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SC slams govt for failure to probe black money nexus

Expressing lack of faith in investigations into the Hassan Ali Khan and other black money-related cases, the apex court directs constitution of a Special Investigation Team to probe all black money-related cases.

Lending credence to protests over the inaction on the part of the government in bringing back black money stashed away overseas, the Supreme Court on Monday said facts coming to light during the hearing of the black money case showed "lack of seriousness" in the efforts on the part of the government.

Expressing lack of faith in investigations into the Hassan Ali Khan and other black money-related cases, a bench comprising Justice B. Sudershan Reddy and Justice S.S. Nijjar directed constitution of a Special Investigation Team (SIT) headed by two retired Supreme Court judges to probe all black money-related cases.

Read how black money comes back to India via Mauritius

The team comprising high-ranking government officials would function under the direction of the two judges and submit periodic reports before the Supreme Court. "In fact, we are not convinced that the situation has changed to the extent that it ought to so as to accept that the investigation would now be conducted with the degree of seriousness that is warranted," the bench observed.

In a strong indictment of the government, the bench said that despite knowledge of black money being stashed away in foreign countries, the government did not even attempt investigating the criminal nexus, threats to national security or other related aspects. The court clearly indicated that the government has failed to perform its constitutional duties.

"The state has the primordial responsibility under the Constitution to make every effort to trace the sources of such monies, punish the guilty where such monies have been generated and/or taken abroad through unlawful activities, and bring back the monies owed to the country."

The truth about the black money story

Pulling up the Centre for the laggardly pace of investigations into the issue of black money stashed abroad, the SC appointed a Special Investigation Team headed by Judge B.P. Jeevan Reddy to investigate & monitor steps taken to bring the unaccounted money back home.

1. HOW BLACK MONEY ENTERS THE STOCK MARKET
  • It enters the stock market via the Foreign Institutional Investors (FIIs) route
  • It also comes in via Dubba trades, which operate beyond the purview of the stock exchanges
2. THE FLOW OF BLACK MONEY
  • Analysts feel that most of the money is flowing into the real estate sector where transparency is next to nil
  • Black money is also invested in Indian firms for acquisition of stakes & buying shares on bourses through the open market
  • A large part of the black money is also deployed in the commodities market in forward trading
3.ENDING FLOW OF BLACK MONEY IN...STOCK MARKET
  • Ban Participatory Notes and do not allow FIIs to operate sub-accounts
  • FIIs made to disclose names of persons on whose behalf they invest in markets Strong political will to curb the generation and spread of black money in the country
4. ...FILM INDUSTRY
  • Set up a regulator like Sebi that would clear all projects, such as IPOs
  • This would prevent non-serious, fly-by-night operators with access to black money to enter the industry to enjoy a good time
  • Make stringent law to prevent piracy
...BULLION
  • All gold/bullion purchases of above Rs 20,000 need to be paid by card
  • Forward Markets Commission (FMC) needs to be strengthened like Sebi to clamp down on black money
  • Disallow change of trade in commodity exchanges during the day
  • Strict monitoring of transactions of diamond merchants and bullion traders

89% of the money invested by Foreign Institutional Investors was coming via the Participatory Note route, according to RBI's 2005-06 report



Expressing concern over the matter, the bench presided over by Justice Reddy, who is due to retire on Thursday, said, "The issue of unaccounted monies held by nationals and other legal entities in foreign banks is of primordial importance to the welfare of the citizens. The quantum of such monies may be rough indicators of the weakness of the State, in terms of both crime prevention, and also of tax collection."

Getting into the sermonising mode, the bench said substantial incapacity in collection of taxes is an indication of the degree of failure of the state. The volume of money secreted away could reveal the degree of softness of the state. "The more soft the State is, greater the likelihood that there is an unholy nexus between the law maker, the law keeper and the law breaker," the bench said.

But the court kept away from being drawn into any controversy by stating that it would not go into any analysis of the situation. "The citizens of our country can make, and ought to be making, rational assessments of the situation," the bench said. During the initial part of the hearing, the court said the government was evasive, confused and in denial mode but later admitted that the investigation was proceeding very slowly indeed.

It pointed out that when the matter first came up for scrutiny, the government could not explain why probe against Khan had been stalled. Khan was questioned after intervention by the court but no steps were taken on the disclosures made by him.

During interrogation at the behest of the court, Khan had named important persons, including leaders of some corporate giants, politically powerful people and international arms dealers. "So far, no significant attempt has been made to investigate and verify the same," the court said, adding that the government had "struggled" to conduct proper investigation into the affairs of Khan.

"These are serious lapses, especially when viewed from the perspective of larger issues of security, both internal and external, of the country,'' the bench said while recommending continuous monitoring of the case by the apex court. Allowing a petition by Ram Jethmalani and other activists seeking constitution of a SIT to probe black money cases, the court said the government had failed to answer questions regarding its past actions and their implications.

Noting that the Centre had justified the entry of UBS on the ground that it would facilitate the flow of foreign investments into India, the court asked, "The question that arises is whether the task of bringing foreign funds into India override all other constitutional concerns and obligations?" The court added the director of the Research and Analysis Wing (RAW) to the high level committee appointed by the government earlier. This committee would function as the SIT under the chairmanship of Justice B.P. Jeevan Reddy.

The SIT has been empowered to reopen even those cases in which charge sheets have been filed. It has also been asked to prepare a comprehensive action plan, including the creation of necessary institutional structures that can enable and strengthen the country's fight against generation of unaccounted monies, and their stashing away in foreign banks.

Meanwhile, the court directed the government to disclose documents and information it had got from Germany. The government may reveal names of those against whom proceedings had started but could keep under wraps the names of those against whom probe was going on and no wrong doing was found so far. On issues regarding the parallel economy, the court said, "The failure is not of the Constitutional values or of the powers available to the State; the failure has been of human agency."

Courtesy: Mail Today