Wednesday, 21 August 2019

IMA Fraud Case Complete High Court Case Hearing Details dated 20 August 2019

From the Official Website of Karnataka High Court
Copied by Farhan Rasheed

High Court of Karnataka

Daily Orders of the Case Number: WP 56649/2018 for the date of order 20/08/2019
Order in WP 56649/2018
W.P.No.56649/2018 c/w W.P.Nos.15683/2019, 25208/2019, 25469-25485/2019, 25570/2019, 24979/2019 & 31624/2019

We direct the Registry to separate and detach W.P.No.15683/2019 from this group of petitions to enable the learned Additional Government Advocate to seek instructions. The detached petition shall be listed for preliminary hearing on 27th August 2019.

2. We have perused the status report submitted by the Special Investigation Team (for short the SIT ) in the IMA case which is of 19th August 2019. The report shall be re-sealed and kept in the custody of the Registrar (General) of this Court. We are not offering any comments in respect of the investigation so far carried out as the learned Advocate General has tendered for perusal of the Court the Government Order bearing No.E-HD 08 PCR 2019 dated 19th August 2019 by which, the Government of Karnataka has accorded sanction to the Central Bureau of Investigation (for short the CBI ) under Sections 5 and 6 of the Delhi Special Police Establishment
Act, 1946 for investigation of the case in Crime No.73/2019 registered in Commercial Street Police Station, Bengaluru and all other FIRs related to the investments in IMA and its group entities lodged elsewhere in Karnataka State as well as for enquiring and investigating into all illegal activities of IMA, Bengaluru and its group entities and identification in investigation of the persons involved in illegal activities in connection with the affairs of IMA Bengaluru and its group entities. The learned Advocate General states that as the matters are pending before this Court, the order is produced for perusal of the Court which shall be immediately communicated to the Central Government.

3. This Court will have to monitor the investigation which may be carried out by the CBI after it is taken over by the CBI. We, therefore, direct the CBI to submit a status report on the investigation in a sealed envelope on 13th September 2019.

4. The other issue is about the actions to be taken under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (for short the said Act of 2004 ). Firstly, we will have to deal with the issue of appointment of the Competent Authority under sub-section (1) of Section 5. To say the least, the manner in which the State Government has acted in the matter of the appointment of Competent Authority has virtually defeated the provisions of the said Act of 2004. As noted in the earlier order, from November 2018, the officers of the State Government were aware about the allegations made against the IMA and its group entities. The appointment of the Competent Authority made earlier on 10th April 2018 was cancelled by the order dated 1st February 2019. On 25th June 2019, the Deputy Commissioner, Bengaluru was appointed as the Competent Authority who was arrested by the SIT on 8th July 2019 in connection with the same offence.

5. Thereafter, by the order 24th July 2019, the State Government appointed the Regional Commissioner, Bengaluru Division, Bengaluru as the Competent Authority in respect of IMA and its group entities with immediate effect.

6. Even according to the State Government, there are more than 65000 investors in IMA and its group entities whereas, the claim of the petitioners is that there are more than one lakh investors. On this background, we have to appreciate what the State Government did on 15th August 2019. On that day, the State Government entrusted additional charge of the post of Regional Commissioner, Bengaluru to Sri Harsh Gupta, Secretary, Housing Department who, by virtue of the notification issued earlier on 24th July 2019, also became the Competent Authority under sub-section (1) of Section 5 for dealing with the cases of IMA group of companies. The State Government was fully aware of the gravity of the situation and the magnitude of the case on 15th August 2019. Still, the State Government appointed the Secretary of the Housing Department to hold additional charge of two posts namely, the Regional Commissioner as well as the Competent Authority. In our view, in the background of what has happened in the past, if the State Government, even for good reasons, wanted to transfer the Regional Commissioner, Bengaluru, it ought to have appointed an independent officer who could have effectively acted as the Competent Authority. When all this was pointed out to the learned Advocate General, he states that within a period of two days from today, a competent officer will be appointed as the Competent Authority. We hope and trust that considering the magnitude of the task, the State Government will appoint an officer who has not been burdened with any of the responsibilities. The important duties and powers of the Competent Authority have been incorporated in Section 6 of the said Act of 2004. Moreover, within 30 days from 24th July 2019, the Competent Authority will have to submit a report in terms of sub-section (1) of Section 7. By accepting the statement made by the learned Advocate General, we direct the State Government to appoint an independent officer as the Competent Authority in this case within two days from today.

7. In terms of the earlier order of this Court, the Chief Secretary of the State Government, acting as an Officer of the Court, has submitted an enquiry report. Prima facie, it appears to us that the Chief Secretary has conducted a fair enquiry as an officer of the Court and in fact, he has recorded that as there is no specific requirement of checking the background or antecedents of the person to be appointed as a Competent Authority as prescribed by the said Act of 2004, that exercise was not done before appointing the Deputy Commissioner as the Competent Authority who was immediately arrested.

8. The report of the Chief Secretary shall be re-sealed and kept in the safe custody of the Registrar (General) of this Court. Considering the magnitude of the task which we have explained earlier, we hope and trust that the State Government, before appointing the Competent Authority, makes a background check of the concerned officer inasmuch as in July 2019, the person appointed as the Competent Authority was required to be arrested in connection with the same scam. That will be the minimum expectation of the investors from the State Government.

9. As far as the domain of the IMA and its associate companies is concerned, it appears to us that in the investigation, necessary care has been taken. We are, however, not reproducing the steps taken as the same are part of the investigation.
10. Some concern was expressed by some of the petitioners about the delay in conducting the forensic audit. The submission is that forensic audit has to be completed before a report under sub-section (1) of Section 7 is submitted. The state Government will have to look into this aspect as we have already indicated that conducting of forensic audit will be a very important step which is required to be taken.

11. The learned Advocate General assured the Court that the process of identifying the assets of IMA group of companies has been undertaken and the State will keep on taking action of attachment under Section 3 as and when the details of the properties of IMA are revealed. We accept the said assurance given by the learned Advocate General on behalf of the State Government.

12. Some concern is expressed by some of the petitioners regarding the operation of the bank accounts in India by the IMA from foreign countries. An apprehension is also expressed about siphoning of the funds of IMA group of companies from the Indian accounts. All these aspects will have to be taken into consideration both by the CBI and by the Competent Authority.

13. The other issue raised by one of the petitioner appearing in person is that there is an unclaimed TDS and therefore, efforts should be made to attach the TDS amount. It is for the Competent Authority to examine the legality of attaching the amount pending towards unpaid TDS and at this stage, we cannot issue any direction in that behalf.

14. Considering the manner in which the matter has progressed, this Court will have to monitor the implementation of the provisions of the said Act of 2004 by the Competent Authority.

15. We direct the Competent Authority to submit a report to this Court on the next date about the various steps taken under the said Act of 2004. Such a report shall be submitted on 28th August 2019. For considering the said report, this group of petitions be listed on that day at 2.30 p.m. As stated earlier, we have granted longer time to the CBI to submit a report on the investigation.

16. Now coming to W.P.No.31624/2019, the first petitioner is appearing in person and the second to seventh petitioners are represented by an advocate. In fact, while filing the petition itself, it is shown that the first petitioner is appearing in person. We fail to understand how a member of the bar can appear for only some of the petitioners. Either the first petitioner or the rest of the petitioners will have to take appropriate steps as the Court is not expected to hear one petitioner appearing in person and other set of petitioners appearing through a member of the bar. Necessary remedial steps shall be taken by the petitioners before the next date.

17. We clarify that till the date on which the CBI takes over the investigation, the SIT will continue with the investigation and take necessary steps in accordance with law.

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Item Reviewed: IMA Fraud Case Complete High Court Case Hearing Details dated 20 August 2019 Rating: 5 Reviewed By: Farhan Rasheed
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