2024 (2) TMI 1569 - SC - Money Laundering

SC orders ED probe into Rs. 27,000 crore banking fraud under Prevention of Money Laundering Act, 2002

Jaskaran Singh Chawla Versus Union of India & Ors.

Jaskaran Singh Chawla Versus Union of India & Ors. - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the failure of concerned agencies to adequately investigate alleged large-scale banking fraud involving corporate entities warrants intervention under Article 32 of the Constitution. Whether the ongoing investigations by the Central Bureau of Investigation (CBI) and Serious Fraud Investigation Office (SFIO) into the corporate fraud are sufficient and effective. The appropriateness of assigning further investigation to the Enforcement Directorate (ED) for comprehensive inquiry, including potential money laundering offenses under the Prevention of Money Laundering Act, 2002. Whether the investigation should be conducted under the supervision of a retired Supreme Court Judge to ensure fairness, non-arbitrariness, and public confidence. Whether closure or settlement of loan accounts by banks precludes further investigation into the alleged fraud. The coordination and cooperation required among investigative agencies (SFIO, CBI, and ED) to effectively probe the alleged fraud. Measures to ensure the safety and protection of persons involved in investigating or reporting the fraud, including journalists. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction and Necessity for Court Intervention under Article 32 Legal Framework and Precedents: Article 32 of the Constitution of India empowers the Supreme Court to issue directions for enforcement of fundamental rights and to address failures of public agencies in matters of public importance involving alleged violations or serious wrongdoings. Court's Reasoning: The Court recognized the gravity and scale of the alleged fraud involving public money running into approximately Rs. 27,000 crores, and the apparent delays and inadequacies in investigation by concerned agencies. The petitioner's invocation of Article 32 was justified given the failure to promptly and effectively address the alleged massive banking fraud. Conclusion: The Court accepted jurisdiction and intervened to ensure a thorough investigation into the matter, emphasizing the constitutional duty to protect public interest and uphold rule of law. Issue 2: Sufficiency and Progress of Investigations by SFIO and CBI Legal Framework and Precedents: SFIO and CBI are statutory agencies empowered to investigate corporate frauds and criminal offenses, respectively. Their investigations are governed by relevant statutes and procedural laws. Court's Interpretation and Findings: The SFIO investigation was noted to be at an advanced stage but hampered by the complexity of the case, voluminous records, and the involvement of a large web of over 500 related companies with dummy directors, misrepresentations, and diversion of funds. The CBI investigation was yet to commence effectively. Key Evidence: Reports indicated diversion and siphoning of loans through related entities, undue benefits to family members of directors, and closure of loan accounts by banks at significant discounts (20% repayment). The involvement of multiple banks and financial institutions was highlighted, but only a few had responded or confirmed fraudulent transactions. Application of Law to Facts: The Court noted that the investigations so far had not yielded conclusive results commensurate with the scale of alleged fraud, raising concerns about the effectiveness and scope of ongoing probes. Treatment of Competing Arguments: While the agencies asserted ongoing investigations, the petitioner and Amicus Curiae emphasized the need for a more robust and speedy inquiry. Conclusion: The Court found the current investigations insufficient and incomplete, necessitating further action. Issue 3: Appropriateness of Assigning Further Investigation to the Enforcement Directorate (ED) Legal Framework and Precedents: The ED is empowered under the Prevention of Money Laundering Act, 2002, to investigate money laundering offenses, which often accompany large-scale financial frauds. The ED has specialized mechanisms and expertise for tracing and probing complex financial transactions and laundering of proceeds of crime. Court's Reasoning: Given the possibility of large-scale money laundering linked to the alleged banking fraud, the Court considered the ED's involvement necessary to ensure a comprehensive and specialized investigation. The Court noted that the ED's mandate and investigative tools are particularly suited to unearth the financial trail and related offenses. Key Evidence and Findings: Preliminary investigations indicated fund diversion into land deals, real estate projects, and benefits to relatives, suggesting laundering activities. Application of Law to Facts: The Court directed the Central Government and Attorney General's office to instruct the ED to undertake exhaustive investigation without prejudice to ongoing SFIO and CBI probes. Treatment of Competing Arguments: The petitioner and Amicus Curiae strongly supported ED's involvement; the government did not oppose. Conclusion: The Court ordered the ED to conduct a detailed and comprehensive investigation into the alleged fraud and money laundering, ensuring coordination with SFIO and CBI. Issue 4: Supervision of Investigation by a Retired Supreme Court Judge Legal Framework and Precedents: Judicial supervision of investigations may be directed to ensure fairness, transparency, and public confidence, especially in cases involving serious allegations of fraud and public interest. Court's Reasoning: The petitioner urged supervision by a retired Supreme Court Judge to prevent arbitrariness and ensure impartiality. However, the Court did not explicitly order such supervision but acknowledged the petitioner's concerns regarding fairness and public confidence. Conclusion: While the Court recognized the importance of fairness and non-arbitrariness, no specific direction was issued for judicial supervision of the investigation. Issue 5: Effect of Closure or Settlement of Loan Accounts by Banks on Investigation Legal Framework and Precedents: Settlement or closure of loan accounts by banks does not necessarily preclude investigation into underlying fraud or recovery of public money, especially where fraud and money laundering offenses are concerned. Court's Reasoning: The Court clarified that mere settlement or closure of accounts by banks, even at discounted repayments, shall not impede the ED or other agencies from investigating the full extent of the alleged fraud. Conclusion: The Court explicitly held that such settlements do not bar further investigation into the matter. Issue 6: Coordination and Cooperation Among Investigative Agencies Legal Framework and Precedents: Effective investigation in complex financial fraud cases requires inter-agency cooperation and sharing of evidence and reports. Court's Directions and Reasoning: The Court directed that investigations by SFIO and CBI shall continue unabated and not be prejudiced by the ED's involvement. All agencies are to cooperate fully and complement each other's efforts. Copies of reports submitted by SFIO and CBI shall be shared with petitioner's counsel and Amicus Curiae to ensure transparency and informed participation. Conclusion: The Court emphasized collaborative investigation to facilitate comprehensive fact-finding. Issue 7: Protection of Persons Investigating or Reporting the Fraud Legal Framework and Precedents: Protection of journalists and whistleblowers is essential for uncovering fraud and ensuring accountability, consistent with fundamental rights and principles of natural justice. Court's Reasoning: The Court noted reports that a journalist investigating the matter was being followed by unknown persons, posing threats to personal safety. The Court directed the Attorney General's office to take necessary measures to ensure the safety and security of the journalist and family. Conclusion: The Court underscored the importance of safeguarding individuals involved in exposing or investigating the fraud.