In the Supreme Court of India. Decided on 9th May, 2014. Civil Original Jurisdiction. Equivalent citations: (2014) 8 SCC 768 Bench: Hon’ble Justice T.S. Thakur, Hon’ble Justice C. Nagappan. Appellant: Subrata Chattoraj. Respondents: Union of India and Ors.
This case is about India’s largest financial scam nicknamed “chit-fund scam” which had affected the States of West Bengal, Tripura, Assam, and Odisha. The financial scam collected nearly 10,000 crores (approx.) from the general public essentially comprising the weaker and gullible sections of the society who had deposited their earnings, tempted by the handsome returns promised by the companies involved in the scam. One such company involved in the scam was Sardha Group of Companies which had a major hand to play in the Ponzi scheme of the scam. As many as 25 Lakh claims were said to be lodged by the depositors before the Commission of inquiry set up by the States of Odisha and West Bengal. The scam had inter-state ramifications and many influential figures were alleged to be involved in the scam. The role of SEBI and RBI was also questioned.
Sardha Realty India Ltd:
The company floated various schemes to lure the depositors to collect from the market a sizeable amount on the promise of getting profitable and rewarding returns. According to the report submitted by Sarath and Associate, Chartered Accountants in 2014 the company misleads its financial status by incorrect disclosures in financial statements in an attempt to deceive financial statement users and regulatory authorities. 2,21,000 agents were paid a high brokerage of 30% which drove them to collect as many deposits. The collection made by the Saradha Group of companies is estimated to be Rs.2459 Crores.
This case which involved the country’s biggest financial scam posed a question whether the courts were enabled within their jurisdiction to direct transfer of investigation of cases without the consent of the state. The court in this case answered the question and stated the grounds necessary to grant such power. It was held that exercise of constitutional power of the court with regards to judicial review would be permissible if the issue at hand posed a threat to Part III of our constitution and stated that such intervention wouldn’t violate the doctrine of separation of powers or federal structure.
Constitution and Statutory provisions discussed:
Part III, Seventh Schedule, Article 32 and 226 of the Constitution. Section 6 of the Delhi Special Police Establishment Act, 1946. 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.
The appellants, in this case, had approached the Supreme Court by writ petitions under Article 32 of the Constitution to direct the transfer of investigation from the state agencies to the Central Bureau of Investigation (C.B.I).
- Does the Court have power to direct transfer of cases to the C.B.I without the consent of the State?
- Can exercise of power of Judicial review by the court amount to infringement of the doctrine of separation of power or federal structure?
Contentions put forth by appellant:
- It was argued by Mr. Bhattacharya that the copies of the charge sheet filed by the State relate to only the individual deposits leaving untouched the larger conspiracy angle that needs to be addressed and hence contended that the Investigating Agency was deliberately avoiding to investigate that vital aspect.
Contentions put forth by respondent:
- It was argued by Vaidyanathan and Gopal Subramanium, learned counsel for the States of West Bengal and Odisha that the C.B.I had lost its credibility and it was no longer as effective as it used to be.
- It was contended that the larger conspiracy angle was investigated separately in an FIR registered with Vidhannagar Police Station.
- It was contended that the transfer of such cases shouldn’t hamper the recovery process initiated by the state. The public prosecutors appointed by the C.B.I should be assisted by State Police officials so the efficacy of investigation and prosecution are taken care of.
The court stated that the power of the court to direct such transfer of cases was common and relied on the judgment in the case of the State of West Bengal and Ors. v. Committee for Protection of Democratic Rights, West Bengal & Ors where the court rejected the contention that the doctrine of separation of powers and the federal structure makes it impermissible for Superior courts to transfer cases from the state agencies to the C.B.I. It held that judicial review is a basic feature of the Constitution and the court can issue writs and directions to protect the fundamental rights of citizens.
The court in the present case stated that Fundamental Rights in Part III of the Constitution are inherent and cannot be extinguished by any statutory provision. Any law abridging or abrogating such right would be violative of the basic structure doctrine. The effect and impact test has to be used to determine whether such law violates basic structure.
Article 21 entails an individual to the protection of their lives and personal liberty except according to the procedure established by law. The court stated that the scope of Article 21 was wide and it includes rights of the accused as well as the rights of the victim. It was stated that it was the duty of the state to ensure a fair and impartial investigation against the accused of commission of a cognizable offense, which could include even its own officers. Even a witness to a crime is entitled to such protection.
The court stated that Judicial review was an integral part of the Constitution and the courts under Article 32 and Article 226 were empowered to enforce fundamental rights if an Act of the Parliament threatened to curtail the constitutional powers of the court. It was stated that the distribution of powers between the Parliament and State Legislatures involves limitation on the legislative powers and it thus requires an authority other than the Parliament to determine whether such limitations are transgressed. Thus, ‘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 but it is also necessary to show any transgression by each entity.’
The courts act as guardians and interpreters of the Constitution and provide remedy under Article 32 and 226 if the federal structure is violated by any legislative actions. Hence, any directions by the High Court and Supreme Court in exercise of power under Article 32 or 226 to uphold the Constitution cannot be considered to be violating the federal structure.
The court stated that ‘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.
An investigation by another agency is permitted subject to consent of the state under Entry 2 of List II of The Seventh Schedule and Entry 2A and Entry 80 of List I. On the basis of that the court stated that the courts too in exceptional circumstances could exercise the provisions of the Statute and by exercising the power the constitutional courts won’t be deemed as violating the doctrine of separation of powers.
When the Delhi Special Police Establishment Act, 1946 can transfer such cases to the C.B.I within its jurisdiction, the court can also exercise its power of judicial review and direct transfer of investigation to C.B.I. The power of High court under Article 226 cannot be curtailed by invoking Section 6 of the Special Police Act. Section 6 of the Special Police Act cannot be termed as restriction on the power of the Constitutional Courts and thus, the exercise of judicial review by the High Court would not violate the doctrine of separation of power or the federal structure. It was stated that High Courts and Supreme Courts under their jurisdiction have an obligation to protect Fundamental Rights under Part III in particular, Article 21.
The court sounded a notion of caution against transfer of cases to the C.B.I and stated that ‘this extra-ordinary power must be exercised sparingly, cautiously and in exceptional situations where it becomes necessary to provide credibility and instil 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.’
The court referred to the cases of Inder Singh v. State of Punjab, R.S. Sodhi Advocate v. State of U.P. and Ors., State of Punjab v. CBI, Advocates Association, Bangalore v. Union of India and Ors., where the court had directed transfer of cases to the C.B.I or upheld the order of the High Court directing the same.
The court stated that the present case involved the company M/s Saradha Realty India Ltd in a major financial scam and fraudulent Ponzi schemes pertaining to land, flat, tour, travel allotment. The majority of people who invested in such schemes were economically poor according to a report submitted to the SEBI by Sarath & Associate, Chartered Accountants in 2014. The report suggested that the investors were promised high returns by way of interest rates ranging from 10% to 18%. According to the report, the company had opened many bank accounts for Round Tripping Transactions and it had as many as 347 bank accounts in 15 banks in the name of Group Companies. The company had also violated 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.
The court stated that the companies indulging in such Ponzi schemes have their roots in various States giving this case inter-state ramifications. Such huge collections could have international money-laundering schemes and thus, needs to be thoroughly investigated. The investigation conducted so far includes the involvement of several political and influential personalities wielding considerable influence. The role of SEBI and RBI was also under investigation by the State Police agency. In order to come to a logical conclusion these investigations should be carried by an independent agency.
The court stated that such a matter of vast complexity and the alleged involvement of prominent figures makes the ongoing transfer of investigation from the state agency to the C.B.I permissible. Such aspects need to be investigated by an independent agency to ensure the credibility of such investigation in public perception.
The court commended the role of State police agencies in making seizures, registering cases, filing chargesheets, etc. and stated that the reason for transfer of cases wasn’t because of any fault of the State police. The reason for such transfer was because the money trail had still not been traced.
The court rejected the contention raised by the respondents and stated that it could not decline the transfer of cases on the ground of few misplaced apprehensions made by those connected to the scam and those who are likely to be affected by such investigation. The court extracted a passage from the case of Sanjiv Kumar v. State of Haryana and Others wherein the court had lauded the C.B.I as an independent agency that is not only capable of but can actually show results.
In the light of the circumstances, the writ petitions were allowed and the court allowed for the transfer of 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).
The court stated that the transfer of such cases would not affect the proceedings pending before the Commissions of Enquiry established by the State Government. The State Police Agencies currently investigating the cases should provide the fullest cooperation to the CBI including assistance in terms of men and material to enable the C.B.I to conduct the investigation efficiently.
The court directed The Enforcement Directorate to expedite the investigation initiated by it into the scam and institute appropriate proceedings. The court didn’t consider it necessary to constitute a monitoring team to monitor the progress of investigation in relation to the scam. The writ petitions were disposed of with no costs.
Thus, the court through this judgement enabled the C.B.I to carry on further investigation and concluded that the court within their power of Judicial Review are empowered to direct the transfer of investigations of cases. It also held that such transfer of cases by the courts wouldn’t hamper with the doctrine of separation of powers or the federal structure.