Opinion In Re Islandsite – The NPA should now withdraw Red Notices in Respect of the Gupta Brothers

The NPA must do the right thing in the interest of justice and withdraw Red Notices in Respect of the Gupta Brothers

The first state capture trial ended in a discharge for the defendants on 21st April 2023, with acting Bloemfontein high court judge Nompumelelo Gusha saying both the police and prosecution had been woefully inept in their handling of the Nulane Investments fraud and money-laundering case.

Gusha granted a section 174 release to Gupta associate Ronica Ragavan and the fugitive family’s Islandsite Investment, two former Free State government officials and the directors of Nulane Investments, former Transnet board member Iqbal Sharma and his brother-in-law Dinesh Patel.

The former head of the provincial departments of agriculture and rural development, Limakatso Moorosi, did not file a section 174 application but was likewise acquitted, with Gusha saying the state had failed to produce a shred of evidence against her.

Section 174 of the Criminal Procedure Act, which provides for discharge of the accused at the close of a trial, states if the court is of the view that “there is no evidence that the accused committed the offence referred to in the charge or any offence of which he may be convicted on the charge, it may return a verdict of not guilty’’.

The judge said it was clear that R24.9 million had flowed from the state’s coffers but regrettably the prosecution had failed to show what happened to the money.

The government had founded its ultimately unsuccessful request for the extradition of Atul and Rajesh Gupta on the charges set out in the Nulane case and those in the Estina matter, in which a further R280 million allegedly flowed to their bank accounts.

The prosecution had alleged that the two brothers were part of a conspiracy to defraud the Free State government and intended to add them to the list of accused if they were surrendered to South Africa.

It relied on the doctrine of common purpose to prove that all the accused colluded to commit fraud and ensure most of the money made its way to a United Arab Emirates Standard Chartered Bank account linked to the Gupta family.

According to the indictment, the provincial agriculture department, in October 2011, received an unsolicited letter from Indian metal wares company, Worlds Window Impex, stating its intent “to participate as a strategic partner in the Project Mohoma Mobung”.

At the time the study was initiated, the state said, the province was in financial dire straits and there was no plan and no funding for such. The letter noted that World Window Impex would require due diligence to be done by a service provider of its preference.

About three weeks later, two contracts worth R24.9 million were signed in Sandton. According to the charge sheet, public finance management rules were broken to appoint Nulane Investments, headed by Sharma, to conduct the requested feasibility study for a dairy farm project.

Nulane outsourced the study to Deloitte, for a fee of R1.5 million, and then Nulane Investment subsequently changed the findings of the study to pinpoint Paras as the most suitable implementing partner for setting up a milk-processing plant in Vrede in the Free State.

The rest of the money was laundered, the state said, with “bewildering rapidity”, through the bank accounts of Islandsite, Pragat, Wone Management, Confident Concepts, Tegeta Resources, Oakbay Investments and Arctos Trading.

In July 2012, R19 million was transferred from Nulane’s Bank of Baroda account into the account of Gateway Limited, a company incorporated in Ras Al-Khaimah in the United Arab Emirates. This Standard Chartered Bank account was controlled by Sanjay Grover, a Dubai-based friend of the Guptas who served as the company’s sole shareholder.

There were concerns from the outset as to whether the state had managed to prepare thoroughly for the case.

Last year, during a pre-trial hearing, Judge Martha Mbhele pointedly asked the prosecution, lead by advocates Peter Serunye and Jacyntha Witbooi, whether they will be ready to proceed to trial in January this year and warned them that the court could not continue child-minding the state.

After this, the National Prosecuting Authority (NPA) briefly engaged private counsel to help prepare the prosecution but did not retain the senior counsel in question to lead argument before court.

The trial began on January 23, after numerous requests for further and better particulars from lawyers for the defence. The state mostly declined, playing its cards close to its chest.

On 21st April 2023, the court found that it had failed to prove common purpose to defraud the state.

Gusha noted that the prosecution had not produced evidence as to the identity of the persons who changed the Deloitte report and had failed to counter the doubt the defence had raised about the authenticity of the letter sent to the department, which led to the contract with Nulane.

The lead investigator in the matter conceded in court that he never contacted Worlds Window Impex to establish whether the letter was authentic.

Of the evidence of Simphiwe Mahlangu, a forensic auditor at the national treasury, Gusha said: “The fact is that in the course of his investigations he did not consult with and afford any of the accused an opportunity to be heard.

“His evidence is based on copies of documents he was favoured with. His [evidence] does not take the state anywhere, save only to confirm that the amount of R24 948 240 somehow made its way [out] of the coffers of the department and into the banking accounts of Nulane Investments.”

Gusha commented that the outcome may give “a sense of loss, if not dejection, to the citizenry of the country” but that the state had “regrettably failed to pass even the barest of thresholds”.

Islandsite Investments 180 (Pty) Ltd (“Islandsite”) and Ronica Ragavan and all of the accused in that matter were acquitted. Islandsite and Ronica Ragavan were acquitted in terms of section 174 of the Criminal Procedure Act, Act 51 of 1977 (“the CPA”). The provisions of that section provide that if there is no evidence against the accused that they committed the offence, the court is called upon to discharge the accused from prosecution. A discharge is the ultimate form of acquittal. A normal acquittal or more usual acquittal would be where the court has heard the case for the prosecution and for the defence, and thereafter made an assessment on the test - ‘beyond reasonable doubt, whether the accused person or persons are guilty of the commission of the offence.

However, where an acquittal in terms of section 174 of the CPA is handed down, it means that there is no evidence that the accused committed the offence. Putting it another way, not even prima facie is it so that the accused could have been said to possibly have committed the offence.

Such was the strength of the acquittal of Islandsite and Ronica Ragavan in the criminal case.

For that matter, the other six accused were also acquitted. Five of them were also acquitted in terms of section 174, and one simply closed her case, leaving the prosecution red-faced and unable to argue that a prima facie case, which she would be called upon to answer, had been made out. She was therefore also acquitted, but in the way that I have just described.

The trial was a criminal trial in the High Court. The CPA applicable in South Africa, governs the process in a criminal trial. If an accused person is convicted in the High Court, that person can, in terms of section 316 of the CPA, apply for leave to appeal against that conviction to the court convicting him or her. However, in proceedings in the High Court, if an accused person is acquitted, the remedies available to the prosecution are entirely different. In terms of section 319 of the CPA, the prosecution can only apply to reserve questions of law, to be reserved by the High Court for ultimate consideration by the Supreme Court of Appeal.

The rationale for this discrepancy that at High Court level a judge is trusted not to make a mis-appreciation of the facts before him or her, and only errors in law would be reservable by the trial judge for consideration by the Supreme Court of Appeal. There cannot be an appeal against a finding of fact made by a High Court.

Not only is this clearly provided for in the respective sections of the CPA, but it is a process with which all practitioners are familiar.

On acquittal of all the accused, the prosecution brought an application in terms of section 316 of the CPA, attempting to appeal on questions of fact, directly discernible as questions of fact, dressed up as questions of law.

Had the prosecution not withdrawn that application for leave to appeal (which it ultimately did), that application for leave to appeal would not have been responded to, and on the date of the hearing of that application under section 316, the accused’s representatives would have raised the point that the court has no jurisdiction to hear an appeal which is only available under a section according rights to accused persons. It would have been pointed out that the prosecution could only have applied for leave for the court to reserve questions of law for consideration by the Supreme Court of Appeal, and that it could not appeal on factual findings of the High Court.

Prior to the hearing of the matter, and prior to it as a matter of certainty destined to being struck from the roll for being irregular, the prosecution withdrew its application for leave to appeal under section 316 (as it was acknowledgely incompetent in law), and replaced it with an appeal under section 319 of the CPA.

As already pointed out, an application to reserve questions of law is an application to reserve, for consideration of the Supreme Court of Appeal, findings of a legal nature made by the trial court. So, a ruling on the admissibility of evidence or documents would be a matter of law. So too would be the exercise of the court’s power, and indeed discretion, to make a finding that there is no evidence upon which a court acting reasonably could convict. That is the test, and it is a factual test, in terms of Section 174 of the CPA. This, as I have said with regard to Islandsite and Ronica Ragavan, was precisely what the court found.

The charges against the accused were, in respect of Islandsite and Ronica Ragavan, that of fraud and money laundering. The fraud was allegedly committed by a company called Nulane against the Department of Agriculture of the Free State Province of South Africa. There was no evidence whatsoever that Islandsite or Ronica Ragavan had anything to do with any representations made between the company Nulane and the Free State Department of Agriculture. The representations had to do with the necessity for a feasibility study for a proposed dairy project which would be run by the Free State Department of Agriculture.

In addition, it was not shown that the money that flowed from the Free State Department of Agriculture was, to the knowledge of anyone, money that was fraudulently obtained, as it was not shown as a matter of fact that any fraud was committed. Islandsite and Ronica Ragavan were completely distant from the dealings that the company Nulane had with the Free State Department of Agriculture. And even if a fraud had been shown in that regard, it was not shown that Islandsite or Ronica Ragavan had anything to do with the transactions or the representations at all.

The facts showed that the company Nulane lent money, or passed on money, which could potentially have come from the Free State Department of Agriculture, to a company called Pragat. That company had as its director and sole shareholder a person who also was a director of certain companies in the general stable of companies to which Islandsite belonged. It was shown conclusively and beyond any doubt that Islandsite was a company that operated a treasury function within the group of companies to which it belonged. So, if one company was flush with money, another company in the stable of related companies, would lend money to Islandsite, and Islandsite would lend some or part of that money to another company that had cash flow difficulties, or a need for cash, in the same stable of companies. It was shown in the trial that meticulous records were kept, both from a ledger point of view and financial statement point of view of the loan transactions, demonstrating the treasury function of Islandsite.

In fact, in the trial, two forensic accountants, one being a chartered accountant, were embarrassed in cross-examination into the concession that there was nothing wrong with the bookkeeping system of the related- companies in the stable, and that there was no money laundering at all, because there was no disappearance of money into a black hole, and there was a complete and full accounting for the flow of money between the companies. Both experts agreed that this was not consonant with money laundering. Indeed the chartered accountant had attributed criminality to the company in part based on the books of account not balancing properly, according to him. But he had, and he acknowledged this in cross- examination, commenced with the wrong opening balance, leading him to a wrong view of the state of the bookkeeping of the company, and leading him to a wrong conclusion. It was an embarrassing moment indeed for the prosecution.

For all these reasons and many more, Islandsite and Ronica Ragavan were acquitted.

The following facts must now be interposed in the telling of the development of this criminal case. Those facts emanate from the point where the case first served before the Magistrate’s Court.

We must interpose to point out that criminal proceedings rarely commence in the High Court. They are brought in terms of a charge sheet in the Magistrate’s Court, and once pre-trial discovery and other formalities are completed, the matter is, if appropriate and necessary, referred to the High Court. This is the normal process, and this is the process that took place prior to the criminal prosecution in the Bloemfontein High Court in which Islandsite, Ronica Ragavan and others were acquitted.

The reason for pointing this out is that I attach hereto a copy of the first indictment prepared by the prosecution. This indictment formed an annexure to restraint proceedings brought in terms of Chapter 5 of the Prevention of Organised Crime Act, Act 121 of 1998 (“POCA”). Just to explain, the prosecution in South Africa is entitled, if it is so minded, to bring an application to restrain the assets of an accused person, be that person already accused or be that person about to be accused, pending the outcome of the criminal trial, so that if there is a conviction, the court can make a confiscation order with regard to the level of benefit that the accused, now convicted, benefitted from the crime.

When the prosecution brings such an application, it does so in the High Court, and in order to show that someone is about to be prosecuted and whose assets it would seek to restrain, the prosecution annex the proposed charge sheet or indictment. A copy of the proposed charge sheet/indictment is attached hereto.

Thus, prior to the first appearance of Islandsite and Ronica Ragavan and the other accused, an initial indictment was annexed to the restraint application brought under POCA.

It can be noted from that first draft indictment that Messrs Atul Gupta and Rajesh Kumar Gupta are included in the indictment as accused persons. However, in the final indictment, Atul Gupta and Rajesh Gupta are not included in the indictment. The two indictments are essentially the same. But the difference between the final indictment and the first indictment is pertinently the following:-

In paragraph 27, which forms the citation of Atul Gupta, it is said “An application has been made for the issue of an Interpol Red Notice to secure his attendance in South Africa to face criminal charges relevant to this matter. The application is still pending. He will be tried separately once he has been extradited”.

In paragraph 28, precisely the same is said with regard to Rajesh Gupta.

The reader can therefore readily appreciate that had Atul Gupta and Rajesh Gupta been in South Africa at the time that this trial proceeded against Islandsite and Ronica Ragavan, they too would have been included as accused persons in the trial.

The allegations of participation in the crime are precisely the same against Atul Gupta and Rajesh Gupta as they were against Islandsite and Ronica Ragavan. One can appreciate therefore that had Atul Gupta and Rajesh Gupta been present in South Africa at the time that the trial commenced and the final indictment was drawn, they would have been accused in the trial in the Bloemfontein High Court. All of the accused were acquitted. Atul Gupta and Rajesh Gupta would also have been acquitted on the basis that there was no prima facie case against any of the accused for them to have to answer. There was no evidence upon which a court acting reasonably might possibly convict.

There is no difference in the case, let me emphasize, between the case against all of the accused, and in particular against Islandsite and Ronica Ragavan, and the case against Atul Gupta and Rajesh Gupta.

It can therefore very safely be concluded that had Atul Gupta and Rajesh Gupta been accused persons in the Bloemfontein High Court, they would have been acquitted.

There is therefore no basis for the South African prosecution and the National Prosecuting Authority to continue through Interpol to request a Red Notice against these two gentlemen. They indirectly have been found innocent, although they have not in fact been found innocent, because they were not before the court. Had they been before the court, they would have been acquitted.

Subsequent developments
Subsequent to the acquittal of the accused, the prosecution indeed withdrew the application for leave to appeal under section 316, and proceeded to apply for leave to reserve questions of law under Section 319.

The court refused that application in a judgment attached hereto, which is self-explanatory. Essentially there were no questions of law to be reserved, and the questions of law such as they were described, were indeed questions of fact dressed up as questions of law, and accordingly leave to reserve questions of law was refused.

Subsequent thereto, and in time in terms of the rules of court, the prosecution brought an application to the Supreme Court of Appeal for leave to appeal on questions of law. In terms of the rules of that court, all of the accused answered fully and properly and in time.

In all circumstances, once an application for leave to appeal to the Supreme Court of Appeal has been answered, the applicant (in this instance the prosecution) has the right to reply to the answer.

The function of a reply is to take on directly the averments in the answering affidavit, and point out its incorrectness. Without a reply, the Supreme Court of Appeal, as with any court of appeal, would be faced with an application which is answered fully and properly, and where the applicant has nothing to say in reply, i.e., it cannot say anything in defence of its application, because the answer to its application is so resoundingly correct.

In all cases, except cases where the applicant for leave to appeal simply cannot reply, a reply is forthcoming. That reply has the following function:-

It addresses each reason why leave to appeal should be granted, and explains why indeed the assertions made in answer are incorrect.

Its function is to balance out the application. The court hears the applicant on paper, the answer of the respondent on paper and then the applicant should answer by way of reply, the contents of the respondent’s answer.

Where an applicant, such as the National Prosecuting Authority in this case, fails entirely to reply, it is simply so that two judges sitting in the Supreme Court of Appeal, deliberating on whether leave to appeal should be granted, will be confronted by an application which has unanswerably been answered. The effect of there being no reply in these circumstances, is indeed devastating.

In was my initial view that there is no possibility that leave to appeal to the Supreme Court of Appeal will be granted when firstly the application is indeed an appeal on questions of fact, and secondly where the answer thereto is resoundingly made, and where the applicant is speechless as to how to respond to that resounding defence.

However, in a court order dated 1 November 2023, the Supreme Court of Appeal did not grant leave to appeal but did order that the application for leave to appeal is referred for oral argument. This is a procedure available to the court. What this means is that on the one hand that leave to appeal is not granted but on the other hand that the court wishes to hear argument in open court as to why leave to appeal should be granted or not granted. In our view the argument of the prosecution for leave to appeal will fail and accordingly leave to appeal will not be granted.

It is therefore indubitably so that the end of the criminal case will take place when the Supreme Court of Appeal refuses leave to appeal.

The vague possibility exists that the National Prosecuting Authority could appeal to the Constitutional Court, but there are no constitutional issues at stake. Another ground to appeal to the Constitutional Court would be if it is in the public interest that a question of law be decided by the highest court in the land. No such issues are engaged by any such potential appeal to the Constitutional Court. Indeed, when a petition fails in which there has been no reply by the prosecution to the answering affidavit, it is beyond unlikely that the prosecution would attempt thereafter to appeal to the Constitutional Court.

It therefore must be accepted that, as a matter of all practicality, the following has occurred:-

A prosecution for fraud and money laundering was brought against Islandsite and Ronica Ragavan, and included in the list of alleged offenders would have been Atul Gupta and Rajesh Gupta, accused of the same wrongdoing on the same facts as Islandsite and Ronica Ragavan were accused of.

Islandsite and Ronica Ragavan were acquitted.

They were acquitted on the very same facts as would have been put up against Atul Gupta and Rajesh Gupta.

All efforts to appeal the acquittal will have come to nought shortly, i.e. when the court refuses leave to appeal because of the reasons already described.

Conclusion
In the circumstances one has to conclude that it is vexatious, and indeed wrongful, for the prosecution in this instance not to request the withdrawal of the Interpol Red Notice, because the very crime for which the Interpol Red Notice was issued has resulted in the criminal prosecution in an acquittal for those in South Africa, and indirectly (although not quite in fact) an exoneration of those not in South Africa and subject to the Red Notice.

It's important to point out that in this case doesn't exist a real prejudice. On the other hand, in this trial at the High Court, it was demonstrated that by virtue of all the circumstances, it is not established that the constituent elements of the commission of some crime are met, moreover, it was demonstrated once more that there is no damage caused directly to someone concrete or anyone to another. There are strong suspicions that the maintenance of arrest warrants and red notices in relation to Atul Gupta and Rajesh Gupta is no longer justified and no longer necessary, and in reality the purpose of these notices could no longer be achieved. In fact, the continued maintenance of arrest warrants and red notices is an abuse and the real purpose of the authorities would be to prevent the two from realizing their Constitutional rights.

Please follow the link below to access a full record of the trial and a full record of all the proceedings referred to in this opinion. But the reader can rest assured that the basis of the opinion as contained herein above, is borne out completely by all available documents:

https://www.saflii.org/za/cases/ZAFSHC/2023/306.html

Edward Mitole, PhD
Professor of Development Studies and Dean of Faculty of African Renaissance Studies at the University of the State of the African Diaspora (USOAD)