promoter of a business - may be hurt by some content being made public. But that promoter's interests could be outweighed by the interests of shareholders and stakeholders in the same business.

In corporate defamation cases, the interests of multiple stakeholders and shareholders will always be involved. Reliance and Infosys, for instance, have large shareholder bases. If a defamation case involves a government department or a public sector undertaking like Air India, public monies and/or national interest are also involved. In the case of Sahara, the para-banking operations were used to raise money from the public at large - again, that means wide public interest.

The cases cited have so far targeted content generated by journalists, writers and media organisations. The same laws could also target advisories from financial institutions. Financial institutions analyse quarterly results and issue advisories. If a financial institution recommends that its clients exit a given company, that company may sue for defamation to prevent the adverse report being widely disseminated.

Given these possibilities, the laws on defamation may well require review and fine-tuning. But, far more urgently, in cases where the interests of a large number of shareholders or of taxpayers are involved, there is every reason to seek very quick legal resolution.

One prerequisite for a healthy business environment is fast and even dissemination of corporate information into the public domain. Defamation cases throttle information flow. If the case for defamation is upheld, the content should be swiftly expunged. If the case is dismissed, the content should be put back into the public domain as soon as possible to ensure that the interests of shareholders and stakeholders are not harmed. Either way, waste as little time as possible.