Bhagtani Riyo's Dismissed Case for MPID: Should You Appeal?

Mumbai, 24th March, 2018: Bhagtani Riyo victims' efforts to compel EOW to apply MPID Act got a setback last week as the special judge rejected their application. After initial disappointment, the victims' reaction was: "We must appeal!" But the question arises: Is appealing likely to be fruitful? Let us apply our mind without sentimental attachment to past decisions and actions.

First, let us remember why we filed the application under MPID.

Why MPID?

The full name of MPID Act is "Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act, 1999". It is designed to protect "depositors in financial establishments". We had three challenges: (1) People who paid Bhagtani money are not exactly "depositors". (2) JVPD Properties Pvt Ltd is not exactly a "financial establishment" (3) Section 2(c)(iv)(a) of the MPID Act explicitly excludes "advance against order for goods or services" from the term "deposits". Booking amounts are arguably advance against order of flats.

In spite of this, Bhagtani Riyo victims made an effort to get MPID Act sections applied in FIRs filed by EOW, based on the argument that Riyo is a ponzi scheme, as the project land is "gurcharan land" that can never be lawfully available for construction. (Read MoU between Bhagtani and Mhatre family trust.)

It was argued that Riyo -- more than other Bhagtani projects -- was a get-rich-quick scheme i.e. Ponzi scheme with its promise of 15% interest. (More analysis of the Ponzi-like features here.)

MPID was definitely worth a try because:

1) Action against employees. MPID could give the police sweeping powers under Section 3. Section 3 of MPID Act says, "Any Financial Establishment, which fraudulently defaults any repayment of deposit on maturity along with any benefit in the form of interest, bonus, profit or in any other form as promised or fraudulently fails to render service as assured against the deposit, every person including the promoter partner, director, manager or any other person or an employee responsible for the management of or conducting of the business or affairs of such Financial Establishment shall, on conviction, be punished with imprisonment for a term which may extend to six years and with fine..." It would have enabled EOW to scrutinize very closely the role played by Bhagtani employees.

2) Attachment of Bhagtani properties bought with collected booking amounts. Section 4(ii) of MPID Act says, "where the Government has reason to believe that any Financial Establishment is acting in a calculated manner detrimental to the interest of the depositors with an intention to defraud them; and if the Government is satisfied that such Financial Establishment is not likely to return the deposits or make payment of interest or other benefits assured or to provide the services against which the deposit is received, the Government may, in order to protect the interest of the depositors of such Financial Establishment, after recording reasons in writing, issue an order by publishing it in the Official Gazette, attaching the money or the property believed to have been acquired by such Financial Establishment either in its own name or in the name of any other person from out of the deposits, collected by the Financial Establishment, or if it transpires that such money or other property is not available for attachment or not sufficient for repayment of the deposits, such other property of the said Financial Establishment or the promoter, director, partner or manager or member of the said Financial Establishment as the Government may think fit."

3) MPID application was free-of-charge for Adv Shraddha Dubepatil's intervenors. Riyo victims who became intervenors in ABA no 1533 of 2017 with Adv Shraddha weren't charged any additional amount by her for the MPID application; only for the fees charged by counsel Nitin Pradhan were collected from them. So these intervenors felt encouraged to go ahead with this option after the ABA ended. 

Why appealing isn't necessarily a good idea

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The main purpose of the Criminal Procedure Code (CrPC) section 156(3) is to enable people to get directions from a magistrate for the police to register FIR and investigate a particular case, if the police refused to do so. CrPC section 156 says, “156. Police officer’s power to investigate cognizable case.— (1) Any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case... (3) Any Magistrate... may order such an investigation as above mentioned.”
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The function of a magistrate u/s CrPC 156(3) was clearly explained by the Supreme Court in the case of Sakiri Vasu v. State of U.P., (2008) 2 SCC 409 : AIR 2008 SC 907. The Supreme Court observed that: “…if a person has a grievance that the police station is not registering his FIR under Section 154 CrPC, then he can approach the Superintendent of Police under Section 154(3) CrPC by an application in writing. Even if that does not yield any satisfactory result in the sense that either the FIR is still not registered, or that even after registering it no proper investigation is held, it is open to the aggrieved person to file an application under Section 156(3) CrPC before the learned Magistrate concerned. If such an application under Section 156(3) is filed before the Magistrate, the Magistrate can direct the FIR to be registered and also can direct a proper investigation to be made, in a case where, according to the aggrieved person, no proper investigation was made. The Magistrate can also under the same provision monitor the investigation to ensure a proper investigation.” 

Please note that it is not compulsory for the Magistrate to direct the FIR to be registered. The law only requires that the magistrate should apply his mind properly as to whether or not the police should register the FIR and investigate the case of cognizable offense. If we appeal before the High Court, does the law require the High Court judge to apply his mind afresh to the facts of our MPID application u/s CrPC 156(3)? The answer is: No. The High Court judge will only apply his mind to one thing alone: Did the magistrate (or, in our case, special judge of the designated MPID court) apply his mind to the facts of the case? The order of the special judge will be overturned by the High Court only if the special judge's order discloses a failure to apply his mind properly.

Now let us read the special judge's order dated 14 March 2018. The main part of the order is: 

"6. Legal principles stated in the citation are not in dispute. The only point to be considered in the application is that whether u/s 156 (3) of the Cr.P.C., the Court is empowered to issue direction to investigating agency to add specific section of the specific Act in the offence and that too when FIRs are registered against non­-applicants regarding same transactions of which investigation is going on and is in progress.   

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7. It is to be noted that this Court is not meant for recovery of amount of investors only. The case must be one under the purview of the MPID Act. Advocate for the applicant failed to convince the Court how the matter comes under the purview of the MPID Act. Case of the applicant is about not adding section 3 of the MPID Act in the offence but not of non­registration of the FIR in spite disclosing cognizable offence. Investigation is the statutory powers of the police and the Court has no power to interfere with such investigation. The function of the judiciary and police are complementary, not overlapping, and the combination of individual liberty with due observance of law and order only to be obtained by leaving each to exercise its own function. If during investigation of the offence, police finds application of section 3 of the MPID Act, they can alter the section of the law in the offence."

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The judge's grounds for rejecting the MPID application

a) CrPC 156(3) may be used when police is refusing to register an FIR and investigate a particular cognizable offense. In our case, however, we are trying to use 156(3) to compel EOW to add MPID section 3 to the FIR that is already registered under many other sections of law, and is currently under investigation. The judge opines that he does not have the jurisdiction to do so, and also that passing such an order would amount to an interference in the functioning of the police.

b) The judge was not convinced that the case was within the purview of MPID Act. 

So, did the judge fail to apply his mind?

Can we convincingly argue that the MPID judge failed to apply his mind to the particulars of the Bhagtani Riyo victims' case? If the answer to this question is a YES, then file an appeal and move heaven and earth to get a favourable order!

But if the answer to this key question is NO, then Riyo victims should forget MPID and look at other legal remedies. Stubbornly barking up the wrong tree will not achieve desired results.
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ISSUED IN PUBLIC INTEREST BY
Krishnaraj Rao
98215 88114
krish.kkphoto@gmail.com