Prevention of corruption, Money Laundering and Incidental Matters

Summary of Question- Offences covered under P.C Act

Question- What are the offences under Prevention of Corruption Act, 1988.

Answer- Brief idea  regarding the offences under Prevention of Corruption Act is as under:

As corruption amongst public servants was felt not  found sufficient  to be dealt with under Indian Penal Code, Prevention of Corruption Act, 1947 was enacted. This Act of 1947 has been replaced by Prevention of Corruption Act, 1988.

Offences under P.C.Act, 1988 are summarized  below:

Taking  gratification by a public servant other than legal remuneration in respect of an official act is punishable with imprisonment from 6 months to 5 years and fine (section 7).

Taking gratification in order to influence a public servant  is punishable with imprisonment from 6 months to 5 years and fine (section 8).

Taking gratification for exercise of personal influence with public servant is punishable with imprisonment from 6 months to 5 years and fine (section 8).

Abetment by public servant of offences defined in section 8 & 9 is punishable   with imprisonment from 6 months to 5 years and fine (section 10).

Public servant obtaining valuable thing, without consideration, from person concerned in proceeding or business transacted by such public servant   is punishable   with imprisonment from 6 months to 5 years and fine (section 11).

Abetment of offences punishable defined in  section 7 or section 11 is punishable   with imprisonment from 6 months to 5 years and fine (section 12).

 13(1) of the P.C. Act, 1988 defines as to when a public servant is said to commit the offence of criminal misconduct. Its section  13(2) makes the offence of criminal misconduct by a public servant  punishable with  imprisonment of 1 to  7 years and fine. For ready reference, text of section 13 is reproduced below:

“Section 13 - Criminal, misconduct by a public servant -

A public servant is said to commit the offence of criminal misconduct,

(a)  if he habitually accepts or obtains or agrees to accept or attempts to obtain from any person for himself or for any other person for himself or for any other person any gratification other than legal remuneration as a motive or reward such as is mentioned in section 7; or

(b)  if he habitually accepts or obtains or agrees to accept or attempts to obtain for himself or for any other person, any valuable thing without consideration or for a consideration which he knows to be inadequate from any person whom he knows to have been, or to be, or to be likely to be concerned in any proceedings or business transacted or about to be transacted by him, or having any connection with the official functions of himself or of any public servant to whom he is subordinate, or from any person whom he knows to be interested in or   related to the person so concerned; or       

(c)  if he dishonestly or fraudulently misappropriates or otherwise converts for his own use any property entrusted  to him or under his control as a public servant or allows any other person so to do; or

(d) if he,

(i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing or pecuniary     advantage; or

(ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or

(iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary     advantage without any public, interest; or

(e) if he or any person on his behalf, is in possession or has, at any time during the period of his office, been in possession for which the public servant cannot satisfactorily account, of pecuniary resources or property disproportionate to his known sources of income.

Explanation.—

For the purposes of this section, "known sources of income" means income received from any lawful source and such receipt has been intimated in accordance with the provisions of any law, rules or orders for the time being applicable to a public servant.

(2) Any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall be not less than one year but which may extend to seven years and shall also be liable to fine.”

 

Attempt to commit an offence referred to in clause ( c ) or clause (d) of section 13(1)  is  punishable with imprisonment for a term up to 3 years and fine     (Section 15). 

 

Summary of Question-Which  offences can be investigated by CBI

Question-  What Offence(s) can be investigated by CBI.

Answer-  CBI is constituted under Delhi Police Establishment Act, 1946 and can investigate an offence committed within a State provided that such an offence is a notified offence under Section 3 of the said Act and there is concurrence of the concerned State Government under Section 6 of the said Act .  CBI has, as such, authority to investigate the offences alleged to have been committed under Prevention of Corruption Act also. The Special Police Establishment is a specialized agency for making enquiries and investigation into certain specified offences only.  In this connection, it may be relevant to refer to the following passage from the  case of  Saroja vs. State of Tamil Nadu [1991 Cr. L.J 755(Mad)]:-

“It may be seen that the CBI is a small specialised Central Police Agency and derives its power of investigation from the Delhi Special Police Establishment Act, 1946. It is mainly meant for investigation of cases relating to Central Government Servants, employees of Central Public Undertakings and other general offences involving interests of the Govt of India. It also investigates important economic offences i.e. offences under the Imports & Exports Act, Foreign Exchange Regulations Act, Customs Act and frauds etc., involving Joint Stock Companies. The CBI has no great advantage over the local police in investigating ordinary crimes like murder, riot, burglary and dacoity etc. Investigation of these crimes requires lot of oral evidence as well as knowledge of local criminals. Such crimes should, therefore, be left to the local police for investigation unless in any particular case there are special reasons for which its investigation need to be entrusted to the C.B.I

Summary of Question- Sanction for  Prosecution

Question- Whether sanction for prosecution of a  Bank Employee is required.

Answer- Sanction for prosecution of a Bank  Employee is requires under section 19 of the P.C. Act 1988 but not under section 197 of the C.,P.C.

Rationale-

1.  Section 19 of the P.C. Act , 1988 (P.C.Act) as well as section 197 of  Cr.P.C deal with the matter of sanction for prosecution.  In the case of  A.K.Verma vs. State  [1999 ISJ(Banking) 214], the Hon'ble  Karnataka  High Court relied on the Supreme Court  judgment in the case reported in 1998(5)SCC 91]and held that for prosecution  of the Manager  of State Bank of  Bikaner and Jaipur,   no sanction is required  u/s  197 Cr.PC.

2.  " Public  servant "  has not been defined in the Cr.P.C but by virtue of Section  2(y)  thereof  " Public servant "  defined in section 21 of I.P.C will have the same  meaning in the Cr.P.C. Sanction under  section  197 of  Cr.P.C.  is required if all the   conditions  indicated  in that  section are fulfilled . In the other words, sanction under section  197 of Cr.P.C  is required if the Public  Servant is not removable  from office except  with the  sanction of Govt.   As  such, even though  an employee of  a  Bank  may be treated  as  “public Servant”   within the meaning of  sec.21 of  I.P.C, Bank's  employee  being  removable   without the  sanction of the central  or State Government,  section  197 of Cr.P.C is not attracted and as such no sanction under section 197 of Cr.P.C is required. 

                                                                               

3.  But, vide section  19(1) (c)   of  the  P. C. Act,   no court  shall  take  cognizance of  an offence  punishable under Section  7, 10,11, 13 and   15 alleged to have been committed  by  a certain Public Servant except with the previous sanction of the  authority  competent  to remove him from his office.  Applying the definition of  “Public Servant”  contained in  Section  2(c)  of the P.C.Act , employees of   SBI and other public sector  Banks  are  " Public servant”  and as such sanction  of the  authority  competent  to remove him from his office  is required for prosecution u/s  7,10,11,13& 15  of  P.C Act.

3.1. On the point of  sanction ,  the case reported in 2007(1) SCC  49 is relevant in which the Hon'ble   Supreme Court  has made  the  following  observation at para  10:-

   "It   may be noted    that  Section  197 of  the code  and  Section 19    of  the Act  operate in conceptually  different  fields.  In cases  covered  under the Act,  in respect of public servants the sanction is a of automatic nature and thus  factual  aspects are of little  or no consequence.  Conversely,  in a case relatable   to section  197 of  the Code, the substratum and basic  features of the case   have  to be considered   to find out  whether  the alleged act has any- nexus  with  the discharge of duties. Position  is not   so in case of Section  19 of the Act. " 

 

Summary of Question – Seizure by CBI

Question- What is the legal provision as to power of seizure of CBI to seize original document in the possession of the Bank while investigating an offence alleged to have been committed under Prevention of Corruption Act.

Answer-  A document, which is  in the possession of Bank, can be seized by CBI  under section 102 of Cr.P.C   if  the document is  in the circumstances which create any suspension in commission of the  alleged offence under investigation.  The CBI is ,however, also empowered to inspect the  Banker’s Book and take certified copy thereof under section 18 of the Prevention of Corruption Act. Further, if on inspection of the Banker’s Book, CBI finds that a particular document has connection with commission of offence,  the CBI may seize that particular document.

Rationale

1. It is, at first, necessary to refer to section 4 of the Code of Criminal Procedure (Cr.P.C), the gist of which is as under:-

  1. All offences under the Penal Code or under any other law have to be investigated, inquired  into, tried and otherwise dealt with according to the Cr.P.C.
  2. In case of offences under any other law (like Prevention of Corruption Act) if there is any provision regulating the manner of  investigation, inquiry or trial, this provision shall prevail over the provision of the Cr.P.C.

 

1.1. In case of  investigation of the offences alleged to have been committed under the Prevention of Corruption Act, the provisions of Cr.P.C shall, therefore, be inapplicable only if there  is any specific provision in the Prevention of  Corruption Act. As there is no provision in the Prevention of Corruption Act  in the matter of  seizure, the provisions contained under section 102 of the Cr. P.C is applicable regarding seizure. There is section 18 in the Prevention of Corruption Act which gives an additional power to Supt. of Police or any officer authorized by him to inspect the Banker’s Book and take certified copy thereof.  

2. Section 102 of the Cr.P.C, therefore,  gives power to police officer to seize property which may be alleged or suspected to have been stolen or which may be found under circumstances  which creates suspicion of commission of any offence.  Form language of the section, it is very much clear that where the property is neither suspected to be stolen nor found under circumstances creating suspicion of an offence having been committed, provisions of section 102 of the Cr.P.C is not fit to be invoked. In the matter of application of section 102 of the Cr.P.C,  reference may be made to the judgment of the Hon’ble Karnataka High Court in the case reported in 2003 (109) CRLJ 1983KAR. In this case the Hon’ble Court observed and held as under:-

“ The police officer may seize any property which may be alleged or suspected to have been stolen or which may be found under the circumstances which create suspicion of commission of any offence. In other words, if there is no allegation or where there is no suspicion of commission of theft or where the circumstances do not create any suspicion for commission of offence, there is no occasion in such a case for a police officer to seize any property. Section 102 speaks of any offences and is so wide enough to cover offences either under I.P.C. or under any special Statute. Hence, the police officer has no authority or power to seize the property when it is neither suspected to be stolen nor found under the circumstances creating suspicion of any offence having been committed unless discovery of a property leads to a suspicion of offence having been committed. Hence, unless the property so seized is not incriminating or if the property is not involved or incriminating in any offence nor any offence is disclosed after the seizure of the property, it is not open to the police officer to seize and keep the property to himself or when it is produced before the Magistrate it shall be released at once in favour of the person from whom it is seized.

 In this case, the I.O. who conducted raid seized certain properties including the passport of the petitioner and his wife which is neither the subject of theft nor seizure of the passport has created any suspicion of the commission of offence. The offences alleged against the petitioner are forgery and misappropriation of funds. Possessing a passport is not an incriminating circumstance at all.” 

 

Summary of Question – Constitutional Validity of 2nd. Proviso to section 5(1) of Prevention of Money Laundering Act (PMLA)

Question- Can , under 2nd. Proviso of PMLA , provisional attachment of  the properties allegedly brought from proceeds of crime  be done even if filing of charge sheet / challan under section 173 crpc is pending.

Answer-  Yes.

Rationale –

1. The Hon’ble Delhi High Court in a case reported in 2018 CriLJ 1720 upheld the Constitutional validity of 2nd. Proviso to section 5(1) of the PML Act.

2. For clarity’s sake ,  section 5(1) is reproduced below:

“(1) Where the Director, or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that-

(a) any person is in possession of any proceeds of crime;

(b) such person has been charged for having committed a scheduled offence; and

(c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding (one hundred and fifty days) from the date of the order, in such manner provided in the Second Scheduled to the Income Tax Act, 1961 (43 of 1961) and the Director or the other officer so authorized by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of that Scheduled;

Provided that no such order of attachment shall be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 173 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person authorised to investigate the offence mentioned in that Scheduled, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be.

Provided further that, notwithstanding anything contained in Clause (b) any property of any person may be attached under this section if the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section has reason to believe (the reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money-laundering is not attached immediately under this Chapter, the non-attachment of the property is likely to frustrate any proceeding under this Act.

 

Provided also that for the purposes of computing the period of one hundred and eighty days, the period during which the proceedings under this section is stayed by the High Court, shall be excluded and a further period not exceeding thirty days from the date of order of vacation of such stay order shall be counted."

 

3.  Under the first proviso, no order for provisional attachment can  be made unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 173 of CrPC or a complaint has been filed by a person, authorised to investigate the offence mentioned in that Schedule, before a Magistrate or a Court for taking cognizance of the scheduled offence, or a similar report or complaint has been made or filed under the corresponding law of any other country.

3.1. The first proviso to Section 5(1), therefore, envisages the provisional attachment happening simultaneously with the filing of the challan in the criminal court for the offences under Sections 3 and 4 PMLA. In other words, the adjudication process under Chapter III and attachment of the proceeds of crime pending such adjudication process is not meant to commence earlier than the filing of a charge sheet/challan in the criminal case under Sections 3 and 4 PMLA.

3.2. The second proviso begins with a non-obstante clause and in effect makes it a proviso to the first proviso. The second proviso is intended to override the first proviso, subject to the conditions set out therein. The authorised officer must reach a satisfaction, to be recorded in writing, that there is a reason to believe that if the property involved in money-laundering is not attached immediately, such non-attachment is likely to frustrate proceedings under the PMLA. In other words, even pending the filing of the charge-sheet/challan under Section 173 Cr PC before the criminal court, a provisional attachment can be ordered under the second proviso to Section 5 (1) PMLA subject to the fulfilment of the conditions precedent.

 

4. The Hon’ble Bench summarized the conclusion as under:

“ (i) The second proviso to Section 5(1) PMLA is not violative of Article 14 of the Constitution of India; the challenge in that regard in these petitions is hereby negatived.

 

(ii) The expression 'reasons to believe' has to meet the safeguards inbuilt in the second proviso to Section 5(1) PMLA read with Section 5(1) PMLA.

 

(iii) The expression 'reasons to believe' in Section 8(1) PMLA again has to satisfy the requirement of law as explained in this decision.

 

(iv) There has to be a communication of the 'reasons to believe' at every stage to the noticee under Section 8(1) PMLA.

 

(v) The noticee under Section 8(1) PMLA is entitled access to the materials on record that constituted the basis for 'reasons to believe' subject to redaction in the manner explained hereinbefore, for reasons to be recorded in writing.

 

(vi) If there is a violation of the legal requirements outlined hereinbefore, the order of the provisional attachment would be rendered illegal.

 

(vii) There can be single-member benches of the AA and the AT under the PMLA. Such single-member benches need not mandatorily have to be JMs and can be AMs as well.”

 

Summary of Question – Recovery of Note but no Proof of  Demand

Question- Whether mere recovery of Notes from accused public servant without proof of Demand by the public servant can lead to conviction of the Public Servant.

Answer-  No.

 

Rationale –

1. (2009 ) 6 SCC  587

“The legal position is no more res integra that primary requisite of an offence under Section 13(1)(d) of the Act is proof of a demand or request of a valuable thing or pecuniary advantage from the public servant. In other words, in the absence of proof of demand or request from the public servant for a valuable thing or pecuniary advantage, the offence under Section 13(1)(d) cannot be held to be established.”

“It needs no emphasis that the prosecution has to prove the charge beyond reasonable doubt like any other criminal offence and the accused should be considered innocent till it is established otherwise by proper proof of demand and acceptance of the illegal gratification, the vital ingredient, necessary to be established to procure a conviction for the offences under consideration”  

In the said case, the Hon’ble High Court drew presumption under Section 20 of the P.C Act for charge under Section 7. Based on that, it was held that the prosecution has proved the offence punishable under Section 7 of the Act. The Apex Court held :

“Sub-section (3) is a "non-obstante clause". It provides that where the gratification is trivial and the Court is of opinion that no inference of corruption may fairly be drawn, it may decline to draw the presumption as referred to in Sub-sections (1) and (2). In other words, the Court is not bound to draw a presumption under Section 20 where the alleged gratification is too trivial. In a case such as this an inference of corruption may not be fairly drawn as the alleged demand was of Rs. 25/- only. In our view, the High Court was not justified in drawing the presumption under Section 20 and holding that offence punishable under Section 7 of the Act was proved.”

 

2. (2016 )1 SCC 713

 

“…….. It is settled law that mere possession and recovery of the currency notes from the accused without proof of demand will not bring home the offence Under Section 7, since demand of illegal gratification is sine-qua-non to constitute the said offence. The above also will be conclusive insofar as the offence Under Section 13(1)(d) is concerned as in the absence of any proof of demand for illegal gratification the use of corrupt or illegal means or abuse of position as a public servant to obtain any valuable thing or pecuniary advantage cannot be held to be established. It is only on proof of acceptance of illegal gratification that presumption can be drawn Under Section 20 of the Act that such gratification was received for doing or forbearing to do any official act. Unless there is proof of demand of illegal gratification proof of acceptance will not follow. Reference may be made to the two decisions of three-Judge Bench of this Court in B. Jayaraj v. State of Andhra Pradesh  (2014) 13 SCC 55 and P. Satyanarayna Murthy v. The District Inspector of Police and Anr. (2015) 10 SCC 152”

 

3. AIR 2016 SC 298

“It is well settled position of law that the demand for the bribe money is sine qua non to convict the accused for the offences punishable Under Sections 7 and 13(1)(d) read with Section 13(2) of the PC Act.”

“The prosecution has failed to prove the factum of demand of bribe money made by the Appellant from the complainant-Jai Bhagwan (PW-2), which is the sine qua non for convicting him for the offences punishable Under Sections 7 and 13(1)(d) read with Section 13(2) of the PC Act”