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Tuesday, May 20, 2014

Transfer of a case from state agencies to the CBI - major financial scam nicknamed ‘Chit Fund Scam’ affecting lakhs of depositors across several States in the Eastern parts of this country. - Apex court held that 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. 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 - we allowed this transfer petition.= Subrata Chattoraj …Appellant Versus Union of India & Ors. …Respondents = 2014(May.Part) http://judis.nic.in/supremecourt/filename=41531

  Transfer of a case from state agencies to the CBI - major  financial  scam nicknamed ‘Chit Fund Scam’ affecting  lakhs  of  depositors  across  several States in the Eastern parts of this country. - Apex court held that 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.  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 - we allowed this transfer petition.=

seeking  transfer  of  investigation  from  the  State
Agencies to the Central  Bureau  of  Investigation  (CBI)  under  the  Delhi
Special Police Establishment Act, =

 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.”=

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.

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.=

 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.

  2014(May.Part) http://judis.nic.in/supremecourt/filename=41531
T.S. THAKUR, C. NAGAPPAN

                                                     REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                         CIVIL ORIGINAL JURISDICTION
                     WRIT PETITON (CIVIL) NO.401 OF 2013


Subrata Chattoraj                                        …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 Bandhua Mukti 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  standards,   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  under  RBI  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.




           Al 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,
Rajya Sabha, 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.2,460 crores 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.  Siddharth  Luthra,  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  Prayag  Infotech  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 Artha Tatwa 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.  Gopal  Subramanium,  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 would 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  Gopal  Subramanium,  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:

           “15.  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.
New Delhi,                    (C. NAGAPPAN)
May 9, 2014

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