The apex court also said that it would consider whether the court was "helpless" in framing guidelines in the absence of a regulatory regime in place to deal with the issue.
During the day-long hearing, WhatsApp, which was acquired by Facebook in 2014, claimed before the apex court that it was being "targeted" because it was the most successful among various similar platforms operating in India.
When the court was told that WhatsApp only shares phone numbers, device ID, registration details and the last seen status, the bench shot back, "Why do you share? You were not sharing it in 2012, then why have you done it in 2016?"
"You say the name is not shared but the attributes of identity is shared. What is the need to share the attributes of identity? Now they (users) fear what you will share," the bench said.
Advocate Madhvi Divan, appearing for two students Karmanya Singh Sareen and Shreya Sethi who have challenged the policy, told the bench that the Centre has acknowledged in its affidavit that the regulation in place has been outdated by the technology.
"You (Centre) have said you are making a regulation on this. Till then, as a citizenry, what is the protection," the bench, also comprising Justices AK Sikri, Amitava Roy, AM Khanwilkar and MM Shantanagoudar, asked the government.
"Suppose somebody has written an inland letter to X. Can Y intervene and read it? They feel your privacy clause affects their right to freedom of speech. They say fear corrodes their right," the bench observed.
At the outset, the bench was informed that senior counsel Harish Salve, who was to argue for the petitioners, was in the Hague to represent India in the Kulbushan Jadhav matter before the International Court of Justice (ICJ).
The bench then asked senior advocate KV Vishwanathan, representing the Internet Freedom Foundation (IFF), an intervenor in the case, to start the arguments.
He said that unlike several other countries, India does not have any data protection legislation and the government has an obligation to protect the rights of its citizens.
"Life of fear, anxiety, tension and torture is not a free life. This court is not powerless to lay out a guideline for this," he told the bench, which would continue hearing the matter tomorrow.
Senior advocate KK Venugopal, appearing for Facebook, told the bench that "message conveyed by A to B on WhatsApp is never seen by anybody. At no time, it will be available to perusal by anybody else as it is end-to-end encrypted."
During the arguments, Divan told the court that Facebook and WhatsApp are foreign corporations having business all over the world and in some other countries, they have said they would not share the user data.
"It is ironical that in India that too before the Supreme Court, which is the highest court of the land, they are saying so," she said.
When the bench asked the Centre to clarify its stand over the issue, senior advocate Vibha Datta Makhija, appearing for the government, said all the rights available to the citizens should be balanced.
Vishwanathan argued that there was the issue of metadata in the matter as one can make out a pattern by reading out the messages exchanged in the WhatsApp groups. Metadata is a set of data which describes and gives information about other data and is collected automatically.
"They (WhatsApp) are targeting us (users) by exploiting the data for commercial use. Without we being aware, several people will get to know about my health, my sexual preferences and other things which I don't want others to know," he said.
"WhatsApp is now a Facebook family company. WhatsApp admits that Facebook will use WhatsApp messages. They are saying they have taken the consent of their users but the court will have to see whether this consent is valid in the eyes of law," he said, adding that such service providers cannot make inroads into the fundamental rights of citizens.
He also referred to an order passed by data regulatory authority in Germany's Hamburg which had directed WhatsApp not to share the data of users.
"The moment you are using Google, everything is available based on the search you make. This may not be an issue related to WhatsApp only. There has to be other service providers also. Is somebody forcing you to have it," the bench said.
The apex court further observed, "basically your identity which was restricted to WhatsApp till now, is used for Facebook or its family for commercial purposes. Whether individuals identity is liable to be shared for commercial exploitation? That is an issue."
However, Luthra maintained that no one can access the messages shared between A to B on WhatsApp as it is end-to-end encrypted.
Senior advocate Kapil Sibal, representing WhatsApp, told the bench that despite having billions of users in the world, no complaint has been made ever that any part of encrypted messages has been accessed by anybody.
"If anybody protects privacy in this country it is WhatsApp. It is better than the 'Bhim' app which has been launched by the government," he said.
During the hearing, Divan said that operation of WhatsApp here was subject to the Indian law and their business model is like an "economic espionage".
The bench was also told that the existing machinery was not adequate to deal with the situation and the government must come out with a proper legislation.
The Centre told the bench that regulations to over-the-top (OTT) service providers like WhatsApp or Facebook needed to be regulated and the regulation needs to be fine-tuned to deal with it.
The bench asked the Centre, "Do the rules (in the Information Technology Act) cover the issues which is before us".
To this, the Centre said, "Some aspects are covered but not the entire issue. We have to show what is the existing legal umbrella internationally and in India on data protection. OTT data protection has to be customised and it has to be regulated in a different manner as there are complexities involved in it."
"We are in Digital India where there are commercial, social and political interests. All these three interests have to be balanced," the government said, adding "this is a highly technical field and it is not about one app only that can guide the policy".
The court also heard arguments advanced by Facebook which has questioned the maintainability of the petition.
The Centre had earlier said that a "regulatory regime" for data protection is in the offing while asserting that an individual's freedom of choice needs to be protected.
The apex court is hearing the appeal assailing the Delhi High Court verdict on the ground that no relief was granted for data shared by users after September 25, 2016 which amounted to infringement of fundamental rights under Articles 19 and 21 of the Constitution.
It had on January 16 sought the responses from the Centre and Telecom Regulatory Authority of India on the plea that privacy of over 157 million Indians has been infringed by social networking sites - WhatsApp and Facebook - for alleged commercial use of personal communication.