TMI Blog2014 (10) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. 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. - 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. - WRIT PETITION (CIVIL) NOS. 401, 402 & 413 OF 2013 & 324 OF 2014 T.P.(C) NO. 445 OF 2014 - - - Dated:- 9-5-2014 - T.S. THAKUR AND C. NAGAPPAN, JJ. Alok Jena.. Appellant JUDGMENT T.S. Thakur, J. - Writ Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 Chai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 ₹ 40 crores only as against a total collection of ₹ 2,460 crores made by the said companies. Mr. Vaidyanathan argued that the investment in real estate could go upto ₹ 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating 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, Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 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 ₹ 4565 crores approximately from the public out of which a sum of ₹ 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 ₹ 24,17,65,866/- allegedly made to 18,596 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it-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 Enforcem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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