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
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.=
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
