Supreme Court of India
SUBRATA CHATTORAJversusUNION OF INDIA & ORS.
- Citation
- 2014 INSC 392
- Decided
- 9 May 2014
- Disposal
- Disposed off
- Bench
- T S THAKUR
Holding
The investigation of the chit‑fund scam must be transferred to the CBI as an independent agency, and such transfer does not infringe the Constitution’s federal structure or separation of powers.
Summary
The Supreme Court examined petitions seeking to shift investigation of the multi‑state chit‑fund (Ponzi) scam, which defrauded lakhs of depositors of roughly Rs 10,000 crore, from the State Police to the Central Bureau of Investigation (CBI). The scam involved companies operating across West Bengal, Tripura, Assam and Odisha, with alleged involvement of political figures, regulators such as SEBI, the Companies Act authorities and the RBI, and possible money‑laundering dimensions. The Court held that the scale, inter‑state nature, and the perceived lack of credibility of the state investigations justified transfer to an independent agency. It ruled that such a transfer does not contravene the Constitution’s federal structure or the doctrine of separation of powers. Accordingly, it ordered the transfer of all cases against the identified 44 companies in West Bengal and Odisha to the CBI, while preserving ongoing state‑level recovery actions and commission proceedings.
Issues considered
- The appropriateness of directing the Central Bureau of Investigation to take over the investigation of the chit‑fund scam from the State Police.
- Whether such a transfer violates the federal structure, separation of powers, or provisions of the Delhi Special Police Establishment Act.
- Whether the credibility and effectiveness of the CBI are sufficient to justify the transfer despite alleged loss of credibility.
Legislation cited
- Code of Criminal Procedure, 1973s. 173(8)
- Companies Act, 1956
- Delhi Special Police Establishment Act, 1983
- Income Tax Act, 1961
- Indian Penal Code, 1860s. 120B, s. 406, s. 409, s. 420
- Prize Chits and Money Circulation Schemes (Banning) Act, 1978s. 4, s. 5, s. 6
- Reserve Bank of India Act, 1934
- Securities and Exchange Board of India Act, 1992
Subjects
chit fund scamCBI transferinter‑state fraudfinancial fraudPonzi schemejudicial reviewArticle 32Article 226federal structureseparation of powersregulatory failuremoney laundering
Judgment
[2014] 6 S.C.R. 783
SUBRATA CHATTORAJ A
v.
UNION OF INDIA & ORS.
{Writ Petition (Civi~ No. 401 of 2013)
'MAY 9, 2014
B
[T.S. THAKUR AND C. NAGAPPAN, JJ.]
INVESTIGATION: Chit fund scam-· Tran~er of ongoing
investigation from the State Police to CBI - The scam in
question affectecf lakhs of depositors across several State in C
the Eastern part of India - Huge amount of money (10,000
crores) collected from depositors - Such collection was
neither legally permissible nor invested in any meaningful
business activity - Investigation so far conducted revealed
;nvolvement of several political and other influential o
oersonalities wielding considerable clout and influence - Role
of regulators like SEBI, authorities.under the Companies Act
and RBI also under investigation by State Police Agency """'."
Writ Petition praying for transfer of investigation from State
Police to CBI - Held: Investigation by State Police in the scam E
that involved thousands of crores collected from the public
allegedly because of the patronage of people occupying high
positions in the system would not carry conviction when even
the regulators expected to prevent or check such scam
appeared to have turned blind eye to what was going on - F
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 - In the circumstances,
directions passed to transfer certain cases registered in
different police stations in State of West Bengal and Odisha G
from State Police Agency to CBI - Scam.
The question which has arisen for consideration in
783 H
784 SUPREME COURT REPORTS [2014] 6 S.C.R.
A the instant writ petitions was whether the transfer of the
ongoing investigation from the State Police to the CBI
was called for in the chit fund scam which has affected
lakhs of depositors across several States in the Eastern
part of India.
B
Disposing of the writ petitions, the Court
HELD: 1. The financial scam nicknamed chit-fund
scam that hit the States of West Bengal, Tripura, Assam
and Odisha involved collection of nearly 10,000 crores
C (approx.) from the general public especially the weaker
sections of the society which fell prey to the temptations
of handsome returns on such deposits extended by the
companies involved in the scam. The investigation so far
conducted suggested that the collection of money from
D 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. More than 25 lac claims have
so far been received by the Commissions of Enquiries
E 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. The companies which have indulged in ponzi
schemes have their tentacles in different States giving the
F scam inter-state ramifications. Such huge collections
could have international money laundering dimensions
and needs to be effectively investigated. The
Investigation so far conducted revealed involvement of
several political and other influential personalities
G wielding considerable clout and influence. 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 indepentlent
investigation. If upon investigation it is found that SEBI
H
SUBRATA CHATTORAJ v. UNION OF INDIA 785
did have the jurisdiction to act in the matter but failed to A
do so then such failure may tantamount to connivance
and call for action against those who failed to act
diligently in the matter. 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 B
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 c
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. [Paras 22 and 30] [810-A-C; 814-
A-E] D
2. Each one of these aspects called 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 E
cases from the State police have been ordered by this
Court in cases also with a view to ensure credibility of
such investigation in the public perceptioh. Transfers
have been ordered by this Court even in cases where the
family members of victim killed in a firing incident had F
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 involved thousands of
crores collected from the public allegedly because of the G
patronage of people occupying· high positions in the
system would hardly carry conviction especially when
even the regulators who were expected to prevent or
check such a scam appeared to have .turned a blind eye
to what was going on. The State Police Agency has done . H
786 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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. Th.e question is whether what is done
B by the State police is sufficient to inspire confidence of
those who are aggrieved. 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
c 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. [Para 31] [814-F-H; 815-
D A-E]
3. The contention on behalf of the State of West
Bengal and Odisha was 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 past. There is,
E 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.
F Those not satisfied with the performance of the State
Police more often than not demand investigation by the
CBI for it inspires their confidence. Therefore, transfer of
the cases cannot be declined only because of certain
stray observations or misplaced apprehensions
G expressed by those connected with the scam or those
likely to be affected by the investigation. [Para 33] [815-
F-H; 816-A-B]
4. There is yet another dimension of the scam which
cannot be neglected. The ponzi companies operated
H across State borders. These companies and such other
SUBRATA CHATTORAJ v. UNION OF INDIA 787
similar companies indulged in similar fraudulent activities A
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 B
the State Government. In the circumstances, directions
are passed to transfer certain 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 Joint Director CBI, lncharge of the c
States of West Bengal and Odisha may 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.
Transfer of investigation to the Central Bureau of
Investigation (CBI) in terms of this order shall not, D
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.
The State Police Agencies currently investigating the E
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 F
by it into the scam and institute appropriate proceedings
based on the same in accordance with law.[Paras 23, 34,
35, 36 and 37] [810-D-F; 817-B, H; 818-A-D]
lnder Singh v. State of Punjab (194) 6 SCC 275 1994
(3) Suppl.SCR 573; R.S. Sodhi Advocate v. State of UP. and G
Ors. 1994(Supp) (1) SCC 143; State of Punjab v. CBI (2011)
9 SCC 182; 2011 (11) SCR 281 Advocates Association,
Bangalore, v. Union of India and Ors. (2013) 10 SCC 611;
State of West Bengal v. Committee for Protection of
Democratic Rights (2010) 2 SCC 571 - relied on. H
788 SUPREME COURT REPORTS [2014] 6 S.C.R.
A Case Law Reference:
1994 (3) Suppl. SCR 573 Relied on Para 5
1994 (Supp) (1) sec 143 Relied on Para 6
B 2011 (11) SCR 281 Relied on Para 7
(2013) 1o sec -s11 Relied on Para 8
(2010) 2 sec 571 Relied on Para 8
'
CIVIL ORIGINAL JURISDICTION : Writ Petition (Civil)
C No.401 of 2013.
Under Article 32 of the Constitution of India.
WITH
\
D W.P. (C) Nos. 402 & 413 of 2013, 324 of 2014
T.P. (C) No. 445 of2014
S.K. Bagaria, Rakesh K. Khanna, Mukul Gupta, Siddarth
E Luthra, ASG, Bikas Ranjan Bhattacharya, Ashok Bhan, C. S.
Vaidyanathan, Mukul Rohtagi, Prag Tripathi, P.V. Shetty, B.S.
Sanyal, Subhasish Bhowmick, Ravi Shankar Chattopadhyay,
Anindya Sunder Das, K.C. Mittal, Niti. Luthra, Dipak
Bhattacharyya, Subrata Mukopadhyay, S.K. Sabharwal, Anip
Sachthey, Suhaan Mukherjee, Haripriya Padmanabhan, Kabir
F S. Bose, Mohit Paul, Shagun Matta, Saakaar Sardana, Ashok
K. Shrivastava, Anirudh Tanwar, Mohit Nagar, N.K. Karhail,
Lakshmi Gupta, Mini Kaushik, Sushma Suri, AK.Srivastava,
Aseem Swaroop, Suvarna Kashyap, N.K. Karhail, B.K. Prasad,
B.V. Balaram Das, D.S. Mahara, Ramesh Babu M.R., Swati
G Setia, Shadman Ali, Ashok Dhamija, Bhargava V. Desai,
Shreyas Mehrotra, Prateek Jalan; Siddarth Bhatnagar,
Prasenjit Keswani, Sonia Dube, S. Chakraborty (for Legal
Options) Samir Ali Khan, Kirti Renu Mishra, Apurva Upmanyu,
Gaurikaruna Das Mohanti, Shibashish Misra, Anip Sacthey,
H
SUBRATA CHATTORAJ v. UNION OF INDIA 789.
Kabir S. Bose, Shagun Matta, Liz Mathew, Vybhav Ramesh, A
Mahesh Thakur, Snehshish Mukherjee, Ajit Kr. Roy, Govind
Manoharan, Shruti Iyer, Senthil Jagadeesan, Sajith P.,
Amandeep Singh, Sumit Kumar, Subhajit Bal, Abhishek Shaw,
Shamba Nandy, Vikranjit Banerjee, Snehshish Mukherjee for
the appearing parties. B
The Judgment of the Court was delivered by
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 C
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, D
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 E
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. Rejeding the
contention, this Court held that power of judicial review itself
being a basic feature of the Constitution, the writ courts could F
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 G
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 H
790 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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
B 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
c 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
D other provisions of the Constitution, which obviously would
include the rights conferred in Part fff 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 Jaw as
E 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.
F 53. ft is pertinent to note that Article 32 of the Constitution
is also contained in Part I/I 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
G
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
H
SUBRATA CHATTORAJ v. UNION OF INDIA 791
[T.S. THAKUR, J.]
and is not confined to issuing the high prerogative writs A
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 B
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 C
words:
"68. Thus, having examined the rival contentions in the
context of the Constitutional Scheme, we conclude as
follows: D
(i) The fundamental rights, enshrined in Part Ill 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 E
the basic structure doctrine. The actual effect and impact
of the law on the rights guaranteed under Part Ill 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 F
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 onlv
takes within its fold enforcement of the rights of an
accused but also the rights of the victim. The State has G
a dutv 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 H
792 SUPREME COURT REPORTS [2014) 6 S.C.R.
A 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
B 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
c Constitution embodied in Part Ill 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
D 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 a/so necessary to show any
E 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 Jaw. the principle of constitutionality and the reach
of judicial review".
F (iv) If the federal structure is violated by arty 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
G 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.
H
SUBRATA CHATTORAJ v. UNION OF INDIA 793
[T.S. THAKUR, J.]
(v) Restriction on the Parliament by the Constitution and A
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 8
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 whv. in an
exceptional situation. court would be precluded from C
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. 0
(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 E
a/so 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 F
Police Act. Irrespective of there being any statutory
provision acting as a restriction on fhe 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 G-
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.
H
794 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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
B 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
c jurisdiction but also an obligation to protect the
fundamental rights, guaranteed by Part Ill in general and
under Article 21 of the Constitution in particular, zealously
and vigilantly"
(emphasis supplied)
D
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
E
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
F 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 11een reiterated that such an order is not to
G be passed as .a matter of routine or merely because a
party has lev~lled some allegations against the local
police. This extra-ordinarv power must be exercised
sparinqlv. cautiously and in exceptional situations where
it becomes necessary to provide credibility and instill
H confidence in investigations or where the incident may
SUBRATA CHATTORAJ v. UNION OF INDIA 795
[T.S. THAKUR, J.]
have national and international ramifications or where A
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 B
its credibility and purpose with unsatisfactory
investigations."
. (emphasis supplied)
4. We may at this stage refer to a few cases in which this C
Court has either directed transfer of investigation to the CBI or
1 upheld orders passed by the High Court directing such transfer.
5. In lnder Singh v. State of Punjab (1994) 6 SCC 275
this Court was dealing with a case in which seven persons D
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 E
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 l.G. (Crime) culminating in an
independent inquiry through the Superintendent of Police, F
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 G
filed before this Court under Arttcle 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 th~ CBI into the
circumstances of the abduction of seven persons; their present H
4
796 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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.
B
6. In R.S. Sodhi Advocate v. State of UP. 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
C 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
D 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
E 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:
F
"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
G
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,
H
SUBRATA CHATTORAJ v. UNION OF INDIA 797
[T.S. THAKUR, J.]
credibility. However faithfully the local police may carry A
out the investigation, the same will lack credibility since
the allegations are against them. It is only with that in
mind that we having thaught it both advisable and
desirable as well as in the interest of justice to entrust the
investigation to the Central Bureau of Investigation B
forthwith and we do hope that it would c•omplete 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 c
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)
D
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 w~at was known as "Moga Sex Scandal"
case. The High Court had while ordering transfer of the E
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 F
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, G
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 H
798 SUPREME COURT REPORTS [2014] 6 S.C.R.
A filed by the Advocates' Association, Bangalore, befor~ 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
B 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 invol:ved in the incident.
In addition, the Registrar, City Civil Court also lodged a
complaint with the police for causing damage to the property
c 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
D 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 likie the CBI. Relying upon the
decision of this Court in St1'~: of West Bengal v. Committee
for Protection of Democratic Rights (2010) 2 SCC 571 this
E 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,
F 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
G 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 vyith utmost care and circumspection this Court
has more often than not directed transfer of cases where the
fact situations so demand.
SUBRATA CHATTORAJ v. UNION OF INDIA 799
[T.S. THAKUR, J.]
10. We are in the case at hand dealing with a major A
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 B
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 C
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 D
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 E
background in which the schemes are floated and the public
defrauded :
"The company Mis Saradha Realty India Ltd. was
involved in financial fraud involving in an attempt to· F
deliberately mislead the general public by announcing
dubious money multiplier schemes. It has a/so indulged in
misleading the financial status of the group companies by
incorrect disclosures in the financial statements in an attempt
to deceive financial statement user:; and regulatory
authorities. G
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.
800 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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 slhe has
8 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
C 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.
D 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.
E 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
F 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:
G (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;
H (3) the investment promoters tum themselves in and confess."
SUBRATA CHATTORAJ v. UNION OF INDIA 801
[T.S. THAKUR, J.]
11. The Report suggests that the investors were promised A
very high returns by way of interest rate ranging from 10% to
18%. The said returns promised to the depositors were,
according to the Repor.t, 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 B
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 c
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 D
cash collections. The Report states that the company had no
real i'ntention 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
E
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 F
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 G
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 H
802 SUPREME COURT REPORTS . [2014] 6 S.C.R.
A 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,
B 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
c 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 NidhilChit fundlNBFC. Its MOA also does not
D 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 23141
2013.
E
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
F 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.
G 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 cofnplied.
H
SUBRATA CHATTORAJ v. UNION OF INDIA 803
[T.S. THAKUR, J.]
The agents are main part of the entire operations of the A
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 B
collected (almost 30% of collections) and th,e 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. Dther than ·c
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 D
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 E
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 F
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 G
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 H
804 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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
B
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."
c
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
D 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
E 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,
F 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
G 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
H companies and to recommend ways and means for providing
SUBRATA CHATTORAJ v. UNION OF INDIA 805
[T.S. THAKUR, J.]
succor to those who had lost their savings. The Commission A
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 8
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 C
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 D
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 E
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 F
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 G
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
H
806 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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~
B Police Station after being interrogated on several occasions.
The said Kunal Kumar Ghosh was the media CEO of Saradha'
Gr6up 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
c 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
0 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
E 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
F 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
G 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
H Bengal in which the purchase value of the property acquired
SUBRATA CHATTORAJ v. UNION OF INDIA 807
[T.S. THAKUR, J.]
lby Saradha Group of Companies was estimated at Rs.40 A
·crores o~ly 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 B
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 c
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
0
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 E
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 F
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 G
Investigating Agency was deliberately avoiding 10 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 tin;ie to file an affidavit setting out the particulars H
808 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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
8
registered in Bidhannagar Police Station (North) on 6th May,
2013 under Sections 406, 409, 420, 1208 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
C 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 lnv~stigation 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
D 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
E 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
F identified by the Investigating Agency for interrogation. We do
not consider it nec,essary 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,
G 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.
H
SUBRATA CHATIORAJ v. UNION OF INDIA 809
[T.S. THAKUR, J.]
20. There is yet another aspect to which we must advert A
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 B
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 c
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 0
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 E
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 F
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 G
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 H
\
810 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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
B 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
c 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
D 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
E similar fraudulent activities in the State of Assam and T~ipura
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
F 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
G 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'
H
SUBRATA CHATTORAJ v. UNION OF INDIA 811
[T.S. THAKUR, J.]
for not preventing such companies from defrauding the innocent A
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. B
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 C
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 D
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 E
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 F
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 G
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 H
812 SUPREME COURT REPORTS (2014] 6 S.C.R.
A 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
8
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
C 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 Mis Nabadiganta Capital
Services Ltd. against which no criminal case have been
registered so far. The affidavit also states that 7,45,293
D 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
E 18,596 investors by M/s Prayag lnfotech 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
F 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
07.02.20t3 under the same provisions registered in.
G 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 Ml
s Astha International Ltd. It was submitted that while charge
sheets have been submitted in three cases mentioned above
H within the period of limitation, investigation has .been kept open
SUBRATA CHATTORAJ v. UNION OF INDIA 813
[T.S. THAKUR, J.]
under Section 173 (8) of the CrP.C. to investigate the larger A
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. B
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 · C
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 D
the Central and the State police authorities may make.
30. The factual narrative given in the foregoing paragraphs
·clearly establish the following:
E
1. That financial scam nicknamed chit-fund scam that
has hit the States of West Bengal, Tripura, Assam
and Odis ha involves collection of nearly 10,000
crores (approx.)from the general public especially
the weaker sections of the society which have fallen
F
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 G
neither legally permissible nor were such
collections/deposits invested in any meaningful
business activity that could generate the high
returns/promised to the depositors.
H
a·14 SUPREME COURT REPORTS [?014) 6 S.C.R.
A 3. Thatmore 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
B 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
c dimensions cannot be ruled out and needs to be
effectively investigated.
5. Thatlnvestigation so far conducted reveals
involvement of several political and other influential
D personalities wielding considerable clout and
influence.
6. Thatthe role of regulators like SEBI, authorities
under the Companies Act and the Reserve Bank
E 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
F 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
G 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
H of victim killed in a firing incident had expressed apprehensions
SUBRATA CHATTORAJ v. UNION OF INDIA 815
[T.S. THAKUR, J.]
about the fairness of the investigation and prayed for entrusting A
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 B
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 c
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
0
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 E
the inter-state ramifications, whi~h 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 F
argued that the CBI itself has in a great measure lost its
credibility and is n't> 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 G
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
H
816 SUPREME COURT REPORTS [2014] 6 S.C.R.
A 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 transfer1
8 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
ttie decision of this Court in Sanjiv Kuma( v. State of Haryana
and Others (2005) 5 SCC 517, where this Court has lauded,
C 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
D 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
E additional load on their head to carry. Yet, the fact
remains that CBI as a Central investigating agency
enj<Jys 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
F 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
G
an officer of unquestion(jid independence and then
monitored so as to reach a successful conclusion; the
tr,uth 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
H
SUBRATA CHATTORAJ v. UNION OF INDIA 817
[T.S. THAKUR, J.]
gives results. We hope and trust the sentinels in CBI A
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 B
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:
c
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 D
406, 409, 420 and 120B of the IPC.
2. Allcases in which the investigation is yet to be .
completed registered against any other company
upto the date of this order.
E
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 F
scam.
B. State of Odisha :
All cases registered against 44 companies mentioned in
our order dated 26th March, 2014 passed in Writ Petition G
(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, lncharge H
818 SUPREME COURT REPORTS [2014) 6 S.C.R.
A 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.
B 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
c 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.
D 37. The Enforcement Directorate shall, in the meantime,
expedite the investigation initiated by it into the scam and
institute appropriate proceedings based on the S(!_me in
accordance with law.
E 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.
F 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
G disposed of in terms of the above directions. No costs.
Devika Gujral Petition dismiSsed.
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