[Franklin Templeton] Plea in Madras High Court says that Economic Offences Wing is not equipped to handle probe

It is necessary that the investigation in the Franklin Templeton case be conducted by appropriate personnel and that the Economic Offences Wing (EOW) in the State police be beefed up with such persons, the Madras High Court observed on Monday (Premnath Shanker v. State of Tamil Nadu and ors). .A Bench of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy was dealing with a plea raising concerns over the technical expertise of officers manning the EOW, Tamil Nadu and their ability to investigate the Franklin Templeton case..The petitioner said that the EOW should ideally comprise of officers with knowledge in financial matters such as accounting, audits, data analysis and market conditions, as is the case with the Serious Fraud Investigation Office (SFIO). .However, advocate Vaibhav R Venkatesh (for the petitioner) argued that the general practice is to transfer a DSP or other police officers from one district or another to the EOW. There are no financial experts, even though this is crucial for the EOW, he submitted. He added that this case should not be treated as an adversarial litigation. .In this backdrop, Advocate Venkatesh contended that Franklin Templeton cannot insist that the EOW remain defunct or like an ordinary police station. Venkatesh pointed out that the GO for the constitution of the EOW also requires that it be manned by auditing experts, accountants etc..Appearing for the Franklin Templeton Trustee Services, Senior Advocate V Karthic termed the present plea as being misguided and contended that Franklin Templeton ought to be impleaded as a party in the case..Senior Advocate Karthic argued further that after the Supreme Court's intervention, contrary to the petitioner's submissions, 5 of the 6 mutual funds of Franklin Templeton has improved considerably in 2021. He added that the 6 funds were wound up only have obtained the consent of the investors to these mutual funds. Further, it was pointed out that SEBI is overseeing the winding-up process and that a subsidiary of SBI is vetting the same..During the course of the hearing, the Court orally observed that while almost all states have an Economics Offences Wing, "these are just another name, like our commercial division."."Commercial divisions are working faster," Advocate Venkatesh weighed in. ."It's not like anyone specialised is working… It's just another name," the Court remarked..In its order, the Court pointed out that "(despite) earlier orders of this Court to ensure that the Economic Offences Wing is manned by trained personnel who have experience in or knowledge of accounting, auditing and market conditions, no attempt has been made to either train personnel or even engage experts of consultants.".The Bench noted that there are several auditors and investment managers whose services may be availed of by the State police, whether to train personnel or to develop a stream to deal only with economic offences. "Such a wing may also aid in unearthing or appropriately dealing with many a matter under the Prevention of Corruption Act, which is otherwise lost for lack of specialisation," the Court said. .The Court, therefore, called for a report from the Chief Secretary or the Home Secretary of the State suggesting measures "to introduce a degree of specialisation in the Economics Offences Wing of the State police, particularly in the manner of recruitment or even engagement as consultants or the like."."We will now monitor this, whether SEBI, Economics Offences Wing or ED is inquiring," the Court remarked. .Franklin Templeton, through Senior Advocate Karthic, objected to the move, arguing that the Supreme Court had been monitoring the matter. Rebutting this, the petitioner argued that the top Court had specifically said that its order has not looked into allegations of misfeasance, malfeasance and fraud..Chief Justice Banerjee, in turn, orally observed that Franklin Templeton has the resources to move the Supreme Court and upset the High Court's order, if it is aggrieved. .The matter will be taken up next in four weeks. .Of political masters, caged parrots and inept officers.In view of the submission that the Enforcement Directorate (ED) has also registered a case against Franklin Templeton for the alleged embezzlement, the Court today posed questions on the qualifications of ED officers as well. .Chief Justice Banerjee orally recalled how he has encountered concerns of inept officers in other cases involving fraudulent schemes."I pulled my hair off... (in cases involving) a lot of schemes, fraudulent schemes. I wrote over and over that this is blood money, drug money… it was only much later that the Indian Express wrote an article, following which the RBI, ED woke up to and saw how this is drug money and terror money has been changing hands… after a point of time, it has completely dried up," he said. .He went on to remark,"We have an SFIO, which does excellent work, but subject to orders of political masters... We have a CBI, which is not anything more than a caged parrot... What is the brief of the ED? Some of the agencies... have excellent personnel.".The Court was told by Advocate Venkatesh that the ED is now headed by an IRS officer, because the Union Home Ministry has realised that there are technical aspects to ED cases..In response to the Court's queries, Venkatesh also pointed towards two aspects in the Franklin Templeton case that would require an investigation by officers familiar with the nuances of financial transactions i.e.:1. Three months before winding up, there were Rs 2,000 crores worth related party transactions i.e. transactions by those related to people controlling the mutual fund;2. There was a 5000% increase in related party redemptions, which is a "classic case of insider trading.".In this backdrop, advocate Venkatesh contended that Franklin Templeton cannot insist that the EOW remain defunct or like an ordinary police station. Venkatesh pointed out that the GO for the constitution of the EOW also requires that it be manned by auditing experts, accountants etc..Before adjourning the matter today, the Court added both the ED and the Securities Exchange Board of India (SEBI) as parties to the case..In impleading the ED, the Court also observed that one concern is to ensure that there is no parallel investigation by the ED and the EOW. ."We do not want parallel agencies. Parallel agencies sometimes cut into each other, number 1. Number 2, which is the more important, practical aspect - we subject the accused to two sets of hounds… investors will get nothing. There is an Article 14 principle there also because they should be subject to only one set of hounds. Ultimately, whatever we say and do, investors will be taken for a ride," Chief Justice Banerjee said. .[Read the Order]