1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL APPELLATE JURISDICTION CRIMINAL APPELLATE JURISDICTION CRIMINAL APPLICATION NO. 1070 OF 1999 CRIMINAL APPLICATION NO. 1070 OF 1999 CRIMINAL APPLICATION NO. 1070 OF 1999 Hemendra M. Kothari ] having his residence at 57, ] Applicant Sea View, Worli Sea Face, ] Mumbai - 400 018 ] Vs. 1) Shri W.S. Vaigankar, ] Assistant Director, ] Enforcement Directorate(FERA)] Govt. of India, Janmabhoomi ] Chambers, 1st Floor, ] Respondents Walchand Hirachand Marg, ] Mumbai - 400 001 ] ] 2) State of Maharashtra ] Mr. Amit Desai with Shri Prakash Naik for Applicant. Shri D.A. Nalawade for Respondent no. 1. Ms. M.H. Mhatre, APP for the State. CORAM : J.H. BHATIA, J. CORAM : J.H. BHATIA, J. CORAM : J.H. BHATIA, J. DATE : 25TH APRIL, 2007 ORAL JUDGMENT ORAL JUDGMENT ORAL JUDGMENT 1) This is an application for quashing the order passed by the learned Sessions Judge, Pune in Criminal Revision Application no. 217 of 1996 in Case no. 3 of 1996 filed by the Respondent no. 1 who is Assistant Director of Enforcement 2 Directorate (FERA), against the petitioner. 2) The prosecution case in brief is that the present applicant was non Executive Director of M/s Kirloskar Brothers Limited, Pune. He was also working with M/s DSP Financial Consultants Ltd., Mumbai. On certain information received by the Directorate of Enforcement, Mumbai, search of office premises of Kirloskar Brothers Ltd. and its officers were undertaken and besides the other things, it was found that A.T.C. Pvt. Ltd. had paid amount of 30 Lacs to one Mr. M.M. Vaidya, Vice President of Kirloskar Brothers Ltd. and said M.M. Vaidya had made the payment of that amount to the present applicant, H.M. Kothari, in consideration of his making payment of 2 Lac Sterling Pound, to M/s PME Limited, London. In view of this, the complaint was filed against accused persons under Foreign Exchange Regulation Act, 1973, (FERA in brief). The present applicant moved an application before the Chief Judicial Magistrate to recall the process, but that application was rejected. Thereafter, he filed revision application dtd. 2/7/1996, which also came to be dismissed by the learned Additional Sessions Judge, Pune. Thereafter the applicant filed the present application under Section 482 of 3 Cr.P.C. seeking to quash the order passed by the learned Judge. Petitioner contends that there is no material to establish that he had received amount of Rs.30 Lacs for transferring amount of 2 Lac Pounds to P.M. Engines Ltd., London on behalf of M/s Kirloskar Brothers. According to him, there was nothing to show that the present applicant had violated any provisions of Foreign Exchange Regulation Act, 1973 and particularly Section 9(a) read with Section 56 of the said Act. 3) Heard Mr. Amit Desai, learned Counsel for the applicant and Mr. Nalawade, learned Special Public Prosecutor for respondent no.1. 4) Mr. Desai, learned Counsel for the applicant vehemently contended that there is no documentary evidence to prove that the present applicant had received amount of Rs.30 Lacs and that he had remitted amount of 2 Lac pounds to P.M. Engines Ltd., London in violation of Section 9 of the FERA. He further contended that the whole case is based on the statement made by M.M. Vaidya, through whom the payment was allegedly made to the present applicant. A.T.C. was clearing Agent of Kirloskar Group while Mr. Bhadkamkar was working with A.T.C.. Mr. Bhadkamkar is no more alive and 4 said M.M. Vaidya has retracted from his statement recorded before the Officers of the Enforcement Directorate. In view of this, there is no evidence and particularly there is no documentary or other evidence to corroborate the retracted statement made by M.M. Vaidya. During the arguments, Mr. Desai also placed on record an order passed by the Deputy Director of Directorate Enforcement on 21st July 2004 pending the present application. The Deputy Director is adjudicating authority under FERA. Mr. Desai pointed out that after detail hearing and perusal of the records the adjudicating authority under FERA had completely exonerated the present applicant. In view of this there is additional ground to quash the criminal proceedings. He contended that when the Department could not establish the allegations even in the departmental enquiry before the adjudicating authority, it would be impossible for the prosecution to prove the charges before the criminal Court where the standard of proof is much higher than the standard of proof expected and required in the adjudication proceedings. On the other hand, Mr.Nalawade, learned Counsel for the respondent-complainant vehemently contended that it is settled position that the adjudication proceedings and the prosecution are two independent 5 proceedings and they do not depend on each other and they can proceed independently. According to him the purpose of the adjudication before the adjudicating authority is only to impose certain penalty while before the Criminal Court, the accused is prosecuted for the criminal offence committed by him. 5) Before proceeding to discuss the different legal aspects raised by the learned Counsel for both the parties, it would be necessary to point out the findings of the adjudicating authority in its order dtd. 21st July 2004. The order passed by the adjudicating authority reveals that as a result of searches conducted on 9th December 1985 all over India against M/s Kirloskar Brothers Limited and various other sister concerns/subsidiaries as well as residence and office premises of their Directors and their employees, as many as 15 show cause notices were issued to M/s Kirloskar Brothers, its Directors and various Officers. Show cause Notice VIII was under Section 9(1)(f)(1) of the FERA on the allegation that the Company had made payment of Rs.30 Lacs to H.M. Kothari of M/S DSP Financial Consultants Limited, Mumbai for transferring the amount of 2 Lac Pounds to M/s P.M. Engines, Ltd. London. 6 During the search and other proceedings, the Officers of the Enforcement Directorate recorded statements of some persons. Relevant statements were of M.M. Vaidya, Bhadkamkar and R.D. Harshe of M/s A.T.C.. Their statements revealed that the amount was paid to the present applicant on behalf of M/s Kirloskar Brothers for transfer of amount of 2 Lac Pounds to P.M. Engines, London. In response to the notice, the applicant had denied all the contentions made against him. According to him, he was only non -Executive Director of M/s Kirloskar and had nothing to do with the transfer money or the transaction. The adjudicating authority came to the conclusion, after going through the record and evidence, that even though the present applicant was a non Executive Director, he had sufficient influence with M/s DSP Financial Consultants Ltd.. The adjudicating authority noted that Mr. R.D. Harshe Director of A.T.C. had stated in his statement dtd. 10/1/1986 that only amount of Rs.27 Lacs was paid to Mr. M.M. Vaidya in three instalments of Rs.4 Lacs on 8/8/1983, Rs.11 Lacs on 9/8/1983 and Rs.12 Lacs on 10/8/1983. He noted that the statement was contradictory to the allegations that amount of Rs.30 Lacs was paid to Mr. M.M. Vaidya by A.T.C. in three instalments of Rs.10 Lacs each. (He noted that 7 during the period when Mr. Vaidya had stated in his statement that he had received and paid the amount, according to Mr. H.M. Kothari he was travelling abroad). He noted that during the relevant period of August/Sept. 1983, the official rate of Sterling Pound was Rs.15.20 to 15.25, but as it was well known that unofficial rates were quoted at a significant premium, therefore the statement of Mr. Vaidya that Mr. H.M.Kothari had received Rs.30 Lacs to transfer 2 Lac Pounds at the rate of Rs.15/-, which is lower than even the official rate, destroyed the credibility of Mr. Vaidya’s statement. He further noted that Mr. Harshe and Mr. Bhadkamkar had no direct knowledge about the payment of any amount by Mr. Vaidya to Mr. H.M.Kothari. Their statements were based on information given to them by Mr. Vaidya and as such their statements were nothing more than hearsay evidence. Further Mr. Bhadkamkar had expired and he was not available for the cross examination during the adjudicating proceedings. In view of this, the Enforcement Directorate was left with only the statement of Mr. Vaidya against the present applicant. Adjudicating authority noted that Mr. Vaidya had retracted his statement and therefore this statement was also not admissible. The Adjudicating authority found that 8 the culpability of Kirloskar Brothers and its management was established and therefore the statement of Mr. Vaidya could not be merely ticked off as a dictation by the Officers of the Enforcement. However, to the extent of the allegations against the present applicant, the adjudicating authority came to the conclusion that as there was no documentary or other evidence to connect the present applicant with the receipt of Rs.30 Lacs or the transfer of 2 Lac Pounds to P.M. Engines, London, merely the retracted statement of Mr. Vaidya was not sufficient to hold the applicant guilty. He held that the charge pertaining the transfer of 2 Lacs Pounds to P.M. Engines Limited by Kirloskar Brothers was established, but there was nothing on the basis of which the responsibility could be fastened against Mr. H.M. Kothari. In view of these circumstances, the adjudicating authority held that the charges against Mr. H.M. Kothari were not proved. 6) It is true that when the Additional Sessions Judge heard and disposed of the revision application filed by the applicant, the findings of adjudicating authority were not on record and they could not be considered because the adjudication 9 proceedings were still pending and the order came to be passed only on 21st July 2004. However, now the material, which is available before this Court, cannot be simply ignored. 7) Mr. Desai vehemently contended that it is settled position in law that whilst the pendency of adjudication proceeding is not a bar to the initiation or maintainability of a prosecution in respect of the same set of facts / transactions, in the event the departmental proceedings result in exonerating the noticee or dropping of the proceedings, that decision would have to be taken into account or into consideration by the criminal Court, whilst considering the continuation of the criminal proceedings or even conviction therein. He contended that in departmental proceedings the standard of proof is lower than the standard of proof required in a criminal prosecution and if with lower standard of proof, the department is unable to establish its case, it would be abuse of the process of the Court to continue the prosecution on the same set of facts. In support of this contention, he placed reliance on several authorities from Supreme Court, this High Court and several other High Courts under the different laws particularly the Income Tax Act, Customs Act, 10 Excise laws, FERA etc. 8) In Uttam Chand and Ors. v. Income Tax Uttam Chand and Ors. v. Income Tax Uttam Chand and Ors. v. Income Tax Officer, Central Circle, Amritsar. Officer, Central Circle, Amritsar. Officer, Central Circle, Amritsar. (1982), 2 SCC 543 543 543. Supreme Court held as follows : "1.... In view of the finding recorded by the Income Tax Appellate Tribunal that it was clear on the appraisal of the entire material on the record that Shrimati Janak Rani was a partner of the assessee firm and that the firm was a genuine firm, we do not see how the assessee can be prosecuted for filing false returns. We, accordingly, allow this appeal and quash the prosecution." 9) In K.T.M.S. Mohd. and anr. v. Union of K.T.M.S. Mohd. and anr. v. Union of K.T.M.S. Mohd. and anr. v. Union of India, (1992) 3 SCC 178 India, (1992) 3 SCC 178 India, (1992) 3 SCC 178 the Supreme Court was dealing with the subject at the stage of appeal against conviction under Income Tax Act and Indian Penal Code. By that time the Income Tax Appellate Tribunal had rejected the contentions of the departmental authority and had exonerated the appellants from Income Tax liability. The Supreme Court, in para Nos. 46, 48 and 49 observed as follows : "46. Mr. A.T.M. Sampath very strenuously contended that the convictions recorded by the subordinate courts as affirmed by the High Court under Sections 120-B read with 277 and 277 I-T Act are liable to be set aside in the teeth of the judgment of the Tribunal completely exonerating the appellants from the liability of the income tax. We shall examine this contention and 11 dispose of the same in the ratio of the decisions of this Court in P. Jayappan v. S.K. Perumal, (1985) 1SCR536; AIR 1984 SC 1693). In that case, the following dictum has been laid down (para 5 of AIR). "The criminal court no doubt has to give due regard to the result of any proceeding under the Act having a bearing on the question in issue and in a appropriate case it may drop the proceedings in the light of an order passed under the Act. It does not, however, mean that the result of a proceeding under the Act would be binding on the criminal court. The criminal court has to judge the case independently on the evidence placed before it." "48. The above principle of law laid down "48. The above principle of law laid down "48. The above principle of law laid down by this court gives an indication that the by this court gives an indication that the by this court gives an indication that the result of the proceedings under the IT Act result of the proceedings under the IT Act result of the proceedings under the IT Act is one of the major factors to be is one of the major factors to be is one of the major factors to be considered and the resultant finding in the considered and the resultant finding in the considered and the resultant finding in the said proceeding will have some bearing in said proceeding will have some bearing in said proceeding will have some bearing in deciding the Criminal Prosecution in deciding the Criminal Prosecution in deciding the Criminal Prosecution in appropriate cases. appropriate cases. appropriate cases." "49. It may not be out of place to refer to an observation of this Court in Uttam Chand v. I.T.O.., (1982) 133 ITR 909 wherein it was observed that the prosecution once initiated may be quashed prosecution once initiated may be quashed prosecution once initiated may be quashed in the light of a finding favourable to the in the light of a finding favourable to the in the light of a finding favourable to the assessee recorded by an authority under the assessee recorded by an authority under the assessee recorded by an authority under the Act subsequently in respect of the relevant Act subsequently in respect of the relevant Act subsequently in respect of the relevant assessment proceedings assessment proceedings assessment proceedings. But in Jayappan’s case, it has been held that the decision in Uttam Chand’s case is not an authority for the proposition that no proceedings can be initiated at all under Section 276(c) and Section 277 as long as some proceeding under the Act in which there is a chance of success of the assessee is pending. Though as held in Jayappan’s case that a criminal Court has to judge the case before it independently on the materials placed before it, there is no legal bar in giving due regard to the result of the proceedings under the I.T. Act." 12 . After making above observations and in view of the fact that the Tribunal had held that the amount of Rs.6 Lacs was not owned by the first appellant in that case, as a very basis of the prosecution was completely nullified by the order of the Tribunal, which fact could be given due regard in deciding the question of criminal liability of the appellants, the Supreme Court set aside the conviction. 10) In G.L. Didwania and anr. v. Income Tax G.L. Didwania and anr. v. Income Tax G.L. Didwania and anr. v. Income Tax Officer, 1995 Supp. (2) SCC 724 Officer, 1995 Supp. (2) SCC 724 Officer, 1995 Supp. (2) SCC 724. The Supreme Court held in para 4, as follows : "4. In the instant case, the crux of the the crux of the the crux of the matter is attracted and whether the matter is attracted and whether the matter is attracted and whether the prosecution can be sustained in view of the prosecution can be sustained in view of the prosecution can be sustained in view of the order passed by the tribunal order passed by the tribunal order passed by the tribunal. As noted above, the assessing authority held that the appellant-assessee made a false statement in respect of income of M/s Young India and Transport Company and that finding has been set aside by the Income Tax Appellate Tribunal. If that is the If that is the If that is the position then we are unable to see as to position then we are unable to see as to position then we are unable to see as to how criminal proceedings can be sustained. how criminal proceedings can be sustained. how criminal proceedings can be sustained." All these cases were under Income Tax Act. 11) In ITC Ltd. V. Collector of Central ITC Ltd. V. Collector of Central ITC Ltd. V. Collector of Central Excise, 1996 (84) ELT 404 Excise, 1996 (84) ELT 404 Excise, 1996 (84) ELT 404, which was under Central Excise Act, the Supreme Court held as follows in para (2) : "2. We do not find any ground to interfere 13 with the majority opinion of the tribunal imposing penalty. However, in view of the However, in view of the However, in view of the difference of opinion among members on the difference of opinion among members on the difference of opinion among members on the question of penalty, we direct, consequent question of penalty, we direct, consequent question of penalty, we direct, consequent upon the imposition of penalty, no upon the imposition of penalty, no upon the imposition of penalty, no prosecution could be launched against the prosecution could be launched against the prosecution could be launched against the assessee. assessee. assessee." . In that case, there was difference of opinion among the Members of the Tribunal on the question of penalty. Taking into consideration this fact also, the Supreme Court held that no prosecution could be launched against the assessee. 12) In Deputy Chief Controller of Imports and Deputy Chief Controller of Imports and Deputy Chief Controller of Imports and Exports vs. Roshanlal Agarwal Exports vs. Roshanlal Agarwal Exports vs. Roshanlal Agarwal 2003 Cr. L.J. 1698 1698 1698, under Imports and Exports Control Act, it was pointed out that Appellate Committee had allowed the appeals and the accused were exonerated. The Supreme Court observed : "13. Having regard to the materials existing against the respondent and the reasons and findings given in the aforesaid orders, we are of the opinion that no that no that no useful purpose would be served by the trial useful purpose would be served by the trial useful purpose would be served by the trial of the accused- respondents in the criminal of the accused- respondents in the criminal of the accused- respondents in the criminal court at this stage court at this stage court at this stage. The proceedings of the criminal cases instituted against the accused- respondents on the basis of the complaints filed by Deputy Chief Controller of Imports and exports are, therefore, quashed." 13) In K.C. Builders and Anr. V. The K.C. Builders and Anr. V. The K.C. Builders and Anr. V. The 14 Assistant Commissioner of Income Tax, Assistant Commissioner of Income Tax, Assistant Commissioner of Income Tax, 2004(2) SCC 731 731 731, the Supreme Court quashed the criminal proceedings on the ground that the Income Tax Tribunal had given conclusive findings that there was no concealment of income. Their Lordship observed in para 25, as follows : "25. In our opinion, the appellants cannot be made to suffer and face the rigours of criminal trial when the same cannot be sustained in the eyes of law because the entire prosecution in view of a conclusive finding of the Income Tax Tribunal that there is no concealment of income becomes devoid of jurisdiction and under Section 254 of the Act, a finding of the Appellate Tribunal supersedes the order of the Assessing Officer under Section 143(3) more so when the Assessing Officer cancelled the penalty levied." 14) Mr. Nalawade, learned Counsel for the respondents contended that the Supreme Court had expressed its reservation about the correctness of the findings in K.C. Builders in Standard Chartered Bank v. Directorate of Enforcement and others, AIR 2006 SC 1301. According to him, the adjudicating proceedings and criminal proceedings are different and independent and the findings of one proceedings are not likely to affect the other. In Standard Chartered Bank, it was argued that unless an adjudication proceeding under Section 51 of the FERA is completed, the prosecution under 15 Section 56 of FERA cannot be initiated. This argument was rejected by the Supreme Court holding that both the proceedings can simultaneously be launched and can simultaneously be pursued. In para 22 in Standard Chartered Bank. Their Lordship of Supreme Court observed as follows, particularly about the decision in K.C. Builders : "22. The decision in K.C. Builders and another Vs. Assistant Commissioner of Income Tax (2004 (2) SCC 731) is clearly distinguishable. The Court proceeded as if under the Income Tax Act, the prosecution is dependent on the imposition of penalty. That was a case where the prosecution was based on a finding of concealment of income and the imposition of penalty. When the Tribunal held that there was no concealment, and the order levying penalty was cancelled, according to this Court, the very foundation for the prosecution itself disappeared. This Court held that it was settled law that levy of penalties and prosecution under Section 276-C of the Income Tax Act are simultaneous and hence, once the penalties are cancelled on the ground that there was concealment, the quashing of the prosecution under Section 276-C of the Income Tax Act was automatic. We have held already that on the scheme of FERA, the adjudication and the prosecution are distinct and separate. Hence, the ratio of the above decision is not applicable. That apart, there is merit in the submission of the learned Additional Solicitor General that the correctness of the view taken in K.C.Builders (supra) may require reconsideration as the reasoning appears to run counter to the one adopted by the Constitution Bench in Assistant Collector of Customs, Bombay vs. L.R. Melwani and another (supra) and in other decisions not referred to therein. For the purpose of these cases, we do not think it necessary to pursue this aspect further. Suffice it to say, that the ratio of that 16 decision has no application here." 15) Mr. Desai, however, vehemently contended that in the above passage from the Standard Chartered Bank, the Supreme Court had only expressed that the view taken in K.C. Builders may require the reconsideration as the reasoning appears to run counter to the one adopted by the Constitution Bench in Assistant Collector of Customs Bombay Vs. L.R. Melwani and Anr.. However, their Lordship did not pursue the matter further and held that the said ratio in K.C. Builders had no application to the Standard Chartered Bank. 16) According to Mr. Desai merely because the Supreme Court had expressed that K.C. Builders needs to be reconsidered, it cannot be said that the view taken in K.C. Builders has been reversed. In support of his contention, he placed reliance on numbers of authorities including Municipal Corporation of Delhi vs. Gurnam Kaur AIR