2014 (10) TMI 328 - SC - Indian Laws

Ponzi schemes - Transfer of investigation from the State Agencies to the Central Bureau of Investigation (CBI) under the Delhi Special Police Establishment Act - major financial scam nicknamed 'Chit Fund Scam' affecting lakhs of depositors across several States - Held that - 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. 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 transfer 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 the decision of this Court in Sanjiv Kumar v. State of Haryana and Others 2005 5 SCC 517, where this Court has lauded the CBI as an independent agency that is not only capable of but actually shows results. 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 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. - The Enforcement Directorate shall, in the meantime, expedite the investigation initiated by it into the scam and institute appropriate proceedings based on the same in accordance with law.

Issues Involved:
1. Transfer of investigation from State Agencies to the Central Bureau of Investigation (CBI).
2. Jurisdictional powers of High Courts and Supreme Court under Articles 32 and 226.
3. Federal structure and separation of powers.
4. Credibility and necessity of CBI investigation.
5. Role of regulatory authorities like SEBI, Registrar of Companies, and RBI.
6. Inter-state ramifications of the scam.
7. Public confidence in the investigation process.
8. Status of ongoing investigations and actions by State Governments.

Detailed Analysis:

1. Transfer of Investigation to CBI:
The judgment addresses the common practice of seeking transfers of investigations from State Agencies to the CBI under the Delhi Special Police Establishment Act. The Supreme Court reaffirmed that the power to direct such transfers lies within the jurisdiction of High Courts and the Supreme Court as established in the case of State of West Bengal v. Committee for Protection of Democratic Rights, West Bengal & Ors. The Court emphasized that judicial review is a basic feature of the Constitution, and writ courts can issue appropriate writs, directions, and orders to protect the fundamental rights of citizens.

2. Jurisdictional Powers under Articles 32 and 226:
The Supreme Court reiterated that Articles 32 and 226 of the Constitution confer the power of judicial review on the Supreme Court and High Courts, respectively. These powers are integral to the Constitution's basic structure and cannot be ousted or abridged by any Act of Parliament. The Court highlighted that judicial review ensures the protection of fundamental rights and the enforcement of constitutional provisions.

3. Federal Structure and Separation of Powers:
The judgment discussed the federal structure and the principles of separation of powers, concluding that directing the CBI to investigate a cognizable offense within a State without the State's consent does not impinge upon the federal structure or violate the doctrine of separation of powers. The Court emphasized that the judiciary has the obligation to protect fundamental rights and maintain the rule of law.

4. Credibility and Necessity of CBI Investigation:
The Court noted that the transfer of cases to the CBI should not be done routinely but only in exceptional situations where it is necessary to ensure credibility and instill confidence in the investigation. The Court cited several cases where it had directed CBI investigations due to the involvement of high-ranking officials, political leaders, or complex issues with national or international ramifications.

5. Role of Regulatory Authorities:
The judgment highlighted the need to investigate the role of regulatory authorities like SEBI, Registrar of Companies, and RBI, which failed to prevent the scam. The Court noted that the investigation should examine whether these authorities connived with the scam operators or neglected their duties, contributing to the scam's perpetuation.

6. Inter-State Ramifications of the Scam:
The Court recognized the inter-state nature of the scam, involving multiple States like West Bengal, Odisha, Assam, and Tripura. It noted that the scam's magnitude and the involvement of companies across State borders necessitated a comprehensive investigation by an independent agency like the CBI.

7. Public Confidence in the Investigation Process:
The judgment stressed the importance of public confidence in the investigation process. It noted that the State Police's investigation, despite making progress, might not inspire confidence among the aggrieved parties due to the scam's complexity and the involvement of influential individuals.

8. Status of Ongoing Investigations and Actions by State Governments:
The Court reviewed the status of investigations and actions taken by the State Governments, including the establishment of Commissions of Inquiry and the seizure of properties. It noted that while the State Police had made significant progress, the investigation's effectiveness required further scrutiny, especially regarding the money trail and the larger conspiracy angle.

Conclusion:
The Supreme Court directed the transfer of all cases related to the chit-fund scam from the State Police to the CBI for a comprehensive and credible investigation. The Court emphasized that the transfer was necessary to ensure public confidence, address inter-state ramifications, and investigate the role of regulatory authorities. The judgment also allowed the Enforcement Directorate to expedite its investigation and clarified that the ongoing proceedings before the Commissions of Inquiry and actions for recovery of funds would not be affected by the transfer.

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