Five Units (WCC) 2022
Five Units (WCC) 2022
Five Units (WCC) 2022
Dr Krishna Murari Yadav, Assistant Professor (Sr. Scale), Law Centre-1, Faculty of Law,
University of Delhi, Delhi
12/8/2022
1
Contents
(1.1.) Abstract ............................................................................................................................................... 5
(1.2.) Key Words............................................................................................................................................ 5
(1.3) Evolution of Socio-Economic Offences ................................................................................................. 5
(1.3.1.) Eighteenth Century ....................................................................................................................... 6
(1.3.2.) After First World War .................................................................................................................. 6
(1.3.3.) Independence of India .................................................................................................................. 7
(1.3.3.1.) Statutes .................................................................................................................................. 7
(1.3.3.2.) Court ...................................................................................................................................... 7
(1.3.3.3.) Committee and Commission ................................................................................................. 8
(1.4). Differences between Socio-Economic Offences and Traditional Offences ....................................... 12
(1.5) Differences between Socio-Economic Offences and WCCs ............................................................... 14
(1.6.) Socio-economic Offences and Mens Rea .......................................................................................... 16
(1.6.1.) The Sea Customs Act, 1878 ....................................................................................................... 17
(1.6.2.) The Foreign Exchange and Regulation Act, 1947...................................................................... 17
(1.6.3.) The Immoral Traffic Prevention Act, 1956 ................................................................................ 18
(1.6.4.) The Essential Commodities Act, 1955 ....................................................................................... 18
(1.6.5.) The Prevention of Money-Laundering Act, 2002 ...................................................................... 18
(1.7.) Organised crimes ............................................................................................................................... 18
(1.8.) Occupational Crimes.......................................................................................................................... 19
(1.9.) Conclusion ......................................................................................................................................... 20
Unit 2: “Differential Association Theory” & The Fraud Triangle Rule......................................................... 21
(2.1.) “Differential Association Theory” ...................................................................................................... 21
(2.1.1.) Introduction ................................................................................................................................ 21
(2.1.2.) Contribution of this Theory ........................................................................................................ 22
(2.1.3.) Criticism of the Theory .............................................................................................................. 22
(2.2.) The Fraud Triangle Rule by Donald Cressey ...................................................................................... 22
(2.2.1.1.) Violation of ascribed obligations (Unable to pay debts) ......................................................... 25
(2.2.1.2.) Problems resulting from personal failure ................................................................................ 25
(2.2.1.3.) Business reversals ................................................................................................................... 25
(2.2.1.4.) Physical Isolation .................................................................................................................... 25
(2.2.1.5.) Status Gaining ......................................................................................................................... 25
(2.2.1.6.) Employer–employee relations ................................................................................................. 25
Topic 3: Tax Evasion, Health Care Fraud & Educational Fraud ................................................................... 27
(3.1.) Tax Evasion ........................................................................................................................................ 27
(3.1.1) Meaning ....................................................................................................................................... 27
(3.1.2.) Reasons for Tax Evasion ............................................................................................................. 27
(3.1.3.) Tax evasion vis –a-vis Tex Avoidance ......................................................................................... 27
(3.1.4.)Tax Evasion is a Crime ................................................................................................................. 28
(3.1.5.) Method ....................................................................................................................................... 28
(3.1.6.) Wanchoo Committee ................................................................................................................. 29
(3.1.7.) Efforts of Modi’s Government .................................................................................................... 29
(3.1.7.) Raid & Arrest for Tax Evasion ..................................................................................................... 30
(3.2.) Health Care Fraud .............................................................................................................................. 30
(3.2.1.) Meaning...................................................................................................................................... 30
(3.2.2.) Introduction ................................................................................................................................ 31
(3.2.3.) Kinds of Health Care .................................................................................................................. 31
(3.2.4.) Laws ........................................................................................................................................... 32
(3.2.5.) Cases........................................................................................................................................... 32
(3.2.5.1.) United States of America v. Ranbaxy USA, Inc. .................................................................... 32
(3.2.5.2.) Conviction of Kain Kumar ...................................................................................................... 32
(3.3.) Educational Fraud .............................................................................................................................. 33
(3.3.1.) Meaning .......................................................................................................................................... 33
(3.3.2.) Drives of Educational fraud ............................................................................................................ 33
(3.3.3.) Laws ................................................................................................................................................ 35
(3.3.4.) Cases ............................................................................................................................................... 35
(3.3.4.1.) Glenn Paul v. The State of Madhya Pradesh (2014) ............................................................... 35
(3.3.4.2.) Digvijaya Singh v. State of MP & Ors (2015) ........................................................................ 36
(3.3.4.3.) R Prema Latha and Others v. State and Others (2022)............................................................ 36
TOPIC 4: THE PREVENTION OF CORRUPTION ACT, 1988 ............................................................................ 37
(4.1.) Abstract ............................................................................................................................................. 37
(4.2.) Keywords ........................................................................................................................................... 37
(4.3) Introduction ........................................................................................................................................ 37
(4.4) Need of the Prevention of Corruption Act, 1988 ............................................................................... 39
(4.5) International Law................................................................................................................................ 39
(4.6) Recommendation of the Santhanam Committee .............................................................................. 40
Unit 1: Socio-Economic Offences, White Collar Crimes, Organised Crimes & Occupational
Crimes
(1.1.) Abstract
Santhanam Committee observed that socio-economic offences are more dangerous not only
because of involvement of huge money, but also for causing irreparable loss. Such offences are
increasing day by day. These offences are like cancer for the country. It is very dangerous for the
development of nation. Many laws have been enacted to deal with these offences. It covers new
offences. These offences are different from 'Traditional Offences' in the context of scope and
manner of commission of offences. Socio-economic offences are wider than 'White-collar
Crimes'. Whenever maxim 'actus non facit reum, nisi mens sit rea‟ is applied, it favours to
accused. But when this maxim is not applied, it favours prosecutors. In this paper, the evolution
of socio-economic offences, differences between socio-economic offences & white collar crimes
and application of maxim 'actus non facit reum, nisi mens sit rea‟ in socio-economic offences
will be discussed.
White-Collar Crimes, Socio-economic Offences, Blue Crimes, Traditional Offences, Mens Rea.
Socio-economic offences have been committed since the ancient period. But it was not discussed
separately. It was covered under traditional offences. It became part of the discourse in the 18th
Century. White-collar crimes (hereinafter to be known as WCCs) are part of socio-economic
offences. Every WCC is socio-economic offence. But every socio-economic offence is not part
of WCC. Law Commission of India, in its 47th Report, discussed the definition of WCC given by
Edwin H. Sutherland and mentioned four examples. If the socio-economic offence is done by the
upper class during his occupation, that socio-economic will also come under white-collar crime.
In many socio-economic offences burden of proof is on the accused. Section 24 of the PMLA,
2002 was challenged. Supreme Court held that it is constitutional. It has reasonable nexus with
the object sought to be achieved.1
Santhanam Committee discussed the growth of white-collar crime in para 2.13. Law
Commission of India in its 29th Report at para 6 quoted contents of Santhanam Committee
regarding the development of white-collar crimes. It was observed that mass society emerged
due to the development of technology. The elite class emerged and created to monopoly. Eroding
standards of ethical behaviour played a vital role in the emergence of white-collar crime.
1
Vijay Madanlal Choudhary & Ors. v. Union of India & Ors., July 27, 2022.
2
South Sea Company was a British Joint Stock Company. It was formed in January 1711. It was a public-private
partnership company. This Company was given a monopoly to supply African slaves in the South Sea and South
America in 1713. The Company did not get any significant profit from its monopoly. However, stock rose greatly in
value and peaked in 1720 before suddenly collapsing. The notoriously created economic bubble ruined thousands of
investors. This is known as the South Sea Bubble.
3
Law Commission of India, Report 29, 1966, ―Proposal to include Certain Social and Economic Offences in the
Indian Penal Code‖, Para 13. Available at: https://lawcommissionofindia.nic.in/1-50/Report29.pdf (Visited on
December 19, 2021).
(1.3.3.1.) Statutes
There were several laws related to white-collar crimes or socio-economic offences. But these
words had not been used anywhere. After independence, several laws were enacted including the
Prevention of Corruption of Act, 1947, the Essential Commodities Act, 1955, the ITPA, 1956,
the NDPS Act, 1985, the Prevention of Corruption Act, 1988, the Prevention of Money-
laundering Act, 2002, the Food Safety and Standards Act, 2006, the Tax Evasion Undisclosed
Foreign Income and Assets (Imposition of Tax) Act 2015 etc.
(1.3.3.2.) Court
Several cases were decided in which mens rea was excluded as an essential ingredient of the
crime. In The Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh5 Supreme Court, at the time
of interpretation of Section 52-A of the Sea Customs Act, 1878, said that if the provision is
silent, there is no need to require mens rea. Such cases must be interpreted strictly. Such cases
may rudely affect the economy of the country. In State of Maharashtra v. M.G.George6 Supreme
Court convicted the accused under the Foreign Exchange and Regulation Act, 1947 (FERA,
1947) even without mens rea. In Noormohmed Jamalbhai Latiwala v. State of Gujarat7 Gujarat
4
Noormohamed Jamalbhai Latiwala v. State of Gujarat, Gujarat High Court, March 25, 2004.
5
AIR 1964 SC 1140. Date of Judgment: February 03, 1964.
6
AIR 1965 SC 722. Date of Judgment: August 24, 1964.
7
Date of the Judgment: March 25, 2004. Available at: https://indiankanoon.org/doc/937615/ (Visited on September
20, 2022).
High Court observed, "Unfortunately, in the last few years, the country has seen an alarming
rise in white-collar crimes, which has affected the fibre of the country's economic structure.
These cases are nothing but private gain at the cost of public, and lead to economic disaster.” In
the present case also, if not national interest, but in view of the rampant white collar crimes in the
field of the cooperative banking business of the State, it can hardly be denied that it has
adversely affected the economic conditions of the public at large in general and the class of
depositors in particular whose life-saving money is either deposited or whose livelihood is
dependent on the income of interest.
8
This Report is available at: https://cvc.gov.in/sites/default/files/scr_rpt_cvc.pdf (Visited on November 29, 2020)
9
29th Report is available at: https://lawcommissionofindia.nic.in/1-50/Report29.pdf (Visited on November 29, 2020)
Santhanam Committee submitted its Report in 1964. The Committee discussed the emergence of
socio-economic offences, categories of Socio-economic offences and provided some examples of
white-collar crime.
The Committee observed that advancement of technology and scientific development contributed
emergence of mass society. The elite class emerged which started creating a monopoly. The
scarcity of resources and excessive greed of society also played in the emergence and growth of
white-collar crimes. Such types of offences are more dangerous due to the involvement of
financial stakes and irreparable damage to public morals.
Santhanam Committee recommended amending the IPC, 1860. It was observed that the IPC, it is
dominated by the notion that almost all major crimes consist of offences against persons,
properties or State. However, the Penal Code does not deal in any satisfactory manner with acts
which may be described as social offences having regard to the special circumstances under
which they are committed, and which have now become a dominant feature of certain powerful
sections of modern society. There are certain social offences that may broadly be classified into:
(1) Offences calculated to prevent or obstruct the economic development of the country and
endanger its economic health;
(2) Evasion and avoidance of taxes lawfully imposed;
(3) Misuse of their position by public servants in the making of contracts and disposal of
public property, issue of licences and permits and similar other matters;
(4) Delivery by individuals and industrial and commercial undertakings of goods not in
accordance with agreed specifications in fulfilment of contracts entered into with public
authorities;
(5) Profiteering, black-marketing and hoarding;
(6) Adulteration of foodstuffs and drugs;
(7) Theft and misappropriation of public property and funds; and
(8) Trafficking in licences, permits, etc.10
10
Santhanam Committee Report, (Committee on Prevention of Corruption), Para 7.3, Pages 53 and 54, 1964.
Santhanam Committee observed the following examples of white-collar crimes - (i) Tax-evasion
and avoidance, (ii) share-pushing, mal-practices in the share market and administration of
companies, (iii) monopolistic controls, (iv) usury, (v) under-invoicing or over-invoicing,
(vi)hoarding, (vii)profiteering, (viii)sub-standard performance of contracts of constructions and
supply, (ix)evasion of economic laws, (x)bribery and corruption, (x)election offences and
(xi)malpractices.
The title of 29th Report of the Law Commission of India is ―Proposal to include certain social
and economic offences in the India Penal Code‖. The Report discusses the history of White
Collar Crimes, kind of crimes, definition of White-collar Crime given by Sutherland and Arnold.
Law Commission of India in its 29th Report at Para 13 observed, ―The problem similar to white-
collar crimes had arisen as far back as the 18th Century. The "South Sea Bubble" led to the
Bubble Act of 1720, which may be cited as an example of an effort by the Legislature to deal
with fraud on a big scale perpetrated by unscrupulous persons. But the varieties of such crimes
and their diverse manifestations were seen more acutely after the First World War."11
There are two types of crime. These are – (1) White-collar crime - It is upper or middle-class
crime, (2) Blue-collar crime - It is the crime of the underprivileged.
Earlier it was presumed that the lower class was committing crimes. Sutherland, by his studies
established that crimes are also committed by the upper class, which is more dangerous than
crime committed by the lower class. LCI quoted the definition of Edwin Sutherland. Edwin
Sutherland defined white collar crime as “White Collar Crime means a crime committed by a
person of respectability and high social status in the course of his occupation”.12 The
Commission observed that the emphasis is on the connection with occupation. The commission
11
Para 13.
12
Edwin H. Sutherland, White Collar Crime. (1949), pp.9-10.
of crime in this category is facilitated by the office, calling, profession or vocation of the
individual connected. WCCs exclude crimes like murder, adultery and intoxication, even if
committed by people of the upper class since these have nothing to do with their occupation.
Arnold said that white-collar criminals are persons of the socio-economic class who violates the
criminal law in the course of their occupational or professional activities. He pointed out that
white-collar crime was more dangerous to society than crimes committed by the members of the
lower class because of the damage inflicted on public morals.
Law Commission of India submitted 47th Report in 1972. Title of the Report is ―The Trial and
Punishment of social and economic Offences‖. The Commission discussed the definition of
white-collar crimes and its examples, social offences, economic offences and salient Features of
Socio-economic offences13 etc.
'White-collar crime' may be described as a crime committed in the course of one's occupation by
a member of the upper class of society. It can be understood with the help of the following
examples14 -
(1). A manufacturer of drugs who deliberately supply sub-standard drug is a white collar
criminal.
(2). A big corporation that has committed evasion of tax fraudulently is a 'White-collar
criminal'.
(3). A person who illegally smuggles (for his personal use) costly television sets, is not
‗White-collar criminal in the above sense, there being no connection between his
occupation and the crime committed by him.
(4). A pensioner who submits false returns of income is not a white collar criminal.
Social offences are offences which affect the health or material welfare of the community as a
whole and not merely of the individual victim. Economic Offences are those offences which
13
Paras 1.4 & 1.5, Page 2.
14
Law Commission of India, ―47th Report on The Trial and Punishment of social and economic Offences‖ Para 1.8,
p. 4 (1972).
affect the country's economy and not merely the wealth of an individual victim. Socio-economic
offences and white-collar crimes could be intersecting circles. Intersecting circles could also
represent socio-economic offences and crimes of strict liability.15 There are the following salient
features of the socio-economic offences16 –
(1). Motive – The motive of the criminal is avarice17 or rapaciousness18 (not lust or hate).
(2). Background is non-emotional - The background of the crime is non-emotional (unlike
murder, rape, defamation etc.). There is no emotional reaction between the victim and the
offender.
(3). Victims at large - The victim is usually the State or section of the public (i.e. that portion
of the which consumes goods or services, buys shares or securities or intangibles). Even
where there is an individual victim, the more important element of the offence is harmful
to society. In such offences, individual direct victim does not involve directly. Such
offences harm society. For example, if a woman is assaulted, it is an immediate and direct
impact on both individual and social vengeance. But in case of hoarding of essential
goods or illegal imports. However, immediate consumer will be affected. But at the same
time, it is able to affect a large number of people.
(4). Fraud - The mode of operation of the offender is a fraud, not force.
(5). Wilful - Usually, the act is deliberate and wilful.
(6). Protection of interest – Socio-economic laws protect social interest from exploitation.
These laws help in the augmentation of the wealth of the country by enforcing the laws
relating to taxes and duties, foreign exchange, foreign commerce, industries and the like.
In Tofan Singh v. State of Tamil Nadu19 the Supreme Court, at para 50 of the judgment, discussed
socio-economic offences and WCCs. The Court observed that such offences affect the whole
15
Law Commission of India, ―47th Report on The Trial and Punishment of social and economic Offences‖ Para 1.9,
p. 4 (1972).
16
Id., Para 1.4, p. 2 (1972).
17
Avarice means extreme greed for wealth or material gain.
18
Rapaciousness means having or showing a strong or excessive desire to acquire money or possess things.
19
Tofan Singh v. State of Tamil Nadu, 2020 SCC OnLine SC 882. Available at:
https://main.sci.gov.in/supremecourt/2012/26682/26682_2012_33_1501_24551_Judgement_29-Oct-2020.pdf
(Visited on August 04, 2022).
The Indian Penal Code is the best example of traditional offences. There are the following
differences between both –
(1). History - Socio-economic offence is a new concept. As per 29th Report of LCI, origin of
socio-economic offence is found in the Eighteenth Century. Traditional offence is an old
concept.
(2). Mens Rea - Generally, persons are convicted even without mens rea.20 Generally, Actus
non facit reum, nisi mens sit rea is followed in case of traditional offences.
(3). Presumption – Generally, Presumption of guilt is rule in socio-economic offences.21
Presumption of innocence of accused is followed in traditional law.22
(4). The burden of proof – In socio-economic offences, generally burden of proof lies over the
accused.23 In traditional offences, generally, the burden of proof lies over the prosecutor.
If the accused wants to take benefit of exceptions or general exceptions, the accused will
be bound to prove.24
(5). Victims - Here generally victim is a whole nation or at a mass level. It damages to the
national economy and national interest.25 In traditional offences generally, victim is an
individual or group.
(6). Heat of passion - In State of Gujarat v. Mohanlal Jitamalji Porwal & Anr.26 Supreme
Court observed that white-collar crime is committed with a cool mind and calculation.
This is committed for personal profit regardless of the consequences to the community.
20
State of Maharashtra v. M.H. George is related to the FERA, 1947.
21
Sections 35 & 54, the NDPS Act, 1988 and Section 24, the PML Act, 2002
22
Malimath Committee, ―Committee on Reforms of Criminal Justice System‖ p. 6, para 1.7. Vol. 1 (March 2003).
23
Section 24, PML Act, 2002 and Section 68J, the NDPS Act, 1988. Section 35 of the NDPS Act deals with
rebuttable presumption. The accused may rebut this presumption.
24
The Indian Evidence Act, 1872, Section 105.
25
State of Gujarat v. Mohanlal Jitamalji Porwal and Anr, Date of the judgment: March 26, 1987, AIR 1987 SC
1321. Available at: https://indiankanoon.org/doc/90919629/ (Visited on September 23, 2022).
26
AIR 1987 SC 1321.
Traditional offences may be committed either with a cool mind or a heat of passion. For
example, a murder may be committed in the heat of passions being aroused.
(7). Mode of operation - Mode of operation of the offender is generally fraud, not force.27 The
mode of operation of the offender is generally forced.
(8). Motive - Motive of the criminal is avarice28 or rapaciousness29 (not lust or hate).30 In
traditional offences, generally, the motive becomes lust or hate.
The term ―white collar crime‖ was coined by Edwin Sutherland in a speech to the American
Sociological Society in 1939. Subsequently, he stated that it ―may be defined approximately as a
crime committed by a person of respectability and high social status in the course of his
occupation.‖
Socio-economic offences and white-collar crimes could be intersecting circles.31 There are the
following salient features of WCCs32 -
(1) there is no social sanction against such WCCs; (2) these crimes are committed by organised
gangs equipped with the most modern technology; (3) there is generally a nexus between the
politicians, law enforcement agencies and the offenders indulging directly in such crimes; (4)
there is no organised public opinion against such crimes, (5) The traditional crimes are isolated
crimes, while the white-collar crimes are part and parcel of the society.
There are the following differences between 'Socio-economic Offences' and 'White–collar Crime'
–
27
Law Commission of India, ―47th Report on The Trial and Punishment of social and economic Offences‖ para 1.4.,
p. 2 (1972).
28
Avarice means extreme greed for wealth or material gain.
29
Rapaciousness means having or showing a strong or excessive desire to acquire money or possess things.
30
Law Commission of India, ―47th Report on The Trial and Punishment of social and economic Offences‖ para 1.4.,
p. 2 (1972).
31
Law Commission of India, ―47th Report on The Trial and Punishment of social and economic Offences‖ Para 1.9,
p. 4 (1972).
32
Law Commission of India, ―155th Report on the Narcotic Drugs and Psychotropic Substance Act, 1985‖ Para 1.2.
p.2 (1997).
(1) Definition - Socio-economic offences may be committed by any person even if he does not
have a high social status in his occupation. Such offences affect the health and material welfare
of the society along with the country's economy.
Edwin Sutherland defined white collar crime as “White Collar Crime means a crime committed
by a person of respectability and high social status in the course of his occupation”.33
The Law Commission of India in its 155th Report (1997) said that all illegal acts committed by
unlawful means for the purpose of obtaining money or property, business, gain or profit. Such
crimes are committed by the organised gang having influence.34
Law Commission of India, in its 47th Report quoted four examples. All examples were socio-
economic offences, and among two examples were also coming under the category of white-
collar crimes. A person who illegally smuggles (for his personal use) costly television sets is not
'White-collar criminal. There is no connection between his occupation and the crime committed
by him. It is only a socio-economic offence. A manufacturer of drugs who deliberately supply
sub-standard drug is a white-collar criminal. This is also socio-economic offence.
A pensioner who submits false returns of income is not a white collar criminal. It is only a socio-
economic offences. A big corporation that has committed evasion of tax fraudulently is a 'White-
collar criminal'. This is also socio-economic offence.
(2) Relation between both - Every Socio-economic offence are not White-collar Crime. It is a
genus. It is wider. But every White-collar Crime is a Socio-economic offence. It is species. It is
narrower.
White-collar crimes
Socio-economic offence
Offence
33
Edwin H. Sutherland, White Collar Crime. (1949), pp.9-10.
34
Law Commission of India, ―155th Report on the Narcotic Drugs and Psychotropic Substance Act, 1985‖ Para 1.2.
p.2 (1997).
(3) Criminals - Criminals may be from high or lower society. Here both rich and poor can
commit socio-economic offences. Criminals are from high society. Here only the rich commit
white-collar crime.
Common law is based on Actus non Facit reum, Nisi Mens Sit Rea. According to this actus reus
(prohibited act) is not sufficient to constitute offence unless it is caused with a guilty mind. This
is also known as "Fault Liability". "Every accused shall be presumed to be innocent till proved
guilty". This is a cardinal principle of criminal law. In the case of Sherras v. De Rutzen (1895),
Justice Wright said "In every statute mens rea is to be implied unless the contrary is shown".
There are certain circumstances in which deviation is possible. In Brend v. Wood (1946), Justice
Goddard35 observed, ―It is…............. of the utmost importance for the protection of the liberty of
the subject that a court should always bear in mind that, unless the statute, either clearly or by
necessary implication, rules out mens rea as a constituent part of a crime, a defendant should not
be found guilty of an offence against the criminal law unless he has got a guilty mind‖.
Just opposite of ―Fault Liability‖, there is ―Strict Liability‖. There are certain cases in which
there is no requirement of mens rea. In Halsbury‟s Laws of England, 3rd Edn., Vol. 10, in para
508, at p. 273, the following passage appears: A statutory crime may or may not contain an
express definition of the necessary state of mind. A statute may require a specific intention,
malice, knowledge, willfulness, or recklessness. On the other hand, it may be silent as to any
requirement of mens rea, and in such a case, to determine whether mens rea is an essential
element of the offence, it is necessary to look at the objects and terms of the statute.
Archbold in his book on Criminal Pleading, Evidence and Practice, says ―There is a presumption
that mens rea, is an essential ingredient in a statutory offence, but this presumption is liable to be
displaced either by the words of the statute creating the offence or by the subject matter with
which it deals.
35
He is known as 'Revival of Mens rea.
47th Report of Law Commission of India36 suggested the following two important points
regarding mens rea –
1. It was suggested that socio-economic offences must be treated differently from traditional
crimes. In such offences, mens rea should not be required. Socio-economic offences
represent greater harm.
2. The burden of disproving mens rea should lie over the accused.
Requirement of mens rea was rejected in the following statutes and cases -
36
Para 3.17, Para 3.20.
37
AIR 1964 SC 1140, Date of the judgment: February 3, 1964.
38
AIR 1965 SC 722.
Organised crimes mean the involvement of many persons in the commission of a crime. It may
be known or unknown to each other. There is a chain in such cases. Human trafficking, havala,
money laundering and commission of offences under the NDPS Act are examples of organised
crimes. The following examples are –
1. There is a debt family in a rural area which is in dire need of money. One accused was
observing this fact. He allured the family that your girl in Delhi will get a good job. He
recruited that girl and sent her to Delhi. Some people bring her to Delhi. She was sold in
Delhi. After that, she was sent to a brothel. After a few days, she was sent to Arabian
Country. She was sold in many countries.
39
This judgment is available at: https://main.sci.gov.in/judgment/judis/5823.pdf (Visited on December 6, 2020 )
40
Section 18 – ‗Closure of brothel and eviction of offenders from the premises‘
41
AIR 1966 SC 43.
42
AIR 1989 SC 1789.
43
Vijay Madanlal Choudhary & Ors. v. Union of India & Ors., July 27, 2022.
44
Ibid.
2. Election in Himachal Pradesh and Gujarat is going on. A political party planned to
distribute money to voters. Money was sent from Maharashtra. Many persons are
involved in this Hawala.
3. Smuggling of narcotic drugs from one state to another state or from one country to
another country.
Fast communication and sophisticated technology played a vital role in emerging organised
crimes. The Maharashtra Control of Organised Crime Act, 1999 (short MCOCA) defines
organised crime. According to Section 2(1)(e) of the Act, ―organised crime― means any
continuing unlawful activity by an individual, singly or jointly, either as a member of an
organised crime syndicate or on behalf of such syndicate, by use of violence or threat of violence
or intimidation or coercion, or other unlawful means, with the objective of gaining pecuniary
benefits, or gaining undue economic or other advantages for himself or any other person or
promoting insurgency.
Supreme Court in Abhishek v. State of Maharashtra & Ors45. interpreted ‗other advantage’ used
under Section 2(1) (e) of the MCOCA. The Court said, "The expression 'other advantage' cannot
be read in a restrictive manner and is required to be given its full effect. The High Court has
rightly said that there could be an advantage to a person committing a crime which may not be
directly leading to pecuniary advantage or benefit but could be of getting a stronghold or
supremacy in the society or even in the syndicate itself". The Court further observed, "Actual use
of violence is not always a sine qua non for an activity falling within the mischief of organised
crime when undertaken by an individual singly or jointly as part of an organised crime syndicate
or on behalf of the such syndicate. The threat of violence or even intimidation or even coercion
would fall within the mischief".
Many other States have also enacted such laws. Uttar Pradesh Control of Organised Crime Act
(UPCOCA), 2017 was enacted to control organised crimes. Madras High Court in Velu v. The
State of Tamil Nadu & Ors.46 order to consider and enact a law to deal with organised crimes. In
hearing on August 19, 2021, the Court was informed that the Bill was ready and would be put
before Legislative Assembly in the next session.
Occupational crime means crime committed by someone during the course of his or her
employment. Persons may hold any post, for example, peon, clerk, manager, directory or
minister. It is also known as 'workplace crime'. Embezzlement, misuse of a company's property,
information or data, corruption of Government officials etc. are examples of occupational crime.
DDA Officers are bound for fair allotment of flats. But if Ram, a DDA officer, says to allot a
plot to Rahim subject to the condition that Rahim will reserve one flat for Ram. Ram had
committed an occupational crime under this example.
45
2022 LiveLaw (SC) 516. Available at: https://www.livelaw.in/pdf_upload/516-abhishek-v-state-of-maharashtra-
20-may-2022-418866.pdf (Visited on November 29, 2022).
46
Available at: https://indiankanoon.org/doc/134678888/ (Visited on November 29, 2022).
The basic differences between White-Collar Crimes and Occupational crimes are –
1. Only the upper class can commit WCC. Peons (lower class) to ministers/directors or
businessmen (upper class) can commit an occupational crime.
2. WCC may be committed by any person. In occupational crime, a post is held on behalf
of others, for example, the post of the trustee. Minister, DDA officers are the trustee of
public property.
(1.9.) Conclusion
Socio-economic offences are increasing day by day. It affects society at large and affects the
economy of nations. It is different from white-collar crime. But many times, controversy arises
about which law should come under the category of socio-economic offences and white collar
crimes. At the time of discussion of the syllabus of socio-economic offences, even professors of
the Faculty of Law, University of Delhi, had no unanimous opinion. The reason for this is that
this law had not developed fully. There is a shortage of literature. Many other universities and
colleges put some Acts and topics in the syllabus of socio-economic offences and white-collar
crimes. I thoroughly discussed the differences between socio-economic offences and white-collar
crimes in this research paper. At the time of deciding whether any law should come under the
category of socio-economic offences or not, both types of effect, i.e. direct and indirect, should
be considered. Many times it may happen that some provisions of a law may come under white
collar crimes, and some provisions may not come. Another example is that offences committed
by paddlers under the NDPS Act will come in socio-economic offences, and a producer of a
company of such drugs will come in the category of white-collar crimes. Edwin H. Sutherland
developed the concept of white-collar crimes. He also developed the 'Differential Association
Theory' to determine how a person becomes a criminal.
(2.1.1.) Introduction
"Sutherland propounded Differential Association" theory. He was searching for how a person
becomes a criminal. According to him, when a person associates with other criminal, he learns
values, attitude, techniques and motives for criminal behaviour and become criminal. His main
focus was on how a person becomes a criminal. He did not discuss why a person becomes a
criminal.
Underline assumption of 'Differential Association Theory' was implicit in an early edition of
Sutherland's (1933) Textbook, made explicit in the third edition (1939) and revised into the final
form in the fourth edition (1947). His book was "Principles of Criminology" in which he
discussed 'Differential Association Theory. This Theory contains nine assumptions.
Concept
Differential association predicts that an individual will choose the criminal path when the
balance of definitions for law-breaking exceeds those for law-abiding. This is also known as the
"Learning Theory of Deviance". There are the following key points of ‗Theory of Differential
Association -
‗Differential Association Theory‘ was supported by James Short Jr. on the basis of his study of
176 school children (126 Boys and Girls) in 1955.
1. Tappan had criticized for ignorance of the role of personality, biological and
psychological factors.
2. He failed to explain the origin of criminality since criminality has to exist before it
can be learnt from someone else.
3. Elliot explained systematic crimes but failed to discuss situational crime.
4. He did not discuss why a person becomes a criminals.
5. , ,
Some person may be so much strong that outer criminal can‘t affect his life.
Edwin H. Sutherland did his work on ‗Concept of White Collar Criminality‘. Donald Cressey did
his work on embezzlers. He called them ―trust violators.‖ Embezzlement is ‗occupational
crime‘.47 Cressey arranged for permission to visit prisons in the Midwest and eventually
interviewed about 200 incarcerated inmates. He was especially interested in the circumstances
that led them to be overcome by temptation. For that reason, he excluded from his research those
employees who took their jobs for the purpose of stealing—a relatively minor number of
offenders at that time. Upon completion of his interviews, he developed what still remains the
classic model for the occupational offender. His work was published. Title of the publication was
“Other People‟s Money: A Study in the Social Psychology of Embezzlement”.
He divided problems into two parts –
Shareable financial need,
Non-shareable financial need.
He further said that same problem can be shareable for one person, and can be non-shareable for
another. It depends upon capacity and circumstances of occupational offender. He quoted
examples of ‗race track‘ and ‗failing bank or business‘ which are sharable financial need for a
person and non-shareable for another.
He said, “Thus a man could lose considerable money at the race track daily but the loss, even if
it construed a problem for the individual, might not constitute a non-sharable problem for him.
Another man might define the problem as one which must be kept secret and private, that is, as
one which is non-sharable. Similarly, a failing bank or business might be considered by one
person as presenting problems which must be shared with business associates and members of
the community, while another person might conceive these problems as non-sharable”.
He formed hypothesis. His hypothesis can be divided into three part –
Trusted persons become trust violators when they conceive of themselves as having a
financial problem,
The financial problem is non-sharable, and
The offender believes that he can solve the problem secretly by using position.
47
Occupational crime means crime committed by someone during the course of his or her employment. It is also
known as ‗workplace crime‘. Embezzlement, misuse of company‘s property, information or data, corruption of
Government officials etc. are example of occupational crime.
(2)Oppotunity
The first leg of the triangle represents a perceived non-sharable financial need, the second leg
represents perceived opportunity, and the third leg stands for rationalization. By this triangle, he
concluded the following points –
(1). Accused commits crime in case of financial need. Such financial need must be non-
sharable.
(2). There must be opportunity to commit crime.
(3). Rationalization, i.e. justification for the commission of crime is sine qua non. Many
times hedonism principle is followed. If there is more pleasure, he will commit crime.
Vijay Malya is the best example. He rationalized himself and ran away after committing
crime.
Why they did not commit offence previously? Their responses can be categorized in three
categories. These are –
(1). ―There was no need for it like there was this time.‖
(2). ―The idea never entered my head.‖
(3). ―I thought it was dishonest then, but this time it did not seem dishonest at first.‖
said this problem becomes non-sharable when the individual believes that making suggestions to
alleviate perceived maltreatment will possibly threaten his or her status in the organization.
There is also a strong motivator for the perceived employee to want to seek revenge when he or
she feels ill-treated.
(3.1.1) Meaning
Tax evasion is a term usually reserved for non-payment of tax by means of criminal fraud or
other violations of law. Tax evasion is a white-collar crime. It affects the economic condition of
the country. It is based on fraud, concealment of property and non-disclosure of information. Tax
payment is a duty of tax payers.
4. In the fourth option, the transaction is repackaged into a form that technically escapes
tax liability and can be disclosed in its new form. If the techniques are clever enough,
there may be nothing to hide since the key lies not in secrecy but in legal repackaging.
Ram can make a saving. He may purchase insurance and electoral bonds as well as may
donate some money to trusts and political parties. Ram had minimized his tax liability. It
is legal and tax avoidance.
Tax Liability
Non-payment/First Option:
Second Option
Minimising tax liability
Ram can pack the money in a Third option: Ram can Fourth option: Ram can technically
suitcase and smuggle it offshore negotiate over how much to launder the deal into a non-taxable form
pay
This is tax This is This is tax
This is tax This is legal
evasion crime This is legal avoidance
avoidance
(3.1.5.) Method
There are two routes to tax evasion.
First Route - It might involve doing something which is in itself illegal - such as forging
documents to claim allowances. That would be clearly fraudulent.
Second Route - It might simply involve engaging in some money-making activity which
is in itself perfectly legal but failing to disclose to the tax authorities. In this case, it is not
the activity but the failure to disclose it which constitutes the offence, and the question
then becomes one of whether the omission was a product of criminal intent or honest
error.
The Direct Taxes Enquiry Committee, headed by Mr. Wanchoo, retired Chief Justice of India,
was constituted "to examine and suggest legal and administrative measures for countering
evasion and avoiding direct taxes and unearth black money.48 The Committee submitted its
Report in December 1971.
The Committee said that ―tax evasion and black money are closely and inextricably interlinked.‖
Tax evasion leads to the creation of black money.49 Tax evasion defeats Government‘s economic
policies and its implementation.50
The Committee recommended that convicted or penalized tax evaders should be disqualified for
any national award. Law should also be enacted to disqualify such persons from holding any
elected public post. There should not be any sympathy or patronage on the side of the
Government or any public sector.51
Chapter XIXA (Settlement of Cases) in the Income Tax Act, 1961, was inserted by the Taxation
Laws (Amendment) Act, 1975. It was inserted in the partial implementation of the Wanchoo
Committee Report for huge tax disputes and immunity from criminal proceedings by the
Commission to be constituted by the Central Government.
Hon‘ble Justice V. Krishnaiyer observed that the Wanchoo Committee proposed a compromise
measure of statutory settlement machinery where the big evader could make a disclosure,
disgorge what the Commission fixes and thus buy quittance for himself and accelerate recovery
of taxes in arrears by the State, although less than what may be fixed after long protracted
litigation and recovery proceedings.52
48
I S Gulati, Wanchoo Report: A Critique, Politically & Economically Weekly, Jul. 8, 1972, Vol. 7, No. 28 (Jul. 8,
1972), pp. 1314-1317. Available at:
https://www.jstor.org/stable/pdf/4361576.pdf?refreqid=excelsior%3Ab7121b899dcf16b7db2284c13bc42382&ab_se
gments=&origin=&acceptTC=1 (Visited on December 02, 2022).
49
The Wanchoo Committee Report, Chapter 2: Black Money and Tax Evasion, Para 2.4.
50
The Wanchoo Committee Report, Chapter 2: Black Money and Tax Evasion, Para 2.12.
51
2.238.
52
Commissioner Of Income Tax v. B. N.Bhattacharjee & Anr. AIR 1979 SC 1725.
evasion cases are increasing day by day. The Government took many decisions to curb the
menace of tax evasion. But it failed. The main reason for its failure was the biased
implementation of laws by agencies.
Demonetization in 2016 was an effort to recover money saved through tax evasion. But
demonetization failed. The currency of one thousand rs was stopped. It was argued that it was
easy to save a huge amount. But the Government launched a currency of two thousand rs.
without any logic.
There are the following efforts of the Government should be appreciated –
1. Enactment of „The Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015‟ which has come into force w.e.f. 01.07.2015 to specifically
and more effectively deal with the issue of black money stashed away abroad.
2. Constitution of the Special Investigation Team (SIT) on Black Money under
Chairmanship and Vice-Chairmanship of two former Judges of Hon‘ble Supreme Court,
3. In the Panama Papers Leaks cases, undisclosed credits of Rs. 20,078 crore (approx.)
have been detected.
(3.2.1.) Meaning
Health care fraud means when an individual, a company, an organization or Government
knowingly misrepresents or misstates something about the type, the scope, or the nature of the
medical treatment or service provided, in a manner that could result in unauthorized payments
being made or deteriorate health.54
53
Available at: https://www.dnaindia.com/india/report-dolo-650-drug-company-bases-raided-for-tax-evasion-
earned-rs-400-crore-in-a-year-during-pandemic-2966645
54
Available at: https://www.justice.gov/usao-wdmi/health-care-fraud (Visited on September 26, 2022).
(3.2.2.) Introduction
Many times, patients, hospitals, doctors, organizations and Governments themself involve in
health care fraud. The market in fake and substandard pharmaceuticals is not unique to India.
Fake drugs produces a particular form of public health scandal.55
Many times viruses are prepared in lab to disturb health of public and promote its business.
Preparation of such viruses and releasing among public will come under category of health care
fraud. If China had released CORONA virus, it would have committed health care fraud.
Pharmaceutical company ‗Micro Labs Limited‘ gave freebees of one thousand crore rs. to
doctors to prescribe Dolo-650 tablet. During CORONA period, Dolo-650 was prescribed for
fever. It sold more than 350 crore pills since outbreak of Covid in March 2020. In RTI,
information came that the Government knew names of 20 pharma firms which had bribed the
docs. But a single company was not punished.56
In insurance policy, many times insured persons hide disease, age and other crucial information.
Many times, persons other than insured persons take benefit of insurance. Many times, insurance
companies insert very complicated conditions and do not give insured money in guise of such
complicated conditions. In Aaushman Bharat, BPL card holder gets benefit of five lakhs rs.
Many times doctors and patients make collusion and takes money by making double billing or
false bill.
Examples of health care fraud include:
Billing for services not rendered57 or goods not provided;
Falsifying certificates of medical necessity and billing for services not medically
necessary;
Billing separately for services that should be included in single service fees;
Falsifying plans of treatment or medical records to justify payments;
Misrepresenting diagnoses or procedures to maximize payments;
Misrepresenting charges or entitlements to payments in cost reports; and
Soliciting ―kickbacks‖ for the provision of various services or goods.
55
Sarah Hodges, ―The case of the ‗Spurious Drugs Kingpin‘: Shifting Pills in Chennai, India,‖ Critical Public
Health, 29(4), (2019) pp. 473-483. Available at:
https://www.tandfonline.com/doi/pdf/10.1080/09581596.2019.1593948 (Visited on December 03, 2022).
56
Banjot Kaur, There's an unhealthy alliance between doctors and pharma firms, Down to Earth, May 15, 2019.
Available at: https://www.downtoearth.org.in/news/health/there-s-an-unhealthy-alliance-between-doctors-and-
pharma-firms-64230
57
There was a seen of medical fraud in ‗Gabbar is back‘. Mr Akshaya Kumar played lead role in this movie.
of patients to an entity with which the referring physician has a financial relationship are
outlawed.58
(3.2.4.) Laws
The USA has enacted the False Claims Act, the Anti-Kickback Statute and the Patient Referral
Act to deal with health care fraud.
Health care fraud is a fraud related to health care. Health care fraud comes under civil as well as
criminal law. Section 17 of the Indian Contract Act, 1872 deals with civil fraud. A contract
concluded due to fraud will be voidable contract. The Victim can file civil suit. There is no
special criminal law to deal with this. It is regulated by the Indian Penal Code especially by
cheating. Section 415 of the IPC defines cheating. Departmental action can also be started
against doctors.
(3.2.5.) Cases
58
Kalb, Paul E. "Health care fraud and abuse." JAMA 282.12 (1999): 1163-1168. Available at:
https://jamanetwork.com/journals/jama/article-abstract/191726 (Visited on September 26, 2022).
59
U.S. v. Ranbaxy USA, Inc., JFM-13-CR-0238 (D. Md.). [Fraudulent Representation to
FDA] https://www.justice.gov/opa/pr/generic-drug-manufacturer-ranbaxy-pleadsguilty-and-agrees-pay-500-million-
resolve-false
494,900 in asset forfeiture, and a USD 72,000 fine. Kain Kumar pleaded guilty in April 2019 to
one count of health care fraud and one count of distribution of hydrocodone.60
(3.3.1.) Meaning
Fraud related to education and educational institutions is called educational fraud. It may be
committed by students, teaching staffs, administrative staffs including vice-chancellor,
chancellor and its appointing authority.
India garnered worldwide attention when a cheating scandal, involving thousands of individuals
who took medical examinations on behalf of students, was exposed. Answers for entrance tests
to professional courses continue to be regularly leaked. Images of family members scaling walls
to help their children cheat are etched in the nation‘s memory.61
The following examples are –
1. Students - If a student uses fake certificate for getting admission, it will be called
educational fraud. Delhi University suspended Ankiv Baisoya, President of DUSU in
2018 for committing educational fraud. Allegation was that he had submitted fake
graduation degree for getting admission in Delhi University. 62 Abhayanand Mishra v.
State of Bihar63 is leading case of educational fraud. Educational fraud was not popular
term at that time. So, the Supreme Court did not use ‗educational fraud‘ term in its
judgment. Cheating in exam hall or washroom during examination is also educational
fraud. Universities take stern action against such students. At the time of filling the form,
commissions ask ‗whether you have been debarred by educational institution‘. Many
times students are arrested at the time of giving exam on behalf of other.
2. Plagiarism - Plagiarism is educational fraud. If anyone claims writing of other person as
own writing, it is called plagiarism. Ex VC of Delhi University Prof. (Dr.) Deepak Pental
was sent to Tihar Jail in 2014. On the order of the Delhi High Court, he was released.
60
Indian-Origin Doctor Gets 2 Years Jail For Healthcare Fraud In US , January 07, 2020. Available at:
https://www.ndtv.com/indians-abroad/indian-origin-doctor-kain-kumar-gets-2-years-jail-for-healthcare-fraud-in-us-
2159918 (Visited on December 03, 2022).
61
William G. Tierney and Nidhi S. Sabharwal, ―Analyzing the Culture of Corruption in Indian Higher Education‖,
International Higher Education, Vol. 87 (2016) pp. 6-7. Available at:
file:///C:/Users/pc/Downloads/Analyzing_the_Culture_of_Corruption_in_Indian_High.pdf (Visited on December
04, 2022).
62
https://www.hindustantimes.com/delhi-news/will-prove-allegations-wrong-dusu-president-ankiv-baisoya-of-abvp-
steps-down-over-fake-degree-row/story-oug1ni7Q2prKWxJQ6MtXkO.html
63
AIR 1961 SC 1698
Allegation was that he had used work of his student on biotechnology.64 UGC had issued
many guidelines to control plagiarism. Without checking of plagiarism report, PhD
cannot be submitted. 10% plagiarism is allowed.
3. Corruption in appointment - Corruption in appointment in educational fraud is another
example. There are many teachers & staffs in primary to higher education who got
appointment by using fake certificate. State of Orissa issued Standard Operating
Procedure (SOP) in 2021 for handling fake certificate by teachers for getting
appointment. UP basic education minister‘s brother Mr Arun Dwivedi got appointment as
assistant professor in the psychology department of the Siddharth university, UP under
the economically weaker section (EWS) quota in 2021. His EWS certificate was fake. He
had to resign next day of his appointment.65
4. Corruption in other works - Special Task Force (STF), Uttar Pradesh arrested Vice
Chancellor Vinay Pathak, Chhatrapati Shahu Ji Maharaj University, Kanpur. Mr Pathak
was vice chancellor in many Universities. He demanded 15% clearing bill. Accused gave
1.41 crore to his aide. The Allahabad High Court, in November 2021, dismissed a plea
by Vinay Pathak, the Vice Chancellor of Chhatrapati Shahu Ji Maharaj University in
Kanpur, seeking quashing of an FIR lodged against him in a corruption case .
5. Institutional leaders - Institutional leaders often manipulate the system to maximize
their financial gain. One strategy involves keeping teachers and the college principal ―on
paper‖ to meet the staffing norms set by the regulating authorities. Thus, teachers may be
listed as full-time employees, but are actually not. A teacher gets a full salary on paper,
but returns a substantial amount to the college. The institution‘s books appear to have a
full complement of teachers, and the teachers receive an income for doing virtually
nothing.66
6. Nepotism – Many times, nepotism is found in educational institutions especially where
selection is based on interview only.
7. Favoritism – Favoritism is common in educational institutions. Many times, students of
OBC, SC and ST get good marks in written. But they are not given good marks in
interview. There are many examples can be found during admission of PhD students in
JNU. It is situation of all over India. Many times vacancies of weaker sections are filled
and ‗None Found Suitable‘ (NFC) are written. National Commission for Backward
Classes issued a notice to the Govind Ballabh Pant Social Science Institute (GBPSSI)
seeking details of recruitment. The institute leaved posts designated for the Other
64
Ex-VC of DU sent to jail for ‗plagiarism‘, released. Available at: https://timesofindia.indiatimes.com/india/ex-vc-
of-du-sent-to-jail-for-plagiarism-released/articleshow/45278628.cms
65
UP minister‘s brother resigns as assistant professor amid row over appointment under EWS category, India TV,
May 27, 2021. Available at: https://www.indiatvnews.com/news/india/up-minister-satish-dwivedi-brother-arun-
dwivedi-resigns-assistant-professor-amid-row-over-appointment-under-ews-category-707272
66
William G. Tierney and Nidhi S. Sabharwal, ―Analyzing the Culture of Corruption in Indian Higher Education‖,
International Higher Education, Vol. 87 (2016) pp. 6-7. Available at:
file:///C:/Users/pc/Downloads/Analyzing_the_Culture_of_Corruption_in_Indian_High.pdf (Visited on December
04, 2022).
Backward Classes vacant under the ‗None Found Suitable‘ (NFS) category in its latest
recruitment drive for teachers.
There is allegation of favoritism in allocation of research scholars to faculty members in
the Faculty of Law, University of Delhi. This question was raised in meeting of all
faculty members. Dean of the faculty assured to all faculty members that she will follow
just, fair and reasonable procedure in allocation of research scholars to faculty members.
8. Ghost Delivery and Ghost Teachers – Ghost delivery means delivery on paper, but
actually there is no delivery. During my school hour, on papers many sports goods and
music instrument were purchased by using Government fund, but nothing was provided
to students. Ghost teacher means a teacher who is only on paper and but get paid salary.
Lieutenant Governor (LG) VK Saxena in September 2022 ordered a probe into the
embezzlement of funds in the payment of salaries to ―ghost" teachers in the Delhi
government schools. The LG Secretariat asked the Chief Secretary to advise Director
(Education) to immediately verify the engagement, physical attendance, and withdrawal
of salaries of all guest teachers engaged by the city government in its schools. Many
teachers either don‘t go to school or if they go to school or colleges, they don‘t take
classes.67
9. Illegal demand of money – Education has become earning source. Many school and
colleges demands many times illegal charges.
(3.3.3.) Laws
Educational fraud is governed by the ordinary law. These matters are governed by the Indian
Penal Code, 1860, the Prevention of Corruption Act, 1988, the PMLA, 2002 and other laws and
regulations.
(3.3.4.) Cases
There are many cases are related to educational fraud. But I am discussing here only few cases.
67
Jacques Hallak and Muriel Poisson, Corrupt Schools, ―Corrupt Universities: What Can Be Done?, International
Institute for Educational Planning, UNESCO Publishing (2007) pp.57-58
68
VYAPAM is acronym of Vyavasaik (Professonal) Pariksha (Examination) Mandal (Board).
69
MPHC, WP No.12196 of 2014. Date of the Judgment: November 05, 2014.
indepth experience of investigation; and (c) former experienced I.T. professional. Pending
matters before STF was handed over to STF.
70
Vaibhav Srivastava, Is the CBI Abdicating Responsibility on the Vyapam Scam Investigation? The Wire,
February 21, 2017. Available at: https://thewire.in/law/cbi-supreme-court-vyapam (Visited on December 05, 2017).
71
2022 Livelaw (Mad) 472.
(4.1.) Abstract
(4.2.) Keywords
(4.3) Introduction
The problem of corruption is complex, having roots and ramifications in society as a whole. In
its widest connotation, corruption includes improper or selfish exercise of power and influence
attached to a public office or to the special position one occupies in public life.72 Corruption is
incompatible with socialism, secularism, democracy, the rule of law. It devalues human rights
and chocks development. Therefore it is the duty of the Court to interpret the law in such a way
as to strengthen the fight against corruption. That is to say, in a situation where two
constructions are eminently reasonable, the Court has to accept the one that seeks to eradicate
corruption to the one which seeks to perpetuate it.73
Corruption in one form or other always existed. Kautilya, in his Arthasastra, refers to the various
forms of corruption prevalent in his times. During the British regime, the Indian Penal Code
1860 (In short IPC or the Code) was enacted. Section 161 to Section 165A of the Code clearly
declared corruption as a punishable offence. Parliament inserted Section 165A in 1952. The
Prevention of Corruption Act, 1988 omitted these provisions.
72
Santhanam Committee Report, Para 2.1,
73
Subramanian Swamy v. Manmohan Singh, (2012) 3 SCC 64.
The Governor General used power under section 72 of the Government of India Act, 1935
promulgated Ordinance No. XXXVIII of 1944)74 called the Criminal Law Amendment
Ordinance, 1944 during Second World War. This was the first law which was broadly dealing
with corruption and the attachment of property. It was enacted to prevent the disposal or
concealment of property procured by means of certain scheduled offences, including offences
under the Indian Penal Code of 1860.75
After Independence, it was realized that opportunities for corrupt practices will remain for
considerable time to come. So, the Legislature enacted the Prevention of Corruption Bill, 1947
and the Governor General assented on March 11, 1947. It is special law to combat this menace. It
supplemented the provisions of the IPC. It was amended in 1952. The Santhanam Committee
(1962 -1964) also recommended amending this Act. So it was again amended in 1964.
The Indian Penal Code, 1860 and the Prevention of Corruption Act, 1947 were not sufficient to
combat the menace of corruption. So, Parliament enacted the Prevention of Corruption Act,
1988. Prevention of Corruption Act, 1988 was enacted during the regime of Mr. Rajeev Gandhi.
It came into force on September 9, 1988. Sections 161 to 165A, IPC which were dealing
corruption and related matters were repealed by Prevention of Corruption Act, 1988 by Section
31 of PC Act, 1988. The Prevention of Corruption Act, 1947 was also repealed by Section 30 of
the Prevention of Corruption Act, 1988. There were total 31 Sections in this Act. At present time
there is total Section 30. Last section was repealed in 2001. Earlier it was not applicable to
Jammu and Kashmir. But after 2019 amendment, this Act is applicable to whole of India
including Jammu and Kashmir.
The Act is a social legislation to curb illegal activities of public servants and should be liberally
construed so as to advance its object and not liberally in favour of the accused.76
Law Commission of India in its Report 254th77 and Report 258th78 recommended amending the
PC Act, 1988. The Criminal Law (Amendment) Act 2018 amended the PC Act, 1988. This
Amendment was in compliance of obligations under the United Nations Convention Against
Corruption, 2003 and judicial pronouncement79. Some provisions were inserted including
Section 29A.
74
Ordinance No. XXXVIII of 1944,
https://legislative.gov.in/sites/default/files/legislative_references/ORDINANCES%201944.pdf
75
Law Commission of India, 254th Report, ‗The Prevention of Corruption (Amendment) Bill, 2013‘ p. 1 (2015)
76
State of Madhya Pradesh v. M. V. Narasimhan, (1975) 2 SCC 377; M. Narayanan Nambiar v. State
of Kerala, (1963) Supp. (2) SCR 724, State of M.P. & Ors. v. Ram Singh, (2000) 5 SCC 88 : 2000 SCC (Cri) 886.
77
Law Commission of India, 254th Report, ‗The Prevention of Corruption (Amendment) Bill, 2013‘ (2015).
Available at: https://lawcommissionofindia.nic.in/reports/Report_No.254_Prevention_of_Corruption.pdf (Visited
on October 30, 2020).
78
Law Commission of India, 258th Report, ‗Prevention of Bribery of Foreign Public Officials and Officials of Public
International Organisations – A Study and Proposed Amendments (2015). Available at:
https://lawcommissionofindia.nic.in/reports/Report258.pdf (Visited on October 30, 2020).
79
Kishor Khachand Wadhwani And Anr v. The State of Maharashtra, 2019 SCC OnLine Bom 13130. Bombay
High Court decided on July 26, 2019
Corruption in a civilised society is a disease like cancer, which if not detected in time is sure to
maliganise the polity of the country leading to disastrous consequences. It is termed as plague
which is not only contagious but if not controlled spreads like a fire in a jungle. Its virus is
compared with HIV leading to AIDS, being incurable. It has also been termed as Royal thievery.
The socio-political system exposed to such a dreaded communicable disease is likely to crumble
under its own weight. Corruption is opposed to democracy and social order, being not only anti-
people, but aimed and targeted against them. It affects the economy and destroys the cultural
heritage.80
Definition of public servant in the PC Act, 1947 was narrower. There was demand for increasing
punishment and speedy trial. Santhanam Committee also suggested several amendments in
existing law. Hon‘ble Supreme Court in State of Madhya Pradesh & Ors v. Shri Ram Singh81
Hon‘ble Supreme Court observed that Parliament enacted the Prevention of Corruption of Act,
1988 to deal with shortcomings, circumstances and contingencies which were noticed during
working and implementation of the Prevention of Corruption Act, 1947.
India agreed with AB Bofors Company to purchase 400 Howitzer guns on March 18, 1986. A
Swedish radio channel alleged on April 16, 1987 that top Indian politicians had taken a bribe to
favour the company in getting the contract for the supply of 155 mm Howitzer guns.82 Mr.
Rajeev Gandhi, then prime minister, was under political pressure. His Government introduced
the Bill to enact this law. He tried to show that his government had zero tolerance policy in
corruption cases.
The United Nations Convention Against Corruption, 2003 (―UNCAC‖) was introduced to bring
about clarity on the criminalisation of corrupt conduct that had a comparable impact for all
nations. As of today, 176 countries have signed and ratified the UNCAC and pledged to
incorporate its provisions into their domestic law. India is one such country.
Under Article 16 of the UNCAC, States Parties are required to penalise the offer and acceptance
of an undue advantage to, and by, a foreign public official or an official of a public international
organisation for acts and omissions that are contrary to his official duties. Currently, India does
not have domestic law in pursuance of Article 16 of the UNCAC. The Prevention of Corruption
Act, 1988 ( in short ‗the PCA‘) penalises the acceptance of bribes by domestic public officials,
80
State of Madhya Pradesh & Ors v. Shri Ram Singh, (2000) 5 SCC 88 : 2000 SCC (Cri) 886. Date of the judgment:
February 01, 2000.
81
State of Madhya Pradesh & Ors v. Shri Ram Singh, (2000) 5 SCC 88 : 2000 SCC (Cri) 886. Date of the judgment:
February 01, 2000.
82
This information is available at: https://indianexpress.com/article/india/what-is-the-bofors-scandal-case-why-is-it-
being-opened-now-4823576/
while the Prevention of Money Laundering Act, 2002 ( in short ‗the PMLA‘) criminalises the
illegal flow of money through the attachment and confiscation of property. Accordingly, a Group
of Ministers felt it necessary to enact a law on foreign bribery in order to comply with
requirements of Article 16 of the UNCAC. Pursuant to this, the Prevention of Bribery of Foreign
Public Officials and Officials of Public International Organisations Bill, 2011 (―the 2011 Bill‖)
was introduced in the Lok Sabha on 25th March 2011.
The Ministry of Law and Justice had requested the 20th Law Commission of India (―the
Commission‖) to give its views and recommendations on the text of the 2015 Bill. Consequently,
the Commission under the Chairmanship of Justice (Retd.) A.P. Shah has decided to undertake
the present study titled ―Prevention of Bribery of Foreign Public Officials and Officials of Public
International Organisations - A Study and Proposed Amendments‖ to review the provisions of
the 2015 Bill and recommend appropriate amendments.
Law Commission of India submitted its 258th Report on ―Prevention of Bribery of Foreign
Public Officials and Officials of Public International Organisations -A Study and Proposed
Amendments‖ in August 2015.83
During the debate in Parliament in June 1962, many members demanded to constitute a
committee to recommend mechanisms to tackle the menace of corruption. Pt. Lal Bahadur
Shashtri, then Home Minister, assured to constitute a such committee and he constituted a
committee. Pt. K. Santhanam, a Member of Parliament (M.P.) was Chairperson of that
Committee. The report of this committee is known as Santhanam Committee Report. Report of
the Committee on Prevention of Corruption84 was submitted in 1964. The Committee observed
that the main source of corruption is 'Black Money‘ which is collected through many sources
including tax evasion, speculation in immovable property and share, smuggling etc. 85 The
Committee recommended many ways to curb menace of the Committee
83
Available at: https://lawcommissionofindia.nic.in/reports/Report258.pdf (Visited on October 31, 2022).
84
Available at: https://cvc.gov.in/sites/default/files/scr_rpt_cvc.pdf (Visited on October 31, 2022).
85
Para 6.17, Report of the Committee on Prevention of Corruption.
86
Para 6.16, Report of the Committee on Prevention of Corruption. The report is available at:
https://cvc.gov.in/sites/default/files/scr_rpt_cvc.pdf (Last visited on October 30, 2020)
Objective of the Act can be inferred with the help of name of the Act, Statement of objects and
reasons of the Act and judgment of Supreme Court –
(1) Name of the Act – Prevention of Corruption Act, 1988 itself denotes that the main object of
the Act is to prevent corruption.
(2) Statement of objects and reasons for the enactment of the prevention of corruption act,
1988 - The Statement of object and reasons for the enactment of the Prevention of Corruption
Act, 1988 was discussed by Supreme Court in CBI, Bank Securities & Fraud Cell v. Ramesh
Gelli and Others.88 The Court observed, ―From the Statement of Objects and Reasons of the P.C.
Bill it is clear that the Act was intended to make the anti-corruption law more effective by
widening its coverage. It is also clear that the Bill was introduced to widen the scope of the
definition of „public servant‟”. These are following -
The bill is intended to make the existing anti-corruption laws more effective by widening
their coverage and by strengthening the provisions.
The bill, inter alia, envisages widening the scope of the definition of the expression
‗public servant‘,
(3) Ram Singh Case - In State of M.P. & Ors. v. Ram Singh89, the Supreme Court held that the
object of the Prevention of Corruption Act, 1988 was to make effective provisions for prevention
87
This information is available at: https://cvc.gov.in/about/background (Last visited on October 30, 2020).
88
Infra….
89
Supra……( Date of Judgment – February 1, 2000)
of bribe and corruption amongst public servants. It has been further held that it is a social
legislation to curb illegal activities of public servants and should be liberally construed so as to
advance its object and not liberally in favour of the accused.
The Supreme Court discussed the meaning of corruption in Kanwarjit Singh Kakkar and Anr. v.
State of Punjab90. In this case, Dr. Kanwarjit Singh Kakkar and Dr. Rajinder Singh Chawla were
employees of the State Government of Punjab. They were prosecuted for doing private practice
without permission of the State Government. Supreme Court said that their private practice was
neither corruption nor trade. So they were neither convicted under the Prevention of Corruption
of Act nor under Section 168 of the IPC.
The Court in Kanwarjit Singh Kakkar Case said that in the light of the preamble and Section 7 of
the Prevention of Corruption Act, it clearly emerges that ‘corruption’ is acceptance or demand
of illegal gratification for doing an official act. Demand/receipt of fee while doing private
practice by itself cannot be held to be an illegal gratification as the same obviously is the amount
charged towards professional remuneration. If however, for the sake of assumption, it were
alleged that the doctor while doing private practice as Government doctor indulged in
malpractice in any manner as for instance took money by way of illegal gratification for
admitting the patients in the government hospital or any other offence of criminal nature like
prescribing unnecessary surgery for the purpose of extracting money by way of professional fee
and a host of other circumstances, the same obviously would be a clear case to be registered
under the IPC as also under the Prevention of Corruption Act.
The Supreme Court in Raj Rajendra Singh Seth v. State of Jharkhand and Anr.91 convicted
doctor under the Prevention of Corruption Act, 1988 for demanding 500rs. He was demanding
money for making treatment otherwise he was not ready to give proper treatment.
90
(2011) 6 S.C.R. 895.
91
(2008) 11 SCC 681.
92
Ram Krishan and Another v. The State of Delhi, AIR 1956 SC 476. Date of the judgment: March 09, 1956
an offence under Section 161 IPC, which, as noticed above, can be, established by proof of either
―acceptance‖ or ―obtainment‖.
The Supreme Court observed that demand and acceptance of bribe is sine qua non for corruption
in the following cases -
The Supreme Court in V. Kannan v. State93 observed that in corruption cases, prosecution
must prove both demand and acceptance of bribe amount. ‗Phenolphthalein test‘ &the
Sodium Carbonate test were involved in this case.
The Supreme Court in C.M. Sharma v. State of A.P.94 observed that demand and
voluntary acceptance of the amount of illegal gratification are essential ingredients. Mere
recovery of currency notes is not sufficient to constitute offence. -
The Supreme Court in Narendra Champaklal Trivedi v. State of Gujarat95 observed that
mere recovery of bribe money from possession of accused not sufficient to constitute
offence. Demand and acceptance of money as illegal gratification must be established on
facts by the prosecution. Presumption of acceptance of gratification as a motive or reward
arises under Section 20. The court is obliged to apply the presumption in case of offence
under Section 7. Presumption is rebuttable. Accused explanation by way of rebuttal must
be considered by the court on the basis of preponderance of probability. –
The Supreme Court in P. Satyanarayana Murthy v. District Inspector of Police, State of
Andhra Pradesh and another,96 observed at para ―23. The proof of demand of illegal
gratification, thus, is the gravamen of the offence under Sections 7 and 13(1)(d)(i) and (ii)
of the Act and in absence thereof, unmistakably the charge therefor, would fail. Mere
acceptance of any amount allegedly by way of illegal gratification or recovery thereof,
dehors the proof of demand, ipso facto, would thus not be sufficient to bring home the
charge under these two sections of the Act. As a corollary, failure of the prosecution to
prove the demand for illegal gratification would be fatal and mere recovery of the amount
from the person accused of the offence under Section 7 or 13 of the Act would not entail
his conviction thereunder
The Supreme Court in K. Shanthamma v. The State of Telangana97, observed at Para 7,
―The offence under Section 7 of the PC Act relating to public servants taking bribe
requires a demand of illegal gratification and the acceptance thereof. The proof of
demand of bribe by a public servant and its acceptance by him is sine quo non for
establishing the offence under Section 7 of the PC Act‖.98
93
(2009) 9 SCC 87.
94
(2010) 15 SCC 1.
95
(2012) 7 SCC 80 : (2012) 2 SCC (L&S) 343.
96
(2015) 10 SCC 152.
97
2022 LiveLaw (SC) 192.
98
Facts of K. Shanthamma v. The State of Telangana - Shri R.Seetharamulu @ Sharma (PW 1) was the
complainant. He was working as a supervisor in Farmers‘ Service Co-operative Society. He was doing the work of
filing returns of commercial tax of the said Society. K. Shanthamma was working as Commercial Tax Officer. The
allegation was that she was demanding bribery for issuing the 'Final Assessment Order'. The allegation was that she
demanded three rs. Later on she reduced demand up to 2000 rs. Complainant informed Anti Corruption Bureau (in
short ACB). ACB trapped her on March 27, 2000. According to them, when PW1 tendered the tainted currency
Acceptance of money is not necessary. Word ‗…attempts to obtain…‘ used in Section 7 and
Explanation 1 & its illustration clarifies that demand of bribe by public servant is sufficient. If
demand itself would not be punishable, it means you are allowing the public servant to harass
citizens without any risk. Section 511 of the IPC says that if someone open the empty box or put
his hand in empty pocket with dishonest intention he will be liable for attempt to theft.
My suggestion is that accused must be punished in case of obtaining, or attempt to obtain or
accepting or attempt to accept a bribe. Demand should not be the prior condition. Either demand
or acceptance is sufficient. The Supreme Court discussed the meaning of corruption in Kanwarjit
Singh Kakkar and Anr. v. State of Punjab99 in the light of the preamble and Section 7 of the
Prevention of Corruption Act, and concluded that ‗corruption‘ is acceptance or demand of illegal
gratification for doing an official act.
Section 2 (c) of the PC Act, 1988 and Section 21 of the Indian Penal Code define ‗Public
Servant‘. The PC Act, 1947 was also defining ‗Public Servant‘. Definition of ―Public Servant‘
under the PC Act, 1947 and the PC act, 1988 is pari materia. There are several cases decided by
the Hon'ble Supreme Court by which the definition of public servants becomes clearer.
notes of Rs.2,000/- to the appellant in her office, instead of taking the amount directly, she took out a diary from her
table drawer and opened the same. She asked the appellant to keep the currency notes in the diary. Accordingly,
PW1 kept the notes in the said diary. After closing the diary, the appellant kept the same in her table drawer. She
locked the table drawer and kept the key in her handbag.
But according to appellant, when she went to the washroom, they kept money in her diary. This Case she was
acquitted on the ground that the prosecutor failed to prove demand. PWs in cross-examination could not support
story prosecution. She was acquitted.
99
(2011) 6 S.C.R. 895.
100
Date of judgment – February 12, 1979.
101
(1984) 2 SCC 183.
102
(1998) 4 SCC 626 : 1998 SCC (Cri) 1108 Date of judgment – April 17, 1998
(4.9.3.) Judges
The word ‗Judge‘ includes High Courts‘ Judges and Judges of Supreme Court. Section 21, Third,
of the IPC says that judges also come under the definition of 'Public Servant'. According to
Section 2 (c) (iv) of PC Act, 1988 judges also come under the definition of 'Public Servant'. In
the PC Act, 1947 judges were also coming under the definition of 'Public Servant'.
K. Veeraswami was former Chief Justice of High Court. Hon‘ble Supreme Court in K.
Veeraswami v. Union of India and Others103 observed that Judges of High Courts and Supreme
Court are public servants. Against them, prosecution may be launched under the Prevention of
Corruption Act after getting previous sanctions of President of India.
In order to protect the independence of the judiciary, it was essential that no criminal case shall
be registered under Section 154 Cr.P.C. against a Judge of the High Court or of the Supreme
Court unless the Chief Justice of India is consulted and he assents to such an action being taken.
Hon‘ble Justices Shetty and Venkatachaliah observed, “The expression “public servant” as
defined under Section 2 of the Prevention of Corruption Act, 1947 means a public servant as
defined in Section 21, I.P.C. From the very commencement of the I.P.C. “Every Judge” finds a
place in the categories of public servant defined under s. 21 and this expression indicates all
Judges and all Judges of all Courts. It is a general term and general term in the Act should not
be narrowly construed. It must receive comprehensive meaning unless there is a positive
indication to the contrary. There is no such indication to the contrary in the Act. A Judge of the
Superior Court cannot therefore excluded from the definition of 'public servant‟. ‖
103
(1991) 3 SCC 655 : 1991 SCC (Cri) 734. Date of Judgment – July 25, 1991.
104
(2016) 3 SCC 788.: (2016) 2 SCC (Cri) 222.
Supreme Court concluded, ―Keeping in mind the Statement of Objects and Reasons of the Bill
relating to Prevention of Corruption Act, 1988 read with Section 46A of Banking Regulation
Act, 1949, the accused Ramesh Gelli and Sridhar Subasri, who were Chairman/Managing
Director and Executive Director of GTB respectively, were public servants for the purposes of
Prevention of Corruption Act, 1988. However, such accused person cannot be said to be a public
servant within the meaning of Section 21, the IPC, as offence under Section 409 the IPC may not
get attracted.
This is a landmark judgment to prevent fraud committed by private banks.
According to Section 2(b), ―public duty‖ means a duty in the discharge of which the State, the
public or the community at large has an interest. Supreme Court in State of Gujarat v.
Mansukhbhai Kanjibhai Shah106 said that any duty discharged wherein State, the public or
community at large has any interest is called a public duty. Performance of such public duty by a
person who is holding an office which requires or authorizes him to perform such duty is the sine
qua non of the definition of the public servant contained in Section 2(c)(viii) of the PC Act.107
Explanation of Section 2(b) extend the definition of State. As per the Explanation, in this clause
―State‖ includes a corporation established by or under a Central, Provincial or State Act, or an
authority or a body owned or controlled or aided by the Government or a Government company
as defined in section 617 of the Companies Act, 1956 (1 of 1956).
105
(2020) 20 SCC 360.
106
(2020) 20 SCC 360.
107
CBI, Bank Securities & Fraud Cell v. Ramesh Gelli and Others, (2016) 3 SCC 788.: (2016) 2 SCC (Cri) 222.
Section 2 (d) defines ‗undue advantage‘ which was inserted in 2018. ―Undue advantage‖ means
any gratification whatever, other than legal remuneration. Explanation of Section 2 (d) says - for
the purposes of this clause, - (a) the word ―gratification‖ is not limited to pecuniary gratifications
or to gratifications estimable in money; (b) the expression ―legal remuneration‖ is not restricted
to remuneration paid to a public servant, but includes all remuneration which he is permitted by
the Government or the organization, which he serves, to receive.
(4.12.) Agency
(4.12.1.) CBI
The Delhi Special Police Establishment (in short 'DSPE) is known as the Central Bureau of
Investigation (in short CBI). The DSPE acquired its popular current name, Central Bureau of
Investigation (CBI), through a Home Ministry resolution (No. 4/31/61-T)108 dated 1.4.1963.
The CBI functions under Dept. of Personnel, Ministry of Personnel, Pension & Public
Grievances, Government of India. The CBI derives power to investigate from the Delhi Special
Police Establishment Act, 1946.109 Section 2 of the Act vests the DSPE with jurisdiction to
investigate offences in the Union Territories only.
However, the jurisdiction can be extended by the Central Government to other areas including
Railway areas and States under Section 5(1) of the Act. Section 6 says that CBI cannot
investigate in a State without the consent of the Government of the State. A State can give either
general consent of particular consent. Nine States had withdrawn their general consent.110 State
of Maharashtra under the leadership of Chief Minister Eknath Shinde restored its general consent
after change of Government of in Maharashtra.111 Mizoram was the first State to withdraw
consent in 2015. Congress was the ruling party at that time. MNF i.e. ally of BJP came into
power in 2018. But MNF Government did restore consent to CBI. West Bengal withdrew its
consent in 2018. Andhra Pradesh Government also withdrew its consent in 2018. But when Y.S.
Jagan Mohan Reddy came in power in 2019, he restored general consent to CBI. 112 The Supreme
108
Ministry of Home Affairs, Resolution No. 4/31/61-T. Available at:
https://www.cvc.gov.in/sites/default/files/vm21ch1/GoI%20Resolution%20No.%204-31-61-T,%20dated%201-4-
1963.pdf (Visited on November 15, 2022).
109
The Delhi Special Police Establishment Act, 1946 is available at:
https://legislative.gov.in/sites/default/files/A1946-25.pdf (Visited on November 15, 2022).
110
Rajasthan, Maharashtra, Punjab, Chhattisgarh, Kerala, West Bengal, Jharkhand, Mizoram and Meghalaya.
Meghalaya withdrew consent on March 04, 2022. After restoration of consent by Maharashtra, there are eight States
now.
111
What is ‗general consent‘ for CBI, restored by Eknath Shinde‘s Maharashtra government? The Indian Express,
October 22, 2022. Available at: https://indianexpress.com/article/explained/everyday-explainers/cbi-general-
consent-eknath-shinde-maharashtra-government-
8223269/?fbclid=IwAR3LzenVLDjSjEp_w3PXO7JfOLKmCMpN_PpdFx5yX0uvJk6VGGyjgfkg0kc
112
What is ‗general consent‘ for CBI, restored by Eknath Shinde‘s Maharashtra government? The Indian Express,
October 22, 2022.
Court and High Courts, however, could order CBI to investigate a crime anywhere in the country
without the consent of the State Governments.113
The Supreme Court in Vineet Narain & Others v. Union of India & Anr.114 issued guidelines
regarding CBI, CVC and ED. The Court said that the tenure of the director of the CBI must be
fixed for two years. The CVC will have superintendence power over the functioning of the CBI.
The President promulgated many 'Ordinances' in compliance with the judgment to provide
safeguards to the CBI and other investigating agencies.
Section 26 of the CVC Act, 2003 substituted & inserted many provisions of the DEPS Act.
Section 4 of the Delhi Especial Police Establishment Act 1946 read with Section 8 of the Central
Vigilance Commission Act, 2003, the CVC will exercise superintendence over the Delhi
Especial Police Establishment regarding investigation of corruption of cases under the
Prevention of Corruption Act. Notwithstanding anything contained in Section 173 of the CrPC,
the Delhi Especial Police Establishment shall submit its report to the CVC.115 Director, CBI has
been provided security of two year tenure.116
Hon‘ble Justice Markandey Katju in Sakiri Vasu v. State of U.P. and Ors.117 observed that any
person can demand for proper investigation, but he cannot demand investigation by any
particular agency.
In May 2013, during the UPA government, a bench of the Supreme Court came down heavily on
the CBI while hearing a coal scam case, saying that the probe agency had become a ―caged
parrot‖ speaking in the voice of its political masters.118
(4.12.2.) CVC
The Central Vigilance Commission was initially set up through Resolution No. 24/7/64 -AVD
dated 11th February 1964 of Government of India, on the recommendations of the Committee on
Prevention of Corruption formed under the Chairmanship of Shri K. Santhanam.
In September 1997, the Central Government constituted an Independent Review Committee (in
short IRC) to suggest measures for strengthening anti-corruption activities. The Review
Committee suggested that statutory status should be given to the Central Vigilance Commission.
Subsequently, the Supreme Court of India in Vineet Narain & Others v. Union of India & Anr.119
(commonly known as Jain Hawala Case) gave directions to the Government of India to confer
statutory status upon the Central Vigilance Commission.
113
N. Rahul,
114
(1998) 1 SCC 226. Date of the judgment: December 18, 1997.
115
The Central Vigilance Commission, 2003, Section 8B (2).
116
The Delhi Special Police Establishment Act, 1946, Section 4B.
117
This Case was decided by the Division Bench of the Supreme Court consisted of Justice A.K. Mathur & Justice
Markandey Katju. Justice Markandey Katju wrote the judgment.
118
SHREYASHI ROY, 7 Years After SC‘s ‗Caged Parrot‘ Comment, Where Does CBI Stand? The Quint, August
18, 2021. Available at: https://www.thequint.com/news/politics/seven-years-after-supreme-court-caged-parrot-
comment-where-does-cbi-stand#read-more (Last visited on September 14, 2022).
119
(1998) 1 SCC 226. Date of the judgment: December 18, 1997.
In order to comply with the directions of the Supreme Court, Ordinances were promulgated,
giving statutory status to Central Vigilance Commission. Later on, the CVC Bill was passed by
both Houses of Parliament in 2003 and received the assent of the President on 11.09.2003. The
CVC Act of 2003 (45 of 2003) came into effect from that date. Central Vigilance Commission
consists of a Central Vigilance Commissioner as Chairperson and not more than two Vigilance
Commissioners as Members.
As per starting words of Resolution No. 371/12/2002-AVD-III120 dated April 21, 2004, it
becomes clear that the Supreme Court during hearing of writ petition no. 539/2003 related to
murder of Satyendra Dubey121 said a suitable machinery should be put in place for acting on
complaints from ‗whistle blowers‘. The Resolution authorised the CVC to receive written
complaints from Whistle Blowers on any allegation of corruption or of misuse of office by any
government employee.
(4.12.4.) ACB
State Anti-Corruption Bureau (in short ACB) plays a vital role to prevention of corruption
cases.124 Many States have anti-corruption agencies like Anti-Corruption Bureau, Rajasthan125,
Anti-Corruption Bureau, Maharashtra126 etc. Government of Jammu & Kashmir established
Anti-Corruption Bureau in 2018 for investigation of corruption cases under the Prevention of
Corruption Act, 2006 (1949 A. D.) (Act No. XIII of Samvat 2006).127 Anti-Corruption Branch,
120
Available at: https://www.cvc.gov.in/sites/default/files/whistleblow_0.pdf (Visited on November 15, 2022).
121
Mr Satyendra Dubey was killed for exposing corruption in the National Highway Authority of India project
(NHAI Project) on November 27, 2003 in Bihar.
122
Available at: https://www.lokpal.gov.in/pdfs/act-2013.pdf (Visited on November 15, 2022).
123
the Lokpal and Lokayuktas Act, 2013 (Act No. 1 of 2014), Section 14.
124
Available at:
https://prsindia.org/files/parliament/discussion_papers/1302844978_PRS%20Note%20on%20corruption%20laws.pd
f (Visited on November 15, 2022).
125
Available at: https://home.rajasthan.gov.in/content/homeportal/en/acbdepartment/aboutus/history.html In the year
1998, by notification No. 29(92)Home/Gr.I/90-Part, dated 24-11-1998, the State Government changed the
nomenclature from Rajasthan State Bureau of Investigation to Anti Corruption Bureau (ACB).
126
The nomenclature of Anti Corruption and Prohibition Intelligence Bureau was changed as ―Anti Corruption
Bureau‖ in 1992. Available at: https://acbmaharashtra.gov.in/About (Visited on November 15, 2022).
127
Available at: http://jkacb.nic.in/downloads/acb-order-26-oct-2019.pdf
Delhi is under control of Lt. Governor. The Governor becomes a political person who directly
becomes under Central Government.
Major amendment in Prevention of Corruption Act, 1988 was done after 30 years in 2018. The
Telangana High Court in Katti Nagaseshanna v. The State of Andhra Pradesh128 dated 16
November, 2018 observed that the Prevention of Corruption (Amendment) Act, 2018129 is
applicable with prospective effects. By this amendment, it was clarified that sanction is
necessary in all cases including after retirement if the offence is related to Sections 7, 11, 13 and
15 of the Prevention of Corruption Act, 1988. The following salient features of this Amendment
are –
1. Some definitions were inserted - Section 2 (aa) [Prescribed] and Section 2 (d) [Undue
advantage] were inserted.
2. Time Limit trial – Section 4 was substituted. Hearing must be conducted day by day and
an endeavour shall be made to ensure that the said trial is concluded within a period of two
years:
Provided that where the trial is not concluded within the said period, the special Judge shall
record the reasons for not having done so: Provided further that the said period may be
extended by such further period, for reasons to be recorded in writing but not exceeding six
months at a time; so, however, that the said period together with such extended period shall
not exceed ordinarily four years in aggregate.‘‘
3. Bribe taking is a punishable offence– Section 7 and Section 7A make taking bribery as
punishable.
4. Giving bribe is punishable except compulsory giving bribe - Section 8 makes giving or
promising to give bribery as punishable offence. The provisions of this section shall not
apply where a person is compelled to give such undue advantage. But the condition is that
such person must report the matter to the law enforcement authority or investigating agency
within a period of seven days from the date of giving such undue advantage.
Illustration. A person, 'P' gives a public servant, 'S' an amount of ten thousand rupees to
ensure that he is granted a license, over all the other bidders. 'P' is guilty of an offence under
this subsection.
5. Bribery given on behalf of „Commercial Organization‟ – Section 9 deals about
responsibility of ‗Commercial Organizations‘ when bribery had been given on behalf of the
‗Commercial Organizations‘.
6. Section 17A was inserted to protect public servant whose decision is related to
recommendation – No Enquiry or Inquiry or investigation of offences relatable to
recommendations made or decision taken by public servant in discharge of official
128
This judgment is available at: https://indiankanoon.org/doc/62259323/ (Visited on October 31, 2020).
129
Prevention of Corruption (Amendment) Act, 2018 is available at:
http://www.egazette.nic.in/writereaddata/2018/187644.pdf (Visited on November 1, 2020).
Section 19 of the PMLA & Section 197 of the CrPC deals with the previous sanctions for
prosecution. Concept of previous sanctions for prosecution had been developed to protect public
servants. According to these Sections, public servants cannot be prosecuted without previous
sanctions of the appropriate government. The object underlying such provision was to save the
public servant from the harassment of frivolous or unsubstantiated allegations. The policy of
such provisions is that there should not be unnecessary harassment of public servant. Trial
without sanction, where sanction is necessary, is a trial of court without jurisdiction.130 Hon‘ble
Justice S M Fazalali in Mohd. Iqbal, Ahmad v. State of Andhra Pradesh131 dated 18 January,
1979 set aside conviction. Reason of the decision was that trial was without proper conviction.
But many times, it was observed that in granting of previous sanction, the Governments don‘t
apply rational mind. Public servants can be divided into – (1) Acting public servant, and (2)
Retired public servants. Here, acting public servant means public servant who is continuing in
service even on the date of prosecution. Retired public servant means a public servant who is
prosecuted for doing work in the discharge of public duties, but he is retired on the date of the
prosecution.
The Supreme Court in P.V. Narasimha Rao v. State (CBI),132 held that since there is no authority
competent to remove a Member of Parliament and to grant sanction for his prosecution
under Section 19(1) of the Prevention of Corruption Act, 1988, the court can take cognizance of
the offences mentioned in Section 19(1) in the absence of sanction but till provision is made by
Parliament in that regard by suitable amendment in the law, the prosecuting agency, before
filing a charge-sheet in respect of an offence punishable under Section 7, 10, 11, 13, and 15 of
130
R.S. Nayak v. A.R. Antulay, (1984) 2 SCC 183
131
AIR 1979 SC 677.
132
Date of judgment – April 17, 1998
the 1988 Act against a Member of Parliament in a criminal court, shall obtain the permission of
the Chairman of the Rajya Sabha/Speaker of the Lok Sabha, as the case may be.
There is no controversy on this point. Indian Supreme Court in Kalicharan Mahapatra v. State of
Orissa135 (1998) observed that the Prevention of Corruption Act, 1947, the Prevention of
Corruption Act, 1988, the CrPC, 1898, and the CrPC, 1973 provides express provisions for
previous sanctions for prosecution in case of acting public servants. The Prevention of
Corruption (Amendment) Act, 2018 also reiterate the same thing.
Law Commission of India in its 41st Report suggested giving protection even to retired public
servant. In new Code, 1973, this recommendation was accepted. Section 197 of the CrPC, 1973
and the Prevention of Corruption (Amendment) Act, 2018 expressly say that previous sanction
133
This judgment is available at: https://main.sci.gov.in/judgment/judis/9608.pdf (Visited on November 16, 2020)
134
Date of judgment – August 06, 2014.
135
AIR 1998 SC 2595.
is also necessary in case of retired public servants for prosecution of them for the work
discharged in the performance of public duties.
In S.A. Venkataraman v. The State136 Hon‘ble Supreme Court held that section 6 (1), the PC Act,
1947 did not require previous sanction in case of retired officer. The constitution Bench in K.
Veeraswami v. Union of India and Ors.137 upheld the view that no sanction is required to
prosecute a public servant after retirement. Hon‘ble Justice K.T.Thomas in Kalicharan
Mahapatra v. State of Orissa138 said that there is no need of previous sanction in the case of
retired public servants. The Court said that the Prevention of Corruption Act, 1988 is silent
which was enacted after the CrPC. The Court further said that Section 197 of the CrPC cannot be
applied to the retired public servants prosecuted under the Prevention of Corruption Act. The
Prevention of Corruption (Amendment) Act, 2018 overruled the ratio of the Kalicharan
Mahapatra Case139 and provides that previous sanction is necessary even in case of retired
public servants or change of department.
Effect of Kalicharan Case and the PC (Amendment) 2018 can be understood with the help of the
following table -
(4.14.5.) Retired from only one public post, but holding other public post
Supreme Court in RS Nayak v. A R. Antulay140 & Abhay Singh Chautala v. CBI.141 observed that
continuation of public office in different capacity will not be continuation of public office for the
purpose of the Prevention of Corruption Act, 1988. For example Amar won election of M.P.
from Hisar in 2000. He made corruption in 2004. He won the election of M.P. from Kurukshetra
in 2005. Case started in 2006 without previous sanction. He argued that he was in continuation of
public servant as MP. But according to the ratio of R.S. Nayak v. A R. Antulay & Abhay Singh
Chautala v. CBI, Amar was not acting public servant for the purpose of corruption made in
136
1958 SCR 1040.
137
1991(3) SCC 655.
138
AIR 1998 SC 2595.
139
AIR 1998 SC 2595.
140
1984 (2) SCC 183.
141
(2011) 7 SCC 141.
2004. In another example, Sh. Rajender is working as a joint secretary in the Home Ministry
(Mr. Amit Shah). An FIR is lodged against him by Sh. Sanjeev for taking bribe when he was
working in the Finance Ministry (Mrs. Nirmala Sitharaman). There was not protection to Sh.
Rajender. Ratio of these cases provides narrower protection for public servants.
Ratio of R.S. Nayak Case & Abhay Singh Chautala Case had been changed. As per the
Prevention of Corruption (Amendment) Act, 2018, sanction is necessary even in case of change
of the office. This Amendment provides wider protection for public servants.
Constitutional Bench of the Supreme Court decided R.S. Nayak v. A R. Antulay on February 16,
1984. The Bench held that that no sanction to prosecute him was necessary as former Chief
Minister of Maharashtra State.
At a general election held in 1980, A. R. Antulay (Barrister Abdul Rahman Antulay) was elected
as Member of the Legislative Assembly of Maharashtra State from Shrivardhan Assembly
Constituency. He was the leader of the Congress Party. He was appointed as Chief Minister of
Maharashtra State (August 1980 to January 20, 1982), and he was holding that office at the time
he is alleged to have committed the offences set out in the complaint filed against him.
Corruption allegation was that he extracted money for trust which was being managed by him.
He tendered his resignation of the office of the Chief Minister and ceased to hold that office with
effect from January 20, 1982. However, he continued to retain his seat as MLA.
Complaint was filed against him for abuse of post of Chief Minister. Sanction was not given by
the Governor. The fresh complaint was filed against him. He was still MLA. He objected that
proceeding can't be started against him without previous sanction because he was still MLA.
If the public servant holds two offices and he is accused of having abused one and from which he
is removed but continues to hold the other which is neither alleged to have been used nor abused.
The sanction of the authority competent to remove him from the office which is neither alleged
or shown to have been abused or misused is not necessary.
The Supreme Court observed, ―An illustration was posed to the learned counsel that a Minister
who is indisputably a public servant greased his palms by abusing his office as Minister, and
then ceased to hold the office before the court was called upon to take cognizance of the offence
against him and therefore, sanction as contemplated by Section 6 would not be necessary; but if
after committing the offence and before the date of taking of cognizance of the offence, he was
elected as a Municipal President in which capacity he was a public servant under the relevant
Municipal law, and was holding that office on the date on which court proceeded to take
cognizance of the offence committed by him as a Minister, would a sanction be necessary and
that too of that authority competent to remove him from the office of the Municipal President.
One can legitimately envisage a situation wherein a person may hold a dozen different offices,
each one clothing him with the status of a public servant under Sec. 21 the IPC and even if he
has abused only one office for which either there is a valid sanction to prosecute him or he has
ceased to hold that office by the time court was called upon to take cognizance, yet on this
assumption, sanction of 11 different competent authorities each of which was entitled to remove
him from 11 different public offices would be necessary before the court can take cognizance of
the offence committed by such public servant, while abusing one office which he may have
ceased to hold. Such an interpretation is contrary to all canons of construction and leads to an
absurd and product which of necessity must be avoided."
Division Bench of the Supreme Court consisting of Hon‘ble Justice V.S. Sirpurkar and Hon‘ble
Justice T.S. Thakur decided Abhay Singh Chautala v. CBI.142 on July 04, 2011. This case is
known as JBT ‗Teachers Recruitment Scam‘ case. Abhay Singh Chautala and Ajay Singh
Chautala challenged the decision of the High Court before the Supreme Court.
Chaudhary Devi Lal143 was the father of Om Prakash Chautala. Om Prakash Chautala was Chief
Minister of Haryana (1999 – 2005). He has two sons, Ajay Singh Chautala and Abhay Singh
Chautala. His grandson is Dushyant Chautala.144 During his regime, Junior Basic Trained (JBT)
teachers scam happened.
The scam came to light when former director of primary education Sanjeev Kumar filed a writ
petition in the Supreme Court saying that the Chautala government had taken bribes to recruit
3,208 JBT teachers. Kumar, a 1989- batch IAS officer, had alleged that then Chief Minister Om
Prakash Chautala, who was also handling the education ministry then, had forced him to change
the original list of 2,000 selected candidates.145 Supreme Court passed an Order in 2003 to CBI
to investigate this scam.
It was alleged that Abhay Singh Chautala and Ajay Singh Chautala while working as the
Members of Legislative Assembly had accumulated wealth disproportionate to their known
sources of income.
Abhay Singh Chautala - It is found that in the check period of 7.6.2000 to 8.3.2005, Abhay
Singh Chautala had amassed wealth worth Rs.1,19,69,82,619/- which was 522.79 % of Abhay
Singh Chautala‘s known sources of income. During the check period, Shri Abhay Singh
Chautala was the Member of the Legislative Assembly Haryana, Rori Constituency.
142
(2011) 7 SCC 141.
143
He was Ex-Deputy PM during 1989 to 1991.
144
Dushyant Chautala is currently Deputy CM. His name is not in this case.
145
Haryana: What Is the JBT Teachers Scam and Why Is it Back in the News? The Wire. This is available at:
https://thewire.in/politics/haryana-jbt-scam-chautala-bjp-jjp (Visited on November 15, 2020).
In case of Ajay Singh Chautala, his check period was taken as 24.5.1993 to 31.5.2006 during
which he held the following offices:-
1 2.3.90 to 15.12.92 MLA Vidhan Sabha, Rajasthan
2 28.12.93 to 31.11.98 MLA Vidhan Sabha, Rajasthan
3 10.10.99 to 6.2.2004 Member of Parliament, Lok Sabha from Bhiwani
Constituency
4 2.8.2004 to 03.11.09 Member of Parliament, Rajya Sabha
5 Nov. 2009 – 2013 MLA from Dabwali constituency, Haryana
It was found that he had accumulated wealth worth Rs.27,74,74,260/- which was 339.26 % of his
known sources of income.
Charges -
The appellants were being tried for the offences under Sections 13(1) (e) and 13(2) of the
Prevention of Corruption Act, 1988 read with Section 109 of the Indian Penal Code, 1860.
Remarks - There is no sanction to prosecute under Section 19 of the Act against both the
appellants.
Decision of Special Judge - An objection regarding the absence of sanction was raised before
the Special Judge, who in the common order dated 2.2.2010, held that the allegations in the
charge sheet did not contain the allegation that the appellants had abused their current office as
member of Legislative Assembly and, therefore, no sanction was necessary.
High Court - This order was challenged by way of a petition under Section 482, the CrPC.
before the High Court. The High Court dismissed the said petition by the order dated 8.7.2010.
Supreme Court – Supreme Court also dismissed appeal. In front of the Supreme Court, there
were following issues -
Issues
1. Whether the sanction under Section 19 of The Prevention of Corruption Act, 1988 was
necessary against both the appellants.
Answer – No.
2. Whether the trial which was in progress against both of them, a valid trial.
Answer – Yes.
3. Is R.S. Nayak v. A R. Antulay146 required reconsideration?
Answer – No.
4. Was the ratio of R S Nayak v. A R. Antulay ‗Obiter Dictum‘147?
Answer – No.
5. Was R.S. Nayak v. A R. Antulay decided per incuriam148?
146
[1984 (2) SCC 183].
147
„Obiter Dictum‟ mean an incidental remark. a judge's expression of opinion uttered in court or in a written
judgement, but not essential to the decision and therefore not legally binding as a precedent.
148
Per incuriam means 'lack of care. When a case has been decided in ignorance of law or precedent, that judgment
is called per incuriam judgment. Siddharam Satlingappa Mhetre v. State of Maharashtra and Ors (2 December,
2010) Supreme Court of India discussed the meaning of per incuriam with the help of English Cases. In Young v.
Bristol Aeroplane Company Limited (1994) All ER 293 the House of Lords observed that `Incuria' literally means
`carelessness'. In practice per incuriam appears to mean per ignoratium. "A decision is given per incuriam when
the court has acted in ignorance of a previous decision of its own or of a court of coordinate jurisdiction which
covered the case before it, in which case it must decide which case to follow.
Answer- No.
The decision in the said case was to the effect that if an accused is a public servant who has
ceased to be a public servant and/or is a public servant of different category then no sanction in
terms of Section 6(1) of the Act corresponding to Section 19 (1) of the New Act is necessary.
Arguments of appellants
There were following arguments of appellants –
1. Sanction required u/s 19 being Public Servants on the day of cognizance- On the day
when the charges were framed or on any date when the cognizance was taken, both the
appellants were admittedly public servants and, therefore, under the plain language of
Section 19 (1) of the Act, the Court could not have taken cognizance unless there was a
sanction.
2. Reconsideration of Antulay Case - R.S. Nayak v. A R. Antulay149 should be
reconsideration. In this judgment plain meaning of Section 6 which is part materia of
Section 19 was ignored.
3. Obiter dictum – Some parts of judgment were ‗Obiter dictum‘ esp. paras 23 to 26. There
was no need to decide on some issues. Where the Court makes an observation which is
either not necessary for the decision of the court or does not relate to the material facts in
issue, such observation must be held as obiter dictum.
4. Per Incuriam - Primary stand in this appeal is that the view expressed in R. S. Nayak v.
A.R. Antulay is not correct and fresh look is necessary as the observations made are per
incuriam.
Arguments of Respondent -
1. No sanction is necessary – There are following judgments in which Supreme Court held
that there is no need of sanction if office is different-
R.S. Nayak v. A R. Antulay (1984)
Habibullah Khan v. State of Orissa & Anr. (1995)
K. Karunakaran v. State of Kerala (2007)
Supreme Court had clearly laid down the law and had held that where the public servant had
abused the office which he held in the check period but had ceased to hold "that office" or was
holding a different office, then a sanction would not be necessary.
1. No need of reconsideration of Antulay Case - There is one more reason, though not a
major one, for not disturbing the law settled in Antulay‘s case. That decision has stood
the test of time for last over 25 years and it is trite that going as per the maxim stare
decisis et non quieta movere,150 it would be better to stand by that decision and not to
disturb what is settled. This rule of interpretation was approved of by Lord Coke who
suggested – ―those things which have been so often adjudged ought to rest in peace‖.
2. It is not per incurium – This argument is basically incorrect. In Antulay’s case, it is not as
if Section 6(2) of the 1947 Act as it then existed, was ignored or was not referred to, but
the Constitution Bench had very specifically made a reference to and had interpreted
149
[1984 (2) SCC 183]
150
Stare decisis et non quieta movere means ―to stand by decisions and not to disturb settled matters‖. The doctrine
is the foundation of the American common law system.
Section 6 as a whole. Therefore, it cannot be said that the Constitution Bench had totally
ignored the provisions of Section 6 and more particularly, Section 6(2). Once the Court
had held that if the public servant had abused a particular office and was not holding that
office on the date of taking cognizance, there would be no necessity to obtain sanction. It
was obvious that it was not necessary for the Court to go up to Section 6(2) as in that
case, there would be no question of doubt about the sanctioning authority. In our opinion
also, Section 6(2) of the 1947 Act, which is part materia to Section 19(2), does not
contemplate a situation as is tried to be argued by the learned senior counsel.
Once it was held that there was no necessity of sanction at all, there would be no question
of there being any doubt arising about the sanctioning authority.
3. Ratio of Antulay Case was accepted - In Antulay’s Case, the Court went on to hold that
where a public servant holds a different capacity altogether from the one which he is
alleged to have abused, there would be no necessity of sanction at all.
4. Combined reading of Section 19 (1) and Section 19 (2) only in case of doubt - The
Section simply contemplates a situation where there is a genuine doubt as to whether
sanctioning authority should be the Central Government or the State Government or any
authority competent to remove him. The words in Section 19(2) are to be read in
conjunction with Sections 19(1) (a), 19(1)(b) and 19(1)(c). These clauses only fix the
sanctioning authority to be the authority which is capable of ―removing a public servant‖.
Therefore, in our opinion, the argument based on the language of Section 6(2) or as the
case may be, Section 19(2), is not correct.
5. Decision of High Court was upheld – Supreme Court observed, ―We are of the clear
view that the High Court was absolutely right to hold that the appellants in both the
appeals had abused entirely different office or offices than the one which they were
holding on the date on which cognizance was taken and, therefore, there was no necessity
of sanction under Section 19 of the Act.
6. Dismissal of Appeal - The appeals are without any merit and are dismissed.
(4.15.) Conclusion
UNIT 5: The PMLA, 2002 in the context of Vijay Madanlal Choudhary Case
(5.1.) Abstract
The Vienna Convention, 1988, the Financial Action Task Force and Political Declaration and the
Global Programme of Action are the results of the United Nations and countries. In pursuance of
international obligations, the Indian Parliament enacted the PMLA, 2002. In Nikesh Tarachand
Shah Case, Supreme Court held that some part of Section 45 of the PMLA Act is
unconstitutional, being contrary to Articles 21 and 14 of the Indian Constitution. Parliament
amended the PMLA in 2018 and 2019. The Supreme Court in Vijay Madanlal Choudhary &
Ors v. Union of India & Ors. interpreted the meaning of money laundering, the condition of bail,
the position of the Enforcement of Directorate, the uploading of ECIR, the ratio of Nikesh
Tarachand Shah Case and Tofan Case etc. The judgment further says that confession made to
senior E.D. officers will be acceptable. The Court did not make it mandatory to provide copy of
ECIR to the accused. Against this judgment, a review petition is pending. The Indian Express
published news that 95% of cases were registered against leaders of opposite parties, and cases
were stopped once the leader joined the ruling party in the Centre. In this research paper, the
researcher will discuss the PMLA, the role and status of the E.D., and the ratio of recent
judgments of the Supreme Court related to the E.D. The researcher will also search effect of this
judgment on human rights, especially in the context of Article 20 of the Indian Constitution.
(5.2.) Keywords
(5.3.) Introduction
The Vienna Convention, 1988 encouraged the world to prevent money laundering laws. The
Financial Action Task Force (FATF) is an independent inter-governmental body which makes
policies and takes actions to prevent money laundering. This body was constituted by the Group
of Seven (G7) countries in 1989. Its headquarter is in Paris. This body publishes two types of list
regarding countries which don‘t follow recommendation of the FATF i.e. black list and gray list.
151
Political Declaration and Global Programme of Action152 was adopted by General Assembly
on February 03, 1990.153 It was mainly related to narcotics drugs and psychotropic substances.
There was a demand for the cooperation of all countries to tackle such problems. UN General
Assembly adopted the 'Political Declaration' in its Special Session from June 08 to 10th, 1998
and requested Members to adopt money laundering legislations and programs in their country.
The United Nations Convention against Transnational Organized Crime was convened in
Palermo, Italy, on 12-15 December 2000. It came into force in 2003.
The Prevention of Money-laundering Bill was introduced in Lok Sabha on August 04, 1998.
Hon'ble Speaker referred the matter to the Standing Committee on Finance.
151
Ramanathan Kumar, ‗A misleading exit‘, The Indian Express, p. 10, October 27, 2022.
152
Available at:
https://www.unodc.org/documents/commissions/CND/Political_Declaration/Political_Declaration_1990/1990_Politi
cal_Declaration_and_Programme_of_Action.pdf (last visited October 10, 2022).
153
Upendra Baxi, PMLA and its Discontents, The Indian Express, August 03, 2022.
154
Ramaraju v. Union of India, Andhra Pradesh High Court decided on March 04, 2011
155
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at para 36.
156
Nikesh Tarachand Shah and Ors. v. Union of India and Ors., (2018) 11 SCC 1. Division Bench of the Supreme
Court decided this case on November 23, 2017. Available at:
https://main.sci.gov.in/supremecourt/2017/13393/13393_2017_Judgement_23-Nov-2017.pdf (last visited March 21,
2022).
157
Orissa High Court decided Mohammad Arif v. Directorate of Enforcement, Govt. of India on July 13, 2020.
158
Orissa High Court decided Mohammad Arif v. Directorate of Enforcement, Govt. of India on July 13, 2020.
Parliament amended in 2005, 2009, 2013, 2015, 2016, 2018 and 2019. The Finance Act, 2019,
amended this Act. Rajya Sabha MP Mr. Jairam Ramesh challenged Finance Act in Delhi High
Court. The High Court rejected this and he filed an appeal to the Supreme Court.159 The matter is
pending before the Supreme Court. Mr. Chidambaram submitted that before 2015, the PMLA
was amended on various occasions through Ordinary Bills as defined under Article 109 of the
Constitution. However, post-2015, the Act has been amended through Money Bills.
Amendments are going on in such way since 2015 to till now.160 This is not good for a healthy
democracy.
The Act is a special law.161 The total sections are 75. There is one Schedule. There are three parts
of this Schedule, namely: Part A, Part B and Part C. These Parts have been divided into
Paragraphs. Part A contains the name of 29 laws. It is applicable to some parts of these
enumerated laws. Part B contains only one Act. The name of this Act is the Customs Act, 1962.
Part C covers offences related to laws mentioned under Part A that have cross-border
implications. For example, if an offence is related to the NDPS Act and it is wholly related to
India, it will come under the Part A. But if it is related to other countries, it will come under the
Part C.
Objects of the PMLA, 2002 can find out with the help of the Statement of Objects and Reasons
of the Act, Preamble of the Act and leading judgments. These objects of the Act are to prevent
money-laundering, to confiscate proceeds of crime, to fulfil international obligations,162 to
protect financial systems of the country and its integrity & sovereignty.163
159
Krishnadas Rajagopal, ―Prevention of Money Laundering Act: Supreme Court seeks Centre‘s view on Jairam
Ramesh‘s petition‖ The Hindu, July 02, 2020.
160
Krishnadas Rajagopal, ―Prevention of Money Laundering Act: Supreme Court seeks Centre‘s view on Jairam
Ramesh‘s petition‖ The Hindu, July 02, 2020.
161
Gautam Kundu v. Manoj Kumar, Assistant Director, Eastern Region, E.D., (PMLA) Govt. of India, Division
Bench , Supreme Court: Date of Judgment – December 16, 2015, Available at:
https://main.sci.gov.in/judgment/judis/43201.pdf (last visited March 20, 2022).
162
Gautam Kundu v. Manoj Kumar, Assistant Director, Eastern Region, E.D., (PMLA) Govt. of India.
163
Nikesh Tarachand Shah and Ors. v. Union of India and Ors., (2018) 11 SCC 1.
The problem of black money is rising day by day. UPA 1 and UPA2 was totally failed to
implement the PMLA, 2002. In Ram Jethmalani and Ors. v. Union of India164 Supreme Court
passed an order for constitution of SIT headed by Hon‘ble Justice Mr. B.P. Jeevan Reddy as
Chairman. This SIT was constituted only on the grounds that the Government was totally failed
to implement the PMLA, 2002 properly and effectively.
Mr. Modi Government is also totally failed on this point. Before 2014, he was making a promise
that he would bring black money and every Indian will get 15 lakh rs. But at present time, black
money in Swiss Bank had doubled. It happened even after the decision of 'Demonetization' in
2016. According to his reasoning, every citizen is now entitled for getting 30 lacks now. Baba
Ramdev was also raising black money issue before 2014, but at present time he is totally silent
and he is trying to justify Government without rational minds.
Enforcement Agencies, especially the Directorate of Enforcement (E.D.), are a tool for winning
elections and helping form government. It cannot be denied that many leaders of opposite
parties, may be involved in money laundering and corruption cases. But as soon as they join, the
ruling party, E.D. and other enforcement agencies either stop action are they become reluctant.
Himanta Biswa Sharma was involved in Sarada chit fund. E.D. and CBI questioned in 2014 and
2015. He joined BJP. There is no further development after joining. TMC leaders Suvendu
Adhikari and Mukul Roy, who were accused in the Narada sting operation case were under the
scanner of CBI and E.D. They joined BJP just before the election. There is no further
development.165
Some leaders of opposition parties are being harassed by Central Agencies in the guise of the
PMLA. Fourfold cases had increased during the Modi regime, and out of these cases, 95% of
cases are against leaders of the opposite party.166 Enforcement agencies must perform for the
protection of economic growth and integrity of the nation rather than as a political worker of a
party. The time has come to implement this law professionally.
164
Ram Jethmalani and Ors. v. Union of India (2011) 9 SCC 761. Available at:
https://main.sci.gov.in/judgment/judis/38154.pdf (Visited on March 21, 2022).
165
Deeptiman Tiwary, Since 2014, 4-fold jump in E.D. cases against politicians; 95% are from Opposition, The
Indian Express, September 21, 2022. Available at: https://indianexpress.com/article/express-exclusive/since-2014-4-
fold-jump-in-ed-cases-against-politicians-95-per-cent-are-from-opposition-8163060/ (last visited October 01, 2022).
165
Rhea booked under PMLA in Sushant case, The Tribune, July 31, 2020.
166
Deeptiman Tiwary, Since 2014, 4-fold jump in E.D. cases against politicians; 95% are from Opposition, The
Indian Express, September 21, 2022. Available at: https://indianexpress.com/article/express-exclusive/since-2014-4-
fold-jump-in-ed-cases-against-politicians-95-per-cent-are-from-opposition-8163060/ (last visited October 01, 2022).
Money laundering always becomes in news. Before some months, actions were taken under this
Act against Mr. P. Chidambaram and Maulana Saad Kandhalvi, leader of Tablighi congregation.
Mr. P. Chidambaram and his son were arrested in INX Media Case. Supreme Court granted
regular bail to Mr. P. Chidambaram on December 04, 2019 and reminded to E.D. that bail is still
the rule and jail is an exception.
Rhea Chakraborty was booked under the PMLA in the Sushant Singh Suicide by Enforcement
Directorate.167 The E.D. registered ECIR against Rhea and her family members on July 31, 2020
for suspicious transactions worth rs. 15 crore.168 Arrest of Mr. Nawab Malik, NCP Leader and
Cabinet Minister, and Satyender Jain are the most recent arrest by E.D. under Money Laundering
Case in February 2022.169
The Supreme Court decided Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 170 on
July 27, 2022 and upheld the constitutional validity of many provisions of the Prevention of
Money-Laundering Act, 2002. A review Petition had been filed against this judgment, and the
Supreme Court accepted this petition. The petition is pending.
Economic offences are more serious than murder.171 Several times, crimes are committed for
money. The illegal business of drugs, human trafficking, arms dealing, poaching, and
adulteration of foods illegally involves the collection of huge amounts of money. Terrorism and
wage war depend upon black money. In several times, it has been observed that black money is
used for winning elections, and it is a direct attack on basic tenets of democracy. It is also a
threat to the Indian economy and sovereignty of a nation. It leads to bribery. In the case of
money laundering, Government deprives of the collection of taxes. If Government is unable to
167
Rhea booked under PMLA in Sushant case, The Tribune, July 31, 2020.
168
Available at : https://www.theleaflet.in/why-is-rhea-chakraborty-being-questioned-under-the-prevention-of-
money-laundering-act/# (last visited November 21, 2020).
169
Khushboo Narayan & Sadaf Modak, 'Nawab Malik arrested by E.D. in connection with money laundering case
against Dawood Ibrahim' Indian Express, February 24, 2022.
Available at: https://indianexpress.com/article/cities/mumbai/nawab-malik-ed-dawood-ibrahim-money-laundering-
case-7786639/ (last visited March 20, 2022).
170
Available at: https://main.sci.gov.in/supremecourt/2014/19062/19062_2014_3_1501_36844_Judgement_27-Jul-
2022.pdf (last visited October 09, 2022).
171
State of Gujarat v. Mohanlal Jitamalji Porwal & Anr. (1987) 2 SCC 364.
collect taxes, it will hamper for development of the nation. For example, Government will be
unable to provide scholarships, salaries, and subsidies for food, agriculture, oil etc.
Demonetization of Indian currency was done on November 08, 2016 to break the chain of money
laundering. From the above discussion, it becomes very clear regarding the need for combating
money laundering.
In Nikesh Tarachand Shah and Ors. v. Union of India and Ors.172, Supreme Court cited the
"Statement of Objects and Reasons" of the Act and observed that money laundering is a serious
threat not only to the sovereignty and integrity of the nation but also an economic condition of
the country.
There are several problems arise due to money laundering. These are – (1) Governments become
unable to trace the source of such money. So it is not in a position to impose a tax. The
Government of any country runs by taxes. (2) It helps illegal activities and the commission of
crimes. (3) Finally, it destroys the economic condition of the country.
The preamble of The Prevention of Money-Laundering Act, 2002173 itself denotes the reason of
the enactment of the Act. This Act was enacted to fulfill international obligations aroused from
the 'Political Declaration and Global Programme of Action' 1990 adopted by the U.N. General
Assembly on February 23, 1990. Special Session was conducted in June 1998, and all countries
were requested to enact laws to prevent money laundering in their respective countries.
Division Bench of Supreme Court decided Binod Kumar v. State of Jharkhand174 on March 29,
2011 and decided that the PMLA would come into effect if there was involvement in money
laundering. In this case, the matter was registered under the IPC, 1860 and the P.C. Act, 2002
against the former Chief Minister and Ministers on the direction of a Special Judge (Vigilance).
CBI started an investigation. This case was registered for misusing public office and getting huge
amounts of unaccounted money, and investing in multi-states and multinationals. An
172
Nikesh Tarachand Shah and Ors. v. Union of India and Ors., (2018) 11 SCC 1.
173
Available at: https://www.indiacode.nic.in/bitstream/123456789/2036/1/A2003-15.pdf (last visited March 20,
2022).
174
(2011)1 SCC 463. Available at: https://main.sci.gov.in/judgment/judis/37801.pdf (last visited November 25,
2020)
investigation by CBI was challenged in Jharkhand High Court through Writ Petition. The High
Court dismissed the writ petition. In this case, Supreme Court upheld the decision of the High
Court and held that CBI could make investigations in such cases. The reason for the decision of
the case was that there was unaccounted money, but there was no involvement in money
laundering. There are the following salient features of the PMLA, 2002 which are following –
1. The PMLA, 2002, applies to the whole territory of India. It was enacted in 2003 and came
into force on July 01, 2005. The total sections are 75. There is one Schedule. It is a special
law.
2. Parliament amended the Act by the Finance Act, 2019.175 After Amendment in 2019, money-
laundering is an independent offence. Before the Amendment, 2019, search, and seizure was
not possible under this Act unless other agencies submitted an FIR or charge sheet. This was
pre-requisite. By the Finance Act, 2019, sub-section (1), the proviso of section 17 was
omitted. Before 2019 Amendment, a search of persons was not possible under this Act unless
other agencies submitted FIR or charge sheet. This was a pre-requisite. By Finance Act,
2019, the proviso of section 18 was omitted.
This Amendment omitted provisos of Sections 17 (1) & 18 (1). The effect of this is that there
is no pre-requisite for registration of an FIR or charge sheet by other agencies for taking
actions under Section 17 and Section 18.176
3. Section 24 provides a rebuttable presumption of law regarding a person charged for an
offence under Section 3 of the PMLA that proceeds of crime are involved in money
laundering. In the case of any other person, there is a rebuttable presumption of fact. There is
a presumption of guilt, and the burden of proof lies on the accused to prove his innocence.
According to Section 45, offences under this Act are cognizable and non-bailable offences. It
contains a 'twin test' for getting bail.
4. According to Section 44, offences under this Act are tried by Special Courts. The procedure
of trail will be like the procedure of session trial under the CrPC. If a prosecution is based on
a scheduled offence, and the accused had been discharged from that scheduled offence, such
accused cannot be prosecuted under the PMLA. The Supreme Court discussed this point in
175
It is available at: http://egazette.nic.in/WriteReadData/2019/209695.pdf (last visited November 21, 2020).
176
Devesh K Pandey, ―Changes in PMLA Act empower E.D.", The Hindu, August 09, 2019.
Parvathi Kollur & Anr. v. State by Directorate of Enforcement.177 In this case, accused no. 1
was prosecuted under the Prevention of Corruption Act, 1988. During the pendency of trial,
E.D. registered a case against the accused, his wife and his son. Special Judge (Lokayukta)
acquitted Accused no. 1 from the Prevention of Corruption Act charges. The Trial Court
discharged the wife and son from charges under the PMLA. The Court said that the
commission of scheduled offence is a pre-condition for prosecution under the PMLA. High
Court set aside the discharge order of the trial court. Wife and son, i.e. appellants approached
to the Supreme Court. The Court applied the ratio of Vijay Madanlal Choudhary Case178
upheld the decision of the trial and set aside the decision of the High Court.
The PMLA, 2002 is a special law. In case of inconsistency with general law the PMLA will
prevail.179 Combined reading of Section 65 and Section 71 of the PMLA, 2002 and Section 5,
the CrPC, makes clearer that the PMLA will prevail over the CrPC. 180 Combined reading of
Section 71, the PMLA and Sections 5 and 41, the IPC, makes clearer that the PMLA will
prevail over the IPC.
5. Any confession made to senior E.D. officers will be relevant. Such confession will not be
irrelevant under section 25 of the Indian Evidence Act. The reason of this is that E.D officers
are not police.181
Launder means washing and ironing clothes. Laundering means to conceal the origins of (money
obtained illegally), typically by transfers involving foreign banks or legitimate businesses.
Money laundering is a process of concealing or disguising the identity of the proceeds of crime
so that it appears that such money has come through a legal process.182 Money laundering is a
process in which black money is converted into white money. In other words, tainted money is
converted into untainted money. It is a way to hide illegally obtained money. It is frequently a
177
Parvathi Kollur & Anr. v. State by Directorate of Enforcement 2022 LiveLaw (SC) 688.
178
Infra note 67, at Para 187.
179
Gautam Kundu v. Manoj Kumar, Assistant Director, Eastern Region, E.D., (PMLA) Govt. of India , Division
Bench, Supreme Court: Date of Judgment – December 16, 2015 Available at:
https://main.sci.gov.in/judgment/judis/43201.pdf (last visited March 20, 2022).
180
Ibid.
181
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633,
182
It is available at: https://www.interpol.int/Crimes/Financial-crime/Money-laundering (Visited on November 21,
2020).
component of other, much more serious ones.183 Money laundering words became very famous
when criminals in the USA started to convert illegal businesses into legal businesses at large
levels in 1980.
Standing Committee on Finance (2008-09) in its 18th Report184 said that the process of money
laundering involves the cleansing of money earned through illegal activities like extortion, drug
trafficking and gun running etc. The tainted money is projected as clean money through intricate
processes of placement, layering and laundering.
According to Section 2 (1) (p) of the Prevention of Money-laundering Act, 2002, "money-
laundering" has the meaning assigned to it in section 3 of the Act. The Explanation was inserted
in 2019. The person who manipulates this money is called a "launderer‖. Section 3 covers not
only those persons who are directly and knowingly involved in concealment, possession,
acquisition etc., of proceeds of crime but also who are indirectly and unknowingly involved.
Parliament amended the Act in 2019 and inserted an Explanation. This Explanation makes clear
that projection as untainted property is not necessary. Word 'or' has been used in Explanation
after use and before projecting as untainted property. Supreme Court in Vijay Madanlal
Choudhary & Ors v. Union of India & Ors.185 discussed the meaning of money-laundering and
said that projection of proceeds of crime as untainted property is not necessary. The Court further
said that ‗and‘ used in the definition must be read as ‗or‘. The Court said that if projection as
untainted property will be makes requirement, the object of the Act will be frustrated. The Court
said that if 'and' will be read to denote two requirements of Section 3, the whole Act will be
frustrated. The Court gave one example. One person will possess property collected from
committing a crime and his friend will project that property as untainted property, neither will be
covered under Section 3 of the PMLA Act.186
183
Ibid.
184
This Report is available at:
https://www.prsindia.org/sites/default/files/bill_files/scr1229936804_SCR_Prevention_of_Money_Laundering_Bill.
pdf (last visited November 20, 2020)
185
Available at: https://main.sci.gov.in/supremecourt/2014/19062/19062_2014_3_1501_36844_Judgement_27-Jul-
2022.pdf (last visited October 09, 2022).
186
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at Para 41.
The Supreme Court interpreted 'and' as 'or' and supported this interpretation with the help of ratio
of Sanjay Dutt v. State through C.B.I., Bombay (II) 187, Ishwar Singh Bindra & Ors. v. The State
of U.P.188 and Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd.189.
Supreme Court in the Sanjay Dutt Case interpreted 'arms and ammunition' used in Section 5 of
the TADA Act. The Court interpreted these words in the context of the object of the Act and said
that conjoint reading of these words would frustrate the object of the Act. The Court held that
'and' must be read as 'or. It means the Court substituted 'arms and ammunition' with 'arms or
ammunition'. The Court said that otherwise, one accused will carry arms, and another accused
will carry ammunition, and both accused will escape from the provisions of the TADA Act.
The government of India had also given assurance to FATF that Indian Supreme Court can
interpret 'and' as 'or' in case of need. Explanation inserted in 2019 also makes clear that 'and'
must be read as 'or'. It is the demand of the PMLA.
With the help of the Report and the decision of the Court, it can be said that there are three
processes of 'Money-laundering'. Standing Committee on Finance, in its 18th Report, said that
three steps are followed in money–laundering. These steps are placement, layering and
laundering. In Mohammad Arif v. Directorate of Enforcement, Govt. of India190 , Vijay Madanlal
Choudhary & Ors v. Union of India & Ors.191 and B. Ramaraju v. UOI, the Courts observed that
act of money laundering involves the process of placement, layering and integration of ―proceeds
of crime‖.
Collection of dirty money is called proceeds of crimes. Once this dirty money is placed in the
banking system, it is called placement. Even investing such money in other places is called
placement. There are many examples of this, but it is not possible to write every example. When
187
Sanjay Dutt v. State through C.B.I., Bombay (II) (1994) 5 SCC 410.
188
Ishwar Singh Bindra & Ors. v. The State of U.P. (1969) 1 SCR 219.
189
Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd (2008) 4 SCC 755.
190
Orissa High Court decided this case on July 13, 2020.
191
Supra, para 44.
money is withdrawn in a different mode, it is called layering. After layering of property, when
the property is purchased with the help of such money, it is called laundering.
Division Bench of the Supreme Court decided Ram Jethmalani and Ors. v. Union of India192 on
July 04, 2011. The bench comprising of Hon‘ble Justice B. Sudershan Reddy and Hon‘ble
Justice Surinder Singh Nijjar. Ram Jethmalani and many other eminent scholars filed a writ
petition under Article 32 on the grounds of violation of Article 14 and Article 21 of the
Constitution. Petitioners quoted the name of Hassan Ali Khan and its allies against whom E.D.
had closed the case in 2007. Petitioners argued that black money is a symbol of weaknesses in
the governance and such money is a threat for security and integrity of India. Governments and
their agencies are ignoring this.
In this case, even a single provision of the PMLA, 2002 was not discussed. In this case,
Supreme Court expressed its dismay over the Government for not taking proper actions for
prevention and taking back black money. The Court passed an Order to establish a ‗Special
Investigation Team (SIT), and it was directed to disclose the name of persons who have
deposited their money in foreign countries. Supreme Court said that every account in another
country should not be taken as dubious accounts. It was directed that names of those persons
must not be disclosed with respect of which investigations /enquiries are still in progress and no
information or evidence of wrongdoing is yet available. Hon'ble Supreme Court framed two
issues in para 21 of the judgment. These two issues and their replies are the followings –
(i) Whether Special Investigation Team (SIT) should be appointed to investigate 'black money?
The Court replies positively. The Court constituted SIT. Hon'ble Mr Justice B.P. Jeevan Reddy
was nominated its Chairman, and Hon'ble Mr. Justice M.B. Shah as Vice-Chairman. This
Committee will submit a report and be responsible to the Supreme Court. Members of the High-
Level Committee constituted by the Government shall be its members.
192
Ram Jethmalani and Ors. v. Union of India (2011) 9 SCC 761. Available at:
https://main.sci.gov.in/judgment/judis/38154.pdf (last visited November 24, 2020).
(ii) Whether certain documents relied upon by the Union of India in its response should be
provided/disclosed to the Petitioners. The Court replies positively. But the Court said that name
disclosure should be subject to certain conditions.
Division Bench of the Supreme Court decided Gautam Kundu v. Manoj Kumar, Assistant
Director, Eastern Region, E.D., (PMLA) Govt. of India193 on December 16, 2015. Hon‘ble
Justice Pinaki Chandra Ghose wrote the judgment. In this case, the Court observed that the
PMLA is a 'special law' and the CrPC is a general law. The Supreme Court discussed relation
between the PMLA and the CrPC.
Gautam Kundu was the Chairman of Rose Valley Real Estate Construction Ltd., situated in West
Bengal. This case was related to bail. Rose Valley Chit Fund Case is related to the collapse of the
'Ponzi Scheme'. This scam rocked West Bengal in 2013. Many politicians of TMC were arrested
in connection with this case, including sitting M.P. Tapas Pal and Sudip Bandyopadhyay.194
Enforcement Directorate (E.D.) estimated Rs 17,520 crore in this scam. The Appellant was
arrested on March 2015 for a commission of an offence under section 3 of the PMLA.
The PMLA is a special law, and the CrPC is a general law. Hon'ble Justice Pinaki Chandra
Ghose observed at para 28 that the PMLA is a special law and the CrPC is a general law.
According to Section 5 of the CrPC, the CrPC will not override the special law. Section 65 and
Section 71 make clearer that PMLA will override general law. In this case, the Supreme Court
discussed the relation between Section 45 of the PMLA and Section 439 of the CrPC. Section 45
of the PMLA starts with a non-obstante clause. A combined reading of Section 5 of the CrPC
and Sections 45, 65 and 71 of the PMLA makes clear that provisions of the PMLA have an
overriding effect in case of inconsistency. But if there is no inconsistency between the PMLA
and the CrPC, provisions of the CrPC will be applicable in matters of the PMLA. So provisions
193
Available at: https://main.sci.gov.in/judgment/judis/43201.pdf (last visited March 20, 2022).
194
Available at: https://www.firstpost.com/politics/sudip-bandyopadhyay-arrested-all-you-need-to-know-about-
rose-valley-chit-fund-scam-3187490.html (Visited on March 20, 2022).
of section 45 of the PMLA will be applicable even if the bail application is given under section
439 of the CrPC.
The Court accepted that presumption under section 24 is constitutional and it is the responsibility
of the appellant in this case to disprove this presumption. It means the presumption is against the
accused and the accused has the option to disprove it.
The Supreme Court in Vijay Madanlal Choudhary & Ors v. Union of India & Ors., at para 137,
discussed the relationship between the PMLA and the CrPC. and on the basis of Sections 45, 65
and 71 of the PMLA and Section 5 of the CrPC concluded that in case of inconsistency between
the PMLA and the CrPC, the PMLA will prevail.
Section 45 of the PMLA says that offences under this Act are cognizable and non-bailable
offences. Supreme Court discussed Section 45 of the PMLA and Section 439, the CrPC in
Gautam Kundu v. Manoj Kumar, Assistant Director, Eastern Region, E.D., (PMLA) Govt. of
India195. Many writ petitions and appeals were filed regarding the constitutional validity of
Section 45 of the PMLA. Supreme Court heard these writ petitions and appeals in Nikesh
Tarachand Shah and Ors. v. Union of India and Ors.196 decided on November 23, 2017. In this
case, Section 45197 of the PMLA, Sections 437 and 439, the CrPC and Articles 14 and 21 of the
Constitution of India were involved. The Supreme Court discussed the statement of objects and
reasons of the PMLA, the meaning of ‗Money Laundering‘, history of bail. The Court declared
two conditions mentioned in section 45(1) (ii) as a violation of Articles 13(2), 14 & 21 of the
Constitution of India and directed Courts to release all persons whose bail had been rejected on
the basis of these two conditions. Section 45 imposes twin tests if the offence is coming under
Part A of the Schedule and is punishable for more than three years. The first condition is that the
public prosecutor must be given opportunities to oppose the application and the second condition
is that the Court must satisfy on the basis of reasonable grounds that the accused is not guilty of
such offence and he will not commit an offence while on bail. The Supreme Court said that two
195
Available at: https://main.sci.gov.in/judgment/judis/43201.pdf (last visited March 20, 2022).
196
(2018) 11 SCC 1 https://main.sci.gov.in/supremecourt/2017/13393/13393_2017_Judgement_23-Nov-2017.pdf
197
Section 45(1) imposes two conditions for the grant of bail where an offence punishable for a term of
imprisonment of more than 3 years under Part A of the Schedule to the Act is involved.
conditions applied only to those offences which are punishable more than three years and
mentioned in Part A of the Act. It had no nexus with the objects.
Parliament amended Section 45 in 2018198 and removed the grounds on the basis of which the
Supreme Court nullify some provisions of Section 45 in Nikesh Tarachand and Ors. v. Union of
India and Ors. ―Punishable for a term of imprisonment of more than three years under Part A of
the Schedule‖ was substituted by 'under this Act' by the 2018 Amendment w.e.f. April 19, 2018.
Now two conditions are applicable to all offences under the PMLA. 199 This Amendment was
challenged in various courts.
This case was thoroughly discussed in Vijay Madanlal Choudhary & Ors v. Union of India &
Ors. In this case, at para 118 of the judgment, the Court observed that unconstitutional provisions
had been validated by the Amendment, 2018 with retrospective effect. The anomalies noted in
the Nikesh Tarachand Shah Case have been removed by the 2018 amendment. It can be
concluded that the ratio of the Nikesh Tarachand Case had been overruled by the 2018
amendment. Supreme Court accepted this Amendment as constitutional in Vijay Madanlal Case.
The Court further said in para 139 of the judgment that twin conditions of Section 45 of the
PMLA would be applicable to ordinary bail as well as anticipatory bail.
198
Available at: https://egazette.nic.in/writereaddata/2018/184302.pdf (last visited October 10, 2022).
199
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, 67, at. Para 121.
200
P. Chidambaram v. Directorate of Enforcement (2019) 9 SCC 24 . This judgment is available at:
https://main.sci.gov.in/supremecourt/2019/41156/41156_2019_5_1501_18764_Judgement_04-Dec-2019.pdf (last
visited November 20, 2020)
Money-laundering affects the unity and integrity of India. It is a serious issue not only for India
but also for other countries. It is increasing day by day. It was realized in post twenty century.
The Government of India authorized ‗Enforcement Directorate' to implement provisions of the
Prevention of Money-laundering Act, 2002. Section 45 (1A) says that any police officer shall not
investigate unless he is authorized by the Government of India by general or special order. This
provision will prevail over the CrPC. There is no express provision to investigate offences under
the PMLA, 2002 by the 'Enforcement Directorate' (in short E.D.). Section 49 (1) of the Act
empowers the Government of India to authorize any agency to investigate offences under the
PMLA. The government of India by using power given under section 49 (1) of the PMLA issued
a Notification201 on July 2005. The Notification says that the Director of Enforcement holding
office immediately before the said date under the Foreign Exchange Management Act, 1999 shall
work under the PMLA also. Supreme Court in Binod Kumar v. State of Jharkhand202 observed
the following important points -
1. Enforcement Directorate has sole and exclusive power to investigate offences under the
PMLA.
2. In this case, CBI was investigating offences under the IPC and the P.C. Act, 2002. The
CBI was not investigating offences under the PMLA, 2002. So there was no interference
in the arena of E.D.
3. Facts of the cases related to corruption. In this case, there were corruption cases, but there
was no involvement of laundering cases. There is a difference between getting money
through corruption and laundering money through corruption.
4. Supreme Court justified the investigation by CBI and upheld the decision of the High
Court. The appeal was dismissed.
Supreme Court in the Vijay Madanlal Choudhary Case said that the NDPS Act, 1985 is different
from the PMLA and did not apply ratio of Tofan Singh Case. The Court further held that
officers of the Enforcement Directorate are not police officers under the PMLA.203 Confession
made to officers of E.D. shall not be hit by section 25 of the Indian Evidence Act, 1872. Any
201
This Notification is available at: https://dea.gov.in/sites/default/files/moneylaunderingrule.pdf (last visited
November 25, 2020)
202
Binod Kumar v. State of Jharkhand (2011)1 SCC 463. Available at:
https://main.sci.gov.in/judgment/judis/37801.pdf (last visited November 25, 2020)
203
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633,
statement under Section 50 to E.D. officers will not hit Article 20(3).204 Under Section 50,
Authority has power as civil Court has power. At this stage, he is not accused.205 The process
envisaged under Section 50 is in the nature of inquiry rather than investigation in a strict sense.
Section 5 to Section 11A deal with attachment and Adjudicating Authority. Section 5 makes a
balance between the interest of the person and ensures that proceeds of crime must be available
during the investigation/inquiry.206 There are many safeguards have been provided under section
5. Only a higher authority, i.e. Director or authorized Deputy Director, can issue a 'Provisional
Attachment Order' (in short 'PAO'). He must satisfy the twin condition mentioned in sub-section
(1) section 5. There must be a reason to believe that the person is in possession of the proceeds of
the crime, and he is likely to transfer or conceal such proceeds. Such attachment is only for a
fixed duration, i.e., one hundred and eighty days.207
There are two types of attachment, namely 'Provisional Attachment‘ (Section 5 & Section 8 deals
with its adjudication) and ‗Final Attachment‘. E.D. issues a 'Provisional Attachment Order' (in
short ‗PAO‘) and makes a 'provisional attachment. Provisional attachment order continues
during the investigation for up to 180 days. After making a provisional attachment, the Director
of E.D. shall file a complaint to 'Adjudicating Authority' within 30 days from the day of the
attachment.208 Once 'Adjudicating Authority' confirms 'PAO', such attachment shall continue up
to three hundred and sixty-five days during an investigation or till the pendency of the case.209
For this purpose, the Act provides a three-tiered process and procedure before an order of
confiscation; (a) provisional attachment under Section 5(1) by Director or authorized officer by
him; (b) confirmation of provisional attachment under Section 8 (3) by the Adjudicating
Authority, and (c) a final order of confiscation under Section 8 (6) by the Adjudicating
Authority.
204
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633,
205
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, at paras 153 & 154.
206
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, , at para 187 .
207
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, , at para 287.
208
The Prevention of Money-laundering Act, 2002, Section 5 (5).
209
The PMLA, 2002, Section 8 (3).
During provisional attachment, a person is allowed to enjoy the immovable property. Interested
persons shall not be deprived of enjoying the immovable property.210 When the bungalow of Mr.
P. Chadambaram was attached, his family members were allowed to continue residence.
PAO becomes final after the order of confiscation is passed by Special Court under section 8 (5)
or (7) or section 58B or Section 60 (2A), the PMLA.
Andhra Pradesh High Court decided B. Rama Raju v. Union of India (UOI), Ministry of Finance,
Department of Revenue and Ors. on March 04, 2011. This case is known as Satyam Computer
Scam Case. In this case, the attachment of property ansd its adjudications were discussed.
B. Rama Raju @ B. Ramalinga Raju confessed on January 07, 2009. CBI registered FIR for a
commission of offences under Section 120-B read with Sections Sections 406, 420, 467, 471,
477-A of the IPC.
FIR registered by CBI revealed commission of offence i.e. Section 467, the IPC. Section 467, the
IPC comes under the category of Scheduled offence. The ED registered case against Sri B.
Ramalinga Raju and others under the PMLA. The Deputy Director, Enforcement, passed the
provisional attachment order dated 18.8.2009, purportedly under Section 5 of the Act, in respect
of immovable and movable properties, including shares of companies.
The Deputy Director, Enforcement, filed Application No. 38/2009 on 15.9.2009 before the
Adjudicating Authority against 132 defendants. Adjudicating Authority issued notice to all
accused on 15.9.2009. Adjudicating Authority passed an order on November 20, 2009.
In this case, Section 2 (1) (u), 5, 8, 23 and 24 of the PMLA were challenged on the basis of
violation of Articles 14, 20, 21 and 300A of the Constitution of India. Six issues (A to F) were
framed and replied to by the Court. High Court rejected all arguments and held that all these
provisions were constitutional.
The property of a third person can be attached. Generally, a person hides his property by giving
property to his close relatives or persons. Many times it may be that a relative or person may not
know that property is proceeds of crimes. But there is a loss to the country. There are two types
of proceeding under the Act. One is related to conviction of committing offences under Section 3
210
The PMLA, 2002, Section 5 (4).
which is punishable under section 4. Another is related to attachment and confiscation, which
proceedings have been mentioned under Chapter III of the Act. The first category of proceeding
is related to crimes which cannot come into force with retrospective effect. The second type of
proceeding is related to the civil nature. It can be applied with retrospective effects. The Court
further said that for the purpose of attachment and confiscation, neither mens rea nor knowledge
is necessary that property is proceeds of crime. The reason of this is that attachment and
confiscation is of civil and economic nature, and it is not penal sanctions.211
Supreme Court in Vijay Madanlal Choudhary Case212 held that person can also enjoy between
confirmation of a 'provisional attachment order' and formal order of confiscation of property.
Direction under Section 8 (4) to take possession without passing formal order of confiscation
should be an exception. It should not be a rule.213 Whether a case is of exceptional nature or not
will be decided by an appellate court rather than a court of writ jurisdiction.214
Section 8 (4) of the PMLA authorizes the Director or any other officer to take possession of the
property to take possession against which 'provisional attachment order' has been passed. Rule 5
of the Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties
Confirmed by the Adjudicating Authority), Rules, 2013 provides that once the Adjudicating
Authority confirms the attachment of immovable property, the authorized officer has to issue a
notice of the eviction of ten days. If he does not evict, the authorized officer can dispossess him.
A victim person can file an appeal against the decision of Adjudicating Authority under Section
26 of the PMLA within 45 days.
Section 8 (4) uses ‗forthwith‘. It denotes that authority can take immediate action, and there is no
need to wait expiry period of appeal prescribed under Section 26. Order of confirmation passed
by 'Adjudicating Authority' is like a decree of a civil court which is executable when it is
drawn.215
211
B. Rama Raju v. Union of India (UOI), Ministry of Finance, Department of Revenue and Ors. on March 04, 2011
212
2022 LiveLaw (SC) 633.
213
2022 LiveLaw (SC) 633.
214
Syed Akeel Shah and Anr. v. Directorate of Enforcement & Ors, para 12. Jammu & Kashmir and Ladakh High
Court decided this case on October 20, 2022.
215
Id. at para 11.
Officer-in-charge of the police station is bound to register FIR under Section 154, the CrPC,
regarding cognizable offences except in a few cases. 216 There is no corresponding provision
217
under the PMLA for the registration of information. The PMLA is sui generis legislation.
There is no comparison between the CrPC and the PMLA regarding prevention, investigation
and trial. It is expected that before the attachment of property, the Authority will make an
inquiry. According to Sections 65 and 71, the special procedure will prevail over the CrPC and
the police under chapter XII of the CrPC cannot register an FIR. In the Vijay Madanlal case, 218
Supreme Court said that dispensation regarding prevention of money-laundering, attachment of
proceeds of crime and inquiry/investigation of offences of money-laundering up to the filing of a
complaint in respect of offence under Section 3 of the 2002 Act is fully governed by the
provisions of the 2002 Act itself. Generally, the procedure mentioned under the CrPC will be
applicable if they are not inconsistent with the PMLA. ECIR is an internal document created by
the department before initiating penal action or prosecution. E.D. officers register it.
The Court observed the ECIR is not a statutory document. There are no provisions in the PMLA
requiring Authority referred to in Section 48 to record ECIR or to furnish copy thereof to the
accused, unlike Section 154, the CrPC. Non-recording of ECIR does not prevent Authority from
investigating/inquiring for initiating civil action of attachment.219
The question is whether a copy of ECIR must be given during arrest or after arrest. Section 19, in
compliance with Article 22, says that the ground of arrest must be informed.
Hon'ble Court in Vijay Madanlal Choudhary Case observed that the PMLA is a special law. The
Court said that considering the complexity of the inquiry/investigation both for the purpose of
initiating civil action as well as prosecution, the non-supply of ECIR in a given case could not be
faulted.220
The Court said that the PMLA is special legislation which involves the complexity of
investigation/inquiry for initiating prosecution as well as a civil action. So non-supply of ECIR
cannot be faulted. The accused is presented within 24 hours. The Court may consider other
216
Lalita Kumari v. Government of Uttar Pradesh & Ors., (2014) 2SCC 1.
217
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, Para 176. Supreme Court
decided this case on July 27, 2022.
218
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633,
219
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, , at para 177.
220
Vijay Madanlal Choudhary & Ors v. Union of India & Ors. 2022 LiveLaw (SC) 633, , Para 178.
points. Disclosure of ECIR will frustrate the object of attachment. A person may transfer
property immediately.
(5.14.) Conclusion
Parliament enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition
of Tax Act, 2015, the Fugitive Economic Offences Act, 2018, and amended the PMLA, 2002, to
combat economic offences. Enforcement of the Directorate has been made more powerful by
these amendments. Supreme Court decided Vijay Madanlal Choudhary Case and held that
officers of the Enforcement of Directorate are not police. It means any statement, admission or
confession can be used against the accused. The Court further held that E.D. is bound neither to
give a copy of ECIR nor to upload it on the official website. The presumption under the PMLA
is against the accused, and the burden of proof lies over the accused. A review petition is
pending against this judgment in Supreme Court. Supreme Court followed the ratio of this case
in Parvathi Kollur & Anr. v. State by Directorate of Enforcement. Jammu & Kashmir and
Ladakh High Court followed the ratio of this case in Syed Akeel Shah and Anr. v. Directorate of
Enforcement & Ors.
Economic offences are increasing day by day. Black money became double in the Swiss Bank.
But the real accused are getting political patronage, and many opposition leaders are being
harassed. It affects the conviction rate and gives the wrong message to the public. E.D. must act
as a professional body. I hope that the Executive will follow the suggestion of the Supreme Court
given in the Vijay Madanlal Choudhary Case and will fill the vacancies of the Appellate
Tribunal. India is a source of inspiration for many developing countries.
India must follow the international conventions and suggestions of FATF in letter and spirit.
There are twenty-three countries on the 'Gray List', and three countries are on the ‗Black List‘.
These blacklisted countries are North Korea, Iran and Myanmar. The FATF removed Pakistan
from the ‗Gray List‘ on October 21, 2022. The FATF performs its actions with the help of
regional bodies, including the Asia Pacific Group on Money Laundering (APG). Many times,
FATF performs activities under political pressure. It should maintain its integrity.