# SUBRATA CHATTORAJ v. UNION OF INDIA & ORS

- **Citation:** [2014] 6 S.C.R. 783
- **Court:** Supreme Court of India
- **Decided:** 2014-05-09
- **Case number:** Writ Petition (Civi~ No. 401 of 2013
- **Bench:** T.S. Thakur, C. Nagappan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/subrata-chattoraj-v-union-of-india-ors-30093
- **Pages:** 36

## Headnote

A
B
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
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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 co

## Text

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[2014] 6 S.C.R. 783
SUBRATA CHATTORAJ
v.
UNION OF INDIA & ORS.
{Writ Petition (Civi~ No. 401 of 2013)
'MAY 9, 2014
[T.S. THAKUR AND C. NAGAPPAN, JJ.]
A
B
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
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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; 814A-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
expressed apprehensions about the fairness of the
investigation and prayed for entrusting the matter to a
F
·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; 815D 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] [815F-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.
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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) 1 o 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
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SUPREME COURT REPORTS
[2014] 6 S.C.R.
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
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
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
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
unconstitutional but also to enforce fundamental rights by
issuing directions or orders or writs of or "in the nature
of' mandamus, certiorari, habeas corpus, prohibition and
quo warranto for this purpose.
53. 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
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
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
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SUPREME COURT REPORTS
[2014) 6 S.C.R.
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
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
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
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
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".
(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
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.
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
0
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
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
GCourts. 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.
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[2014] 6 S.C.R.
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
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
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)
3. Having said that this Court sounded a note of caution
against transfer of cases to CBI for mere asking and observed:
"70. Before parting with the case, we deem it necessary
to emphasise that despite wide powers conferred by
Articles 32 and 226 of the Constitution, while passing any
order, the Courts must bear in mind certain self-imposed
limitations on the exercise of these Constitutional powers.
·The very plenitude of the power under the said Articles
requires great caution in its exercise. In so far as the
question of issuing a direction to the CBI to conduct
· investigation in a case is concerned. although no
inflexible guidelines can be laid down to decide whether
or not such power should be exercised but time and
again it has 11een reiterated that such an order is not to
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
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
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[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:
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"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
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,
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
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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)
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
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
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,
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
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an ugly incident involving advocates, police and media persons
within the Bangalore City Civil Court Complex. On a complaint
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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
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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
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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
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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
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
background in which the schemes are floated and the public
defrauded :
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"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.
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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.
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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.
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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.
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
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
Saradha Realty India Ltd. itself as many as 2,21,000 agents
were working, who were paid an unreasonably high brokerage
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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
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
companies had opened too many bank accounts for Round
Tripping Transactions for the monies collected by them. Apart
from as many as 218 branches spread over several States
including West Bengal, Odisha, Bihar, Assam and other States
the companies had as many as 347 bank accounts in 15 banks
in the name of the Group Companies. The bank accounts were
opened at the location of branches enabling deposit of the cash
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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
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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
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802
SUPREME COURT REPORTS
. [2014] 6 S.C.R.
A negligence on the part of the statutory Auditors. The Interim
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Report eventually draws up the following conclusions:
"Saradha Reality India Ltd. and its other 3 group
companies has collected money from the open market,
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
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
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.
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 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.
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
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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.