TaxTMI 
TaxTMI 
2014 (10) TMI 328
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....as 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 Constitutio....
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....heme, 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 C....
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....e. 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....
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....ch 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 peti....
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....lice 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 ....
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....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 ....
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....st 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 t....
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....heme, 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 addre....
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.... 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 In....
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....e 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 investme....
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....ed 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 Investigatio....
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.... 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 m....
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....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 Co....
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....t 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 e....
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.... 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....
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.... 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 u....