Supreme Court Cancels Bail in Chit Fund Scam Cases: CBI vs. Ramendu Chattopadhyay & Ashis Chatterjee (2019)

Date of the Judgment: November 19, 2019

Citation: 2019 INSC 1234 (This is a hypothetical citation, please use the correct citation if available)

Judges: Mohan M. Shantanagoudar, J. and Sanjiv Khanna, J.

Can individuals accused of orchestrating large-scale financial scams be granted bail when there’s a significant risk they might hinder efforts to recover the defrauded funds? The Supreme Court of India recently tackled this critical question in two appeals concerning a major chit fund scam. The core issue revolved around whether the High Court of Orissa rightly granted bail to the accused, considering the gravity of the economic offenses and the potential for obstruction of justice. This judgment was delivered by a bench of Justices Mohan M. Shantanagoudar and Sanjiv Khanna, with Justice Shantanagoudar authoring the opinion for the bench.

Case Background

The Central Bureau of Investigation (CBI) initiated an investigation following a Supreme Court order in *Subrata Chattoraj v. Union of India*. The case stemmed from allegations against Tower Infotech Ltd. and its directors, including Ramendu Chattopadhyay and Ashis Chatterjee, for running illegal collective investment schemes. The accused allegedly lured the public with promises of high returns, collecting a massive sum of Rs. 255,91,00,541, and then defaulted on repayments amounting to Rs. 15,69,35,003. The CBI’s investigation revealed that Ramendu Chattopadhyay, the Chief Managing Director, and Ashis Chatterjee, a director, were key figures in the scam. They were subsequently chargesheeted under Section 120B read with Sections 420 and 409 of the Indian Penal Code (IPC), and Sections 4 and 6 of the Prizes and Chit Money Circulation Scheme (Banning) Act, 1978. The investigation also found that the accused used to receive cash from the investors and the Respondent used to receive cash directly from the company account frequently, without proper accounting, to siphon off the money.

Timeline:

Legal Framework

The case involves several key legal provisions:

• Section 120B of the Indian Penal Code (IPC): This section deals with the punishment for criminal conspiracy. It states:
  “Whoever is a party to a criminal conspiracy to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Code for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence.”
• Section 420 of the Indian Penal Code (IPC): This section defines and punishes cheating and dishonestly inducing delivery of property. It states:
  “Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
• Section 409 of the Indian Penal Code (IPC): This section deals with criminal breach of trust by a public servant, banker, merchant, or agent. It states:
  “Whoever, being in any manner entrusted with property, or with any dominion over property in his capacity of a public servant or in the way of his business as a banker, merchant, factor, broker, attorney or agent, commits criminal breach of trust in respect of that property, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.”
• Sections 4 and 6 of the Prizes and Chit Money Circulation Scheme (Banning) Act, 1978: These sections deal with the prohibition and penalties related to the operation of prize chits and money circulation schemes.

These provisions are invoked to address the criminal actions of the accused in running the chit fund scheme and misappropriating investor funds.

Arguments

Arguments by the CBI:

• The CBI argued that the High Court granted bail to the Respondent without assigning any valid reason.
• The CBI contended that the Respondent was a key figure in the chit fund scam, and his release on bail would hinder the recovery of funds.
• The CBI highlighted that despite being granted interim bail to cooperate with the authorities in liquidating company assets, no assets were sold.
• The CBI pointed out that the Respondent was misleading investors by publishing false brochures.
• The CBI emphasized the seriousness of economic offenses involving large-scale fraud and the need to ensure that the accused does not obstruct the investigation or asset recovery.
• The CBI submitted that the Respondent was not cooperating with the One-Man Committee.

Arguments by the Respondents:

• The Respondents argued that they had not misused their liberty while on bail.
• They contended that they had not obstructed the sale of company assets by the One-Man Committee.
• The Respondents claimed that they were cooperating with the investigation agencies and the One-Man Committee.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the High Court was justified in granting bail to the Respondents without assigning sufficient reasons, considering the gravity of the economic offenses and the potential for obstruction of justice.
2. Whether the Respondents’ conduct during interim bail, particularly the lack of cooperation in asset liquidation, warranted the cancellation of their bail.

Treatment of the Issue by the Court:

Authorities

The Supreme Court did not cite any specific cases or books in this judgment. However, the following legal provisions were considered:

• Section 120B of the Indian Penal Code (IPC): Criminal conspiracy.
• Section 420 of the Indian Penal Code (IPC): Cheating and dishonestly inducing delivery of property.
• Section 409 of the Indian Penal Code (IPC): Criminal breach of trust by a public servant, banker, merchant, or agent.
• Sections 4 and 6 of the Prizes and Chit Money Circulation Scheme (Banning) Act, 1978: Prohibition and penalties related to the operation of prize chits and money circulation schemes.

Judgment

How each authority was viewed by the Court:

• The Court applied Section 120B of the Indian Penal Code* to establish that the accused were involved in a criminal conspiracy to cheat the investors.
• The Court applied Section 420 of the Indian Penal Code* to establish that the accused had cheated and dishonestly induced the investors to deliver their property.
• The Court applied Section 409 of the Indian Penal Code* to establish that the accused had committed criminal breach of trust.
• The Court applied Sections 4 and 6 of the Prizes and Chit Money Circulation Scheme (Banning) Act, 1978* to establish that the accused were running illegal prize chits and money circulation schemes.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the following factors:

• The seriousness of the economic offenses and the large amount of money siphoned off from investors.
• The failure of the accused to cooperate in the liquidation of assets despite being granted interim bail for that purpose.
• The potential for the accused to obstruct the recovery of funds if they remained on bail.
• The fact that the High Court had not provided adequate reasons for granting bail.

Fact:Law Ratio:

The Court’s reasoning was based on a combination of factual aspects, such as the scale of the scam and the conduct of the accused, and legal principles, such as the need to ensure justice and prevent obstruction of the legal process. The factual aspects weighed more heavily in the Court’s decision.

The Supreme Court found that the High Court had not provided sufficient reasons for granting bail, and that the accused had not cooperated in the liquidation of assets, which was the main purpose of the interim bail. The Court also noted the potential for the accused to obstruct justice if they were released on bail. Therefore, the Court cancelled the bail.

The Court stated, “We are of the prima facie view that if the Respondent continues on bail, there is little chance of realising any amount by selling the properties of the Tower Group of companies, since he may use unlawful tactics to keep prospective buyers away.”

The Court also observed, “It has also been brought to the notice of this Court that the Respondent, with the dishonest intention of deceiving and alluring investors, as well as agents and business developers, had got brochures of the Tower Group of companies published.”

The Court concluded, “Having regard to the material on record and since large amounts of money belonging to innocent investors have been siphoned off, as well as for the aforesaid reasons, the High Court, in our considered opinion, should not have released the Respondent on bail.”

Key Takeaways

• Bail in economic offenses, especially those involving large-scale fraud, should be granted with extreme caution.
• Courts must provide clear and cogent reasons when granting bail in such cases.
• The conduct of the accused during interim bail, particularly their cooperation in asset recovery, is a critical factor.
• Failure to cooperate in asset recovery efforts can lead to the cancellation of bail.
• The potential for the accused to obstruct justice or tamper with evidence must be seriously considered.

Directions

The Supreme Court cancelled the bail granted to the Respondents by the High Court of Orissa. The Court directed that the Respondents be taken back into custody.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that in economic offenses, particularly those involving large-scale fraud, bail should not be granted if there is a risk of the accused obstructing the recovery of funds or not cooperating with the investigation. The court emphasized that the conduct of the accused during interim bail is a relevant factor. This case reinforces the principle that the seriousness of the offense and the potential for obstruction of justice should be paramount considerations when deciding on bail applications in economic offenses. This judgment does not overrule any previous position of law, but rather reinforces the existing principles regarding bail in economic offenses.

Conclusion

The Supreme Court’s decision in *Central Bureau of Investigation vs. Ramendu Chattopadhyay & Republic of India (C.B.I.) vs. Ashis Chatterjee* underscores the importance of considering the gravity of economic offenses and the potential for obstruction of justice when granting bail. The Court’s cancellation of bail highlights the need for accused individuals to cooperate fully with authorities in asset recovery and investigation efforts. This judgment serves as a reminder that bail is not a matter of course, especially in cases involving large-scale financial fraud.

Category

• Criminal Law
  • Bail
  • Economic Offences
  • Criminal Conspiracy
  • Cheating
  • Criminal Breach of Trust
• Indian Penal Code, 1860
  • Section 120B, Indian Penal Code, 1860
  • Section 420, Indian Penal Code, 1860
  • Section 409, Indian Penal Code, 1860
• Prizes and Chit Money Circulation Scheme (Banning) Act, 1978
  • Section 4, Prizes and Chit Money Circulation Scheme (Banning) Act, 1978
  • Section 6, Prizes and Chit Money Circulation Scheme (Banning) Act, 1978

FAQ

Q: What was the main issue in the Supreme Court’s decision?

A: The main issue was whether the High Court was correct in granting bail to individuals accused of a large-scale chit fund scam, considering the risk of them obstructing the recovery of defrauded funds.

Q: What did the Supreme Court decide about the bail?

A: The Supreme Court cancelled the bail granted by the High Court, stating that the accused had not cooperated with the asset recovery process and posed a risk of obstructing justice.

Q: What are the key factors courts consider when granting bail in economic offenses?

A: Courts consider the seriousness of the offense, the potential for the accused to obstruct justice, and their conduct during interim bail, especially their cooperation with asset recovery efforts.

Q: What should an accused person do if granted interim bail in such a case?

A: An accused person must fully cooperate with the authorities, particularly in the process of liquidating assets to repay investors. Failure to do so can lead to the cancellation of bail.

Q: What is the significance of this judgment?

A: This judgment highlights that bail is not a matter of course in economic offenses, especially where there is a risk of the accused obstructing justice or not cooperating with asset recovery. It reinforces that the conduct of the accused during interim bail is a critical factor.