Supreme Court directs CBI to examine all six allegations by ED against Indiabulls-linked entities

The Supreme Court on Tuesday directed the Central Bureau of Investigation (CBI) to examine all six allegations flagged by the Enforcement Directorate (ED) against Indiabulls Housing Finance and related entities.

A Bench comprising Chief Justice of India (CJI) Surya Kant, Justice Joymalya Bagchi and Justice V Mohana recorded that the five out of six allegations in the ED complaint had been investigated by the Delhi Police Economic Offences Wing (EOW), which had opined that further investigation was not advisable.

The Court noted that the CBI was seeking further investigation into the sixth allegation.

Subsequently, it directed the special judge in Mumbai to decide the CBI's application for further investigation within two weeks of August 24.

"The CBI shall thereafter submit a progress/status report to the Supreme Court," directed the Court.

Additionally, the Court directed the CBI to independently inquire into the five allegations already looked into by the EOW, irrespective of the conclusions.

“The CBI is directed to inquire into the five other allegations contained in the ED complaint irrespective of the opinion or report of the Delhi Police EOW and submit a comprehensive report to the Court,” further ordered the Court.

The directions came in a petition filed by Citizen Whistle Blower Forum. The plea relied on the ED's findings alleging suspicious loan transactions, diversion of funds, share-price manipulation and evergreening of loans involving Indiabulls-linked entities.

Advocate Prashant Bhushan, appearing for the petitioner, submitted that a Reserve Bank of India (RBI) circular mandated bank frauds involving more than ₹50 crore to be investigated by the CBI.

He argued that the six allegations in the ED complaint prima facie disclosed fraud, criminal conspiracy, diversion of funds and evergreening of loans funded through public money.

One of the allegations concerned loans of nearly ₹1,693 crore advanced to entities of the Americorp Group. Bhushan submitted that the loan funds were allegedly routed back into shares of Indiabulls entities, generating profits through manipulated share-price movements. He also referred to the ED's findings concerning alleged diversion of funds and suspicious transactions relating to the Palais Royale project.

Taking note of these submissions, Justice Bagchi noted that the EOW had examined the transactions and found no irregularity.

"That is the EOW's position. The CBI has not investigated the five allegations because it says the EOW is already looking into them. We need one competent agency to independently examine all these allegations," Bhushan submitted.

The counsel for the Indiabulls Housing Finance and related entities submitted that there was no bank fraud since the loans were repaid. No bank had alleged any default or loss, counsel argued, adding that evergreening, a practice in which fresh loans are used to repay existing loans so that stressed loans do not appear as overdue or bad, was not by itself a criminal offence.

Justice Bagchi, however, pointed to the ED's affidavit and observed that the respondents were now qualifying what constituted evergreening.

"I have looked at the ED affidavit. You are now qualifying what constitutes evergreening," he said.

CJI Kant also asked the CBI why it required permission for further investigation.

The counsel for CBI explained that the ED complaint contained six allegations, of which five were being investigated by the EOW.

The sixth allegation, involving approximately ₹1,574 crore, was already the subject of a chargesheet and therefore required the permission of the trial court for further investigation. The CBI's application was pending before the special judge in Mumbai.

Bhushan maintained that the EOW was not the competent agency to investigate allegations of bank fraud of this nature. He reiterated the need for one premier agency to examine all the allegations comprehensively.

CJI Kant noted that the CBI's status report referred to coordination between the CBI, EOW, Securities and Exchange Board of India (SEBI) and Reserve Bank of India (RBI).

The Court thereafter passed directions requiring the CBI to independently examine the five allegations earlier investigated by the EOW and to report back to the Court.

The matter will considered next after CBI files its progress/status report and the special judge decides the CBI's application for further investigation into the ₹1,574-crore allegation.

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