White Collar Crimes – Note on Module 1, 3 and 5

- Adv. Shivam Jain Kakadia

Module 1 - Introduction

a) Meaning, Nature and Scope of White - Collar Crimes

b) Understanding meaning of organized crimes (S. 111,112 Bhartiya Nayaya Sanhita, BNS
2023)

c) Growth of White – Collar Crimes in India and Western Countries

d) Criminality and White – Collar Crimes (Elements of Mens Rea and Actus Reus)

Module 3 - Corruption

▪ Meaning, Nature and Scope of Corruption

▪ The Prevention of Corruption Act, 1988 – Offences and Penalties, investigation and
Sanction for Prosecution

▪ The Prevention of Corruption Act, 2018- Offences and Penalties, investigation and
Sanction for Prosecution

▪ Analysis of K. Santhanam Committee Report on Anti-Corruption

Module 4 - The Benami Transactions (Prohibition) Act,1988

▪ Understanding the concept of Benami Transactions and analyzing the various provisions
of the Benami Transactions (Prohibition) Act, 1988 in curbing these transactions

▪ The Benami Transactions Amendment Act 2016

Meaning, Nature and Scope of White - Collar Crimes; Growth of White – Collar Crimes in
India and Western Countries

Prof. Edwin Sutherland has defined White collar crime as, “a crime committed by persons of
respectability and high social status in the course of their employment.”

These crimes are of such a nature that the injury or the damage caused because of their actions is
so widely diffused in the large body of the citizens that their gravity as regards individual victims
is almost negligible. They are closely related to the attitudes and values of culture in a particular
society. These crimes are indirect, anonymous, impersonal, and difficult to detect. This is evident
from the fact these criminals are highly intelligent, stable, successful, and men of high societal
status. Prof Sutherland, however, suggests that class position itself is no determinant of white-
Page | 1
collar crime. Unfortunately, people who commit these offences are not entailed with penalties as
they do not carry out any major punishments. But the recent amendments that have been
introduced in the IPC now BNS, Company Law, Insurance, and Banking Laws, the appointment
of Lokpal, and tightening of the governmental control over the business, and privatization of
businesses have sufficiently reflected upon the Government’s firm determination to suppress
white collar criminality in India.

Types of White-Collar Offences:

These offences frequently involve misuse of money, assets, or information and are usually done
by people of higher authority like managers, executives, highly profiled businessmen, etc. Some
of the well-known types of White-Collar Crimes in India are the following:

Bribery: Offering, giving, receiving, or soliciting something of value to influence the actions of
an official or other person in a position of authority.

Embezzlement: Misappropriating or stealing funds or assets entrusted to one’s care, often by an

employee or someone in a position of trust.

Money Laundering: Concealing the origins of illegally obtained money, typically by transferring
it through a complex sequence of banking transfers or commercial transactions.

Insider Trading: Buying or selling stocks based on non-public, material information about a
company, which can lead to unfair advantages and illegal profits.

Cybercrime: Committing crimes using a computer or the internet, such as hacking, phishing,
identity theft, or spreading malware for financial gain.

Forgery: Creating fake documents or altering existing ones with the intent to deceive for
financial gain.

Tax Evasion: Illegally avoiding paying taxes by underreporting income, inflating deductions, or
hiding money in offshore accounts.

Securities Fraud: Deceiving investors or manipulating financial markets through false

information about securities trading.

Ponzi Schemes: Fraudulent investment schemes that promise high returns to early investors
using the capital of new investors rather than legitimate profits.

Corruption: Abuse of power for personal gain, often involving public officials engaging in
dishonest or illegal activities.

Page | 2
Pronouncements:

White-collar Crimes have been on the rise for constant and the judiciary has taken note of the
same. The following are some of the landmark cases of white-collar crimes and what decision
was upheld-

Satyam Computer Services Ltd. Scam Writ Petition No.37487 of 2012 & WAMP.No.155 of
2016 in W.A.No.133 of 2013

The Satyam Computer Services Ltd. scam, also known as the “Biggest Corporate Fraud in
India,” was a landmark case involving the manipulation of accounts and assets by the company’s
founder, Ramalinga Raju. The scam came to light in 2009, when Raju admitted to inflating the
company’s revenue and falsifying its balance sheet. The case led to significant changes in
corporate governance and regulatory frameworks in India.

Kingfisher Airlines Scam WRIT PETITION (L) NO. 1684 OF 2015

The Kingfisher Airlines scam involved the defaulting of loans worth over ₹9,000 crores by the
now-defunct airline. The case highlighted the issue of willful default on loan repayment by
business entities. The Supreme Court of India ordered the attachment of assets worth ₹1,400
crores belonging to the promoter of the airline, Vijay Mallya, who later fled the country.

2G Spectrum Scam AIR 2012 SC 3336

The 2G Spectrum Scam, also known as the “Commonwealth Scam,” was a major corruption case
involving the allocation of 2G spectrum licenses by the Department of Telecommunications in
2008. The case led to the cancellation of 122 2G licenses and resulted in the conviction of
several high-profile politicians and businessmen, including former telecom minister A. Raja.

Stock Market Manipulation Cases Civil Appeal No.: 8643 OF 2012

Several cases of stock market manipulation have been brought to light in recent years,
highlighting the need for stronger regulatory measures. One such case is the Sahara-SEBI
dispute, in which the Securities and Exchange Board of India (SEBI) ordered the Sahara Group
to return over ₹24,000 crores to investors. The case set a precedent for the enforcement of
investor protection laws in India.

Narada Sting Operation Case (last update 2021)

The Narada Sting Operation Case involved a sting operation conducted by a news channel,
which exposed several politicians accepting bribes in return for favors. The case led to the arrest
of several politicians and brought attention to the issue of corruption in Indian politics.

Page | 3
GROWTH OF WHITE COLLAR CRIMES IN OTHER COUNTRIES

Over the years, White Collar Crimes have significantly grown in other countries.

In UK, there are stringent provisions and harsh punishments for white collar crimes. In UK
offences are categorized according to their seriousness. These are of three types :-

1)Summary Offences- These offences are only triable in Magistrate’s Courts. These are created
by statute and tried without a jury. Magistrates’ courts have very limited sentencing powers. The
maximum limit is upto 12 month’s imprisonment.

2)Indictable Offences-These offences are only triable in the Crown Courts. Cases in crown
courts are tried by the jury. This category covers offences of serious nature and those which are
fit to be tried as summary offences.

3)Offences triable either way-It is a flexible category. Save in exceptional cases, the defendant
may opt for either a summary trial in the Magistrate’s Court or a trial on indictment in the
Crown’s Court. However, Magistrate has prerogative in this regard. He may impose trial on
indictment and may not insist on a summary trial.

In England and Wales, most of the corporations including public and private limited companies
and LLP are being treated as a separate legal entity distinct from natural persons in the
management. Therefore, in the absence of any specific legislation, corporate liability may be
established in two ways – a) Vicariously b) Non-Vicariously

In England and Wales, the main authorities empowered to investigate and prosecute for white
collar crimes are the-SFO, SERIOUS FRAUD OFFICE, the NCA, NATIONAL CRIME
AGENCY and FCA, FINANCIAL CONDUCT AUTHORITY

Page | 4
Understanding meaning of organized crimes (S. 111,112 Bhartiya Nayaya Sanhita, BNS
2023)

Chapter VI: Offences Affecting the Human Body U/Sec. 111. (1) define the organized crime. it
means any continuing unlawful activity, including but not limited to kidnapping, robbery,
vehicle theft, extortion, land grabbing, contract killing, economic offences, severe cyber-crimes,
and trafficking of persons, drugs, weapons, or illicit goods or services, as well as human
trafficking for purposes such as prostitution or ransom, conducted by any individual or group
acting in concert, whether singly or jointly, as a member of an organized crime syndicate or on
behalf of such a syndicate, by employing violence, threats of violence, intimidation, coercion, or
any other unlawful means to obtain direct or indirect material benefits, including financial gain,
shall constitute organized crime.

Explanation:
For the purposes of this subsection:
(i) “Organized crime syndicate” refers to a group of two or more individuals who, either singly
or jointly, as a syndicate or gang, engage in any continuing unlawful activity.
(ii) “Continuing unlawful activity” denotes any activity prohibited by law that is a cognizable
offence punishable with imprisonment of three years or more, undertaken by any person, either
singly or jointly, as a member of an organized crime syndicate or on behalf of such a syndicate.
This includes activities for which more than one charge-sheet has been filed before a competent
court within the preceding ten years, and the court has taken cognizance of such offences. It also
encompasses economic offences.
(iii) “Economic offence” includes crimes such as criminal breach of trust, forgery, counterfeiting
of currency notes and government stamps, hawala transactions, mass-marketing fraud, or any
scheme intended to defraud multiple persons or defraud any bank or financial institution to
obtain monetary benefits in any form.

(2) The punishment for committing organized crime shall be as follows:

(a) If the offence results in the death of any person, the perpetrator shall be punished with death
or imprisonment for life and shall also be liable to a fine of not less than ten lakh rupees.
(b) In any other case, the perpetrator shall be punished with imprisonment for a term not less
than five years, which may extend to life imprisonment, and shall also be liable to a fine of not
less than five lakh rupees.

(3) Any person who abets, attempts, conspires, or knowingly facilitates the commission of
organized crime, or engages in any preparatory acts for organized crime, shall be punished with
imprisonment for a term not less than five years, which may extend to life imprisonment, and
shall also be liable to a fine of not less than five lakh rupees.

Page | 5
(4) Any individual who is a member of an organized crime syndicate shall be punished with
imprisonment for a term not less than five years, which may extend to life imprisonment, and
shall also be liable to a fine of not less than five lakh rupees.

(5) Whoever intentionally harbors or conceals any person who has committed organized crime
shall be punished with imprisonment for a term not less than three years, which may extend to
life imprisonment, and shall also be liable to a fine of not less than five lakh rupees. This
subsection shall not apply if the harboring or concealment is done by the spouse of the offender.

(6) Whoever possesses any property derived from or obtained through the commission of
organized crime, or the proceeds of organized crime, shall be punished with imprisonment for a
term not less than three years, which may extend to life imprisonment, and shall also be liable to
a fine of not less than two lakh rupees.

(7) If any person, on behalf of a member of an organized crime syndicate, possesses movable or
immovable property that cannot be satisfactorily accounted for, they shall be punished with
imprisonment for a term not less than three years, which may extend to ten years, and shall also
be liable to a fine of not less than one lakh rupees.

Description:
This section is dedicated to combating organized crime, eliminating any space for unlawful
activities orchestrated by syndicates that pose a grave threat to the internal security of the
country.

Key Points:

 Definition: Section 111(1) of BNS 2023 defines organized crime, covering a range of
offenses such as kidnapping, robbery, vehicle theft, extortion, contract killing, severe
cyber-crimes, and human trafficking.

 Petty Organized Crime: Offences not clearly defined or non-existent in the previous
statute are now addressed in a separate section, 112 (Petty Organized Crime), which
includes snatching, shoplifting, betting or gambling, and selling examination papers.

 Clarifications: It further explains organized crime syndicates and continuous unlawful

activities. Acts committed individually or by organized crime syndicates, using violence,
threats, or coercion, are now punishable.

 Economic Offences: Defined to include a range of crimes such as criminal breach of

trust, forgery, counterfeiting currency notes, hawala transactions, mass-marketing fraud,
and schemes to defraud institutions.

Page | 6
Stringent Punishment:

 If the offence results in the loss of life, the perpetrator faces the death penalty or life
imprisonment, with a mandatory fine of not less than Rs. 10 lakhs.

 Provisions exist for individuals aiding in the commission of organized crimes, being a
member of an organized syndicate, intentionally harboring or concealing any person
committing organized crime, and dealing with proceeds of organized crime, outlining
appropriate punishments.

Cognizable and Non-bailable Offence:

Organized crime is a cognizable and non-bailable offence, triable by a Sessions court, ensuring
stringent punishment for such activities.

Analysis

The BNS has taken significant steps to address the multifaceted threat of organized crime by
introducing clear and comprehensive definitions and stringent punishments for such offences. By
defining organized crime in Section 111(1), including a range of severe activities such as
kidnapping, robbery, and human trafficking, and providing detailed explanations of terms like
“organized crime syndicate” and “continuing unlawful activity,” the BNS aims to ensure no
ambiguity in the legal framework.

Additionally, the introduction of Section 112, which covers petty organized crimes such as
snatching and shoplifting, helps in addressing offences that were previously undefined or non-
existent in the statute. This two-tier approach enables law enforcement agencies to tackle both
major and minor organized crimes effectively.

The law prescribes severe punishments for those involved in organized crime, including death or
life imprisonment for offences resulting in death and substantial fines. It also outlines penalties
for those who abet, attempt, conspire, or facilitate organized crimes, members of organized crime
syndicates, and individuals harboring offenders or possessing proceeds from organized crime.

By categorizing organized crime as a cognizable and non-bailable offence triable by Sessions

courts, the BNS reinforces its commitment to internal security and public safety. The robust legal
framework ensures that organized crime syndicates cannot operate with impunity, thereby
protecting citizens from the pervasive threat of organized crime and maintaining public order and
trust in the legal system.

Page | 7
Criminality and White – Collar Crimes (Elements of Mens Rea and Actus Reus)

To commit the crime there should be Mens rea and Actus reus. Mens rea means mental element
and Actus reus means physical element. According to Blackstone, A crime is an act committed
or omitted, in violation of public law either forbidding or commending it. He, however realized
that at later stage this definition may prove to be misleading because it limits the scope of crime
to violations of ‘public law’ which normally covers political offences such as offence against the
state. Therefore, he modified his definition of crime and stated “a crime is a violation of ‘the
people rights and duties’ due to the whole community”

Edwin Sutherland’s Definition. It was in 1939 when for the first time Edwin Sutherland, an
American sociologist, defined white collar crimes. He described it to be crimes committed by a
person of high social status and respectability who commits such crimes during the course of
their occupation. Morality is not necessarily an aspect to define white collar crime, but generally
such offence is seen as immoral.

Coleman and Moynihan pointed out that Edwin Sutherland’s definition had certain ambiguous
terms, like:

 It has not laid down any criteria for who these ‘persons of responsibility and status’
would be.

 Also ‘person of high social status’ is not clear. It is perplexing as the meaning of the
phrase in law could be different from its general definition.

 Sutherland’s definition did not take the socio-economic condition of the person into
consideration. It only showed the dependency of white collar crimes on its type and the
circumstances in which it was committed.

 Mens rea, i.e. guilty mind and actus reus, i.e., wrongful conduct are two essential
elements to constitute a crime. However, Sutherland’s definition implies that
according to him white collar crimes does not necessarily require mens rea.

E.H. Sutherland’s demarcation. Sutherland again came into the picture and clarified that the
crimes which would be committed by people belonging to high socio-economic groups, during
the course of their occupation, would be termed as ‘white collar crimes’. And further said that
the traditional crimes would be denoted as ‘blue collar crime’.

So he drew a distinction between white collar crimes, i.e. corruption, bribery, fraud, and blue-
collar crimes, i.e., traditional crimes like robbery, theft, etc. After this, criminology in the year
1941 finally recognized the concept of ‘white collar crimes’.

For mens rea component (Module 1), the following case laws can be cited:
Page | 8
State of Maharashtra v. M. H. George (AIR 1965 SC 722)

Nathulal v. State (AIR 1966 SC 43)

In State of Maharashtra v. M. H. George (AIR 1965 SC 722), it was held: Merely because a
statute deals with a grave social evil is not sufficient to infer strict liability, it must also be seen
that whether imposition of strict liability would assist in the enforcement of regulations. Unless
this is so, there is no reason in penalising him and it cannot be inferred that the legislature
imposed strict liability merely in order to find a luckless victim.

In this case, RBI placed some restrictions on the entry of gold into India, thus superseding its
earlier notification. The accused reached Bombay (on the way to Manila), where the gold bars
were recovered from his jacket. The accused pleaded that he had no mens rea and that he had no
knowledge of the RBI notification. After considering the object and subject matter of statute
(FERA, 1947), their Lordship held that there was no scope for the invocation of the doctrine of
mens rea in this particular case. The very object and the purpose of the Act would be frustrated if
the accused should be proved to have knowledge that he was contravening the law, before he
could be held to have contravened (as per Majority opinion; the Minority opinion (J. Subha Rao)
was that the object would not be defeated).

In Nathulal v. State (AIR 1966 SC 43), it was held that object of statute would not be defeated
by reading mens rea into the provisions of the Essential Commodities Act, 1955. The appellant, a
dealer in food grains had made an application for a licence but no intimation was given to him
that his application was rejected. He purchased food grains from time to time and submitted
returns to the licence department. One day, a food inspector checked his godowns and found
food grains stored without any licence. The conviction of the accused was set aside as he had no
mens rea.

The Supreme Court held: There is a presumption that mens rea is an essential ingredient in every
criminal offence; but this may be rebutted by the express words of a statute creating the offence
or by necessary implication. However, mens rea by necessary implication can be excluded from
a statute only where it is absolutely clear that the implementation of the object of a statute would
otherwise be defeated and its exclusion enables those put under strict liability by their act or
omission to assist the promotion of the law.

Page | 9
Module 3

Meaning, Nature and Scope of Corruption

Public servants in India can be penalized for corruption under the Indian Penal Code, 1860 and
the Prevention of Corruption Act, 1988. The Benami Transactions (Prohibition) Act, 1988
prohibits benami transactions. The Prevention of Money Laundering Act, 2002 penalises public
servants for the offence of money laundering.

India is also a signatory (not ratified) to the UN Convention against Corruption since 2005. The
Convention covers a wide range of acts of corruption and also proposes certain preventive
policies.

Indian Penal Code, 1860:

• The IPC defines “public servant” as a government employee, officers in the military, navy or
air force; police, judges, officers of Court of Justice, and any local authority established by a
central or state Act.

• Section 169 pertains to a public servant unlawfully buying or bidding for property. The public
servant shall be punished with imprisonment of upto two years or with fine or both. If the
property is purchased, it shall be confiscated.

• Section 409 pertains to criminal breach of trust by a public servant. The public servant shall be
punished with life imprisonment or with imprisonment of upto 10 years and a fine. The
Prevention of Corruption Act, 1988

• In addition to the categories included in the IPC, the definition of “public servant” includes
office bearers of cooperative societies receiving financial aid from the government, employees of
universities, Public Service Commission and banks.

• If a public servant takes gratification other than his legal remuneration in respect of an official
act or to influence public servants is liable to minimum punishment of six months and maximum
punishment of five years and fine. The Act also penalizes a public servant for taking gratification
to influence the public by illegal means and for exercising his personal influence with a public
servant.

• If a public servant accepts a valuable thing without paying for it or paying inadequately from a
person with whom he is involved in a business transaction in his official capacity, he shall be
penalized with minimum punishment of six months and maximum punishment of five years and
fine.

• It is necessary to obtain prior sanction from the central or state government in order to
prosecute a public servant.

Page | 10
The Benami Transactions (Prohibition) Act, 1988

• The Act prohibits any benami transaction (purchase of property in false name of another person
who does not pay for the property) except when a person purchases property in his wife’s or
unmarried daughter’s name.

• Any person who enters into a benami transaction shall be punishable with imprisonment of
upto three years and/or a fine.

• All properties that are held to be benami can be acquired by a prescribed authority and no
money shall be paid for such acquisition.

The Prevention of Money Laundering Act, 2002

• The Act states that an offence of money laundering has been committed if a person is a party to
any process connected with the proceeds of crime and projects such proceeds as untainted
property. “Proceeds of crime” means any property obtained by a person as a result of criminal
activity related to certain offences listed in the schedule to the Act. A person can be charged with
the offence of money laundering only if he has been charged with committing a scheduled
offence.

• The penalty for committing the offence of money laundering is rigorous imprisonment for three
to seven years and a fine of upto Rs 5 lakh. If a person is convicted of an offence under the
Narcotics Drugs and Psychotropic Substances Act, 1985 the term of imprisonment can extend
upto 10 years.

• The Adjudicating Authority, appointed by the central government, shall decide whether any of
the property attached or seized is involved in money laundering. An Appellate Tribunal shall
hear appeals against the orders of the Adjudicating Authority and any other authority under the
Act.

• Every banking company, financial institution and intermediary shall maintain a record of all
transactions of a specified nature and value, and verify and maintain records of all its customers,
and furnish such information to the specified authorities.

Process followed to investigate and prosecute corrupt public servants

• The three main authorities involved in inquiring, investigating and prosecuting corruption cases
are the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI)
and the state Anti-Corruption Bureau (ACB). Cases related to money laundering by public
servants are investigated and prosecuted by the Directorate of Enforcement and the Financial
Intelligence Unit, which are under the Ministry of Finance.

• The CBI and state ACBs investigate cases related to corruption under the Prevention of
Corruption Act, 1988 and the Indian Penal Code, 1860. The CBI’s jurisdiction is the central
Page | 11
government and Union Territories while the state ACBs investigates cases within the states.
States can refer cases to the CBI.

• The CVC is a statutory body that supervises corruption cases in government departments. The
CBI is under its supervision. The CVC can refer cases either to the Central Vigilance Officer
(CVO) in each department or to the CBI. The CVC or the CVO recommends the action to be
taken against a public servant but the decision to take any disciplinary action against a civil
servant rests on the department authority.

• Prosecution can be initiated by an investigating agency only after it has the prior sanction of the
central or state government. Government appointed prosecutors undertake the prosecution
proceeding in the courts.

• All cases under the Prevention of Corruption Act, 1988 are tried by Special Judges who are
appointed by the central or state government.

Corruption is a roadblock on the way to development and can be termed as a “crisis of

governance”. India ratified the United Nations Convention against Corruption (UNCAC)
and the United Nations Convention against Transnational Organised Crime (UNTOC) in
2011. However, much before the ratification, we already have an anti-corruption law in place
since 1989 known as the Prevention of Corruption Act. The Act was amended in 2018 in order to
keep up with the international standards. The objective of this Act is to build accountability
measures within the systems of the government and pursue criminal charges against corrupt
public servants in order to deter the evil of corruption.

Though the PC Act came into force in 1988, recent years have seen a marked judicial and
legislative inclination towards expanding the scope of the PC Act and strengthening its
provisions.

For instance, in CBI v. Ramesh Gelli (2016) 3 SCC 788 in 2016, the Supreme Court found
that the Managing Director and Executive Director of a private bank, operating under a licence,
issued by the Reserve Bank of India, would be considered as a ‘public servant’ and thus would
be liable under the PC Act. Subsequently, in 2018, the PC Act was amended by the legislature,
expanding the scope of offences regarding commercial organisations carrying on business in
India.

To cement the trend of expanding the PC Act’s scope and to ensure policy driven, transparent
and responsive governance, the Supreme Court in the case of State of Gujarat
v. Mansukbhai Kanjibhai Shah 2020 SCC OnLine SC 412 dealt with another instance of
corruption being alleged against a prima facie private individual, in the context of a Deemed
University, and in doing so provided a broad interpretation of the scope of ‘Public Servants’
covered by the PC Act, including ‘University’.

Page | 12
How is corruption defined under Indian law?

The Prevention of Corruption Act does not use the term corruption or bribe, but instead uses the
phrase “undue advantage”. Undue advantage is defined as any benefit which is given to a public
servant. The bribe can be monetary or non-monetary, such as gifts etc. The benefit which is
given should be something other than the public servant’s lawful salary or any other lawful
payment owed to the public servant.

Who are considered to be public servants under the corruption law?

The following persons are “public servants” under this law:

 Whoever works for the government or gets their salary from the government

 Anyone who works for and is paid by a local authority

 A judge

 Anyone who works in the court, including a liquidator or receiver

 An arbitrator

 Anyone working for a state or central co-operative

 Anyone working in a government company or in a body controlled or aided by the

Government

 Anyone who works in connection with electoral rolls or to conduct elections

 President, Secretary, or any office-bearer of a registered co-operative

 Vice-Chancellor, teacher or employee of any University

 Anyone who is a chairman or employee of a Service Commission or of an

educational/scientific/ social/cultural or other institution receiving financial assistance
from any Government.

 Any other person who holds office owing to which he needs to perform a public duty.

Any of the above public servants performing any job in relation to their office, are doing their
public or official duty.

When does a public servant commit the offence of taking a bribe?

A public servant is guilty of taking a bribe when he/she accepts or attempts to obtain any
unofficial money or gift for: 1. performing official duty; 2. improperly performing official duty;
3. not doing official duty. Even if a public servant takes the bribe on behalf of another public

Page | 13
servant or receives the bribe through a third party, he/she will be guilty. (Section 7, Prevention of
Corruption Act, 1988). Apart from taking bribes, a public servant can be held liable for criminal
misconduct as well. Such criminal misconduct includes a situation where a public
servant:(Section 13, Prevention of Corruption Act, 1988)

 dishonestly or fraudulently misuses another’s property which is kept in his possession, or

allows someone else to do so; or

 intentionally gets benefits for himself in an unlawful way.

The law presumes that the public servant has conducted himself criminally if, during the time he
holds office, the value of his resources is more than the income he earns through lawful means.

What is the punishment for taking a bribe?

A public servant who takes a bribe can be imprisoned for 3 to 7 years, along with a fine. A public
servant can also be punished for criminal misconduct with imprisonment for 4 to 10 years, along
with a fine. It does not matter if the public servant was successful in criminal misconduct, even if
he attempted the same he can be imprisoned for 2 to 5 years, along with a fine.

Can you be charged for giving a bribe?

Yes, giving a bribe is as much a crime as taking a bribe. If you give any unofficial money or gift
to a public servant to influence or reward the public servant to improperly do his official duty,
you are committing a crime, even if you gave the bribe through a third party. For example, if you
give a public servant Rs. 10, 000 to ensure that you are granted a license over other people, you
are guilty of an offence. As a third party facilitating the bribe, if you take any money or gift from
another person to personally influence a public servant by corrupt or illegal means, you are also
liable for giving a bribe.(Section 8 and Section 7A, Prevention of Corruption Act, 1988).

What is the punishment for giving a bribe? If you are guilty of giving a bribe you can be
imprisoned for upto 7 years and/or fined. If you facilitate a bribe using corrupt or illegal means
as a third party, the punishment is imprisonment for 3 to 7 years along with a fine.

Will I be guilty even if I was forced to give a bribe?

You won’t be guilty of giving a bribe if you are forced to give it. However, you need to report
this to a law enforcement agency within 7 days from giving such a money/gift. Alternatively, if
you give any bribe to assist the law enforcement agency when they investigate an offence, you
will not be guilty. (Section 8, Prevention of Corruption Act, 1988)

Can a company be made liable for giving a bribe?

Yes, a company can be guilty of giving bribes under Section 8 of the Act if any person
associated with the company gives a bribe to keep or benefit the company’s business. However,

Page | 14
a company can be exempt from the same if it has adequate procedures to ensure that its
employees don’t undertake such conduct, as prescribed by the Government.(Section 9,
Prevention of Corruption Act, 1988).

Who is charged for an offence of a company giving a bribe? What is the punishment?

A person in association with the company can be an employee or an agent of the company. When
associated persons give the bribe, they are to be punished with a fine. If the bribe is given with
the knowledge of any director, manager, secretary or other officer of the company, then he/she
shall be imprisoned for 3 to 7 years, along with a fine. Despite such stringent laws, India in 2018
was ranked 78 out of 180 countries in the Corruption Perception Index released by Transparency
International. Corruption in India is a foundational problem. Therefore, we not only need to
strengthen the implementation of the Act, but also adopt other practises such as awareness
campaigns, strengthening right to information, formulating transparency mechanisms etc. at
every level of the government to counter the problem.

2018 Amendment

As the PC Act saw limited success an amendment was enacted (Amendment Act) and brought
into force on 26 July 2018. The Amendment Act attempted to bring the PC Act in line with
United Nations Convention against Corruption 2005, which was ratified by India in 2011.

Highlights of the Amendment Act

Definition of ‘Undue Advantage’: The Amendment Act provides that any public servant who
accepts or attempts to accept from any person, any ‘undue advantage’, either for himself or for
any other person, in lieu of performance of a public duty, shall be punishable with imprisonment
for a minimum term of 3 (three) years and maximum of 7 (seven) years. The Amendment Act
has defined ‘undue advantage’ to mean any gratification other than legal remuneration that a
public servant is permitted to receive. Further, ‘gratification’ is not limited to pecuniary
gratifications or to gratifications estimable in money. By virtue of such an expansive definition,
even non-monetary considerations such as a better posting, post-retirement benefits, gifts and
favours not estimable in money can also be covered under the ambit of undue advantage.

Persons liable for offering a bribe to public servants: Previously, the PC Act did not contain a
separate provision for a person who gives or promises to give an undue advantage, but the
Amendment Act makes giving an undue advantage by a person to a public servant, a specific
offence punishable by 7 (seven) years imprisonment or fine, or both. However, if a person is
forced / coerced to give an undue advantage but reports the same to the concerned authority
within 7 (seven) days of doing so, he shall not be liable for the same. Further, as per the PC Act,
during a corruption trial, if a person made a statement that he gave an undue advantage to a
public servant, it would not be used to prosecute him for the offence of abetment. The
Amendment Act omits this provision. Effectively, it may become a potential risk for bribe givers

Page | 15
to testify against the corrupt, and they may be discouraged from appearing as witnesses in a trial
against public servants.

Offering of bribes by commercial organisations: The Amendment Act has defined ‘commercial
organisation’ to mean not just a company or partnership incorporated in India and carrying on
business in India or outside India, but also a body or partnership incorporated or formed outside
India but carrying on business in India. Section 9 of the PC Act has been substituted by the
Amendment Act to provide for a specific provision for offences committed by commercial
organisations and persons associated with it. It provides that if a commercial organisation
commits any of the offences listed out in the PC Act with the intention to obtain or retain
business or obtain or retain an advantage in the conduct of its business, then such commercial
organisation shall be punishable with fine, quantum of which is not prescribed in the
Amendment Act.

The Amendment Act mandates the Central Government to formulate and prescribe guidelines to
prevent persons associated with commercial organisations from bribing any public servant. A
commercial organisation can defend itself when accused of any offence under the PC Act, if it
proves that it had adequate procedures in place to ensure compliance with such guidelines issued
by the Central Government to prevent persons associated with the commercial organisation from
undertaking such conduct. The corporate sector in India will have to be swift in enacting its
internal guidelines and ensure that its employees are well informed and abide by these guidelines
to protect itself from any kind of prosecution under the PC Act, in the event of any associated
person charged with the act of giving a bribe.

Further, if such an offence is proved to have been committed with the consent or connivance of
any director, manager, secretary or other officer of the organisation, then such person shall also
be prosecuted under the PC Act.

Redefining criminal misconduct: Under the PC Act, criminal misconduct by a public servant
inter alia included: (i) using illegal means to obtain any valuable thing or monetary reward for
himself or any other person; (ii) abusing his position as a public servant to obtain a valuable
thing or monetary reward for himself or any other person; and (iii) obtaining a valuable thing or
monetary reward without public interest, for any person. The Amendment Act replaces this
section with a truncated definition of criminal misconduct to include only the following two acts:
(i) misappropriation or conversion for his own use, any property entrusted to or under the control
of a public servant: and (ii) amassing assets disproportionate to known sources of income. To
prove the latter, the intention to acquire assets disproportionate to income must also be proved, in
addition to possession of such assets. Thus, the scope of criminal misconduct has been narrowed
and the threshold to establish the offence of possession of disproportionate assets has been
increased by the Amendment Act.

Page | 16
Prior sanction of appropriate government for investigation and prosecution: The PC Act required
prior sanction of the appropriate government for prosecution of serving public officials. The
Amendment Act extends this protection of requirement of prior approval to investigation prior to
prosecution. Further, such protection is extended to former officials as well, for offences done
while in office. The third proviso to Section 19(1) provides for a directory (not mandatory) time
period of 3 (three) months within which the appropriate government must convey the decision on
such sanction. Additionally, the Central Government may prescribe guidelines for grant of
sanction for prosecution.

Attachment of property: The Amendment Act has provided for application of the Prevention of
Money Laundering Act 2002 and Criminal Law Amendment Ordinance 1944 for attachment and
administration of property procured by means of an offence under the PC Act.

Time frame for trial: The PC Act did not provide a time frame within which the trial was to be
completed. However, the Amendment Act now prescribes that the Special Judge shall endeavour
to complete the trial within 2 (two) years. This period can be extended by 6 (six) months at a
time and up to a maximum of 4 (four) years in aggregate subject to proper reasons for the same
being recorded. The wording of the section is directory in nature and not mandatory, making it
less likely that the courts will abide by such timelines.

Enhancement of Punishment: Punishment has been increased from a minimum imprisonment

term of 6 (six) months to 3 (three) years, and from a maximum of 5 (five) years to 7 (seven)
years, with or without fine. Punishment for abetment of offences has also been increased by the
same quantum.

Cases in course outline (Module 3):

1. 2010 Commonwealth Games Scam Case (Swiss Timing Ltd v. Organizing Committee,
28 May, 2014)

BACKGROUND
The 2010 New Delhi Commonwealth Games have been marred by corruption and
mismanagement, which have skewed India’s reputation as a nation ravaged by high levels of
fraud and misuse. Commonwealth Games was founded in 1930 and is an internationally
successful multi-sport event involving athletes from the Commonwealth Nations Games. The
event is organized every four years by the Traditional Wealth Games Federations. CWG scam
was one of the biggest Indian scams involving rounding of Rs. 70,000 crores. Just half of the
amount allocated was estimated to be spent on Indian sportspeople. The athletes were
supposedly forced to move from those allocated by the authorities to shabby flats. Reports of
the Central Vigilance Commission revealed that Suresh Kalmadi, Chairman of the Organizing
Committee of the Games, had offered Swiss Timings a contract of Rs 141 crore for its time-
limiting equipment, which was unduly high by Rs.95 crore. All the suspects, including Kalmadi,
have been charged with criminal conspiracy, theft, talking, and have been charged in
compliance with the parts of the Corruption Prevention Act.

Page | 17
ISSUE:
 Whether a dispute involving allegations of fraudulent, corrupt, collusive or coercive
practice be settled by arbitration?
RULE:
 Allegations of fraud and other malpractices are arbitrable, but the arbitral tribunal
cannot deal with a case of serious fraud and its jurisdiction is merely limited to
determining the issue of simpliciter fraud.
FACTS:
 The Petitioner, a Swiss company, and the Respondent entered into an agreement in
2010 to provide the time, score, outcome, and support services necessary to hold the
Commonwealth Games in India.
 The Petitioner initiated arbitration pursuant to clause 38 of the Contract after alleging
that the Respondent had failed to make the payments required by the Contract.
 The Respondent failed to nominate its arbitrator on the grounds that Swiss Timing Ltd.
had broken a warranty that it would not engage in corrupt, fraudulent, collusive, or
coercive practices, which it claimed was evidenced by the criminal cases pending
against the officials of Swiss Timing Ltd.
 The Petitioner approached the Supreme Court under Section 113 of the Arbitration and
Conciliation Act, 1996 Act, for the constitution of the arbitral tribunal.
HELD:
 The Hon’ble Apex Court held that the allegations of fraud can be determined by
arbitration, where an arbitration agreement exists between the parties.
 It was also observed by the Hon’ble Court that initiation of a criminal case cannot be a
reason for denying arbitration.
 The Court further held that the contention of substantive Contract being
void/voidable is not a bar to arbitration, and the court must follow the policy of least
interference.
 Hence, the court held that the possibility of conflicting decisions is not a bar against
simultaneously proceeding with arbitration and criminal proceedings.

2. Indian Coal Allocation Scam (Common Cause & Ors v. Union of India & Ors on
14 May, 2015)
https://ijpiel.com/index.php/2022/07/18/coal-block-scam-the-legacy-continues/

Read above article first to know the background and current status of the case

Legal Framework and Judicial Pronouncements with respect to coal allocation

Ultra vires authority from Government

The central government in this coal allocation case was questioned for going beyond the powers
conferred on them by the statutes governing coal and natural resources mining in India. The
government took initiative to allocate the coal blocks without any auction. Neither of the Mines
and Minerals (Development and Regulation) Act, 1957, Mineral Concession Rules, 1960 and
the Coal Mines (Nationalisation) Act, 1973 provided the central government with the authority to

Page | 18
allocate coal blocks which were contended by the counsel of the petitioner in the Supreme Court.
The court accepted the contention while observing that none of the stated statutes provide any
procedure for allocation of blocks.

Invalidity but non-cancellation of allocations

The case of Manohar Lal Sharma v. The Principle Secretary & Others was decided by the
Supreme Court where the petitioner was successful in proving the government action of
allocating coal blocks without auction as a mode of biasness. The accused were charged under
the provisions of the Prevention of Corruption Act, 1988.

The Supreme Court declared the allocations as contrary to fairness and objected against the
government action to favour companies in the process. While the allocations were declared
illegal yet the cancellation of the contracts of the companies could not be achieved in entirety
due to some of them starting the work on the blocks. The cancellation would have led to the loss
of the companies that initiated the operations.

Administrative decision making

Administrative decision making is a field of administrative law in India which does not associate
itself with any exclusive statute but has developed through the evolution of other statutes and the
judicial pronouncements. The screening committee was constituted to take decisions on the
allocation of the coal blocks. The whole process was an administrative process which was
required to be dispensed under statutory provisions while following the competitive bidding
procedure as part of administrative arrangements. The coal allocation process started to be
monitored from 2010 when the Amendment Bill of Mines and Minerals (Development and
Regulation) Act, 1957 was enacted while providing a framework to allocate coal blocks through
competitive bidding.

Transparency improvement through administrative backing

The law governs those rules which are sanctioned by any statutory provisions but do not deal
with any non-existent rules or regulations. It does not function on presumed rules until
exclusively stated in the statute governing the orders. The coal allocation process was a non-
transparent process with a lack of competitive bidding to provide a fair chance to every
enterprise. The administrative backing through a statute would improve transparency with the
committee’s obligation to dispense administrative decisions according to the authority stated in
the statute. Any action in excess of the authority would impose legal sanctions on the authority
which prevents them any diversion from assigned functions.

Arbitrariness

The process of coal blocks allocation for captive use has been an example of arbitrary action
from the government. Arbitrariness is the practice of taking decisions without any reasonability

Page | 19
and only on personal pleasure. The doctrine of arbitrariness stated under Article 14 of the Indian
Constitution has been violated here. The absence of statutory law to favour competitive bidding
is immaterial as Article 14 does not support arbitrary administrative action as it violates the rule
of law.

Every administrative action is subjected to a test of arbitrariness where the authority needs to
prove its action within the reasonableness sanctioned by the Indian Constitution and shall not
support any sort of biases in the decision making process. The politicians have favoured some
private enterprises over others which have shown arbitrary action from them.

In the case of Shrilekha Vidyarthi v. State of U.P., it was held that the state action can never be
based on arbitrariness as the basic principle of Article 14 is fairness in action. Irrespective of the
nature of the operation, the state action should be in pursuance of rule of law and it is the
uppermost duty of the state to maintain it in every circumstance. In the present case, the fairness
was not there in the state action through its administrative authorities when some particular
enterprises were preferred without a suitable procedure of auction as a mode of rule of law
through a fair procedure established by law.

In the case of Neelima Misra v. Harinder Kaur Paintal and Ors., it was decided that all authorities
shall take decisions according to the Acts and the statutes and act in compliance with the powers
and duties conferred on them. Every action should be bereft of illegality, irrationality or
arbitrariness. Any action found to be either of these by any authority, in the exercise of
legislative, administrative or quasi-judicial functions are liable to be quashed for violating
Article 14. In this Coalgate scam, the administrative authority, i.e., the committee acted
arbitrarily, hence, liable for the violation of Article 14.

In the case of Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir & Anr., it was held
that the government shall not exercise its power arbitrarily for its own favour. The purpose of
every government action is a public good and that cannot be sacrificed in any manner
whatsoever. Every action must be on reasonable grounds due to its direct effect on the public
good. Every government action that is arbitrary would be deemed invalid. The present case did
not leave any scope for the public good with the enterprises regarded as a group of individuals
who deserved a fair chance. This fairness was not provided by the government-appointed
administrative committee to get the coal block in an auction.

CBI- A Caged Parrot

The Supreme Court slammed the premier investigation agency of India as being ‘a caged parrot’
to its masters after the Apex Court examined the nine-page affidavit by the CBI as being alleged
to be changed by the Law Minister and the Attorney General of India.

The court observed that the agency was being a puppet to the UPA Government during their
tenure working as per their whims and fancies. The CBI has to be an autonomous body with no

Page | 20
political affiliation to either of the parties and should work in the interest of the State. The reports
being doctored by the accused themselves is a gross violation of the fair trial principle as the
authority that is assigned the task of preparing reports after the investigation is under the control
of the accused themselves. The court made reservations in the area of no minister to interfere in a
CBI probe with no part of the investigation to be touched or altered.

3. Uttar Pradesh NRHM Scam

The health scheme scam:
 The UPA government launched its flagship National Rural Health Mission in 2005.
 In its recent report, CAG says at least Rs 5,754 crore of the NRHM funds are not
accounted for in Uttar Pradesh from April 1, 2005 to March 31, 2011. A total of Rs
8,657.35 crore were sent by the Centre to UP during the period. UP was the highest
recipient under the scheme as its health indicators were poor.
 Government officials, contractors, middlemen and politicians are alleged to have
colluded to divert the money sent by the Centre to provide affordable health services to
the poor.
 CAG report says apart from the unaccounted funds, Rs 1364.89 crore were not utilised by
the end of March 2010.
 The CAG report says selection and award of NRHM works to construction agencies on
nomination basis were in violation of the judgement of the Supreme Court, Central
Vigilance Commission guidelines and NRHM framework.
 The CAG says primary health centres were used to store potatoes and eye care centres
were used as grain godowns. For delivering vaccines, the official car of the Shahjahanpur
district magistrate was shown as a delivery vehicle. Nearly 550 health centres that were
sanctioned for over Rs 51 crore were never built.
The Mayawati government has been on the back foot ever since the scam involving siphoning
off of huge funds provided by the Centre to UP came to light. The case was later transferred to
the CBI after the courts intervened. The NRHM scam has claimed four lives so far. The first
death was that of chief medical officer (CMO) V. Arya, who was gunned down on October 27,
2010. Another CMO V.P. Singh was killed on April 2, 2011. CBI has filed chargesheet in 2016
and alleged in the charge sheet that its investigation shows that then CMO, Chandauli and then
eye surgeon, Chandauli, who was the user of the medicine, in collusion with each other and in
violation of established procedure for procurement of medicines and equipment. They allegedly
violated other guidelines of the Government under NRHM and made the purchase of medicines
for eye operations at exorbitant rates directly from a private shop/firm based at Mughalsarai.

4. Uttar Pradesh Food Grain Scam

Uttar Pradesh food grain scam took place between years 2002 and 2010, in Uttar Pradesh state
in India, wherein food grain worth ₹350 billion (US$4.2 billion), meant to be distributed amongst
the poor, through Public Distribution System (PDS) and other welfare schemes like Antyodaya Anna
Yojana (AAY), Jawahar Rozgar Yojana and Midday Meal Scheme for Below Poverty Line (BPL)
card holders, was diverted to the open market. Some of it was traced to the Nepal and

Page | 21
Bangladesh borders, as in 2010 security forces seized Rs 11.7 million worth of foodgrains like
paddy and pulses being smuggled to Nepal, another Rs 6062,000 worth of grains were
confiscated on the Indo-Bangladesh border.

The scam first came into light in 2003, during the Chief Minister ship of Mulayam Singh, in Gonda
district in the distribution of foodgrain meant for the Sampoorna Grameen Rozgar Yojana and soon
complaints started pouring in from other districts as well. After initially ordering an inquiry into
the scam Mulayam Singh withdrew it. The Special Investigation Team ( SIT) set up by the
Mulayam Singh government in 2006, lodged over 5,000 FIRs. The next UP chief
minister Mayawati upon assuming office, ordered a CBI probe into the scam on 1 December
2007. Media dubbed it, "mother of all scams", and TV news channel, Times Now reported the
scam which started in 2002, under the reign of following Chief Ministers of Uttar Pradesh,
estimated to be at over ₹2,000 billion (US$24 billion). Uttar Pradesh as with other states and
UTs, is allocated a monthly quantity of foodgrains, i.e. rice and wheat, by the Central
government for distribution amongst AAY, BPL and APL families, under TPDS managed by the
state government. For the period from April 2010 to March 2011, this quantity for the state was
528395 tons.

The Central government allocates foodgrains to each state government for distribution through
ration shops at subsidised rates to the poor. Under the PDS scheme, each BPL ( Below Poverty
Line) family is eligible for 35 kg of rice or wheat every month, while an APL ( Above Poverty
Line) household is entitled to 15 kg of foodgrains on a monthly basis.

Instead of using the Food Corporation of India and the Shipping Corporation the Government
cleared a private company to send the rice and earn the profits. Rice sent to Sierra Leone had a
Swiss company named Novell as the buyer. 1,17, 000 tonnes of rice was sent to Nigeria which
had a bumper crop and refused to accept the rice. Then the rice was diverted to South Africa
which has higher per capita income than India. The African countries could have been just a
front to sell the rice in international markets. "But the rice did not even reach the desired African
countries. It went somewhere else and resulted in an escalation of the international prices,” Rajya
Sabha MP D Raja said.

In December 2009, CBI lodged 9 cases, identifying nearly 150 government officials, including
some PCS officer as accused; in all nine people were arrested, with one of them being the chief
finance and accounts officer of the District Rural Development Authority (DRDA) in Ballia and
his junior.

The Lucknow Bench of the Allahabad High Court, responding to a PIL, on 23 December 2009,
directed the Uttar Pradesh government to file a status report on all the nine food grain scams in
the state from 2000 till 8 January 2010 being investigated by the CBI.

On 3 December 2010, the Lucknow Bench of the Allahabad High Court, responding to public
interest litigation (PIL) filed by advocate Vishwanath Chaturvedi, directed the Central Bureau of

Page | 22
Investigation (CBI) to conduct and complete an inquiry within six months, into the foodgrain
scam in Gonda, Lucknow, Varanasi, Ballia, Lakhimpur Kheri and Sitapur districts. It also stated, that
"It shall not be necessary for the CBI or state agencies to obtain sanction under the statutory
provision with regard to present controversy where from initial stage, prima facie intentionally,
deliberately and in a planned manner, the foodgrains were lifted from godowns for sale either in
the open market or to smuggle outside UP or to other countries. The bench also asked the Centre
and Uttar Pradesh government, to consider appropriate amendments in the " Prevention of
Corruption Act, 1988. Though period under investigation is till 2007, the court also directed that
"it should be open to the CBI and state agencies to proceed with investigation with regard to the
scam not only up to 2007 but even beyond in case some link evidence/material is found with
regard to continuance of diversion of foodgrain under various schemes of the state and Central
governments."

Analysis of K. Santhanam Committee Report on Anti-Corruption

The Santhanam Committee Report holds significant importance in the history of the CVC in
India. This report, named after its chairman, Shri K. Santhanam, was pivotal in shaping the
establishment and functioning of the CVC. The Report provided exhaustive insights into the
prevalence of corruption, its causes, and the measures required to combat this social problem.
The committee conducted a comprehensive analysis of corruption in various sectors, including
government agencies, public sector businesses, and the judiciary.

The report's corruption definition was one of its most important aspects. It defined corruption as
"behaviour by officials in the public sector, whether politicians or civil servants, in which they
improperly and illegally enrich themselves or those close to them, or induce others to do so by
misusing their position." This definition provided the groundwork for comprehending and
recognising corrupt practises in a variety of domains. In addition, the report emphasised the
significance of preventive measures in combating corruption. It suggested the establishment of a
vigilant and transparent system in which corruption is actively discouraged and quickly detected.

The committee proposed establishing a Central Vigilance Commission (CVC) as the apex body
charged with preventing corruption and promoting integrity in public administration. In addition,
the Santhanam Committee emphasised the need for a robust and impartial anti-corruption
agency. It was suggested that the CVC be granted the authority to conduct investigations,
investigate complaints, and impose sanctions against fraudulent officials. The committee
emphasised the significance of safeguarding whistleblowers and providing them with adequate
protections in order to encourage the reporting of corrupt practises without fear of retaliation. In
addition, the report recommended the development of a code of conduct for public servants that
would outline the expected ethical standards and professional conduct. It emphasised the

Page | 23
significance of training and educating public officials about ethical values and the repercussions
of corruption.

Systemic reforms were emphasised in the Santhanam Committee Report, which was another
significant aspect. To reduce discretion and opportunities for misconduct, the committee
suggested streamlining administrative procedures, simplifying rules and regulations, and
implementing technology-driven solutions. It emphasised the importance of accountability and
openness in public procurement, financial administration, and decision-making processes.The
Santhanam Committee Report had a significant impact on the CVC's operations and India's
overarching anti-corruption efforts. The report's recommendations paved the way for the
establishment of the CVC in 1964, which was charged with preventing corruption and promoting
integrity in public administration.

The report's findings and recommendations continue to impact India's anti-corruption efforts.
Over time, subsequent committees and commissions have built upon the work of the Santhanam
Committee, resulting in the evolution of the country's anti-corruption framework.In conclusion,
the Santhanam Committee Report played a vital role in India's fight against corruption. Its
comprehensive analysis, recommendations, and emphasis on preventive measures have shaped
the Central Vigilance Commission's operations and had a lasting impact on the country's struggle
against corruption.

Page | 24
 Module 4 – Benami Transaction
- Adv. Shivam Jain Kakadia

The Benami Transactions (Prohibition) Act,1988

▪ Understanding the concept of Benami Transactions and analyzing the various provisions
of the Benami Transactions (Prohibition) Act, 1988 in curbing these transactions

▪ The Benami Transactions Amendment Act 2016

The word "Benami" means anonymous or nameless and the term "Benami Transaction" is used
to describe a transaction where one person pays for property but the property is
transferred to or held by somebody else. The person who pays for the property is the real
beneficiary, either at present or at some point in the future, but is not recorded as the legal owner
of the property. This enables the payer to achieve undesirable purposes such as utilizing black
money, evading the payment of tax and avoiding making payments to creditors.

The Benami Transactions (Prohibition) Act, 1988 (Primary Act) was enacted in the year
1988 to prohibit all benami transactions. The Act defined a 'benami transaction' as "any
transaction in which property is transferred to one person for a consideration paid or provided
by another person".

The Hon'ble Supreme Court in Bhim Singh v. Kan Singh AIR 1980 SC 727, explained Benami
Transaction as "Where a person buys a property with his own money but in the name of another
person without any intention to benefit such other person, the transaction is called benami. In
that case the transferee holds the property for the benefit of the person who has contributed the
purchase money, and he is the real owner."

However, the Primary Act was not comprehensive enough and lacked to make a big impact. The
Rules of the Primary Act were not framed and benami transactions continued in India. The
Primary Act had several loopholes, including the absence of an appellate mechanism and lack of
provisions for vesting of the confiscated property with the Central government. The Benami
Transactions (Prohibition) Amendment Act, 2016 ('Amendment Act') seeks to amend the

Page | 25
Primary Act and is aimed at catching those with black money in the domestic economy hidden
through benami properties.

The reason for bringing an Amendment Act instead of a new Act is that the Primary Act has
penal provisions and penal provisions cannot be applied retrospectively. So if a new Act was
passed in 2016, all those who acquired benami properties before 2016 would be given immunity.

PURPOSE & SCOPE OF THE AMENDMENT ACT

The Amendment Act seeks to:

amend the definition of benami transactions,

establish adjudicating authorities and an appellate tribunal, and

specify revised penalties for benami transactions.

The term 'Benami Transaction' covers a transaction or Arrangement

where a property is transferred to, or is held by, a person for a consideration provided, or paid by,
another person; and

the property is held for the immediate or future benefit, direct or indirect, of the person providing
the consideration.

The Amendment Act increases the scope of transactions which qualify as benami and includes
property transactions where:

transaction is made in a fictitious name, or

owner is not aware of or denies knowledge of the ownership of the property, or

person providing the consideration for the property is not traceable or is fictitious.

The Amendment Act specifies the following cases which are exempted from the scope of the
definition of a benami transaction. When a property is held by:

Page | 26
a member of a HUF, and is being held for his or another family member's benefit, and has been
provided for or paid from known sources of income of that family;

a person in a fiduciary capacity (such as a trustee, executor, partner, director of a company,

depository or participant);

a person in the name of his spouse or child, and the property has been paid from the person's
known sources of income; and

a person in the name of his brother or sister or lineal ascendant or descendant (where their
respective names appear as joint-owners in any document), and the property has been paid from
the person's known sources of income.

BENAMI PROPERTY:

Property of any kind, whether movable or immovable, tangible or intangible, corporeal or

incorporeal and includes any right or interest or legal documents or instruments evidencing title
or interest in the property and where the property is capable of conversion into some other form,
then the property in the converted form and also includes the proceeds from the property.

INITIATION OF PROCEEDINGS AGAINST ALLEGED BENAMI PROPERTY

BENEFICIARIES:

The Act establishes four authorities who will be able to conduct inquiries regarding benami
transactions:

Initiating Officer (i.e. Assistant Commissioner of Income-Tax or a Deputy Commissioner of

Income-Tax);

Approving Authority (i.e. Additional Commissioner of Income-Tax or a Joint Commissioner of

Income-Tax);

Administrator (Income Tax officer); and

Adjudicating Authority.

PROCESS:

Page | 27
Issue of Show Cause Notice by Initiating Officer where he has reason to believe that any person
is a benamidar in respect of a property.

Provisional attachment of property if necessary.

Revoke provisional attachment if satisfied the property is not benami.

Continuing provisional attachment or ordering provisional attachment where not satisfied that
property is not benami and refer a statement of case to Adjudicating Authority.

Adjudicating Authority to hear affected persons and pass order holding that property is benami
or not. The authority will decide within a year if the property is benami.

Where adjudication order holds property as benami, hear affected persons and pass confiscation
order. all rights and title in such property shall vest absolutely in the Central Government free of
all encumbrances

Administrator to take possession of benami property and manage it. Appeals against orders of
the Appellate Tribunal will be to the respective High Court with jurisdiction.

The Act mandates Central Government to designate one or more Session Court as Special Court
for trial of offence punishable under it.

OFFENCES AND PENALTIES

Where any person enters unto a benami transaction in order to defeat the provisions of any law
or to avoid payment of statutory dues or to avoid payment to creditors, the following shall be
guilty of the offence of benami transaction:

Punishment For benami transaction

Imprisonment of 1 to years

Fine of 25% of FMV of property

Beneficial owner,

Benamidar

Page | 28
Any other person who abets or induces any person to enter into benami transaction

The offences are non-cognizable and non-bailable.

Fair Market Value is a price that the property would ordinarily fetch on sale in open market. In
cases where the price is not ascertainable, another procedure will be prescribed.

SC in Union of India vs Ganpati Dealcom Pvt. Ltd | 2022 declared that Section 3(2) of the
Benami Transactions (Prohibition) Act 1988 as unconstitutional on the ground of being
manifestly arbitrary.

Section 3(2) prescribes the punishment for entering into benami transaction.

"Section 3(2) of the unamended 1988 Act is declared as unconstitutional for being manifestly
arbitrary. Accordingly, Section 3(2) of the 2016 Act is also unconstitutional as it is violative of
Article 20(1) of the Constitution", the bench declared.

Page | 29