'Prima Facie Cheating Case Made Out': Allahabad High Court Refuses To Quash ED's Probe Against Sahara's Cooperative Societies

A bench of Justice Subhash Vidyarthi noted that a prima facie case of cheating was made out and that the proceedings under the Prevention of Money Laundering Act, 2002 (PMLA) cannot be interfered with merely because a closure report has been filed in one of the predicate offences.

The single judge thus dismissed a petition filed under Section 482 CrPC/528 BNSS by M/s Humara India Credit Cooperative Society Ltd., M/s Sahara Credit Cooperative Society Ltd., M/s Stars Multipurpose Cooperative Society Ltd., and M/s Saharayan Universal Multipurpose Society Ltd.

Before the HC, the petitioners had challenged the ED's search and seizure operations conducted (between July 3-5, 2024) at their Lucknow offices pursuant to an authorization (dated July 2, 2024), issued by the ED's Kolkata Zonal Office.

Case in brief

The Enforcement Case Information Report [ECIR] of March 31, 2023, was based on an FIR registered at Bhubaneswar under Sections 294, 506, 406, 409, 417, 420, 120-B & 34 IPC against officials of Humara India Credit Cooperative Society for allegedly inducing investors with false promises of high returns.

Although the Bhubaneswar police later filed a closure report (accepted by the Magistrate on September 14, 2024), the ED expanded its investigation after noting that over 500 FIRs were pending against Sahara Group entities, including 300+ involving scheduled offences (mostly under Sections 417, 420 and 467 IPC).

On this basis, ED conducted searches across several Sahara offices, including the Lucknow headquarters, under Sections 17(1) and 17(1A) PMLA and they seized numerous records. Challenging this action of the ED, the petitioners moved the HC.

Court rejects ED's preliminary objection

At the outset, Additional Solicitor General SV Raju, assisted by Special Counsel Zoheb Hossain and Retainer Counsel Rohit Tripathi and Advocate Ankit Khanna, objected to the Lucknow Bench's territorial jurisdiction in the matter.

It was argued that the relevant ECIR WAS registered in Kolkata, the layering of proceeds occurred there, the adjudicating authority was also situated there and hence, the courts at Kolkata will have territorial jurisdiction to examine the validity of the proceedings.

The HC, however, rejected this preliminary objection as it noted that since search and seizure were conducted at Lucknow, a part of the cause of action had accrued within Lucknow Bench's territorial limits.

Justice Vidyarthi also noted that all Sahara group accounts and records were maintained at Lucknow and ₹2.98 crore in case was seized from Lucknow and even the group's meetings and fund management occurred there.

The Court also observed that since the petitioners carry on business and have their offices in Lucknow, they could have also filed an appeal under Section 42 PMLA in Lucknow and the same principle applied to Section 482 CrPC petition too.

Thus, the HC concluded that it was competent to hear the petition.

Petitioners' Arguments

Regarding the merits of the case, Senior Advocate Vikram Chaudhary, assisted by Advocates Nadeem Murtaza, Amrendra Nath Tripathi, BM Tripathi, Ram Sajan Yadav, Sanjeev Kumar Mishra and Parth Anand, argued that after a closure report in the Bhubaneswar FIR was accepted by the concerned Magistrate, no PMLA proceedings could continue.

He submitted that it was at best the case of the non-payment of returns on investments which is covered under the Banning of Unregulated Deposit Schemes Act, 2019 (BUDS Act), and the alleged actions of the petitioners won't fall under the provisions of IPC.

He also submitted that the offence under BUDS Act is not a scheduled offence under PMLA and therefore, the entire proceedings against the petitioners under the PMLA are unsustainable in law.

He also argued that the second ECIR registered by ED in Kolkata amounted to forum shopping, since a prior ECIR on the same subject existed in Mumbai.

It was also his contention that the Sahara Group's assets were already under SEBI's attachment as per Supreme Court orders and thus, the same could not be reattached by ED. Also, Sahara's inability to pay investors was due to Supreme Court's embargo order (of Novemebr 2023) and not due to any fraudulent intent.

ED's arguments

In response to these submissions, the ED, through ASG SV Raju, submitted that over 315 FIRs across India were lodged which involve scheduled offences by Sahara entities and the ECIR is not based on a solitary FIR in which a closure report has been submitted.

He submitted that when depositors of the cooperative society began requesting maturity payments following the due date and were denied these payments, they realized that they had been misled and cheated into depositing their funds with the society

He contended that since the offences as mentioned in the FIRs/Chargesheets are scheduled offences, the proceeds of crime arising from these offences, along with the offences related to money laundering, must be investigated under the PMLA.

He also contended that multiple FIRs can form the basis of one ECIR, as held by the Delhi High Court in Rajinder Singh Chadha v. Union of India 2023 LiveLaw (Del) 1170.

He added that even if BUDS Act offences are attracted to the present matter, Section 35 of that Act clarifies that it is “in addition to and not in derogation of” other laws, so IPC provisions can also go simultaneously.

High Court's observations

Against the backdrop of these submissions, the bench, at the outset, observed that filing of a closure report in a single FIR does not preclude ED from investigating when other FIRs involving scheduled offences exist.

The Court further rejected the petitioners' contention that non-payment of returns to investors would be an offence under the BUDS Act and IPC won't be attracted as the bench noted that Section 35 makes it clear that the Act is “in addition to and not in derogation of” the IPC.

Importantly, the court referred to ED's counter-affidavit to note that all the deposit taking entities of Sahara group used the same set of branches of M/s Sahara India, same set of agents and other infrastructure including the bank accounts.

The bench also took into account ED's categorical allegation that at the time of redeposit of funds, there was no bank account transfer and only books of different entities were adjusted and all the key decisions were taken by the Head office at Lucknow and none of the decisions was taken by them in the interest of the cooperative society or its members.

In fact, the bench noted that the ED also alleged that the maturity amount of one scheme of Sahara Group was redeposited in the existing new scheme and for that no bank account transfer used to take place and the depositors were left with no option but to redeposit in its other existing scheme since the branch office of M/s Sahara India was not making repayment.

Against this backdrop, Justice Vidyarthi observed that these allegations prima facie made out commission of the offence of cheating by the petitioners so as to warrant their trial.

The court added that the correctness of allegations could be tested only at trial, not in a Section 482 CrPC petition.

Consequently, dismissing the petition, Justice Vidyarthi observed thus:

"The aforesaid facts prima facie make out commission of offence of cheating by the petitioners so as to warrant their trial for the offence. Correctness of the allegations cannot be examined by this Court in exercise of its inherent powers and that will be done by the trial Court after the parties have been given opportunity to lead evidence in support of their respective case. Therefore, I am unable to accept this contention of the learned Counsel for the petitioner".