Supreme Court Addresses Panama Papers Investigation: Manohar Lal Sharma vs. CBI (2017)

Date of the Judgment: October 9, 2017

Citation: [Not Available in Source]

Judges: Adarsh Kumar Goel, J. and Uday Umesh Lalit, J.

Can a Public Interest Litigation (PIL) prompt the Supreme Court to order a separate investigation into the Panama Papers leak, or is the existing Special Investigation Team (SIT) adequate? The Supreme Court of India addressed this question in a recent case concerning alleged tax evasion through offshore accounts revealed in the “Panama Papers” leak. The Court considered whether the current mechanisms were sufficient to address the issues raised in the petition. The bench comprised Justices Adarsh Kumar Goel and Uday Umesh Lalit, who delivered a unanimous decision.

Case Background

The petitioner, Manohar Lal Sharma, filed a writ petition seeking a Central Bureau of Investigation (CBI) inquiry into the Indian offshore bank account holders named in the “Panama Papers” leak. The “Panama Papers” refers to a large set of leaked documents detailing offshore financial activities, including potential tax evasion. The petitioner also sought action against the Securities and Exchange Board of India (SEBI) Chairman and other related parties, alleging their failure to regulate the capital market effectively. The petitioner contended that the information revealed in the Panama Papers was not being acted upon by the concerned authorities, leading to financial losses and the protection of illicit wealth. The petition relied heavily on newspaper reports as the primary source of information.

Timeline

Course of Proceedings

The petitioner sought a direction to the CBI to investigate the Indian offshore bank account holders revealed in the “Panama Papers” and to file a report before the Supreme Court. The petitioner also sought the registration of a First Information Report (FIR) and investigation against the SEBI Chairman, associate directors, share brokers, and companies. The Ministry of Finance and Economic Affairs filed a counter-affidavit stating that a Multi Agency Group (MAG) had been formed to investigate the matter, and the SIT on black money was being regularly updated. The SEBI also filed an affidavit stating that it had put in place necessary guidelines under the Prevention of Money Laundering Act, 2002 (PMLA, 2002) and other regulations.

Legal Framework

The Court considered the following legal provisions and frameworks:

• Prevention of Money Laundering Act, 2002 (PMLA, 2002): The SEBI stated that it has put in place necessary guidelines under this Act.
• Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA, 1967): The SEBI issued a circular dated October 23, 2009, to give effect to this section.
• SEBI (Foreign Portfolio Investors) Regulations, 2014 (FPI Regulations): These regulations govern entities operating in the securities market.

The Court also noted that the holding of offshore bank accounts by Indian residents is regulated by a notification dated January 21, 2016, which requires general or special permission from the Reserve Bank of India (RBI).

Arguments

Petitioner’s Arguments:

• The petitioner argued that the “Panama Papers” leak revealed significant tax evasion and financial irregularities by Indian individuals and entities through offshore bank accounts.
• The petitioner contended that the concerned authorities, particularly SEBI, had failed to act on the information, resulting in financial losses and protection of black money hoarders.
• It was alleged that SEBI had not performed its functions as a capital market regulator, and that black money in foreign accounts could be used for terrorism, money laundering, tax evasion, corruption, and other crimes.
• The petitioner claimed that funds from offshore accounts were being circulated in the Indian stock market via participatory notes.

Respondents’ Arguments:

• The Ministry of Finance and Economic Affairs stated that the Government had constituted a Multi Agency Group (MAG) to investigate the “Panama Papers” revelations.
• The MAG included officers from the Central Board of Direct Taxes (CBDT), Reserve Bank of India (RBI), Enforcement Directorate (ED), and Financial Intelligence Unit (FIU).
• The MAG was monitoring the progress of various investigating agencies, and had submitted six reports to the SIT.
• The Department of Economic Affairs submitted that investigations were being conducted with all seriousness and at the fastest possible pace.
• SEBI argued that it had put in place the necessary guidelines under the PMLA, 2002, and other regulations to govern entities operating in the securities market.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the judgment. However, the core issue before the Court was whether a separate investigation was required in addition to the existing SIT, given the ongoing investigation by the Multi Agency Group (MAG) and the existing SIT on black money.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court referred to the following authorities:

The Court also referred to the following legal provisions:

• Prevention of Money Laundering Act, 2002 (PMLA, 2002): The Court noted SEBI’s implementation of guidelines under this Act.
• Section 51A of the Unlawful Activities (Prevention) Act, 1967 (UAPA, 1967): The Court mentioned SEBI’s circular to give effect to this section.
• SEBI (Foreign Portfolio Investors) Regulations, 2014 (FPI Regulations): The Court acknowledged these regulations governing entities in the securities market.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The order dated 4th July, 2011 in Writ Petition (Civil) No.176 of 2009* was followed by the court as it had already constituted the SIT on black money and the court found that the SIT was sufficient to address the issues raised in the present petition.
• The Notification dated 29th May, 2014 issued by the Ministry of Finance* was followed by the court to ascertain that the terms of reference of the SIT covered the subject matter of the current petition.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the fact that a Special Investigation Team (SIT) was already in place, constituted by the Supreme Court itself, to investigate matters related to black money. The Court noted that the terms of reference of the SIT were broad enough to include the issues raised in the petition regarding the “Panama Papers” leak. The Court also considered the fact that the government had formed a Multi Agency Group (MAG) to investigate the Panama Papers and that the reports of the MAG were being submitted to the SIT. This demonstrated that the government was already taking steps to address the issues raised in the petition.

Fact:Law Ratio

Logical Reasoning:

The Court did not find it necessary to issue any further directions, as the concerns raised in the writ petition were already being addressed by the existing mechanisms. The Court emphasized that Public Interest Litigation (PIL) should be used cautiously and only when there is a clear abuse of power or failure of governance. In this case, the Court found that the government was taking the necessary steps to investigate the matter.

The Court quoted from the notification dated 29th May, 2014 issued by the Ministry of Finance, which outlined the terms of reference of the SIT, stating:

“2. The terms of references of the Special Investigation Team will be as per order dated 04.07.2011 of Hon’ble Supreme Court and includes as under:-
(i) The Special Investigation Team shall function under the guidance and direction of Chairman and Vice Chairman.
(ii) The said Special Investigation Team shall be charged with the responsibilities and duties of investigation, initiation of proceedings, and prosecution, whether in the context of appropriate criminal or civil proceedings of :-
a) all issues relating to the matters concerning and arising from unaccounted monies of Hassan Ali Khan and the Tapurias;
b) all other investigations already commenced and are pending, or awaiting to be initiated, with respect to any other known instances of the stashing of unaccounted monies in foreign bank accounts by Indians or other entities operating in India; and
c) all other matters with respect to unaccounted monies being stashed in foreign banks by Indians or other entities operating in India that may arise in the course of such investigations and proceedings.”

The Court further quoted, “3. The said Special Investigation Team should be responsible to the Hon’ble Supreme Court and that it shall be charged with the duty to keep Supreme Court informed of all major developments by filing of periodic status reports and following of any special orders that Supreme Court may issue from time to time;”

The Court also noted, “6. The Special Investigation Team also empowered to further investigate even where charge-sheets have been previously filed; and that the Special Investigation Team may register further cases, and conduct appropriate investigations and initiate proceedings, for the purpose of bringing back unaccounted monies unlawfully kept in bank accounts abroad.”

Key Takeaways

• The Supreme Court did not order a separate investigation into the “Panama Papers” leak, as the existing SIT on black money was deemed sufficient.
• The Court emphasized that Public Interest Litigation (PIL) should be used cautiously and only in cases of clear abuse of power or failure of governance.
• The government’s formation of a Multi Agency Group (MAG) and its coordination with the SIT were considered adequate measures to address the issues.
• The SIT is empowered to investigate all issues related to unaccounted money stashed in foreign banks, including those arising from the Panama Papers.

Directions

The Court did not issue any specific directions, as it found the existing mechanisms to be adequate. The Court noted that the MAG would continue to submit its reports to the SIT, and the SIT would carry out any directions that the Court might give in the pending Writ Petition (Civil) No. 176 of 2009.

Development of Law

The ratio decidendi of this case is that when a competent authority is already investigating a matter, and the terms of reference of the investigating authority are wide enough to include the subject matter of the petition, the Court may not direct a separate investigation. There was no change in the previous positions of law.

Conclusion

The Supreme Court disposed of the writ petition, finding that the existing Special Investigation Team (SIT) and the Multi Agency Group (MAG) were sufficient to address the issues raised in the “Panama Papers” leak. The Court emphasized the need for caution in using Public Interest Litigation (PIL) and the adequacy of the government’s ongoing investigation efforts.