ITEM No. 1A Court No.
4 SECTION PIL
(For Judgment)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
WRIT PETITION (C) No. 401 of 2013
SUBRATA CHATTORAJ Petitioner (s)
VERSUS
UNION OF INDIA AND ORS. Respondent (s)
with
W.P.(C) NO. 402 OF 2013
T.P.(C) No. 445 of
2014
W.P.(C) NO. 413 OF
2013
W.P.(C) NO. 324 OF
2014
Date : 09.05.2014
These Petitions were called on for judgment today.
For Appellant (s) Mr. BikasRanjan Bhattacharya, Sr. Adv.
Mr. Ashok Bhan, Sr.
Adv.
Mr.
SubhashishBhowmick, Adv.
Mr. Ravi Shankar
Chattopadhayay, Adv.
Mr. Anindya Sunder
Das, adv.
Mr. K.C.Mittal, Adv.
Ms. NitiLuthra, Adv.
Mr. Dipak
Bhattacharya, Adv.
Mr. Rajeev Singh, Adv.
Mr. Suresh Chandra
Tripathy, Adv.
Mr. S.K.Sabharwal,
Adv.
For Respondent(s)
Ms. Kirti Renu Mishra,
Adv.
Mr. SiddharthLuthra,
ASG
Mr. Shadman Ali, Adv.
Mr. Ashok DHamija,
Adv.
Mr. B.V.Balaram Das,
Adv.
Mr. ArjunDewan, Adv.
Mr. Gurmohan Singh,
Adv.
Ms. SushmaSuri, Adv.
Mr. Samil Khan, Adv.
Mr. BhargavaV.Desai,
Adv.
Mr. Sajith P., Adv.
Mr. B.K.Prasad, Adv.
Mr.
SenthilJagadeessan, Adv.
Ms. Liz Mathew, adv.
Mr. Sumit Kumar, Adv.
Mr. Snehasish
Mukherjee, Adv.
Mr. C.S.Vaidyanathan,
Sr. Adv.
MS.
HarpriyaPadmanabhan, Adv.
Mr.Vikramaditya, Adv.
Mr. Suhaan Mukherjee,
Adv.
Mr. K.S. Bose, Adv.
Mr. AnipSachthey, Adv.
Mr. PrateekJalan, Adv.
Mr.
SIddharthBhatnagar, Adv.
Mr. PrasenjitKeswani,
adv.
Ms. Sonia, Adv.
Mr. S.Chakraborty,
Adv.
M/s. Legal Options
Mr. Ramesh Babu M.R.,
Adv.
Mr. D.S.Mahra, Adv.
Hon'ble Mr. Justice T.S.Thakur pronounced Judgment of the Bench comprising His
Lordship and Hon'ble Mr. Justice C.Nagappan.
The writ petitions and
transfer petition are disposed of in terms of the signed judgment. No costs.
(ShashiSareen)
(SarojSaini)
Court Master Court
Master
Signed Reportable judgment is placed on the file.
....................................................................................................................................
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL
JURISDICTION
WRIT PETITON (CIVIL)
NO.401 OF 2013
SubrataChattoraj ...Appellant
Versus
Union of India &Ors. ...Respondents
WITH
WRIT PETITON (CIVIL) NO.402 OF 2013
AND
T.P. (C) NO.445 OF 2014
AND
WRIT PETITON (CIVIL) NO.413 OF 2013
Alok Jena ...Appellant
Versus
Union of India &Ors. ...Respondents
WITH
WRIT PETITON (CIVIL) NO.324 OF 2014
J U D G M E N T
T.S. THAKUR, J.
1. Writ Petitions seeking transfer of investigation from the State Agencies to
the Central Bureau of Investigation (CBI) under the Delhi Special Police
Establishment Act, is by no means uncommon in the High Courts in this country.
Some, if not most of such cases in due course travel to this Court also, where,
issues touching the powers of the High Courts and at times the power of this
Court to direct such transfers are raised by the parties. The jurisdictional
aspect is, however, no longer res integra, the same having been answered
authoritatively by a Constitution Bench of this Court in State of West Bengal
& Ors.
v. Committee for Protection of Democratic Rights, West Bengal & Ors. (2010)
3 SCC 571. This Court in that case was examining whether the federal structure
and the principles of separation of powers, made it impermissible for the
superior courts to direct transfer of investigation from the State Police to
the CBI. Rejecting the contention, this Court held that power of judicial
review itself being a basic feature of the Constitution, the writ courts could
issue appropriate writ, directions and orders to protect the fundamental rights
of the citizens. This Court observed:
"51. The Constitution of India expressly confers the power of judicial
review on this Court and the High Courts under Articles 32 and 226
respectively. Dr. B.R. Ambedkar described Article 32 as the very soul of the
Constitution--the very heart of it--the most important article. By now, it is
well settled that the power of judicial review, vested in the Supreme Court and
the High Courts under the said articles of the Constitution, is an integral
part and essential feature of the Constitution, constituting part of its basic
structure. Therefore, ordinarily, the power of the High Court and this Court to
test the constitutional validity of legislations can never be ousted or even
abridged. Moreover, Article 13 of the Constitution not only declares the
pre-Constitution laws as void to the extent to which they are inconsistent with
the fundamental rights, it also prohibits the State from making a law which
either takes away totally or abrogates in part a fundamental right. Therefore,
judicial review of laws is embedded in the Constitution by virtue of Article 13
read with Articles 32 and 226 of our Constitution.
52. It is manifest from the language of Article 245 of the Constitution that
all legislative powers of Parliament or the State Legislatures are expressly made
subject to other provisions of the Constitution, which obviously would include
the rights conferred in Part III of the Constitution. Whether there is a contravention
of any of the rights so conferred, is to be decided only by the constitutional
courts, which are empowered not only to declare a law as unconstitutional but
also to enforce fundamental rights by issuing directions or orders or writs of
or "in the nature of" mandamus, certiorari, habeas corpus,
prohibition and quo warranto for this purpose.
53. It is pertinent to note that Article 32 of the Constitution is also
contained in Part III of the Constitution, which enumerates the fundamental
rights and not alongside other articles of the Constitution which define the
general jurisdiction of the Supreme Court. Thus, being a fundamental right
itself, it is the duty of this Court to ensure that no fundamental right is
contravened or abridged by any statutory or constitutional provision. Moreover,
it is also plain from the expression "in the nature of" employed in clause
(2) of Article 32 that the power conferred by the said clause is in the widest
terms and is not confined to issuing the high prerogative writs specified in
the said clause but includes within its ambit the power to issue any directions
or orders or writs which may be appropriate for enforcement of the fundamental
rights. Therefore, even when the conditions for issue of any of these writs are
not fulfilled, this Court would not be constrained to fold its hands in despair and plead its inability to help the citizen who has
come before it for judicial redress (per P.N. Bhagwati, J. in BandhuaMukti Morcha
v. Union of India (1984) 3 SCC 161)."
2. This Court summed up the conclusions in the following words:
"68. Thus, having
examined the rival contentions in the context of the Constitutional Scheme, we
conclude as follows:
(i) The fundamental rights, enshrined in Part III of the Constitution, are
inherent and cannot be extinguished by any Constitutional or Statutory provision.
Any law that abrogates or abridges such rights would be violative of the basic
structure doctrine. The actual effect and impact of the law on the rights guaranteed
under Part III has to be taken into account in determining whether or not it destroys
the basic structure.
(ii) Article 21 of the Constitution in its broad perspective seeks to protect
the persons of their lives and personal liberties except according to the procedure
established by law. The said Article in its broad application not only takes
within its fold enforcement of the rights of an accused but also the rights of
the victim. The State has a duty to enforce the human rights of a citizen
providing for fair and impartial investigation against any person accused of commission of a
cognizable offence, which may include its own officers. In certain situations
even a witness to the crime may seek for and shall be granted protection by the
State.
(iii) In view of the constitutional scheme and the jurisdiction conferred on
this Court under Article 32 and on the High Courts under Article 226 of the Constitution
the power of judicial review being an integral part of the basic structure of
the Constitution, no Act of Parliament can exclude or curtail the powers of the
Constitutional Courts with regard to the enforcement of fundamental rights. As a matter of fact, such
a power is essential to give practicable content to the objectives of the Constitution embodied in Part III
and other parts of the Constitution. Moreover, in a federal constitution, the
distribution of legislative powers between the Parliament and the State
Legislature involves limitation on legislative powers and, therefore, this
requires an authority other than the Parliament to ascertain whether such
limitations are transgressed. Judicial review acts as the final arbiter not
only to give effect to the distribution of legislative powers between the
Parliament and the State Legislatures, it is also necessary to show any transgression
by each entity. Therefore, to borrow the words of Lord Steyn, judicial review
is justified by combination of "the principles of separation of powers,
rule of law, the principle of constitutionality and the reach of judicial
review".
(iv) If the federal structure is violated by any legislative action, the
Constitution takes care to protect the federal structure by ensuring that
Courts act as guardians and interpreters of the Constitution and provide remedy
under Articles 32 and 226, whenever there is an attempted violation. In the circumstances,
any direction by the Supreme Court or the High Court in exercise of power under
Article 32 or 226 to uphold the Constitution and maintain the rule of law
cannot be termed as violating the federal structure.
(v) Restriction on the Parliament by the Constitution and restriction on the
Executive by the Parliament under an enactment, do not amount to restriction on the power of the Judiciary under Article 32 and 226 of the Constitution.
(vi) If in terms of Entry 2 of List II of The Seventh Schedule on the one hand
and Entry 2A and Entry 80 of List I on the other, an investigation by another agency
is permissible subject to grant of consent by the State concerned, there is no
reason as to why, in an exceptional situation, court would be precluded from
exercising the same power which the Union could exercise in terms of the
provisions of the Statute. In our opinion, exercise of such power by the constitutional
courts would not violate the doctrine of separation of powers. In fact, if in
such a situation the court fails to grant relief, it would be failing in its
constitutional duty.
(vii) When the Special Police Act itself provides that subject to the consent
by the State, the CBI can take up investigation in relation to the crime which was
otherwise within the jurisdiction of the State Police, the court can also
exercise its constitutional power of judicial review and direct the CBI to take up the
investigation within the jurisdiction of the State. The power of the High Court
under Article 226 of the Constitution cannot be taken away, curtailed or
diluted by Section 6 of the Special Police Act. Irrespective of there being any
statutory provision acting as a restriction on the powers of the Courts, the
restriction imposed by Section 6 of the Special Police Act on the powers of the
Union, cannot be read as restriction on the powers of the Constitutional
Courts. Therefore, exercise of power of judicial review by the High Court, in
our opinion, would not amount to infringement of either the doctrine of
separation of power or the federal structure.
69. In the final analysis, our answer to the question referred is that a
direction by the High Court, in exercise of its jurisdiction under Article 226
of the Constitution, to the CBI to investigate a cognizable offence alleged to
have been committed within the territory of a State without the consent of that
State will neither impinge upon the federal structure of the Constitution nor
violate the doctrine of separation of power and shall be valid in law. Being the
protectors of civil liberties of the citizens, this Court and the High Courts
have not only the power and jurisdiction but also an obligation to protect the
fundamental rights, guaranteed by Part III in general and under Article 21 of
the Constitution in particular, zealously and vigilantly" (emphasis supplied)
3. Having said that
this Court sounded a note of caution against transfer of cases to CBI for mere
asking and observed:
"70. Before
parting with the case, we deem it necessary to emphasise that despite wide
powers conferred by Articles 32 and 226 of the Constitution, while passing any
order, the Courts must bear in mind certain self-imposed limitations on the
exercise of these Constitutional powers. The very plenitude of the power under
the said Articles requires great caution in its exercise. In so far as the
question of issuing a direction to the CBI to conduct investigation in a case is concerned,
although no inflexible guidelines can be laid down to decide whether or not
such power should be exercised but time and again it has been reiterated that
such an order is not to be passed as a matter of routine or merely because a party has
levelled some allegations against the local police. This extra-ordinary power must be exercised sparingly, cautiously and in exceptional situations where it
becomes necessary to provide credibility and instill confidence in investigations
or where the incident may have national and international ramifications or
where such an order may be necessary for doing complete justice and enforcing the
fundamental rights. Otherwise the CBI would be flooded with a large number of
cases and with limited resources, may find it difficult to properly investigate
even serious cases and in the process lose its credibility and purpose with
unsatisfactory investigations." (emphasis supplied)
4. We may at this stage refer to a few cases in which this Court has either
directed transfer of investigation to the CBI or upheld orders passed by the
High Court directing such transfer.
5. In Inder Singh v. State of Punjab (1994) 6 SCC 275 this Court was dealing
with a case in which seven persons aged between 14 to 85 were alleged to have
been abducted by a senior police officer of the rank of Deputy Superintendent
of Police in complicity with other policemen. Since those abducted were not heard
of for a considerable period, a complaint was made against their abduction and
disappearance before the Director General of Police of the State. It was
alleged that the complaint was not brought to the notice of the Director
General of Police (Crime). Instead his P.A. had marked the same to the I.G.
(Crime) culminating in an independent inquiry through the Superintendent of
Police, Special Staff, attached to his office. The report of the Superintendent
of Police recommended registration of a case against the officials concerned
under Section 364 of the IPC. Despite the said recommendation no case was
registered on one pretext or the other against the concerned police officer
till 23rd March, 1994. It was at this stage that a writ petition was filed
before this Court under Article 32 of the Constitution of India for a fair,
independent and effective investigation into the episode. Allowing the petition
this Court directed an independent investigation to be conducted by the CBI
into the circumstances of the abduction of seven persons; their present whereabouts
or the circumstances of their liquidation. An inquiry was also directed into
the delay on the part of the State Police in taking action between 25th January
1992 when the complaint was first lodged and 23rd March, 1994 when the case was
finally registered.
6. In R.S. Sodhi Advocate v. State of U.P. and Ors. 1994 (Supp) (1) SCC 143
this Court was dealing with a petition under Article 32 of the Constitution of
India seeking an independent investigation by the CBI into a police encounter
resulting in the killing of ten persons. The investigation into the incident
was being conducted at the relevant point of time by an officer of the rank of
Inspector General level. The State Government also appointed a one-member Commission
headed by a sitting Judge of the Allahabad High Court to inquire into the
matter. This Court found that since the local police was involved in the
alleged encounter an independent investigation by the CBI into what was according
to the petitioner a fake encounter, was perfectly justified. This Court held
that, however, faithfully the police may carry out the investigation, the same
will lack `credibility' since the allegations against them are serious. Such a
transfer was considered necessary so that all those concerned including the
relatives of the deceased feel assured that an independent agency was looking
into the matter thereby lending credibility to the outcome of the
investigation. This Court observed:
"We have perused
the events that have taken place since the incidents but we are refraining from
entering upon the details thereof lest it may prejudice any party but we think
that since the accusations are directed against the local police personnel it
would be desirable to entrust the investigation to an independent agency like
the Central Bureau of Investigation so that all concerned including the
relatives of the deceased may feel assured that an independent agency is
looking into the matter and that would lend the final outcome of the investigation
credibility. However faithfully the local police may carry out the
investigation, the same will lack credibility since the allegations are against them. It is only
with that in mind that we having thought it both advisable and desirable as well
as in the interest of justice to entrust the investigation to the Central
Bureau of Investigation forthwith and we do hope that it would complete the investigation
at an early date so that those involved in the occurrences, one way or the
other, may be brought to book. We direct accordingly. In so ordering we mean no
reflection on the credibility of either the local police or the State
Government but we have been guided by the larger requirements of justice. The writ petition
and the review petition stand disposed of by this order." (emphasis
supplied)
7. A reference may
also be made to State of Punjab v. CBI (2011) 9 SCC 182 where the High Court of
Punjab and Haryana transferred an investigation from the State Police to the
CBI in relation to what was known as "Moga Sex Scandal" case. The
High Court had while ordering transfer of the investigation found that several
police officials, political leaders, advocates, municipal counsellors, besides
a number of persons belonging to the general public had been named in
connection with the case. The High Court had while commending the investigation
conducted by DIG and his team of officials all the same directed transfer of
case to CBI having regard to the nature of the case and those allegedly involved
in the same. The directions issued by the High Court were affirmed by this
Court and the matter allowed to be investigated by the CBI.
8. More recently, this Court in Advocates Association, Bangalore, v. Union of
India and Ors. (2013) 10 SCC 611 had an occasion to deal with the question of
transfer of an investigation from the State Police to the CBI in the context of
an ugly incident involving advocates, police and media persons within the
Bangalore City Civil Court Complex. On a complaint filed by the Advocates'
Association, Bangalore, before the Chief Minister for suitable action against
the alleged police atrocities committed on the advocates, the Government of Karnataka
appointed the Director General of Police, CID, Special Unit and Economic
Offences as an Inquiry Officer to conduct an in-house inquiry into the matter.
The Advocates' Association at the same time filed a complaint with
jurisdictional police station, naming the policemen involved in the incident.
In addition, the Registrar, City Civil Court also lodged a complaint with the
police for causing damage to the property of City Civil Court, Bangalore by
those indulged in violence. Several writ petitions were then filed before the
High Court, inter alia, asking for investigation by the CBI. The High Court
constituted a Special Investigation Team (SIT) headed by Dr. R.K. Raghvan, a retired
Director CBI, as its Chairman and others. The Advocates' Association was,
however, dissatisfied with that order which was assailed before this Court
primarily on the ground that a fair investigation could be conducted only by an
independent agency like the CBI. Relying upon the decision of this Court in
State of West Bengal v. Committee for Protection of Democratic Rights (2010) 2
SCC 571 this Court directed transfer of investigation to the CBI holding that
the nature of the incident and the delay in setting up of the SIT was
sufficient to warrant such a transfer.
9. It is unnecessary to multiply decisions on the subject, for this Court has
exercised the power to transfer investigation from the State Police to the CBI
in cases where such transfer is considered necessary to discover the truth and
to meet the ends of justice or because of the complexity of the issues arising
for examination or where the case involves national or international ramifications
or where people holding high positions of power and influence or political
clout are involved. What is important is that while the power to transfer is
exercised sparingly and with utmost care and circumspection this Court has more
often than not directed transfer of cases where the fact situations so demand. 10.
We are in the case at hand dealing with a major financial scam nicknamed `Chit
Fund Scam' affecting lakhs of depositors across several States in the Eastern
parts of this country. Affidavits and status reports filed in these proceedings
reveal that several companies were engaged in the business of receiving deposits
from the public at large. The modus operandi of the companies involved in such
Ponzi Schemes was in no way different from the ordinary except that they appear
to have evolved newer and more ingenious ways of tantalizing gullible public to
make deposits and thereby fall prey to temptation and the designs of those
promoting such companies. For instance Saradha Group of Companies which is a
major player in the field, had floated several schemes to allure the depositors
to collect from the market a sizeable amount on the promise of the depositors
getting attractive rewards and returns. These fraudulent (Ponzi) schemes included
land allotment schemes, flat allotment schemes, and tours and travel schemes.
The group had floated as many as 160 companies although four out of them were
the front runners in this sordid affair. An interim forensic audit report
submitted to the SEBI by Sarath& Associate, Chartered Accountants on 27th
February, 2014 sums up in the following words, the background in which the
schemes are floated and the public defrauded :
"The company M/s
Saradha Realty India Ltd. was involved in financial fraud involving in an
attempt to deliberately mislead the general public by announcing dubious money
multiplier schemes. It has also indulged in misleading the financial status of the
group companies by incorrect disclosures in the financial statements in an attempt
to deceive financial statement users and regulatory authorities.
The investors lured to extraordinary returns is typically attributed to
something that sounds impressive but is intentionally vague, such as hedge fund
in land, resorts, tours and travel plans, high yield investment programs.
Typical to the Ponzi schemes the investors who are economically very poor have
invested relatively small amounts such as Rs.100 and wait to see if the promised
returns are paid. After one month the investor received maturity amounts, so
the investor truly believes s/he has earned the promised return. What the
investor doesn't realize is that the Rs.100 was a RETURN OF THE INVESTMENT AND
NOT A RETURN ON THE INVESTMENT. In other words, the Rs.100 return came from the
Rs.100 principal initially invested or from a newly-recruited investor, rather
than from any profits generated by the investment opportunity. After a second
month yields another Rs.100 payment, the investor is `hooked' and typically
will invest larger amounts in the scheme and will enthusiastically inform
friends and family members about this `fantastic' investment opportunity.
Since these early investors have actually received the promised returns, their
promotion of the investment comes across as genuine and instills an almost
irresistible urge in friends and family members to invest as well.
If pressed by skeptical investors for more detail, the promoters typically
evade answering the question and instead talk about how recently-recruited investors
have been receiving the promised returns. Since little, of the victims' funds
are actually invested into a legitimate profit-generating activity, the scheme
continued for only as long as the cash inflows to existing investors. However,
as the number of investors grown rapidly, the pool of new investors unavoidably
shrinks. At one point, the cash flow situation collapsed resulting in four possible
outcomes: (1) the investment promoters disappear, taking remaining investment
money with them; (2) the scheme collapsed of its own weight, and the promoters
have problems paying out the promised returns and, as the word spread, more
people start asking for their money creating a run-on-the-bank situation; (3)
the investment promoters turn themselves in and confess."
11. The Report suggests that the investors were promised very high returns by
way of interest rate ranging from 10% to 18%. The said returns promised to the
depositors were, according to the Report, too good to be true. The Report also
suggests that a very large number of `agents base' was created by the companies
to extend the reach of these companies. For Saradha Realty India Ltd. itself as
many as 2,21,000 agents were working, who were paid an unreasonably high
brokerage of 30% of the instrument which became the driving force for the
agents to go that extra mile to collect as much as possible. The Report
indicates that investments that matured for payment were paid out of the cash collected
from new members which was opposed to the normal business norms in which
returns ought to be paid out of profits earned in the business. Besides, the
cash collections were neither accurately shown in the books of accounts, nor
did the bank accounts reveal the details of such cash collections. The Report
states that the company had no real intention of doing any legitimate business
activity and the money collected from the public was spread over 160 companies
and spent away or siphoned off. No major revenue was seen to be generated by
any group company. The companies had opened too many bank accounts for Round
Tripping Transactions for the monies collected by them.
Apart from as many as 218 branches spread over several States including West
Bengal, Odisha, Bihar, Assam and other States the companies had as many as 347
bank accounts in 15 banks in the name of the Group Companies. The bank accounts
were opened at the location of branches enabling deposit of the cash into accounts.
The daily cash collected less expenses was deposited at branch account and the
money pooled and transferred to other accounts as per CMD's instructions and
utilized to issue the cheques. The Report also points out violation of the
Securities and Exchange Board of India Act, 1992, the Companies Act, 1956, The
Reserve Bank of India Act, 1934 and the Income-Tax Act, 1961.
It also points out fraudulent certification, non-compliance of accounting
tandards, material mis-statement of facts and gross negligence on the part of
the statutory Auditors. The Interim Report eventually draws up the following
conclusions:
"Saradha Reality India Ltd. and its other 3 group companies has collected
money from the open market, reaching out to the general public by employing
huge number of agents, in form of Investment under different Schemes viz., Fixed
Deposits, Monthly Investment Scheme, Recurring Deposits. The SRIL has in
pretext of land developers, construction of flats, running tours and travels,
travel packages and resorts collected around Rs.2,459 crores over a period of 5
years.
SRIL has no valid registration under the SEBI Act for `collective Investment scheme'
nor has licenced underRBI Act for Nidhi/Chit fund/NBFC. Its MOA also does not
permit the company to collect monies in form of deposits. SEBI had passed a
winding up order in view of the collection of monies under one of the company's schemes as Collective Investment scheme on 23/4/2013.
Company management, with fraudulent intent, has designed several investment
schemes wherein the depositors invested in expectation of high return. It has
also misrepresented its business in writing to income Tax department, SEBI, and
to its depositors.
The Depositors are promised fixed interest returns but management has promised
tours, travel packages, land purchases, flat advances etc. on the receipts which in realty is not intended to be given to the depositors.
The SRIL did not comply with the KYC norms while collecting the deposits, all
the deposits are identified by names and addresses, but the ID or address
proves are not obtained. The authenticity of the investors is difficult to
prove as the deposits are not KYC complied.
The agents are main part of the entire operations of the company, in evolving
the new schemes, explaining the public and collecting the deposits. The agents are
operated as a tree (chain) and each agent in the chain will get commission on
each deposit. These commissions are paid in priority from the business cash collected (almost 30% of collections) and the balance money is used for
meeting company expenses and the rest is either deposited at the bank in the location
of the branch or sent to Head Office. The cheques collected are directly
deposited in the Bank. Other than Commission the agents are awarded field allowance,
prizes, and performance bonuses forming around 30% of the total deposits collected.
SRIL has expanded rapidly its' the business, takeovers in a very short span of
five years. The Company has never utilised money so collected from investors
for carrying out any legitimate business to earn returns to payback the
investors. It has utilized the monies so collected in these takeovers, and
venturing into new company for running the loss making businesses like media
Channels, Newspapers, Magazines, manufacturing automobiles. The group has incorporated
160 companies and the share capital monies, furniture & fixtures, plant and
machines, huge staff salaries, fleet of cars on rent, buses, 320 branch
premises' rents, daily expenses, maintenance are all met through the deposits collected
from the investors.
One of the company - Saradha Exports' ha announced as it is expanding to
international by exporting business and opening a branch at Madrid, SPAIN, on its website.
All the group companies are debt-free companies; the loans standing in the
Financial Statements are partly of investors, other group company loans and
advances. The Audited Financial Statements are misrepresenting the facts and
Statutory Auditor is grossly negligent in discharging his duty to present the
true and fair view of the state of affairs of the companies. Most of the group
company's Auditor is common.
Since the deposits collected are not utilized for generating income, the monies
are spent off and the Company soon has failed to return back the monies to depositors
on their maturity. Cash rotation cycle of the depositors broke and has severe
cash crunch and let the company to fall off."
12. The Report estimates the collection made by the Saradha Group of companies
at Rs.2459 crores.
13. Failure of the group companies to refund the deposits made with them was
bound to as it indeed has led to a public outcry against the scam on account of
the huge amount that was collected by these companies by defrauding a very
large section of the public majority of whom appear to be from middle class,
lower middle class or poorer sections of the society. The Government of West
Bengal acted in response to the protests and the public anguish over a fraud of
such colossal magnitude and set up a Commission of Inquiry headed by Mr.
Justice Shyamal Kumar Sen, retired Chief Justice, Allahabad High Court with
four others to be nominated by the Government to inquire into the matters set out
in a notification dated 24th April, 2013 issued in that regard. The Commission
was empowered to receive all individual and public complaints regarding the
Saradha Group of Companies and other similar companies involved in the scam and
to forward such complaints to the authorities concerned including the Special
Investigation Team for launching prosecution. The Commission was also
authorized to send directives to the Special Investigation Team, identify the
key persons responsible for the present situation, quantify the estimated
amount of money involved in the alleged transactions, assess the assets and liabilities
of the group of companies and to recommend ways and means for providing succor
to those who had lost their savings. The Commission was also authorized to
recommend remedial action and measures to the State Government so that such
situations do not recur.
14. By another notification dated 27th August, 2013 the Government, relying
upon the directions issued by the High Court of Calcutta in Writ Petition
No.12163(W) of 2013 and Writ Petition No.12197(W) of 2013 empowered the
Commission of Inquiry to dispose of all the assets belonging to the Saradha
Group of Companies and/or their agents and/or their Benamidars and to adopt an
appropriate mode of recovery of debts on behalf of the Saradha Group from its
debtors and add the proceeds to the fund to be created for that purpose. The
Commission was also clothed with the power to attach the bank accounts
belonging to the Saradha Group of Companies and the personal bank accounts of
the Directors apart from restraining the banks concerned from allowing anyone
to operate such accounts unless authorized by the Commission. Pursuant to the
above notifications the Commission has received nearly 18 lakhs complaints and
claim petitions demanding refund of the amount deposited under such Ponzi Schemes.
15. In the
counter-affidavit filed on behalf of the State of Bihar it is, inter alia,
stated that the State Government has announced a sum of rupees 500 crores for
payment to the aggrieved depositors apart from money that may be raised from
selling off the assets of the companies including the Saradha Group of Companies.
The affidavit further states that the Commission has passed orders for payment
of compensation to the investors in the Saradha Group of Companies and that
over one lakh beneficiaries have been paid while another 1,66,456 identified
for such payment. The affidavit also states that as per the directions issued
by the High Court of Calcutta in terms of the notification mentioned above as
many as 224 immovable properties and 54 vehicles have been identified for
attachment and possible sale and recovery of the amount due from the companies.
The affidavit goes on to say that one Kunal Kumar Ghosh, Member of Parliament, RajyaSabha,
was arrested on 23rd November, 2013 in connection with the case registered in
Bidhannagar South Police Station after being interrogated on several occasions.
The said Kunal Kumar Ghosh was the media CEO of Saradha Group of Companies. In addition
one Srinjoy Bose, Member of Parliament was also interrogated by serious Fraud
Investigation Office in relation to the Saradha Group of Companies and that the
Special Investigating Team and the police authorities are extending full
support and cooperation to the Central Agencies like Enforcement Directorate, Serious
Fraud Investigation Office etc. for effective investigation of the scam. The
State has in that view opposed the prayer of the petitioner for transfer of the
investigation from the State Police to the CBI.
16. When this case came up before us on 4th March, 2013 our attention was drawn
by Mr. C.S. Vaidyanathan, Senior counsel appearing for the State of West Bengal
to a statement appearing at page 474 of the said sur-rejoinder filed by the
State which according to the learned counsel summarized the investments made by
the Saradha group of companies from out of the money collected by it from the depositors.
These details were sketchy and unsatisfactory especially when the trail of
money collected remained obscure no matter it was one of the important, if not the
single most important, angle to be investigated for unraveling facts leading to
the scam and identifying those who had aided and/or abetted the same. Mr.
Vaidhyanathan was, therefore, granted ten days time to file a comprehensive statement
as to the amount collected by the said group of companies and the expenditure
incurred/investments made over a period of time.
17. An affidavit was accordingly filed by the State of West Bengal in which the
purchase value of the property acquired by Saradha Group of Companies was
estimated at Rs.40 crores only as against a total collection of Rs.2,460crores
made by the said companies. Mr. Vaidyanathan argued that the investment in real
estate could go upto Rs.110 crores on the basis of the information gathered
from the software that was seized from the companies concerned. Even if that
were so a significant discrepancy existed between investigation based estimated
purchase value of the properties on the one hand and what could according to
Mr. Vaidyanathan emerge from the software seized from the companies. Mr.
Vaidyanathan argued that the discrepancy could be on account of the fact that a
large number of properties referred to in the affidavit have been acquired by
the companies on the basis of power of attorneys which do not indicate the value
of the property covered by such deeds and transactions. Be that as it may, a
huge gap between the amount collected and the investments made in real estate
itself calls for effective investigation as to the trail of money collected by
the group of companies. Investigation by the State Police has not unfortunately
made any significant headway in this regard.
18. More importantly, the question whether the scam was confined only to those
who actively managed and participated in the affairs of the companies or the
same flourished on account of the support and patronage of others is an issue
that has bothered us all through the hearing of this case. We had, therefore, directed
the State to file a sample copy of the chargesheets said to have been submitted
before the jurisdictional Courts. A perusal of the copies so furnished shows
that the same relate only to individual deposits leaving untouched the larger conspiracy
angle that needs to be addressed. It was argued by Mr. Bhattacharya that the
Investigating Agency was deliberately avoiding to investigate that vital
aspect. Mr. Vaidyanathan, however, contended that the larger conspiracy angle
was being investigated separately in an FIR registered with Vidhannagar Police
Station. He sought and was given time to file an affidavit setting out the
particulars of the FIR in which the larger conspiracy angle was being examined
and the progress so far made in that regard.
19. An additional affidavit was accordingly filed by Mr. Vaidyanathan in which
it is, inter alia, stated that the larger conspiracy angle is being
investigated in Crime No.102 registered in Bidhannagar Police Station (North)
on 6th May, 2013 under Sections 406, 409, 420, 120B IPC. At the hearing of the
case on 9th April, 2014 Mr. Vaidyanathan passed on to us a sealed cover containing
a list of persons who according to the learned counsel need to be questioned in
view of the disclosers made and the evidence collected so far by the
Investigating Agency. The basis
on which the Investigation Team has named the persons in the list was not set
out in the list or elsewhere. Mr. Vaidyanathan, therefore, offered to file a
synopsis of the evidence on the basis whereof the names mentioned in the list
had been included in the said list and the evidence which incriminates them
calling for further investigation into their role and conduct. An affidavit
giving the synopsis was pursuant to the said order filed by Mr. Vaidyanathan
indicating briefly the basis on which the persons named in the list were sought
to be interrogated in connection with the scam. A perusal of the synopsis furnished
and the names included in the list makes it abundantly clear to us that several
important individuals wielding considerable influence within the system at the
State and the national level have been identified by the Investigating Agency
for interrogation. We do not consider it necessary to reveal at this stage the
names of the individuals who are included in the list on the basis of which the
Investigating Agency proposes to interrogate them or the material so far
collected to justify such interrogation. All that we need point out is that
investigation into the scam is not confined to those directly involved in the affairs
of companies but may extend to several others who need to be questioned about
their role in the sequence and unfolding of events that has caused ripples on
several fronts.
20. There is yet
another aspect to which we must advert at this stage. This relates to the role
of the Regulatory Authorities. Investigation conducted so far puts a question
mark on the role of regulatory authorities like SEBI, Registrar of Companies
and officials of the RBI within whose respective jurisdictions and areas of
operation the scam not only took birth but flourished unhindered. The synopsis
filed by Mr. Vaidyanathan names some of the officials belonging to these authorities
and give reasons why their role needs to be investigated. The synopsis goes to
the extent of suggesting that regular payments towards bribe were paid through
middleman to some of those who were supposed to keep an eye on such Ponzi companies.
The Regulatory Authorities, it is common ground, exercise their powers and
jurisdiction under Central legislations. Possible connivance of those who were
charged with the duty of preventing the scams of such nature in breach of the law,
therefore, needs to be closely examined and effectively dealt with.
Investigation into the larger conspiracy angle will, thus, inevitably bring
such statutory regulators also under scrutiny.
21. It was at one stage argued on behalf of SEBI that companies involved in the
scam were doing chit-fund business and since chit-funds were not within its
jurisdiction it could not have taken cognizance of the same. Our attention was,
however, drawn to atleast two orders passed by SEBI directing winding up of
such ponzi schemes and refund of the amounts received by the companies
concerned to the depositors. It was submitted by learned Counsel for the
petitioner that the SEBI having examined the issue, taken cognizance of the
violation, no matter belatedly and issued directions for winding up of the
schemes and refund of the amount, it was no longer open to it to argue that it
had no role to play in the matter.
22. We are not in
these proceedings required to authoritatively pronounce upon the question
whether SEBI had the jurisdiction to act in the matter. What is important is
that if upon investigation it is found that SEBI did have the jurisdiction to
act in the matter but failed to do so then such failure may tantamount to
connivance and call for action against those who failed to act diligently in
the matter. Suffice it to say, that the scam of this magnitude going on for years
unnoticed and unchecked, is suggestive of a deep rooted apathy if not criminal
neglect on the part of the regulators who ought to do everything necessary to
prevent such fraud and public loot. Depending upon whether the investigation
reveals any criminal conspiracy among those promoting the companies that flourished
at the cost of the common man and those who were supposed to prevent such fraud
calls for a comprehensive investigation not only to bring those who were
responsible to book but also to prevent recurrence of such scams in future.
23. There is yet another dimension of the scam which cannot be neglected. That
the ponzi companies operated across State borders is evident not only from the
pleadings on record but also from the submissions urged in the course of the
arguments before us. What is significant is that these companies and such other
similar companies indulged in similar fraudulent activities in the State of
Assam and Tripura also apart from Orissa where the depositors have suffered.
Looking to the nature of the scam and its inter- State ramifications, cases
registered in the State of Tripura have since been transferred to the CBI for
investigation at the request of the State Government. A similar request has been
made by the Government of Assam which has, according to Mr. SiddharthLuthra,
learned Additional Solicitor General, been accepted by the Central Government
who is shortly issuing a notification under which cases concerning the scam
registered in the State of Assam shall stand transferred to the CBI.
24. That leaves us with the State of Odisha where too Saradha Group of
Companies and a host of similar other companies appear to have indulged in
similar activities giving rise to considerable public resentment against the
authorities for not preventing such companies from defrauding the innocent
public. Writ Petition (C) Nos.413 of 2013 and 324 of 2014 seek transfer of such
cases registered in the State of Odisha to the CBI on the analogy of what was
done in relation to Tripura and Assam keeping in view the magnitude of the scam
as also those involved, in the same.
25. In Writ Petition (C) No.413 of 2013 we had by our order dated 26th March,
2014 confined the proceedings to 44 companies mentioned in two list one filed
by Mr. Alok Jena, the petitioner in the petition and the other by the Counsel
for the State Government. The involvement of these companies in the scam had inter-state
ramifications besides the fact that their collections had exceeded over 500
cores each.
26. It was submitted
by counsel for the parties that looking to the large number of cases that had
been registered, transfer of each and every case may work as an impediment in
the effective investigation of the cases by the CBI. For all intents and purposes,
therefore, proceedings in these two writ petitions were confined to a prayer
for transfer of cases registered against 44 companies named in the lists filed
by the counsel for the parties.
27. Since certain aspects of the information considered relevant for the
transfer of the cases was not forthcoming, we had directed the State Government
to file an affidavit providing the said information. The information related
primarily to the number of companies involved in the scam in the State of
Odisha. The total amount allegedly collected by 44 companies referred to in the
lists furnished by the State Counsel and Counsel for the petitioner. The total
number of claims made by the depositors before Justice R.K. Patra Commission
set up with the State Government as also the total number of properties, seized
in regard to the 44 companies referred to above. The total amount so far paid
to the investors under the orders or the Commission or otherwise and the total
number of charge-sheets so far filed. Investments made in real estate or
otherwise by the 44 companies were also demanded from the State who was asked
to disclose whether the larger conspiracy angle was being investigated and, if
so, furnish the particulars of the FIR in which that was being done.
28. An affidavit has been filed by the State of Odisha pursuant to the said
directions in which the FIRs where the State Investigating Agency is examining
the larger conspiracy angle, have been identified. A perusal of the Affidavit,
further, shows that 163 companies were involved in the chit-fund scam in the State
of Odisha who have collected Rs.4565 crores approximately from the public out
of which a sum of Rs.2904 crores has been collected by 43 companies mentioned
in the list referred to earlier excluding M/s Nabadiganta Capital Services Ltd.
against which no criminal case have been registered so far. The affidavit also
states that 7,45,293 envelopes containing claim petitions have been received
from the depositors by Justice R.K. Patra Commission. The affidavit also gives
details of the properties of the companies seized/sealed in the course of the on-going
investigation. The affidavit also refers to payment of Rs.24,17,65,866/- allegedly
made to 18,596 investors by M/s PrayagInfotech High Rise Limited, Kolkata and
the willingness expressed by M/s Rose Valley Hotels and Entertainment Limited
to pay back the investors. Larger conspiracy angle is according to the
affidavit being examined in three cases. These are (i) CID PS Case No.39 dated
18.07.2012 under Section 420/120-B IPC read with Sections 4, 5 and 6 of Prize
Chits and Money Circulation Schemes (Banning) Act, 1978 registered against M/s
Seashore Group of Companies, (ii) Case No.44 dated 07.02.2013 under the same provisions
registered in Kharavelnagar Police Station (Bhubaneswar Urban Police District)
against M/s ArthaTatwa Group of Companies and (iii) EOW PS Case No.19 dated
06.06.2013 registered against M/s Astha International Ltd. It was submitted that
while charge sheets have been submitted in three cases mentioned above within
the period of limitation, investigation has been kept open under Section 173
(8) of the Cr.P.C. to investigate the larger conspiracy angle. The affidavit
also refers to certain legislations enacted in the State of Odisha to protect
the interest of depositors. It also refers to certain interim orders passed by
the Government for attachment of the properties of the defaulting companies.
29. Appearing for the State of Odisha, Mr. GopalSubramanium, learned Senior
Counsel argued that while this Court may transfer for further investigation
into the cases registered against 44 companies referred to above, any such
transfer should not hamper the attachment or recovery process otherwise
initiated by the State in terms of the measures taken by it. It was also
contended by Mr. Subramanium that public prosecutors appointed by the CBI could
be assisted by the State Police Officials so that the efficacy of the investigation
and prosecution are both taken care of by the joint efforts that the Central
and the State police authorities may make.
30. The factual narrative given in the foregoing paragraphs clearly establish
the following:
1. That financial scam nicknamed chit-fund scam that has hit the States of West
Bengal, Tripura, Assam and Odisha involves collection of nearly 10,000 crores
(approx.)from the general public especially the weaker sections of the society
which have fallen prey to the temptations of handsome returns on such deposits
extended by the companies involved in the scam.
2. That investigation so far conducted suggests that the collection of money
from the depositors was neither legally permissible nor were such
collections/deposits invested in any meaningful business activity that could generate
the high returns/promised to the depositors.
3. That more than 25 lac claims have so far been received by the Commissions of
Enquiries set up in the States of Odisha and West Bengal which is indicative of
the magnitude of scam in terms of number of citizens that have been defrauded
by the ponzi companies.
4. That the companies indulge in ponzi schemes have their tentacles in
different States giving the scam inter-state ramifications. That such huge
collections could have international money laundering dimensions cannot be
ruled out and needs to be effectively investigated.
5. That Investigation so far conducted reveals involvement of several political
and other influential personalities wielding considerable clout and influence.
6. That the role of regulators like SEBI, authorities under the Companies Act
and the Reserve Bank of India is also under investigation by the State Police
Agency which may have to be taken to its logical conclusion by an effective and
independent investigation.
31. The question is whether the above features call for transfer of the ongoing
investigation from the State Police to the CBI. Our answer is in the
affirmative. Each one of the aspects set out above in our view calls for investigation
by an independent agency like the Central Bureau of Investigation (CBI). That
is because apart from the sensitivity of the issues involved especially
inter-state ramifications of the scam under investigation, transfer of cases
from the State police have been ordered by this Court also with a view to
ensure credibility of such investigation in the public perception. Transfers
have been ordered by this Court even in cases where the family members of victim
killed in a firing incident had expressed apprehensions about the fairness of
the investigation and prayed for entrusting the matter to a credible and
effective agency like the CBI. Investigation by the State Police in a scam that
involves thousands of crores collected from the public allegedly because of the
patronage of people occupying high positions in the system will hardly carry
conviction especially when even the regulators who were expected to prevent or
check such a scam appear to have turned a blind eye to what was going on. The
State Police Agency has done well in making seizures, in registering cases, in completing
investigation in most of the cases and filing charge-sheets and bringing those
who are responsible to book. The question, however, is not whether the State
police has faltered.
The question is whether what is done by the State police is sufficient to
inspire confidence of those who are aggrieved. While we do not consider it
necessary to go into the question whether the State police have done all that
it ought to have done, we need to point out that money trail has not yet been traced.
The collections made from the public far exceed the visible investment that the
investigating agencies have till now identified. So also the larger conspiracy
angle in the States of Assam, Odisha and West Bengal although under
investigation has not made much headway partly because of the inter-state ramifications, which
the Investigating Agencies need to examine but are handicapped in examining.
32. M/s Vaidyanathan and GopalSubramanium, learned counsel for the States of
West Bengal and Odisha respectively argued that the CBI itself has in a great
measure lost its credibility and is no longer as effective and independent as
it may have been in the past. Similar sentiments were expressed by Mr. P.V. Shetty
appearing on behalf of some of the investors and some other intervenors, who
followed suit to pursue a similar line of argument.
33. There is, in our opinion, no basis of the apprehension expressed by the
State Governments. It is true that a lot can be said about the independence of
CBI as a premier Investigating Agency but so long as there is nothing
substantial affecting its credibility it remains a premier Investigating
Agency. Those not satisfied with the performance of the State Police more often
than not demand investigation by the CBI for it inspires their confidence. We
cannot, therefore, decline transfer of the cases only because of certain stray
observations or misplaced apprehensions expressed by those connected with the
scam or those likely to be affected by the investigation. We may in this regard
gainfully extract the following passage from the decision of this Court in
Sanjiv Kumar v. State of Haryana and Others (2005) 5 SCC 517, where this Court
has lauded the CBI as an independent agency that is not only capable of but
actually shows results:
In the peculiar facts and circumstances of the case, looking at the nature of
the allegations made and the mighty people who are alleged to be involved, we are of the opinion, that the better option of the two is to entrust the
matter to investigation by CBI. We are well aware, as was also told to us
during the course of hearing, that the hands of CBI are full and the present
one would be an additional load on their head to carry. Yet, the fact remains
that CBI as a Central investigating agency enjoys independence and confidence
of the people. It can fix its priorities and programme the progress of
investigation suitably so as to see that any inevitable delay does not prejudice
the investigation of the present case. They can think of acting fast for the
purpose of collecting such vital evidence, oral and documentary, which runs the
risk of being obliterated by lapse of time. The rest can afford to wait for a
while. We hope that the investigation would be entrusted by the Director, CBI
to an officer of unquestioned independence and then monitored so as to reach a successful
conclusion; the truth is discovered and the guilty dragged into the net of law.
Little people of this country, have high hopes from CBI, the prime investigating
agency which works and gives results. We hope and trust
the sentinels in CBI would justify the confidence of the people and this Court
reposed in them."
34. In the circumstances, we are inclined to allow all these petitions and
direct transfer of the following cases registered in different police stations
in the State of West Bengal and Odisha from the State Police Agency to the
Central Bureau of Investigation (CBI):
A. State of West Bengal:
1. All cases
registered in different police stations of the State against Saradha Group of
Companies including Crime No.102 registered in the Bidhannagar Police Station, Kolkata
(North) on 6th May, 2013 for offences punishable under Sections 406, 409, 420
and 120B of the IPC.
2. All cases in which the investigation is yet to be completed registered
against any other company upto the date of this order.
3. The CBI shall be free to conduct further investigation in terms of Section
173 (8) of the Cr.P.C. in relation to any case where a charge-sheet has already
been presented before the jurisdictional court against the companies involved
in any chit-fund scam.
B. State of Odisha :
All cases registered
against 44 companies mentioned in our order dated 26th March, 2014 passed in
Writ Petition (C) No.413 of 2013. The CBI is also permitted to conduct further
investigations into all such cases in which chargesheets have already been
filed.
35. We reserve liberty for the Joint Director CBI, Incharge of the States of
West Bengal and Odisha to seek further directions in relation to transfer of
any other case or cases that may require to be transferred for investigation to
CBI for a full and effective investigation into the scam.
36. Transfer of investigation to the Central Bureau of Investigation (CBI) in
terms of this order shall not, however, affect the proceedings pending before
the Commissions of Enquiry established by the State Government or stall any
action that is legally permissible for recovery of the amount for payment to
the depositors. Needless to say that the State Police Agencies currently
investigating the cases shall provide the fullest cooperation to the CBI
including assistance in terms of men and material to enable the latter to
conduct and complete the investigation expeditiously.
37. The Enforcement Directorate shall, in the meantime, expedite the
investigation initiated by it into the scam and institute appropriate
proceedings based on the same in accordance with law.
38. We make it clear that nothing said in this order, shall be taken as a final
opinion as to the complicity of those being investigated or others who may be
investigated, questioned or interrogated in relation to the scam.
39. We do not for the present consider it necessary to constitute a Monitoring
Team to monitor the progress of the investigation into the scam. But, we leave
the exercise of that option open for the future.
40. The Writ Petitions and T.P.(C) No. 445 of 2014 are disposed of in terms of
the above directions. No costs.
................................................J.
(T.S. THAKUR)
.................................................J.
(C. NAGAPPAN)
New Delhi,
May 9, 2014
