Investigating Agency

CHAPTER FOUR
INVESTIGATION AND PROSECUTION PROCEDURES AND AGENCIES

DEALING WITH WHITE COLLAR CRIMES IN INDIA
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CHAPTER FOUR
INVESTIGATION AND PROSECUTION PROCEDURES AND AGENCIES

DEALING WITH WHITE COLLAR CRIMES IN INDIA
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4.1 Introduction
The criminal justice system of the country provides for criminality in white collar crimes.
The mere existence of such laws has a symbolic impact on the society. Though criminal
sanctions have been imposed for violation of white collar crimes but the strategy has not
worked as a deterrent or a tool for achieving compliance. Both the substance and the image of
law enforcement will be lost if criminal and antisocial activity is not recognized, prevented,
and prosecuted. If the society is protected from traditional crimes then people get freedom to
heighten their level of social and economic interaction thus enhancing their quality of life and
if the society is free from white collar crimes then it adds reliability to this quality. To ignore
white-collar crime is to undercut the integrity of our society, just as we ignore the safety of
society when we fail to cope with common crime. Delaying or postponing action in white
collar crimes is an abdication of law enforcement responsibility. The Supreme Court once
said the quality of a nation’s civilisation can be largely measured by the methods it uses in
the enforcement of criminal law.
The main step involved in effective enforcement of white collar crime is investigation and
prosecution. The investigation of white collar crimes is far more complex than most other
traditional offenses. The events in issue usually have occurred at a far more remote time and
over a far more extensive period. The crime is not only dynamic but is also multifaceted. A
number of events are interwoven and needs to be proved in the court. An investigator has to
go through volumes to find the one nugget he needs to prove his case.
126
After the investigation is completed by the concerned investigating agency the next important
step is the prosecution. Prosecution is the backbone of a successful criminal justice system. It
plays a balancing act between the apprehension of criminals by the investigation agencies and
the finding of guilt as well as award of punishment by the judiciary. The investigation of a
case may be good but it will be rendered fruitless if the prosecution machinery of the state
does not work efficiently.
The researcher in this chapter has studied the various agencies that are responsible for the
investigation and prosecution of white collar crimes and the procedure of investigation and
prosecution.
4.2 Investigation and Prosecution of Offences committed under Indian Penal Code,
1860
The main agency which is responsible for investigation of offences in India is Police. The
Code of Criminal Procedure, 1973 which is the bedrock of the Indian criminal justice system
envisages police as the investigation agency. Under the Code, Police has the jurisdiction to
investigate all offences.344 The Code provides for the procedure and steps involved in the
investigation of crimes. However, if under any special statue there are provisions pertaining
to the procedure then the provisions of special law will have overriding effect over the
provisions of the Code.
4.2.1 Police
Police in India primarily belong to the state list of the Constitution and therefore matter
related to it falls into the jurisdiction of the respective state governments. The police force has
been organised not at the national level but at the state level. The police organizations are
identified by the name of the state to which they belong e.g. Rajasthan Police, Assam Police,
Bihar Police etc. Each state has a Police Act. The police forces of that state is organised and
governed by the rules and regulations in accordance with the provisions of the concerned
Police Act. These rules and regulations are outlined in the Police Manuals of the state police
344
According to Section 2 (n) of the Code of Criminal Procedure, 1973 offence means any act made punishable
by law for the time being in force.
forces. Despite the diversity of police forces, there is a good deal that is common amongst
them. This is because the structure and working of the state police forces are governed by the
Police Act of 1861 which is still the basic instrument governing the functioning of the Indian
police. The State Police Acts are modelled mostly on the 1861 legislation. Secondly major
criminal laws like the Indian Penal Code, 1860 the Code of Criminal Procedure, 1973 and
the Indian Evidence Act, 1872 are uniformly applicable to almost all parts of the country.
The state police force is headed by the Director General of Police, who is responsible for the
overall police administration of that state. He is at the top of the pyramidal hierarchy
consisting of the Deputy Inspector General, the Assistant Inspector General and
Superintendents of police. States are divided territorially into administrative units known as
districts. An officer of the rank of Superintendent of Police heads the district police force. A
group of districts form a range, which is looked after by an officer of the rank of Deputy
Inspector General of Police. Some states have zones comprising two or more ranges, under
the charge of an officer of the rank of an Inspector General of Police. Every district is divided
into sub-divisions. A sub-division is under the charge of an officer of the rank of Assistant
Superintendent of Police/Deputy Superintendent of Police. Every sub-division is further
divided into a number of police stations, depending on its area, population and volume of
crime. The police station is the basic unit of police administration in a district. The officer in
charge of a police station is an Inspector of Police. Under the Criminal Procedure Code,
1973 all crime has to be recorded at the police station.
In order to investigate economic offences the police forces of the state and union territories
have established specialised units known as Economic Offences Wing. This wing is entrusted
with the responsibility of investigation of serious economic offences and offences having inter-
state ramifications.345 The wing also interacts, assists and guides district police in cases of
financial crimes. In order to investigate various forms of white collar crime the economic
offences wing typically consist of different sections like Anti-Fraud and Cheating section to
deal with frauds relating to banking sector, financial institutions and companies; Anti Forgery
section to deal with frauds relating to forgery of documents; Anti Criminal Breach of Trust
section for dealing with multi-level marketing frauds, share trade frauds, corporate frauds,
criminal breach of trust cases; Anti Cyber Crime section to deal with cybercrimes etc. There
345
The Ministry of Finance, ‘White Paper on Black Money (2012)’, p. 26.
are other departments also like Criminal Investigation Department and the Special Branch.
These departments investigate important and difficult cases and provide supervision over the
crime control efforts.
4.2.2 Central Bureau of Investigation
Another agency which plays prominent role in investigation of white collar crimes is the
Central Bureau of Investigation (CBI). CBI is a central investigative agency established by
the central government. The agency was initially set up through an executive order in 1941 in
order to curb the corrupt practices which had sprung up as a result of World War II. But the
need of a central agency led to the passage of Delhi Special Police Establishment Act, 1946
through which the present agency derives its powers and functions. This Special Police
Establishment which was initially set up to investigate corruption offences only but later on
many offences under Indian Penal Code, 1860 was brought in its purview.
The CBI can investigate all those offences or classes of offences which are notified by the
Central Government under Section 3 of the Delhi Special Police Establishment Act, 1946.346 A
list of such offences is issued by the Directorate of Prosecution division of CBI. As on date,
offences under existing 74 Central Acts, 19 State Acts and 243 offences under the Indian
Penal Code, 1860 have been notified by the central government. The CBI can investigate these
offences in union territories only. However, the central government has the power to extend the
jurisdiction to other areas as well as states, subject to the consent of state government. In
addition to it, the Supreme Court as well as the high courts by virtue of powers vested in them
under Article 32 and 226 of the Constitution of India, 1950 can order CBI to conduct
investigation in a case. However these powers of courts are extraordinary powers and are to be
exercised sparingly, cautiously and in exceptional situations where it becomes necessary for
doing complete justice.347
The powers of CBI are concurrent and coextensive with the powers of state police. In order to
avoid duplication and keeping in view the limited resources of the agency an administrative
arrangement has been arrived at by CBI with the state police forces. In corruption cases, if
346
Central Bureau of Investigation Manual, 2013, p. 9.
347
SP Jaipur v. State of Rajasthan, JT 2001(1) SC 624.
substantially and essentially the employees of central government are involved then the case
is be investigated by CBI, otherwise by state anti corruption bureau. In addition to it CBI
investigate cases relating to the breaches of central laws with the enforcement of which the
government of India is mainly concerned and the cases which have interstate ramifications;
big cases of fraud, cheating, embezzlement and the like, relating to public joint stock
companies in which large funds are involved; cases having interstate and international
ramifications and being investigated by several agencies and where it is considered necessary
that a single investigating agency should be in charge of the investigation and cases in which
the interests of the central government or of any statutory corporation or body set up and
financed by government of India are involved particularly those in which public servants are
concerned or very large amounts are involved. 348 Although, a general agreement exists, but there
is discretion and the matters notified under section 3 can be investigated by CBI or police.
The CBI is headed by a Director who is of the rank of Inspector General of Police. He is
responsible for the overall administration of the organisation. The superintendence of CBI
vests with the Central Government except in investigations of offences under the Prevention
of Corruption Act, 1988 in which the superintendence vests with the Central Vigilance
Commission (CVC).349 The agency is divided into divisions and each division takes care of a
particular work. The cases of corruption and fraud committed by public servants of central
government are investigated by Anti-Corruption division of CBI. Large scale economic
crimes like bank frauds, financial frauds, import export and foreign exchange violations,
smuggling of contraband items are investigated by the Economic Offences Division of the
agency. The anti-corruption division is organised into zones, regions and branches. The major
field work is done by branches which are headed by Superintendents of Police. The
Economic Offences Division is organised into four zones namely EOW-I, EOW-II, EOW-III
and EOW-IV. Each zone is headed by a joint director under the overall superintendence of
director, CBI. Over the years the CBI has evolved from an anti-corruption agency to a
multifaceted, multi-disciplinary central police law enforcement agency with the legal
mandate to investigate and prosecute offences anywhere in India.
348
Central Bureau of Investigation Manual, 2013, p.3.
349
Section 8(a) of the Central Vigilance Commission Act, 2003.
130
Most of white-collar laws have been legislatively created. The legal distinctiveness of white
collar crime can be reflected in the procedural variations. These laws are regulatory in
character and are comparatively new and form specialised part of statue. Therefore, the
investigation and prosecution of white collar offenders is not only limited to traditional
criminal justice agencies like Police and CBI, but are dealt with specially created
investigatory and enforcement bodies. This is because with the advancement of science and
technology the methods of committing such crimes has gone high tech and these agencies are
specially trained to detect and collect evidence for such crimes. These specialised agencies
have been dealt with in the later part of the chapter.
4.2.3 Procedure of Investigation
The procedure of investigation together with the powers available with the police during
investigation is enumerated under the Code of Criminal Procedure, 1973. The investigation
of a cognizable offence is initiated by the registration of a case under Section 154 of the
Code.350 However, in cases of non-cognizable offences, complaint is filed with the magistrate.
If the magistrate is of the opinion that investigation is necessary, then he can order
investigation and then the procedure is same in both cases.
Investigation is basically an art of unearthing the truth for the purpose of successful detection
and prosecution. The main object is collection of evidence. This is done through recording
the statement of witnesses and accused by the investigating officer. Any person acquainted
with the facts and circumstances of the case can be summoned by the investigating officer
and examined orally.351 However, such statements do not have much evidentiary value as
they cannot be used as such by the prosecution to prove the case. The accused can use such
statements but the prosecution can use it only with the permission of the court and that only
for the purpose of contradicting the witness in accordance with Section 145 of the Indian
Evidence Act, 1872. In other words such statement cannot be used as a previous statement for
the purpose of corroborating the maker.352
350
This is popularly known as FIR.
351
Section 161 of the Code of Criminal Procedure, 1973.
352
The investigating officer is also given the power to arrest an accused. Arrest means
apprehension of a person by legal authority resulting in deprivation of his liberty. It gives the
investigation agency an opportunity to examine the accused. Arrest can be made with or
without warrant depending on whether the case is cognizable or non-cognizable. Arrest
denies a person of his liberty and therefore this power should be exercised only in those cases
where there is credible information and suspicion as to the involvement of the accused in the
crime. The legislature as well as the courts have provided for a number of rights to the
arrested person. It has been specifically laid down that the arrest should be made strictly in
accordance with the legislative provisions. After the person is arrested he may be kept in
custody for investigation for 24 hours. However, if it appears that the investigation cannot be
completed in 24 hours, then the person has to be produced before the magistrate and further
detention is possible only on the order of magistrate. 353 The magistrate is empowered to send the
person either in police custody or in judicial custody. In police custody further investigation is
carried out by the police where as in judicial custody, the person is detained with the prison
authorities and he cannot be interrogated by police without the permission of the magistrate.
However, a person who has been arrested has a right to bail in bailable offences. In non-
bailable offences the judge has the discretion to grant him bail or not.
If any particular document or thing is necessary or desirable for the purpose of investigation
then the investigating officer may issue a written order to the person in whose possession or
power such document or thing is believed to be for its production. A court can also issue
summons for production of such document or thing. 354 If the person who is issued an order
for the production of documents and other material objects which are relevant for the
investigation or trial does not cooperate or the thing is in the possession of unknown person,
then the police have the power to conduct search. Search may be conducted with warrant or
without warrant. A search involves invasion into the sanctity and privacy of a citizen’s
home.355 Therefore, the legislature has prescribed some conditions and formalities which are
to be observed while conducting search. 356 In addition to it, instructions are issued by various
departments from time to time and although these instructions do not have the force of law
but they are intended to guide the officers and to see that a fair procedure is adopted in
353
354
355
Kalinga Tubes Ltd. v. D. Suri, AIR 1953 Ori 153.
356
Sections 47 and 100 of the Code of Criminal Procedure, 1973.
investigation.357 The non- compliance with the formalities of search procedure do not vitiate the
trial but does give the defence a strong argument against the credibility of search evidence. 358
Whenever a police officer lawfully makes search and recovers incriminating things then, he
has the power to seize all those things. 359 The police also have the power to seize any property
which may create suspicion of commission of any offence. Thus, the pre- requisites are that it
must be ‘property’ and secondly, in respect of the said property there must have suspicion of
commission of an ‘offence’. The bank accounts are also properties within the meaning of this
section and can be seized.360
Every investigation must be completed as soon as possible. Once that is completed, the
investigating officer has to form his opinion as to commission of offence and has to submit a
charger sheet to the court for further action by the court. 361
With the development in science and technology the crime has become global from local. In
cases where the accused persons have escaped from the country after committing the crime or
part of the crime has been committed abroad or the witnesses and other material evidence are
available in a foreign country, it may be necessary to conduct investigation abroad.
International white collar crime creates specific problems that are not encountered
domestically in that legal, linguistic and cultural barriers all combine to present potential
barriers to effective investigation. Co-operation between the agencies from different countries
is absolutely vital and this can be effective whether it is formal or informal. The provisions
for carrying out investigation in the country or place outside India, and also to provide similar
assistance to the court or authority outside India for carrying out investigation in India were
introduced in the Code of Criminal Procedure, 1973 through an amendment in the year 1990. 362
The sections provide for issuance of letters rogatory for obtaining or extending similar
assistance to the other countries. There are two ways for conducting investigation abroad. One
is the informal method where information/material may be collected through
357
Khet Singh v. Union of India, (2002) 4 SCC 480.
358
Emperor v. Mehmood Ali Khan, 34 Cri LJ 641.
359
Section 93 read with Form no. 10 and Section 94 read with Form no. 11 of the Code of Criminal Procedure,
1973.
360
State of Maharashtra v. Tapas Neogy, 1999 Cri LJ 4305.
361
362
Sections 166-A and 166- B of the Code of Criminal Procedure, 1973.
Interpol and diplomatic channels. The evidence collected through this means cannot be used
as evidence in court of law. The second is the formal method. Here the evidence can be
collected or the material objects/ documents may be gathered through formal ‘Letter of
Request’ (Letters Rogatory) sent through a competent court under provisions of 166-A of the
Criminal Procedure Code, 1973. All the letters of request are sent through the Interpol wing
of CBI.
It is to be noted that there is no time period for completion of investigation. Moreover, the
statements that have been recorded by the investigating officer during the course of
examination are not taken as evidence by the court for corroborating the witness. This has led
to the problem of witnesses turning hostile. The investigations in white collar crime are slow
as the crime is not evident on the face of it and is concealed in the fabric of a complex
commercial transaction which appears a normal business transaction unless revealed.
4.2.4 Agency for Prosecution
One of the important sovereign functions of the state is to prosecute the offenders and
violators of law. This is an inevitable attribute of sovereign functions. Under no form of
government, prosecution is permitted to be conducted by an agency, other than the state. In
the entire criminal justice system, as framed under the Code and other ancillary enactments,
the Public Prosecutor is assigned a pivotal role. In a way, it can be said that he is conferred
the status of the master of the prosecution. 363 Efficient working of prosecutors is necessary for
the success of criminal justice system.
Public Prosecutor means any person appointed under Section 24 of the Code of Criminal
Procedure, 1973 and includes any person acting under the direction of a public prosecutor. 364
Every case which has been instituted on the police report, the prosecution is carried by the
public prosecutor appointed by the state. Generally, in complaint cases the complainant fights
the case himself or by his duly authorised counsel. 365 In cases where the trial is conducted
363
Devineni Seshagiri Rao v. Govt. of A.P. and Ors., 2004 Cri LJ 52.
364
Section 2(u) of the Code of Criminal Procedure, 1973.
365
K.N. Chandrasekharan Pillai, R.V.Kelkar’s Criminal Procedure, Eastern Book Company, Lucknow, 2005, p.
347.
366
before the court of sessions, the case is to be presented by public prosecutor only. Public
Prosecutor is not a part of the investigating agency but is an independent statutory authority. 367
His duty is to assist the court in reaching a proper conclusion in regard to the case which is
368
brought before it for trial. The Code of Criminal Procedure, 1973 provides the basic
framework for the hierarchy of public prosecutors in India.
In order to effectively carry out prosecution, every state has a Directorate of Prosecution. 369 The
Directorate is headed by the Director of Prosecution. The director functions under the
administrative control of head of the Home Department of State. 370 In addition to the
Director, Deputy Directors are also appointed in every Directorate. These Deputy Directors
are subordinate to the Director of Prosecution. 371 The Director of Prosecution is the Director
of Prosecutors rather than a Director of Prosecutions as he is the administrative head of all the
prosecutors appointed in the state by the state government in order to conduct prosecution.
The prosecution in high courts is conducted by public prosecutors and additional public
prosecutors who are appointed by the central government as well as state government. In
order to carry out prosecution in district courts, public prosecutors and additional public
prosecutors are appointed by the state government. In the magistrate’s court, the prosecution
is carried by the assistant public prosecutor who is appointed by the state government. 372
They are all subordinate to the Director of Prosecution. The public prosecutor or the assistant
public prosecutor can appear and plead without any written authority before any court. 373 If
any private person instructs any pleader to prosecute any person, then such pleader shall act
under the directions of the public prosecutor or assistant public prosecutor and may with the
permission of court submit written arguments. 374 If the prosecution is conducted by a private
counsel or by the complainant himself then he is not under the direction of public prosecutor.
366
367
Hitendra Vishnu Thakur v. State of Maharashtra, AIR 1994 SC 2623.
368
Darya Singh v. State of Punjab, AIR 1965 SC 328.
369
Section 25 A of the Code of Criminal Procedure, 1973 as inserted by an amendment in 2005.
370
Note on Clauses of the Code of Criminal Procedure (Amendment) Act, 2005.
371
Section 25 A (4) of the Code of Criminal Procedure, 1973.
372
373
Section 301(1) of the Code of Criminal Procedure, 1973.
374
Section 301(2) of the Code of Criminal Procedure, 1973.
However, even in the cases instituted on a private complaint the public prosecutor and
assistant public prosecutor can intervene and assume charge of the case. In such cases the
pleader appearing on the behalf of the prosecution shall have to act under the directions of
public prosecutor.
There are instances where a case or class of cases are of such a nature that the prosecution
cannot be conducted by the public prosecutors already appointed and there is need of more
expertise and special handling by a special person. In such cases, the Code envisages the
appointment of ‘Special Public Prosecutor’ by the central or the state government. The Code
does not specify any conditions or circumstances for the appointment of the Special Public
Prosecutor. Thus, guidelines for appointing Special Public Prosecutor have to be gathered
from court decisions. The court in the case of P.G. Narayana Kutty v. State of Kerala375 held
that a Special Public Prosecutor should be appointed where need is there in the public interest
and not otherwise.
Most of the white collar crimes are regulatory in nature. The prosecution is instituted on the
basis of complaint. In such cases the complainant of the concerned regulatory authority is
appointed to look after the prosecution of regulatory offences in criminal courts on behalf of
their respective departments. E.g. in case of income tax violations, the Income Tax Officer
who has conducted surveys, received complaints and investigated legal violations conducts
the case like a Public Prosecutor. They can be termed as “assigned prosecutors”. These
officers are neither under the control of Directorate of Prosecution nor accountable to them.
These officers generally neither hold a degree in law nor do they have any knowledge of
principles of admissibility of evidence. They are not acquainted with the technicalities
involved in the process of courts and lack knowledge of the principles of the Code of
Criminal Procedure, 1973.
In some departments, law officers are appointed by the department. They are full time
employees of the department and give advice to the department on legal issues. They are also
responsible for conducting the case in the court on behalf of the department. These law
officers possess law degrees and conduct criminal prosecution in courts on the behalf of the
departments. These law officers do not investigate the case themselves and are responsible
375
1982 Cri LJ 285.
for criminal prosecution only. Some departments do not have full time law officers but have
lawyers on their panels who are appointed for conducting prosecution in a given case.
However, these officers are also not under the supervision or guidance of Directorate of
Prosecution.
It is to be noted that the public prosecutors are appointed for conducting prosecution in a
court without any reference to the nature of case except where special public prosecutors are
appointed. The white collar offenders get the best of talent in the profession to assist them
whereas the public prosecutors do not match their skill and expertise. Thus, there is a total
mismatch. The Supreme Court of India expressing their deep concern and anguish over the
inability of prosecuting lawyers said that sensitive cases which have far reaching effect on the
economy should be assigned only to those counsel who have experience and ability in that
branch of law to defend their cases so that justice might not suffer and the economy of the
country is not put in jeopardy.376
In case of investigation by CBI, the prosecution is conducted by the Directorate of

Prosecution of CBI. This separate directorate was set up in CBI in 2001 on the basis of
recommendations of a report submitted by independent review committee in the case of
Vineet Narain v. Union of India.377 The main function of the Directorate is to give legal advice
and to conduct prosecution of CBI cases in courts. The Directorate is headed by a Director who
is selected and appointed by the Government of India. He is the chief functionary of the
prosecution wing of the CBI and is vested with the powers of direction and control over the
prosecuting officers. The Director is assisted by Additional Legal Advisors, Deputy Legal
Advisors, Senior Public Prosecutors, Public Prosecutor and Assistant Public Prosecutors posted
in the Head Office/High Courts and Zones/Regions and Branches/Units. The monitoring of
work is done through Deputy Legal Advisors and Senior Public Prosecutors at the zonal
level. The cases are conducted in the courts by the CBI prosecutors. In order to conduct cases
in High Courts competent lawyers are engaged as Retainer Counsels with the approval of
Directorate of Personnel and Training.
4.2.5 Procedure of Prosecution
376
K.I. Pavunny v. Asst. Collector (HQ), Central Excise Collectorate, (1997) 3 SCC 721.
377
Office Memo issued by Ministry of Personnel, Public Grievances and Pensions dated 9 July 2011.
The crimes are prosecuted by the criminal courts established under the Code of Criminal
Procedure, 1973. The first schedule attached to the Code specifies the particular court which
is competent to try a particular case. The first step in prosecution is taking cognizance of the
offence. The court can take cognizance of the offence either on the police report submitted
under Section 173 of the Code or on the basis of complaint or suo motto. 378 The next step is to
issue process to the accused for his appearance in the court. When both the parties come to the
court then the court has to examine the entire record of the case. The court can examine the
accused and hear the arguments of both the parties regarding the case. If the court is satisfied
that the charges levelled against the accused are groundless, or there is not sufficient ground for
proceeding, then he shall discharge the accused after recording his reasons 379 or else will frame
the charges for the trial of the offence. 380 A charge forms the foundation of a trial.
After the charge is framed, the accused can plead guilty. If the accused pleads guilty and the
court accepts it, then the accused is convicted by the court and the court proceeds to hear him
on quantum of sentence. However, in case the accused does not plead guilty, then the trial
begins. In a criminal case the burden of proof is on the prosecution and therefore prosecution
is called upon to produce its evidence on a date decided by the court. On the designated date,
the evidence of the prosecution witnesses is recorded by the court. After the witnesses have
given their evidence, the prosecution lawyer closes the prosecution evidence and may address
concise oral arguments. The court has the power to regulate these arguments if they are not
concise.381
After the prosecution witness has been examined and before the accused is called on for his
defence, the court should examine the accused person generally on the case. 382 The court should
record the evidence of the accused properly. This evidence must be signed by the magistrate as
well as the accused. The whole object is to afford the accused a fair and proper opportunity of
explaining the circumstances which appear against him. If the court at this
378
379
Sections 227, 239 and 245 (1) of the Code of Criminal Procedure, 1973.
380
Sections 228, 240 and 246 (1) of the Code of Criminal Procedure, 1973.
381
382
stage considers that there is no evidence that the accused has committed the offence, then it
shall record an order of acquittal of the accused.
The next step is to call upon the accused to enter defence evidence. The accused can request
the court to issue process for the attendance of defence witnesses. However, if the court feels
that a witness is not a material witness and his name is given in order to cause delay, then the
court can refuse to issue process to such witness. An accused person is also a competent
witness for the defence and can give evidence on oath to disprove the charges made against
him or his co- accused. Accused can be called as a defence witness only when he on his own
gives a request in writing. An accused person who volunteers to be a witness in defence is on
the same footing as that of other witnesses. The court also has the power to call its own
witnesses, known as court witnesses at any stage of the trial. The discretion of the court in
this regard is very wide.
After recording of defence evidence, the prosecutor sums up the case and the case comes on
the stage of final arguments where the law point raised by one is rebutted by the other. 383 In
order to sustain conviction, the prosecution must prove his case beyond reasonable doubt. If
the court is satisfied then, it shall decide accordingly. If the accused is convicted then the
court will proceed to hear him on quantum of sentence.
The courts have been given the power to tender pardon to accomplice of a person if he makes
true and full disclosure of the whole of circumstances which are within his knowledge. 384 The
Supreme Court has said that the power of tender can be exercised by Special Courts also. 385 The
effect of pardon is that the individual is exempted from the punishment for which he is liable.
The Code also allows compounding of offences in certain cases. Compounding is compromise
between the two parties which results in acquittal of the accused and the trial comes to an end.
Compromise in modern society is sine qua non of harmony and orderly behaviour. The Code
specifically enumerates the cases in which compounding can be
383
384
385
Harshad S. Mehta and Ors. v. State of Maharashtra, AIR 2001 SC 3774. The SC said that provisions of
tender are applicable to Special Court (Trial of Offences Relating to Transactions in Securities)
Act, 1992.
139
done.386 Compounding can also be done under special and local laws. The trial can also come to
an end by withdrawal from prosecution. The public prosecutor or assistant public prosecutor
who is in charge of a case can withdraw the case with the permission of the court. The
withdrawal is allowed only before judgment is pronounced. The effect of withdrawal is that if
the charges were not framed, then the accused is discharged and if the charges were already
framed then the accused is acquitted.
4.3 Investigation and Prosecution of Corruption Cases
Corruption is widespread in India. In order to control this, a public servant can be proceeded
against departmentally or criminal proceedings can be initiated against him depending on the
nature of allegation. In cases where alleged facts are capable of verification or inquiry within
the department/office or allegations relate to misconduct other than an “offence” then the
investigation is made departmentally387 and in other cases criminal investigation is initiated. In
order to inquire, investigate and prosecute corruption cases the main authorities are the CVC,
the CBI, the state Anti-Corruption Bureau and the Lokpal. Cases related to money laundering
by public servants are investigated and prosecuted by the Directorate of Enforcement.
4.3.1 Central Vigilance Commission
The Central Vigilance Commission388 was set up in 1964 by the government of India on the
basis of recommendation given by Committee on Prevention of Corruption, popularly known
as Santhanam Committee. The Commission was accorded statutory status consequent to the
386
387
According to Central Civil Services (Conduct) Rules, 1964 in case of departmental proceedings, minor
penalty or major penalty can be imposed depending upon the offence. Minor penalty consists of
censure, withholding of promotion for a specified period and withholding of increment and
recovery from the salary of whole or part of pecuniary loss caused by the employee. Major
penalty comprise reduction in rank through reversion to a lower scale of pay or to the parent
cadre etc, compulsory retirement, removal or dismissal from service.
388
The Commission was set up through a Government Resolution No. 24/7/64-AVD issued by the Ministry of
Home Affairs dated 11 February 1964.
140
Supreme Court judgment in the case of Vineet Narain v. Union of India 389 by the enactment
of Central Vigilance Commission Act, 2003. The Commission is headed by a Central
Vigilance Commissioner who is assisted by two Vigilance Commissioners. 390 The main
function of the commission is to inquire or cause inquiry to be made against certain
categories of public servants. 391 The Commission only has the power to inquire and does not
have any power of investigation. However, it exercises supervision over the working of the
Delhi Special Police Establishment (CBI) in matters where investigation is being conducted
under the Prevention of Corruption Act, 1988. The CVC also supervises the vigilance
administration of various ministries and government organisations.
The Government of India has authorized the CVC as the ‘Designated Agency’ to receive
written complaints for disclosure on any allegation of corruption or misuse of office. 392 When a
complaint is received by commission, it is examined to decide the merits of allegations. If there
are no merits in the complaint then the complaint is filed and no further action is taken. If
there are merits then, the commission either inquires itself into it or get the inquiry made
through the concerned administrative ministry/department or CBI depending upon the nature
of complaint. If the commission undertakes to inquire itself then it has all the powers of a
civil court for summoning and enforcing the attendance of any person from any part of India
and examining him on oath; requiring the discovery and production of any document;
389
1997 (7) SCALE 656.
390
Section 3 of the Central Vigilance Commission Act, 2003.
391
The jurisdiction of Commission in respect of suo moto inquiry extends to members of All India Services
serving in connection with the affairs of the Union, Group ‘A’ level officers of the Central
Government and such level of officers in the corporations, Government companies, societies and
other local Authorities of the Central Government as may be notified by the Central Government.
At present the jurisdiction extends to Chief Executives and Executives on the Board and other
officers of E-8 and above in Schedule ‘A’ and ‘B’ public sector undertakings of the Central
Government; Chief Executives and Executives on the Board and other officers of E-7 and above
in Schedule ‘C’ and ‘D’ Public Sector Undertakings of the Central Government; Officers of the
rank of Scale V and above in the Public Sector Banks; Officers in Grade ‘D’ and above in
Reserve Bank of India, NABARD and SIDBI; Managers and above in respect of General
Insurance Companies; Senior Divisional Managers and above in Life Insurance Corporation of
India; and officers drawing salary of 8700/- per month (pre-revised) and above on Central
Government DA pattern, as may be revised from time to time, in societies and local
authorities owned or controlled by the Central Government.
392
Central Vigilance Commission Manual, 2005, p.30.
141
receiving evidence on affidavits; requisitioning any public record or copy thereof from any
court or office; issuing commissions for the examination of witnesses or other documents;
and any other matter which may be prescribed. 393 After inquiry, a report for the same is made.
If investigation is carried by the concerned administrative department or by the CBI, then also a
report is submitted to the vigilance commission for its advice. The investigation reports
furnished by the chief vigilance officer or the CBI are examined by the commission.
Depending upon the facts of each case and evidence available, the commission advises
launching of prosecution or regular departmental action or administrative action or closure of
the case. The commission is an advisory body only and does not have the power to register
criminal case. The central government departments are free to either accept or reject
Commissions advice in corruption cases.
4.3.2 Central Bureau of Investigation
The CBI investigates the corruption cases of the employees of central government and Union
Territories. In cases where investigation is being conducted by state anti-corruption bureau,
the States can refer cases to the CBI for investigation. In a recent case before Guwahati High
Court the constitutional validity of CBI as well as its powers to investigate was challenged. 394
It was contended that CBI was established through an executive order and therefore was not a
statutory body and secondly that an executive body cannot have the powers of investigation
such as search, seizure etc. The High Court decided that CBI was not a statutory body. The
effect of this judgment was that CBI was declared as ‘unconstitutional’. 395 However, the
impugned order was challenged by CBI before the Supreme Court who for the time being has
stayed the order of High Court.396
Whenever a complaint is received by CBI, it is verified. When the information discloses,

prima facie, commission of a cognizable offence, then a regular case is registered straightway
393
Section 11 of the Central Vigilance Commission Act, 2003.
394
Navendra Kumar vs. UOI and Ors., 2013 Cri LJ 5009.
395
Press Trust of India, “Guwhati HC Declares CBI Unconstitutional”, The Times of India, 7 November 2013,
p.2.
396
Press Trust of India, “SC Stays HC’s Order that declared CBI ‘Unconstitutional”, The Economic Times, 9
November 2013, p.1.
under Section 154 of the Code of Criminal Procedure, 1973 and investigation is initiated.
However if the information does not disclose prima facie offence but discloses commission
of irregularities then a preliminary enquiry is first registered. If the preliminary enquiry
reveals commission of a cognizable offence, a regular case is registered for further
investigation. A preliminary inquiry may be converted into a regular case as soon as
sufficient material becomes available to show that prima facie there has been commission of
a cognizable offence.
Section 6A of the Delhi Police Special Establishment Act, 1946 provides that a prior approval
of the central government is required for conducting inquiry or investigation in cases where
the employees of the central government of the level of joint secretary and above are
involved in corruption and such officers have been appointed by the central government in
corporations established by or under any Central Act, government companies, societies and
local authorities owned or controlled by that government. This section was inserted by an
amendment in 2003. In 2013, the Supreme Court said that such approval was not required in
cases where the investigation was ordered by Courts. 397 This section was frequently misused
by senior public officials to thwart investigation. Therefore, in the recent case of
Subramanian Swamy v. Director, CBI and Ors.398 The constitutional validity of Section 6A was
challenged. It was contended that the section 6A is arbitrary and violative of Article 14 of the
Constitution of India, 1950 as the classification creates a privileged class of government
officers of the level of Joint Secretary and above. The Supreme Court in a constitutional bench
judgment declared section 6A as invalid and violative of Article 14 of the Constitution of
India, 1950. Thus, there is no need of approval before conducting inquiry and investigation.
The powers of investigation as granted by the Delhi Police Special Establishment Act, 1946
do not vest any different powers other than those laid down in the Code of Criminal
Procedure, 1973. Under Section 156 of the Code all officers of and above the rank of an
officer in charge of a police station have statutory authority to investigate cognizable
offences. Under Section 157 such officers are empowered to depute subordinate officers to
397
Dhananjay Mahapatra, “No Sanction Needed to Probe Top Babus in Court – Monitored Investigation: CBI”,
The Times of India, 28 August 2013, p. 9.
398
AIR 2012 SC 1185.
proceed to the spot to investigate the facts and circumstances of the case and, if necessary, to
take measures for the discovery and arrest of the offender(s). Officers of CBI of or above the
rank of Sub-Inspector are empowered under Section 2(3) of the Delhi Police Special
Establishment Act, 1946 to exercise the powers of the officer-in-charge of a police station for
the purpose of investigation of any case. Thus the officers of CBI have all the powers, duties,
privileges and liabilities which police officers of that union territory or state have in
connection with the investigation of offences committed therein.
4.3.3 State Anti-Corruption Bureau
In order to investigate allegations of corruption against the public servants of the state, state
anti-corruption bureaus have been set up. The nature and staffing of these organisations vary
between and across state governments. As soon as a complaint of corruption is lodged with
the bureau, it is verified and then inquiry or investigation is conducted depending upon the
nature of allegations in the complaint. The officers of vigilance bureau have all powers of
investigation such as arrest, search, seizure etc., as are vested in an investigating officer by
virtue of the Code of Criminal Procedure, 1973.
4.3.4 Lokpal
In order to inquire allegations of corruption, a new body known as Lokpal shall be

established under the Lokpal and Lokayuktas Act, 2013. Till now, the office has not been
established. The Lokpal shall consist of a chairperson and not more than eight other
members. Fifty percent of the members shall be judicial. The main function of the Lokpal
shall be to inquire into the matters of corruption. The jurisdiction of Lokpal shall extend to
the Prime Minister, ministers, current and former members of parliament and members of
legislative assemblies, central government employees and employees of companies funded or
controlled by the government. In case of state government employees the Lokpal can exercise
jurisdiction only with the consent of state government. Lokpal shall also have jurisdiction
over institutions receiving foreign donations in excess of ten lakh rupees per year or such
higher limit as may be specified.399
399 Section 14 of the Lokpal and Lokayuktas Act,

2013.
144
Whenever a complaint is received by Lokpal, it may order preliminary inquiry or
investigation depending upon the facts of the case. If there is a prima facie case then directly
investigation is ordered, but if there is no prima facie case then preliminary inquiry is
ordered. The inquiry may be conducted by the Lokpal itself or it may ask any other agency
including CBI to conduct inquiry.400 The office of the Lokpal shall for the purpose of
conducting inquiry have the powers of civil court for enforcing the attendance of witnesses;
receiving evidence etc.401 The inquiry shall be completed within sixty days from the date of
receipt of reference. A copy of the preliminary report is to be submitted to Lokpal who shall
after hearing the public servant proceed accordingly. The Lokpal may order investigation into
the case or departmental inquiry or closure as the case may be.
According to Section 11 an Inquiry Wing headed by the Director of the Inquiry shall be
constituted for the purpose of conducting inquiry. The Lokpal also has the power to
recommend to the centre government the transfer or suspension of public servant connected
with allegation of corruption if the Lokpal on the basis of evidence available is prima facie
satisfied that the continuance of the public servant in his post while conducting the
preliminary inquiry is likely to affect such preliminary inquiry adversely or that such public
servant is likely to destroy or in any way tamper with the evidence or influence witnesses.
The central government shall ordinarily accept the recommendation of the Lokpal except
when it is not feasible for which reasons have to be recorded in writing.402
The Lokpal does not investigate himself but can order any agency, including CBI to
investigate. The agency should carry out investigation as soon as possible and complete it
within a period of six months from the date of order. The period may be further extended by
Lokpal for six months at a time after recording reasons for the same in writing. The Lokpal
shall have supervisory powers over CBI in respect of matters referred to it for inquiry or
investigation.403 A report of investigation shall be submitted to the court having jurisdiction
as well as a copy of the same shall be submitted to Lokpal. The Lokpal shall consider the
report and can then grant sanction to its prosecution wing or can ask the investigating agency
to initiate prosecution. The Lokpal may also order departmental action or closure of the case.
400
Section 20 of the Lokpal and Lokayuktas Act,
401
2013. Section 27 of the Lokpal and Lokayuktas

2013.
145
402
Act, 2013. Section 32 of the Lokpal and
Lokayuktas Act, 2013.

2013.
145
4.3.5 Prosecution of Corruption Cases
If the case is investigated by CBI, then prosecution is conducted by the Directorate of

Prosecution as discussed earlier and in case investigation is conducted by state anti corruption
bureau, then the public prosecutors conduct the prosecution. In case where the allegations of
corruption are looked by the Lokpal, the prosecution shall be conducted by a Prosecution
Wing of the Lokpal which shall be headed by a Director of Prosecution.404
Before initiating prosecution against a public servant for allegations of corruption or alleged
misconduct in the discharge of his official duty, sanction by a specified authority is required.
The underlying idea is to scrutinise the allegations made against a person before causing
embarrassment and harassment to him and to do away with frivolous and vexatious litigation.
The provisions regarding sanction are contained in Section 19 of the Prevention of
Corruption Act, 1988405 and Section 197 of the Code of Criminal Procedure, 1973.406 The
404
Section 12 of the Lokpal and the Lokayuktas Act, 2013.
405
According to Section 19 of the Prevention of Corruption Act, 1988 no court shall take cognizance of an
offence punishable under Sections 7, 10, 11, 13 and 15 alleged to have been committed by a
public servant, except
(a) in the case of a person who is employed in connection with the affairs of the Union and is not
removable from his office save by or with the sanction of the Central Government, of that
Government;
(b) in the case of a person who is employed in connection with the affairs of a State and is not
removable from his office save by or with the sanction of the State Government, of that
Government;
(c) in the case of any other person, of the authority competent to remove him from his office.
406
According to Section 197 of the Code of Criminal Procedure, 1973 when any person who is or was a Judge
or Magistrate or a public servant not removable from his office save by or with the sanction of the
Government is accused of any offence alleged to have been committed by him while acting or
purporting to act in the discharge of his official duty, no Court shall take cognizance of such
offence except with the previous sanction-
(a) in the case of a person who is employed or, as the case may be, was at the time of commission
of the alleged offence employed, in connection with the affairs of the Union, of the Central
Government;
146
difference between them is that former applies to offences against corruption where as latter
applies to offence committed while acting or purporting to act in the discharge of official
duty. Under the former Act, sanction is not required if the public servant is no longer in
service at the time the court takes cognizance of the offence, but under the latter sanction is
required even if the public servant is no longer in service at the time the court takes
cognizance of the offence. Another difference is that under Section 19 of the Prevention of
Corruption Act, sanction is required of the competent authority whether the public servant is
removable by the government or by an authority lower than the government where as under
Section 197 sanction is required only for public servant who is removable from his office
with the permission of government. No sanction is required under this section to prosecute a
public servant removable by an authority lower than the government.
In order to grant sanction, the sanctioning authority must apply its mind to the existence of
prima facie evidence of commission of offence on the basis of material placed before him.
The grant or refusal of sanction is an administrative act and not a quasi judicial function and
the person for whose prosecution the sanction is sought is not required to be heard by the
competent authority before it takes a decision in the matter. 407 However, if the material is
insufficient the authority may ask for more material. The sanctioning authority should not
withhold sanction on the ground that evidence is not sufficient for conviction. The authority
must keep in mind the public interest and the interest of law while deciding the question of
grant of sanction.408 There is no particular form or set of words prescribed in which the sanction
to prosecution need to be set out. The sanction should ex facie indicate that the sanctioning
authority had before it all the relevant facts on the basis of which prosecution was proposed to
be launched and had applied its mind to all the facts and circumstances of the case before
according its sanction. A presumption 409 is raised that the order must have been preceded by
application of mind of the appropriate authority and if doubts are raised the
(b) in the case of a person who is employed or, as the case may be, was at the lime of commission
of the alleged offence employed, in connection with the affairs of a State, of the State
Government.
407
Dr. Subramanian Swamy v. Dr. Manmohan Singh and Another, AIR 2012 SC 1185.
408
State v. Krishanchand Khushalchand Jagtiani, (1996) 4 SCC 472.
409
Section 114 of the Indian Evidence Act, 1872.
burden is heavier on the accused to establish the contradiction to rebut that statutory
presumption.410
If the case is investigated by CBI and the sanction is to be granted by the central government
then CBI shall send final report of its investigation to CVC and also simultaneously to the
concerned department/ ministry. The concerned department shall within two months of the
receipt of the report send its comments to the commission. The commission on the basis of
the report of CBI and the comments of concerned department will advise the sanctioning
authority to grant sanction or not. If the sanction is to be issued in the name of President and
the CVC proposes sanction but the ministry does not agree then the case should be
411
transferred to the ministry of Personnel and Training for a final decision. In other cases if the
commission advises sanction then the concerned department will have to grant sanction.
Where sanction for prosecution is sought against two or more public servants involved in a
case that belongs to different ministries/departments, the CBI will have to seek sanction from
the respective ministries in accordance with the procedure mentioned above. In case of
conflicting decision by the competent authority, the CBI will refer the case to Department of
Personnel and Training for resolution of the conflict and final decision. 412 When a public servant
seizes to hold an office which he is alleged to have abused or misused for corrupt motives, but
on the date of taking cognizance of an offence alleged holds an entirely different public office
which he is neither alleged to have misused or abused for corrupt motives, then the sanction for
prosecution from the latter office would not be required.413
When sanction for prosecution is to be issued by an authority other than the central
government, then the CBI will forward the final report of its investigation to such authority
who will decide whether or not prosecution should be sanctioned. In case the competent
authority does not agree with the view of CBI then, in case of public servants other than
government servants (i.e. employees of local bodies, autonomous bodies, nationalized banks
410
State of Bihar v. P.P. Sharma, AIR 1991 SC 1260.
411
Central Vigilance Commission Manual, 2005, p. 106.
412
Central Vigilance Commission Manual, 2005, p. 109.
413
R. S. Nayak v. A. R. Antulay, (1984) 2 SCC 183. Also see Habibullsa Khan v. State of Orissa, (1995) 2 SCC
437; State of H.P. v. M. P. Gupta, (2004) 2 SCC 349; Parkash Singh Badal v. State of Punjab,
(2007) 1 SCC 1.
etc.) the competent authority will communicate its views to the chief executive officer of the
organization who will either direct prosecution or in support of the view of competent
authority forward the case to CVC for resolving the difference of opinion. In case of
government servants, the competent authority will refer the case to the administrative
ministry who will either direct that the prosecution has to be sanctioned by the competent
authority or an authority higher to competent authority or will give its own comments in
favour of the view of competent authority and forward the case to CVC for resolving the
matter. In case the commission advises sanction for prosecution but the ministry does not
accept it, then the case is sent to Department of Personnel and Training for a final decision.414
If the case is investigated by the State Anti corruption Bureau and the sanction is to be sought
by the central government and there is difference of opinion between the two then the same
procedure as mentioned above in case of public servants and government servants shall be
followed respectively and if the difference of opinion persists the case should be referred to
CVC.415
4.3.6 Time for Sanction
Delays in issuing the sanction hold up the launching of prosecution leading to delay in
conclusion of the proceedings. Such delays adversely affect the morale of public servants and
also undermine the faith of people. There are instances where as a result of delayed grant of
sanction, prosecution against a public servant has been quashed. In the case of Mahendra Lal
Das v. State of Bihar and Ors.,416 the Supreme Court quashed the prosecution as the
sanctioning authority granted sanction after 13 years. Similarly, in the case of Santosh De v.
Archna Guha and Ors.,417 the Court quashed prosecution in a case where grant of sanction
was unduly delayed. There are several such cases. The aforesaid instances show a blatant
subversion of the rule of law and raises serious questions which need to be addressed.
414
Central Vigilance Commission Manual, 2005, p. 109. Also see circular No. 006/DSP/002 issued by Central
Vigilance Commission dated 23 June 2006.
415
Circular No. 006/DSP/002 issued by Central Vigilance Commission dated 23 June 2006.
416
(2002) 1 SCC 149.
417
(1994) Supp.3 SCC 735.
The Supreme Court through various judgments has laid the law on the point. 418 In the case of
Vineet Narain v. Union of India419 the Supreme Court in para 58 (I)(15) of the judgment has
categorically laid down that time limit for granting sanction for prosecution is three months
and his time limit must be strictly adhered to. However, additional time of one month may be
allowed where consultation is required with the Attorney General or any other law officer in
the Attorney General’s office.420
The CVC which has been empowered to review the progress of applications pending with the
competent authorities for grant of sanction under the Prevention of Corruption Act, 1988421
has since than emphasising the need of expeditious disposals of requests for sanction for
prosecution. In 2005 the commission issued detailed guidelines for guidance of authorities
and also warranted strict adherence.422 It laid that grant of sanction is an administrative act and
the purpose it not to shield the corrupt. The question of giving opportunity to public servant at
this stage does not arise and the sanctioning authority has only to see whether the facts would
prima facie constitute the offence. However, even after this framework the sanctioning
authorities do not adhere to the time limit. In the year 2011 the CBI reported there were 71
cases pending with various organizations for grant of sanction for more than three months. 423 In
2012 this number rose to 85.424
In the recent case of Subhramanium Swamy v. Manmohan Singh and another 425, the question
of time limit again came into light, where even after passage of 16 months, the Prime
Minister’s Office did not respond to an application seeking sanction to prosecute former
Telecom Minister A Raja in the 2G spectrum scam. The Supreme Court observed that the
guidelines framed by the court in case of Vineet Narain426 and CVC were to be strictly
418
Jagjit Singh v. State of Punjab, 1996 Cri LJ 2962; Superintendent of Police (CBI) v. Deepak Chowdhary,
AIR 1996 SC 186; State of Bihar v. P.P. Sharma, AIR 1991 SC 1260.
419
(1998) 1 SCC 226. This case is popularly known as “Hawala Case”.
420
Office Memo No.142/10/97 AVD I issued by Department of Personnel and Training on Sanction for
Prosecution dated 14 January 1998.
421
Section 8 (f) of the Prevention of Corruption Act, 1988.
422
Circular No.005/ VGL/11 issued by Central Vigilance Commission dated 12 May 2005.
423
The Central Vigilance Commission, ‘Annual Report (2011)’, p.
424
64. The Central Vigilance Commission, ‘Annual Report (2012)’,
425
p. 78. Popularly known as 2 G Scam. AIR 2012 SC 1185.
150
426
(1998) 1 SCC 226.
151
followed. The court in the said case while holding that time limit for according sanction is
part of the rule of law went a step further and laid that if the decision is not taken to grant
sanction within the stipulated time period then sanction will deemed to have been granted and
the prosecuting agency may proceed to file the chargesheet/complaint in the court to
commence prosecution within 15 days of the expiry of the aforementioned time limit. In the
light of this judgment amendments have been sought in the Act to lay down clear criteria and
procedure for sanction of prosecution, and timelines within which order has to be passed.427
Generally the agency investigating the case asks for sanction of prosecution from the
sanctioning authority. But a question that arose in the case of 2G scam was whether a private
individual has a locus standi to seek sanction to prosecute a public servant. The Supreme
Court in this case held that the right to access a court is a constitutional right. The court
upheld the right of a private citizen to set the anti-bribery law in motion and ruled that the
constitutional right of a citizen to file a complaint should not be burdened with unreasonable
fetters.428 By this order the Court has empowered all citizens to press for action against those
public servants suspected of corrupt practices. 429 However, the Prevention of Corruption
(Amendment) Bill, 2013 which has been introduced in lok sabha proposes to bar citizens from
directly seeking prosecution sanction from the government against corrupt public servants.430
The legislature in order to meet the criticism of delay in sanctioning by the sanctioning
authority has provided that in cases where prosecution is initiated under the Lokpal and
Lokayuktas Act of 2013, the Lokpal is empowered to grant sanction for prosecution
notwithstanding the provisions contained in section 19 and section 197 of Prevention of
Corruption Act, 1988 and Code of Criminal Procedure, 1973 respectively.431 Thus the effect of
this provision would be that there will not be any need to wait for the sanction by the
sanctioning authority.
427
Section 19 of the Prevention of Corruption (Amendment) Bill, 2013 which is pending.
428
Dr. Subhramanium Swamy v. Dr. Manmohan Singh and Another, AIR 2012 SC 1185.
429
Manoj Mitla, “2G: Supreme Court’s Verdicts may have Big Impacts on India Inc and Regulators”, The
Economic Times, 5 February 2012, p.1.
430
Aloke Tikku, “Ban Citizens from Seeking Prosecution of Tainted Leaders: Centre”, The Hindustan Times, 2
October 2013, p. 9.
431
Section 23 of the Lokpal and Lokayuktas Act, 2013.
The Prevention of Corruption Act, 1988 provides for a presumption that in case it is proved
that an accused person has received some valuable thing from another, then it shall be
presumed as gratification.432 Thus the prosecution has to prove receipt of a valuable thing and
it is for the defendant to prove that it is not illegal gratification. However, the burden on
defence is not as heavy as on the prosecution. The Prevention of Corruption Act, 1988 also
contemplates setting up of Special Courts and appointment of special judges for the purpose
of trial of corruption offences. 433 The Special Court shall be deemed to be a Court of Session
and the person prosecuting the case shall be deemed Public Prosecutor. The objective of
setting up of these courts is to take the cases of corruption out of the maze of cases handled
by the magistrates and provide speedy trial. In 2013, 69 of the sanctioned 71 Special Courts
became functional. In addition to it 22 more courts were sanctioned out of which 7 became
functional at the end of 31 December 2013. 434 In spite of setting up of these courts the cases
of corruption have long pendency.
The long pendency undermines the basis right of speedy trial envisaged in the Constitution. 435
Not only this, it also becomes a reason for leniency in sentencing. The Supreme Court of
India in a recent case has said that that an accused, found guilty of an offence after a
protracted trial process, is entitled to a lenient sentence on the ground of delay. 436 Such delay in
trial has a long bearing on the criminal justice system of the country.
The question is can definite time limits be set for conclusion of trial. The Supreme Court in
the case of A. R. Antulay v. R.S. Nayak437 laid that there can be no empirical formula for
universal application in these matters and the accused cannot be acquitted on ground of delay
in trial. However, later on the Supreme Court laid time limits or bars of limitation for
432
Section 20 of the Prevention of Corruption Act, 1988.
433
Section 3 of the Prevention of Corruption Act, 1988.
434
The Central Bureau of Investigation, ‘Annual Report (2013)’, p. 52.
435
Hussainara Khatoon v. Home Secretary, State of Bihar, (1980) 1 SCC 81.
436
Dhananjay Mahapatra, “Delay in Trial Ground for Leniency in Sentencing: Supreme Court”, The Times of
India, 16 February 2014, p.12.
437
AIR 1992 SC 1701, (1993) 1 SCC 225.
152
conclusion of all criminal proceedings.438 On completion of this time limit the case was to be
terminated and the accused was to be released. The time limit of two years was set up for
conclusion of trial.
However, in 2002 the matter was again brought up before the Supreme Court where a number
of accused in corruption cases were acquitted on the ground for failure of commencement of
trial in spite of lapse of two years from the date of framing of the charges. The Court referred
the case to a seven member bench which laid the following guidelines439:
 The dictum laid in A. R. Antulay’s case was correct.
 The judgments in the case of Raj Deo Sharma v. State of Bihar, (1996) 4 SCC 33; Raj
Deo Sharma (II) v. State of Bihar, (1999) 7 SCC 604 are not good law.
 The guidelines are not exhaustive but only illustrative.
 It is neither feasible nor advisable to lay down outer time limit for conclusion of all
criminal proceedings.
 At the most the periods of time prescribed in the judgments can be taken by the courts
in which trial is pending to act as reminder when the said court is to determine the
issue of delay to see that the trial should not have become unwarranted and
oppressive.
 Trial judge is the best protector of the right of speedy trial. He should use the
provisions of Sections 258, 309 and 311 of the Code of Criminal Procedure, 1973
effectively.440
The Court further said that laying of time limit by court would amount to judicial legislation.
Ten years down the lane, the legislature has formulated time limit for prosecution in
corruption cases. The Lokpal and Lokayuktas Act, 2013 provides that the central government
shall constitute Special Courts for the purposes of trial of cases under Prevention of
438
Common Cause A Registered Society through its Director v. UOI and Ors. , (1996) 4 SCC 33; Raj Deo
Sharma v. State of Bihar, (1998) 7 SCC 507; Raj Deo Sharma (II) v. State of Bihar, (1999) 7
SCC 604.
439
P. Ramachandra Rao v. State of Karnataka, AIR 2002 SC 1856.
440
According to Section 258 of the Code of Criminal Procedure, 1973 the Magistrate has the power to stop
proceedings in certain cases. According to Section 309 the courts have the power to postpone or
adjourn proceedings. According to Section 311the courts have the power to summon material
witness or examine person present.
Corruption Act, 1988.441 These Special Courts shall ensure that the trial is completed within
one year of the filing of case. Provided that if the trial is not completed within the stipulated
time period, then it can be extended for a further time limit of three months at a time after
recording reasons in writing. The total timer limit allowed for trial is two years. However, the
Act is quite about the effect that would ensue at the end of two years.
4.4 Investigation and Prosecution of Tax Offences
There are two main approaches of tax violations. The first approach is of not declaring or
reporting the whole of the income or the activities leading to it and the second is
manipulation of financial records and accounts. Any transaction entered into by the taxpayer
must be reported in books of account which are summarised at the end of the year in the form
of financial statements. Tax evasion involves misreporting or non-reporting of the
transactions in the books of account. Tax evasion as an offence was prevalent in all civilised
societies. However, with the passage of time the enormity and magnitude of tax evasion has
increased. In order to have effective tax regime, the taxes in India are administered through
the Department of Revenue under the Ministry of Finance. The Department of Revenue
exercises control in respect of matters through two statutory boards namely Central Board of
Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC).
CBDT is the apex body for the administration of laws relating to direct taxes in India. It is a
statutory body created by the Board of Revenue Act, 1963. The Board is responsible for
providing essential inputs for policy and planning of direct taxes and is also responsible for
the administration of direct taxes through the Income Tax Department. CBEC deals with the
tasks of formulation of policy concerning levy and collection of indirect taxes namely
customs, central excise and service tax. The Board is the administrative authority for its
subordinate organisations, including Custom Houses, Service Tax, Central Excise and
Customs Commissionrates.
With the passage of time, the database of taxpayers is increasing. But at the same time the
number of those who wilfully evade tax is also increasing. In order to keep a check and plug
the loopholes, certain agencies have been incorporated for information gathering and
441
Section 35(1) of the Lokpal and Lokayuktas Act, 2013.
intelligence. The evasion of one tax usually entails evasion of other taxes as well. For the
purpose of effective information gathering, collation and dissemination, a close co-ordination
between the agencies enforcing different tax laws is essential. To achieve this mandate of
interaction and coordination the Central Economic Intelligence Bureau (CEIB) was set up in
the year 1985. It is the nodal agency for economic intelligence. The agency provides a
platform for exchange of information between various agencies within the Department of
Revenue and other intelligence and enforcement agencies including Research Analysis Wing,
CBI etc. The Bureau is headed by the Special Secretary cum Director General who is assisted
by three Joint Secretary level officers. The Bureau has three Wings: Administration &
Coordination Wing which acts as the Secretariat to the Economic Intelligence Council and is
also responsible for general administration of the Bureau; Economic Intelligence Wing which
coordinates at the central level for the exchange of information and intelligence relating to
economic offences and COFEPOSA Wing which deals with work relating to the
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
In addition to CEIB, there are other intelligence agencies which collect information relating
to evasion of particular specie of tax. E.g. the Directorate of Revenue intelligence (DRI) is
concerned with customs related offences and collects intelligence about smuggling of goods
and tax frauds committed by way of misdeclaration/undervaluation of imported goods and
misuse of export promotion schemes. The Directorate of Revenue Intelligence was formed in
1957 in recognition of the need for a central organisation for gathering details of violations of
economic laws in a continuous, organised manner so as to devise a strategy to deal with them
and to alert the concerned customs formations. At that time the brief of the agency was vast
as there was no other intelligence agency for economic offences. With the passage of time
specialised agencies were created and today the agency is essentially charged with the
collection of intelligence on matters relating to violations of customs laws.
Directorate General of Central Excise Intelligence (DGCEI) is the apex intelligence

organization entrusted with detection of cases of evasion of duties of Central Excise and
Service Tax. This Directorate was earlier known as Directorate General of Anti-Evasion and
was established in the year 1979 as an independent wing under the control of Directorate of
Revenue Intelligence. Due to the growth of the Central Excise revenue and its coverage to
almost all manufactured products the wing was upgraded to a full-fledged Directorate in
1983. In 2004, it was entrusted with the work of detecting evasion in service tax also. The
Directorate General is headed by Director General. The role of the Directorate General in
tackling the menace of duty evasion is manifold.
4.4.1 Investigation and Prosecution of Income Tax Violations
If a person evades paying income tax then he is liable under the Income Tax Act, 1961. In
order to administer the provisions of the Act, there are following classes of authorities
namely, CBDT; Directors General of Income Tax or Chief Commissioners of Income Tax;
Directors of Income Tax or Commissioners of Income Tax or Commissioners of Income Tax
(Appeals); Additional Directors of Income Tax or Additional Commissioners of Income Tax
(Appeals); Joint Directors of Income Tax or Joint Commissioners, Deputy Directors of
Income Tax or Deputy Commissioners of Income Tax or Deputy Commissioners of Income
Tax (Appeals), Assistant Commissioners of Income Tax, Income Tax Officers; Tax recovery
Officers and Inspectors of Income Tax. 442 The Deputy Commissioner, Assistant
Commissioner and Income Tax Officer are the accessing officers.
In order to assist the board in its functioning there are different Directorates attached to it.
One of them is Director General of Income Tax (Investigation). It is headed by Director
General. The Director General exercises supervision and control over the Directors of Income
Tax (Investigation). The Directors are assisted by Additional/ Joint/ Deputy and Assistant
Directors of Income Tax (Investigation). The Investigation Wing of the Income Tax
Department in order to detect tax evasion carries out operations like surveys. 443 Surveys help in
checking the veracity of statements and also lead to discovery of new accesses. While
conducting survey the income tax authorities are empowered to enter any place whether
business or profession is carried out in that place or not. They also have the power to inspect
books of account or other documents as may be required and are available at the place; verify
stocks as it can lead to discovery of understatement of stock/ sales. The authorities also have
the powers of search and seizure. However, the search can be conducted only if the officer
has reason to believe that any person to whom summons have been issued or might be issued
442
Section 116 of the Income Tax Act, 1961.
443
Surveys under the Income Tax Act, 1961 can be broadly classified into four categories (i) survey under
Section 133A (1); (ii) survey for checking ostentatious expenditure under Section 133A (5); (iii)
door to door survey under section 133 B and (iv) collection of information by Central
Information Branches from pre determined sources.
to produce documents or things will not produce it. Such operations are usually carried out
after detailed preliminary investigations and in cases involving substantial evasion of taxes.
The Directors are responsible for planning and execution of search, seizure and survey
operations and also perform other statutory functions where as Additional/ Joint/ Deputy and
Assistant Directors of Income Tax (Investigation) are responsible for conducting pre-search
enquiries and reconnaissance work, survey, search, seizure, preparation of appraisal report
and dealing with informants. They also keep liaison with other departments like Customs and
Central Excise, Enforcement Directorate, Revenue Intelligence, Police, etc
Whenever the accessing officer or any other officer 444 has reason to suspect that any income has
been concealed by a person within his jurisdiction, then he can initiate inquiry or investigation.
The officer has the power to impound the books of account or other documents produced before
it in any proceeding. However, he shall record his reasons for impounding. The books can be
retained in custody beyond a period of fifteen days only after obtaining the approval of the
Chief Commissioner or Director General or Commissioner or Director. 445 Under the
administrative distribution of functions, however, these powers are ordinarily exercised by the
Director of Income-tax (Investigation) after obtaining administrative approval of the Director
General of Income-tax (Investigation). Consequential searches can also be authorised by an
Additional or Joint Director of Income-tax (Investigation) to ensure expeditious and effective
action during the course of a search.446
In 2011, the tax administration in India created a separate set-up for targeting investigation
into criminal cases. On 30 May 2011, a Directorate of Criminal Investigation in the Central
Board of Direct Taxes was created. 447 The Directorate is headed by a Director General of
Income Tax (Criminal Investigation). The head office is located at New Delhi and it has eight
regional offices all over India. The Directorate is mandated to perform functions in respect of
criminal matters having any financial implication which is punishable as an offence under
any direct taxes law. The Directorate performs the following functions such as seeking and
collecting information about persons and transactions suspected to be involved in criminal
444
Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals), Chief Commissioner or
Commissioner.
445
Section 131 of the Income Tax Act, 1961.
446
Income Tax Manual, Vol. III, 2003, p.49
447
The Ministry of Finance, ‘White Paper on Black Money (2012)’, p. 24.
157
activities having cross-border, inter-state, or international ramifications and also investigate
the sources and uses of such funds; causing issuance of show cause notices for offences
committed under any direct tax law and file prosecution complaints in the competent court;
hiring the services of special prosecutors and other experts for pursuing a prosecution
complaint and executing appropriate witness protection programmes for effective prosecution
of criminal offences under the direct tax laws, i.e. to protect and rehabilitate witnesses who
support the state in prosecution of such offences so as to insulate them from any harm to their
person.
The income tax authorities can initiate criminal prosecution against a tax violator. However,
no court shall take cognizance of an offence under the Act except when the previous sanction
for the same has been accorded by the Commissioner. The Chief Commissioner or Director
General may issue instructions or directions under the Act. The offences committed under the
Income Tax Act can be compounded by the Chief Commissioner or a Director General.
Although the Chief Commissioner is given a wide discretion to compound any offence,
however, in order to bring uniformity, the CBDT issues directions from time to time. E.g.
Compounding has to be considered only in those cases where the accessee comes forward
with a written request and the chances of successful prosecution are good. However, every
case depends on its own facts. Whenever, a prosecution is launched, the court shall presume
culpable mental state on the part of the accused and it shall be the duty of the accused to
prove that he had no mental state. 448 The offences punishable under Section 276 B, 276 C.
276 CC, 277 and 278 are non cognizable offences.
4.4.2 Investigation and Prosecution for Central Excise Violations
The CBEC exercises overall supervision over customs, central excise and service tax field
formation located all over the country. At present, there are thirty four zones headed by Chief
Commissioners of central excise and customs. There are ninety three Central Excise
Commissionerate headed by Commissioners of Central Excise. These Commissioners are
under the supervision of Chief Commissioner. The Commissionerates are entrusted with the
task of collection of duties in notified territorial jurisdiction. Most of the Commissionerates
also deal with work relating to customs and central excise. In addition to Commissioners,
448
Section 278 E of the Income Tax Act, 1961.
158
there are Joint Commissioners, Additional Commissioners and Assistant Commissioners.
There are Superintendents and Inspectors of central excise. The Commissionerates is headed
by a Commissioner who is assisted by Additional and Joint Commissioners. In
Commissionerates, there are divisions which are headed by Deputy or Assistant
Commissioners. In each division, there are five or more ranges headed by a Superintendent of
central excise. Each range officer is assisted by three to five inspectors.
Where the Joint Commissioner or Additional Commissioner of central excise has reasons to
believe that any goods or documents relevant for the purposes of the Act have been secreted
at a place, they may authorize search of such a place by an officer of central excise. The
documents or goods may be seized. 449 The inspector of central excise has the power to arrest
any person whom he has reasons to believe to be liable under the Act. 450 The arrest can be made
only after obtaining prior approval of the commissioner of central excise. The person so arrested
shall be sent to nearest central excise officer or nearest police station who shall then forward the
person to the nearest magistrate. When the arrested person is forwarded to the central excise
officer he shall have same powers as are vested in an officer in charge of police station in case
of cognizable offences. If in the opinion of central excise officer there is sufficient evidence or
reasonable ground of suspicion against the accused, then he can either grant him bail to appear
before a magistrate having jurisdiction of the case or forward him to the magistrate. In case
there is no sufficient evidence, he shall release the accused on his executing a bond to appear
before magistrate.451 The central excise officers also have the power to summon person to give
evidence that is required in a case. 452 All officers of police and customs are required to assist
central excise officers.
All offences committed under the Act are non cognizable. 453 The offences can be compounded
by the Chief Commissioner of central excise on payment of such compounding amount as may
be prescribed. The offence may be compounded either before or after the
449
Section 12F of the Central Excise Act, 1944.
450
Section 13 of the Central Excise Act, 1944.
451
452
453
Section 15 of Central Excise Act, 1944.
institution of proceedings.454 The court shall presume culpable mental state on the part of
accused while prosecuting him. 455 The court while convicting the accused also has the power
to order publication of the name and address of the offender.456
4.4.3 Investigation and Prosecution for Customs Violations
The policy regarding customs is formulated by CBEC. The Customs Act, 1962 is
administered through the commissionerates formed for central excise. The officers of
customs are Chief Commissioner of Customs, Commissioners of Customs, Commissioner of
Customs (Appeals), Joint / Deputy Commissioner of Customs and other officers as may be
appointed.457 The Act provides for strict penal action against those who evade duties or
fraudulently claim export incentives.
Under the Customs Act, 1962 if the proper officer has reason to believe that any person has
secreted about his person or place any goods or documents that are liable to confiscation, then
such officer may search the person or place as the case may be. 458 The person searched may be
detained till he is produced before the gazetted officer of customs or a magistrate. 459 The Act
also empowers the officer to screen or X- ray bodies if he has reasons to believe that such
person has secreted such goods inside his body. 460 The officer has the power to inspect any
place for ascertaining that the provisions of the Act have been complied. The gazetted
officers of the customs have the power to summon any person necessary for the purposes of
the Act and record his statements.461
In order to tackle the menace of commercial frauds the Act gives the custom officer the
power to arrest any person who is guilty of serious offence which is punishable under
454
The Government through Notification No. 37/2005- C.E. (N.T.) dated 30 December 2005 has formulated
Central Excise (Compounding of Offences) Rules, 2005. The rules describes the manner in which
compounding is done. Rule 5 prescribes the compounding amount in respect of offences.
455
Section 9 C of the Central Excise Act, 1944.
456
Section 9 B of the Central Excise Act, 1944.
457
Section 3 of the Customs Act, 1962.
458
Sections 100, 101 and 105 of the Customs Act, 1962.
459
460
461
Sections 107 and 108 of the Customs Act, 1962.
160
sections 132, 133, 135, 135A or 136 of the said Act. 462 In cases of commercial fraud where
prosecution is to be launched for evasion of duty arrest should be made only after prior
approval is taken from the Commissioner and in case of exigency, such approval should be
made by the Assistant Commissioner. The report regarding arrest should be furnished to the
jurisdictional commissioner.463 The customs officer has the power to seize any goods which he
believes are liable to confiscation under the Act. In addition to confiscation of goods,
conveyances can also be confiscated.464
No court shall take cognizance of an offence under the Act except with the previous sanction
of the Commissioner of Customs. Any offence under the Act may be compounded by the
Chief Commissioner of Customs. The basic rule in compounding is disclosure. 465 The CBEC
has issued guideline for compounding of offences.466 Together with this, Rules are also framed
for compounding of offences.467 The compounding can be done only when an application is
made by the accessee and the compounding amount has been paid by the accessee. 468
4.4.4 Investigation and Prosecution for Service Tax Violations
The Directorate General of Service Tax was formed in 1997 as the number of service
providers were increasing and there was a need of a dedicated body that could functionalise
as a centralised agency for realisation of this tax. The Directorate is headed by a Director
General who reports to the Board of Central Excise and Customs through member (Service
Tax). The Director General is assisted by Additional Director General; Additional / Joint
Director; Assistant/ Deputy Directors and other officers of Grade ‘B’, ‘C’, and ‘D’. The main
462
463
Instruction No. 394/71/97- Cus (AS) issued by Directorate Intelligence dated 22 June 1999.
464
Customs Manual, 2013, p. 220.
465
UOI v. Anil Chanana, 2008(222) ELT 481 SC.
466
Circular No. 29/2009-Customs issued by the Central Board of Excise and Customs dated 15 October 2009.
Earlier the board had vide circular No. 54/ 2005 dated 30 December 2005 had classified the
offences as ‘technical’ and ‘substantive’. However, the Bombay High Court in its order dated 25
October 2007 passed in writ petition No. 1884 of 2007 held such a circular as ultra vires the
provisions of Customs Act, 1962.
467
Customs (Compounding of Offences) Rules, 2005.
468
The compounding amount is prescribed in Rule 6 of the Customs (Compounding of Offences) Rules, 2005.
function of the Directorate is to establish infrastructure for collection of service tax and to
monitor its assessment and collection. The office of Directorate General is at Mumbai. In
order to administer service tax field formations are made. The field formations function under
the Chief Commissioner of Central Excise and Service Tax.
The service tax is administered on self-assessment basis. Every person liable to pay service
tax himself accesses the tax due and furnishes a return to the Superintendent of Central
Excise. Therefore the evasion of service tax is detected either through audit of the service tax
or when information is received from any other source. According to Service Tax Audit
Manual, 2011 a service tax payer whose annual tax payment is Rupees 3 crore or more in the
preceding financial year is subjected to mandatory audit each year whereas those whose
payment is between one to three cores are audited once in two years. Similarly taxpayers
whose payment is in between twenty five lakhs and one crore are audited once in five years.
Two percent of taxpayers whose service tax payment is less than twenty five lakhs are
audited every year. If any person liable to pay tax does not file return or falsely accesses his
tax then the central excise officer has the power to order him to produce the documents as
may be necessary and may make judgement as to assessment himself.
If the Joint Commissioner of central excise has any information by informer or by any other
source that service tax is being evaded by the service provider, then he may authorize any
officer not below the rank of Deputy Commissioner to search for and seize such documents
or books or things. The search shall be conducted according to the rules of the Code of
Criminal Procedure, 1973.469 If the Commissioner of central excise has reason to believe that
any person has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of
section 89 then he may by general or special order authorise any officer of central excise who
is not below the rank of Superintendent of central excise to arrest such person. All arrests
shall be carried out in accordance with the provisions of Code of Criminal Procedure,
1973.470 The offence where a person has collected tax but has not deposited it to the credit of
central government and the amount involved is more than 50 lakhs is cognizable. All other
offences under the Act are non- cognizable and non- bailable.
469
Section 82 of the Finance Act, 1994.
470
No court shall take cognizance of an offence except with the previous sanction of the Chief
Commissioner of Central Excise.471 Prosecution provisions were introduced in the Finance
Act, 1994 in the year 2011 as a part of a compliance philosophy. 472 The sanction for prosecution
has to be accorded by the Chief Commissioner of Central Excise. 473 The sanctioning authority
should record detailed reasons for its decision to sanction or not to sanction prosecution.
Prosecution has to be launched only in those cases where the amount involved exceeds Rupees
Ten lakhs. However in case of repeated offences no such limit applies. 474
4.4.5 Investigation and Prosecution for Central Sales Tax Violations
Though the Central Sales Tax Act, 1956 is a Central Act but as per Article 269 of the
Constitution of India the state collects and appropriates the proceeds of central sales tax.
Every state administers central sales tax through its own department e.g. in state of Punjab it
is administered through the Excise and Taxation Department of the Government of Punjab. In
Assam it is administered through Commissionerate of Taxes, Government of Assam. These
departments have Commissioners, Deputy Commissioners, Assistant Commissioners
appointed under the respective state Sales Tax Act and Central Sales Tax Act, 1956.
In case of evasion of central sales tax the matter is investigated by the officers of the
concerned department through which it is administered in that state. The person can be
criminally prosecuted in addition to imposition of penalty depending upon the facts of each
case. However, no court shall take cognizance of an offence under the Central Sales Tax Act,
1956 except with the previous sanction of the respective state government in whose
jurisdiction offence is committed or by any officer authorized by the state government. The
magistrate of first class is authorized to take cognizance of all offences under the Act. All
offences under the Act are cognizable and bailable.475
471
Section 89 (4) of the Finance Act, 1994.
472
473
According to the Notification No. 3/2004-ST dated 11 March 2004, Director General of Central Excise
Intelligence can exercise the power of Chief Commissioner of Central Excise, throughout India.
474
Circular No. 140/2011 issued by Central Board of Excise and Customs dated 12 May 2011.
475
Section 11 of the Central Sales Tax Act, 1956.
In spite of the existing agencies and infrastructure, the pilferage of tax is high. The generation
of black money on account of tax violations is high. The current regime is complicated and
gives the tax evader a number of escape routes to flee the criminal gallows. The existing
system has not been able to recognise serious and habitual tax evasion as crime. The
implementation of fiscal laws so far has been lenient and the penal consequences have not
provided any effective deterrence for tax violators.
4.5 Investigation and Prosecution for Fraud by Companies
Fraud by companies is regulated by the Companies Act, 2013. The Ministry of Corporate
Affairs is responsible for the adherence of company law by companies registered in India.
The Ministry has a three tier organisational set up for the administration of the Act, namely
the Secretariat (Headquarters) which is located at New Delhi, the Regional Directors and
Registrars of Companies. The main task of the registrars is to register companies floated in
their respective state and union territories and to ensure that the companies comply with the
statutory requirements prescribed under the Act.
Under the Companies Act, 2013 it is the prerogative of central government to order
investigation.476 The central government may order investigation if it of the opinion that
investigation is required into the affairs of the company. Such an opinion may be formed
either on receipt of report from registrar or inspector recommending investigation or when
the company itself demands investigation into its affairs or if the public interest demands. 477 The
central government also orders investigation if the tribunal 478 or a court passes an order that
investigation is required into the affairs of the company. In such cases, the central government
has no discretion and it has to order investigation.
476
Section 210 of the Companies Act, 2013.
477
According to Section 206 of the Companies Act, 2013 if the Registrar of the Companies on scrutiny of
documents submitted before him is of the opinion that further information is required than he can
order furnishing of more information to the company. If on receipt of information the Registrar is
not satisfied with the affairs of the company then it may order inspection of books and can also
call for explanation into matters. The Central Government may also appoint an inspector for
conducting inquiry and inspection. After conducting inquiry and investigation, the Registrar or
Inspector shall submit a report to Central Government recommending further investigation.
478
Sections 210 (2) and 213 of the Companies Act, 2013.
The investigation is done by the inspectors appointed by the central government 479 or by the
Serious Fraud Investigation Office. In the modern world, companies commit financial fraud
which is complex in nature. Serious Fraud Investigation Office was constituted in 2003 under
the old Companies Act, 1956 to combat white collar/ corporate frauds. Under the old Act,
Serious Fraud Investigation Office was an executive office but the Act of 2013 gave a
statutory status to this office. 480 The head office of Serious Fraud Investigation Office is at Delhi
and there are three regional offices at Mumbai, Hyderabad and Chennai.
Serious Fraud Investigation Office is a multidisciplinary investigation agency where experts

from the banking, taxation, forensic audit, capital market, information technology, law etc.
are appointed. These experts form a team to unravel corporate fraud. The office is headed by
a director, who is of the rank of a joint secretary to the government of India. The director is
assisted by additional directors/ joint directors, deputy, senior assistant and assistant directors.
Serious Fraud Investigation Office takes up complex cases of fraud that have
interdepartmental ramification and involve substantial public interest in terms of money or
persons. The cases entrusted to Serious Fraud Investigation Office for investigation are:
• Where the size of the alleged fraud is estimated to be 50 crores or more; or

• Where the paid-up capital of the company is more than 5 crores, and 20% or more
capital is subscribed by the public; or
• When the alleged fraud involves widespread public concern estimated to affect at
least more than 5000 persons; or
• Where investigation requires specialized skills and multi-disciplinary approach. 481
The office is also assigned investigation in cases where a request for the same is made by a
department of central or state government. Once the case has been assigned to the Serious
Fraud Office for investigation, then no other agency shall investigate the same and if the
other agency has already initiated investigation, then it shall not proceed further and shall
479
Section 210 (3) of the Companies Act, 2013.
480
Section 211 of the Companies Act, 2013. It was set up in 2003 through a Government Resolution No.
45011/16/2003-Adm-I dated 2 July 2003.
481
The Ministry of Corporate Affairs, ‘Annual Report (2012-13)’, p. 49.
transfer all relevant documents to the Serious Fraud Investigation Office. When a case is
entrusted to Serious Fraud Investigation Office, the Director forms a team of inspectors to
investigate the case. The inspectors appointed by the central government or by Serious Fraud
Investigation Office have the same powers.
The inspectors have all the powers that are vested in a civil court while trying a suit for the
purposes of discovery and production of books of account and other documents; summoning
and enforcing the attendance of persons and examining them on oath, and inspection of any
books, registers and other documents of the company. Every director, officer or other
employee of the company is under duty to produce all the required documents when called by
the registrar or inspector and render all assistance in connection with inspection.482
The books produced before the inspectors can be kept in custody for not more than 180 days.
The inspectors have the power to examine on oath any officer or employee or agent of the
company under investigation. Other persons may also be examined by the prior approval of
central government and in case of Serious Fraud Investigation Office by the prior approval of
the Director of the office. The notes on examination shall be taken down in writing and shall
be read over and explained. They are signed by the person examined and can be used as
evidence against him.
The inspectors have been given the powers to enter and conduct search of a place if he has
any ground to believe that that books or papers related to the company or books relating to
key managerial personnel or any director or auditor or company secretary in practice relevant
to investigation are likely to be secreted or mutilated or altered at such place. Such documents
can be seized by them. The provisions of Code of Criminal Procedure, 1973 relating to
search and seizure shall be applied.483
The inspectors are also empowered to conduct investigation into the affairs of a related
company if relevant for the investigation for which he is appointed subject to prior approval
482
483
Section 220 (3) of the Companies Act, 2013.
of central government.484 The officers and employees of the company which is under
investigation are under an obligation to assist the investigating officer.
Once the investigation is complete, the inspector has to submit a report to the central
government. In cases where investigation is carried by Serious Fraud Investigation Office, the
Office shall submit the same. The central government will examine the report and if it
appears that the person is criminally liable then in case of Serious Fraud Investigation Office
it will direct the office to initiate prosecution against the company or its officers and in other
cases the central government will prosecute the person. If the report states that fraud has
taken place and any person has taken undue advantage or benefit, then the central
government may file an application before tribunal to pass orders with regard to
disgorgement of such asset or property and also hold him personally liable.
In addition to above powers whenever the offence is being investigated by Serious Fraud
Investigation Office and the offence alleged is fraud then the director or additional or
assistant director authorised in this behalf by central government may arrest a person. The
officers must have reasons to believe on the basis of material in their possession that the
person is guilty for fraud. The reasons to believe have to be recorded in writing. The arrested
person must be informed about the grounds of arrest and must be forwarded to a magistrate
within twenty four hours. Further whenever such a person is to be released on bail the public
prosecutor must be given a chance to oppose the bail application. If the court is satisfied that
the person is not guilty for fraud or will not commit such an offence, then the court will
release him on bail.
Where during the course of investigation, evidence has to be collected outside India, the
inspector shall file an application in the competent court for issuance of letter of request. The
letter of request has to be transmitted in accordance with the manner laid by the central
government.
The Act casts a positive obligation for sharing of information. It lays down that when a case
is being investigated by Serious Fraud Investigation Office and other investigating agencies
have any information or document concerning it, then they shall provide all such information
484
167
to Serious Fraud Investigation Office. Serious Fraud Investigation Office is also mandated to
share information with such investigation agencies when it is relevant or useful for them.
In order to ensure speedy trial of the cases under the Act, the Companies Act, 2013 provide
for the establishment of Special Courts.485 The central government may by notification
establish or designate any court or courts as Special Courts. The Special Court shall be
deemed to be a Court of Session and the person conducting the case shall be deemed to be a
Public Prosecutor. All the offences committed under the Act shall be tried by these courts. 486
The Court shall take cognizance of the offence of fraud only when a complaint in writing is
made by the director of Serious Fraud Office or any other officer authorised by the central
government. The offences punishable for fraud under section 447 are cognizable and no court
shall release the accused on bail unless the public prosecutor has been given an opportunity to
oppose it. The offence of fraud is non- compoundable.
In order to carry out prosecutions under the Act, the central government has been empowered
to appoint Company Prosecutors. Such prosecutor may be appointed for a case or class of
cases of for any local area. These prosecutors shall have all the powers and privileges
conferred by the Code of Criminal Procedure, 1973 under Section 24.
The Act of 2013 has made a sweeping change in the legislative language of the Act as the
offence of ‘fraud’ has been criminalised as such. It has also given statutory status to Serious
Fraud Investigation Office. What is worth noting is that corporate frauds do not exist in
isolation and a fraud by a company may open a pandora of violations under other laws. E.g.
in the Satyam Scandal, where fraud has been done by falsification of accounts of the
company, four law enforcement agencies namely Serious Fraud Investigation Office,
Enforcement Directorate, CBI and Securities and Exchange Board of India are investigating
the case from different perspectives. This leads to multiplicity of proceedings. Serious Fraud
Investigation Office was established keeping in view the establishment of Serious Fraud
Office of United Kingdom. The Serious Fraud Office of United Kingdom investigates and
prosecutes all serious fraud where as in India the work of the agency is limited to corporate
fraud only.
485
486
168
4.6 Investigation and Prosecution for Money Laundering
If a person tries to launder the proceeds of crime then he shall become liable under the
Prevention of Money Laundering Act, 2002. Under the Act of 2002 the Directorate of
Enforcement in the Department of Revenue has been entrusted with the responsibility of
investigating and prosecuting the cases of money laundering. The Directorate was established
in the year 1956 with its headquarters at New Delhi and is also responsible for the
enforcement of the Foreign Exchange Management Act, 1999. The Directorate is presently
headed by the Director, a Special Secretary level officer who is appointed as per Section 25
of the Central Vigilance Commissiom Act, 2003. The Directorate has five regional offices at
Mumbai, Chennai, Chandigarh, Kolkatta and Delhi which is headed by Special Directors. In
addition to it the Directorate has 16 zonal offices headed by Joint Directors and 11 sub zonal
offices headed by Deputy Directors. The Directorate recruits its own officers and also draws
officers from different agencies like customs, central excise, income tax, police etc.
The Central Government has appointed the Financial Intelligence Unit (FIU- IND) as the
central agency for receiving, processing, analysing and disseminating information relating to
suspected financial transactions.487 The agency works as an intelligence agency for the country
to report suspected financial transactions to law enforcement agencies for effective investigation
in money laundering offences. The Financial Intelligence Unit works under the control of the
Department of Revenue, Ministry of Finance. It reports suspected transactions to Economic
Intelligence Council which is the central intelligence agency for collecting information relation
to evasion of taxes. For ensuring the availability of information with the Financial Intelligence
Unit, every banking company, financial institution, and intermediary (the reporting entities)
are required to furnish information to the Financial Intelligence Unit and verify the identity of
their clients in the manner prescribed.
Money laundering is a criminal offence and extends to any property derived or obtained,
directly or indirectly, by any person as a result of criminal activity relating to a scheduled
offence.488 The predicate scheduled offence is liable for punishment and is investigated by
487
Sections 12, 13 and 66 of the Prevention of Money Laundering Act, 2002.
488
Section 3 of the Prevention of Money Laundering Act, 2002.
169
various law enforcement agencies such as State Police, Narcotics Control Bureau, CBI,
Customs, Securities and Exchange Board of India and other central and state agencies
depending upon the nature of offence. Once these law enforcement agencies concerned with a
predicate scheduled offence registers a case, the Enforcement Directorate initiates
investigations under the Prevention of Money Laundering Act, 2002 to ascertain the proceeds
of crime generated from the predicate offence booked by the law enforcement agency. The
scheme of the Act necessitates inter agency coordination so that effective action is taken
against the money launderers.
Where the authorised officers of the Enforcement Directorate on the basis of material in their
possession has reasons to believe that an offence has been committed under the Act then he
has the power of surveying and scrutinizing records kept at any place. 489 The Authority may ask
any of its officials to carry on the search, collect all relevant information, place identification
marks and thereafter send a report to it. 490 The Act confers the power to search any premises and
seize information collected, on the Director or official above the rank of the Deputy Director.
However, no search shall be conducted unless a report of the scheduled offence has been
forwarded to the magistrate under Section 157 of the Code of Criminal Procedure, 1973 or a
complaint has been filed before a magistrate empowered to take cognizance or in cases where
such report is not required to be forwarded, a similar report of information has been submitted
to an officer not below the rank of Additional Secretary to the Government of India or any
other officer as notified by the government. The officers have the power to seize the property
but at times it becomes impracticable to seize. In order to overcome this difficulty, the Act was
amended in 2013 and the officers have been given the power of freezing the assets. 491 If the
officer has reason to believe that a person has secreted something useful or relevant for the
proceedings under the Act, then he has power to search such a person and seize the property so
recovered.492 If an officer authorized by the Central Government on the basis of material in his
possession has reason to believe that a person is suspected of laundering money then such
officer has the power to arrest. The arrested person shall be produced before a Metropolitan
Magistrate or a Judicial Magistrate within 24
489
490
491
Section 17 (1) (1A) of the Prevention of Money Laundering Act, 2002 as amended in 2013.
492
170
hours.493 A report stating the fact of arrest and listing the materials possessed by him should
be made to the Adjudicating Authority.
If property or records have been seized or frozen under the Act and the property is required
for the purposes of adjudication, then such property can be retained for 180 days. This period
can be extended by the Adjudicating Authority after being satisfied of the merits of the case.
The Court or the Adjudicating Authority can subsequently also order the release of such
property. When a property or records are found in a person’s possession than a presumption
arises as to ownership of property, authenticity of facts in the records and as to his signature.
The authorities while investigating under the Act have all the powers of a civil court in
relation to summons, production of documents and recording of evidence.
If the investigating authorities are satisfied that an offence has been committed under the Act,
then the prosecution for the same can be lodged in the criminal court. In order to provide
speedy trial for the offences committed under the Act, one or more courts of Sessions are
designated as Special Courts.494 When trying offences under the Prevention of Money
Laundering Act, 2002 the Special Court shall also have the power to try any scheduled
offences connected to the offence of money laundering. 495 The Special Court shall be deemed
to be a Court of Session and the person conducting the prosecution shall be deemed to be a
Public Prosecutor. A person shall be appointed as Public Prosecutor if he has been in practice
as an advocate for not less than seven years under the union or state. The central government
has the power to appoint a person as Special Public Prosecutor for particular case or class of
cases. The qualifications of Special Public Prosecutor are same as that of Public Prosecutor.
The Special Court can take cognizance of an offence punishable under the Act only when a
complaint in writing is made by the Director or any officer of the Central Government or
State Government authorised in writing in this behalf. The offences committed under the Act
are cognizable. The offences punishable under the Act are non- bailable. In money laundering
offences a number of complex financial transactions are involved and it is very difficult to
prove the involvement of each transaction. Therefore, the Act raises a presumption that where
493
Section 19 of the Prevention of Money Laundering Act,
494
2002. Section 43 of the Prevention of Money Laundering
495
Act, 2002. Section 44 of the Prevention of Money
171
Laundering Act, 2002.
172
money laundering involves two or more interconnected transactions and one or more of such
transaction is proved to be involved in money laundering, the court shall presume that the
remaining transactions form part of such interconnected transactions. 496 The Act also reverses
burden of proof. In a trial when a person is charged with the offence of Money laundering,
the court shall presume that such proceeds of crime are involved in money laundering unless
the contrary is proved.497
It is pertinent to note that so far the Act has not been able to curb the menace of black money
in India. In 2009-10, the Indian law on money laundering was evaluated by Financial Action
Task Force which is an intergovernmental body that works for the development of standards
for combating money laundering and terrorist financing. Financial Action Task Force has so
far given forty plus nine recommendations which are considered as global standards on anti-
money laundering. India wanted to be a member of Financial Action Task Force and for that
Indian law on the subject was evaluated. The team pointed out many shortcomings in the
law.498 Some of these were taken care for and subsequently amendments were brought in the
Act in 2013. However, still there are shortcomings such as firstly; the schedule attached to
the Act is not comprehensive as many of the offences such as tax violations except customs
are not covered under the Schedule. Secondly, many a times when investigations are going on
for the scheduled offence, the Enforcement Directorate also initiates investigation which
results in multiplicity and complexity of investigation proceedings. Thirdly, there is hardly
any effective sanction regime as the conviction rate under the Act is low.
4.7 Investigation and Prosecution of Securities Fraud
If a person commits an offence of fraud in securities market, then he shall be liable under the
Securities and Exchange Board of India Act, 1992. In order to regulate the securities market
and protect the investors from fraud in securities market the Act of 1992 provides for the
establishment of Securities Exchange Board of India. 499 The head office of the Board is
496
497
498
The Standing Committee on Finance, Fifty Sixth Report on ‘Prevention of Money Laundering (Amendment)
Bill, 2011 (2012)’, p.7.
499
Section 3 of the Securities and Exchange Board of India Act, 1992. The Board was established as a statutory
body vide Notification No. 147 (E) issued by Ministry of Finance dated 21February1992.
located at Mumbai and there are four regional offices located at Chennai, Kolkatta, Delhi and
Ahmedabad. The Board is entrusted with the responsibility of regulating the business in stock
exchanges and other securities market, prohibition of insider trading and prohibition of
fraudulent and unfair trade practices.
The Board has the power to initiate investigation whenever it has reasonable grounds to
believe that the transactions in securities are being dealt in a manner which is detrimental to
the interest of investors or any person associated with the securities market has violated the
provisions of the Act. The Board can order in writing the matter to be investigated by a
specified authority referred to as investigating authority. The Act does not prescribe any
specific rank officer for being appointed as investigator. Therefore, Board can appoint any
person whether from inside or outside the Board for conducting investigation.
The investigating officer has the power to call any person associated with the securities
market to furnish information or produce books, documents etc. which is relevant or
500
necessary for investigation. Such books, documents etc. can be kept in custody for six
months after which they shall be returned. The books can be recalled if needed again. 501 The
investigating officer has the power to examine on oath any person associated with securities
market. The statements given by persons during examination are to be taken down in writing
and have to be read over and signed by the person making it. These statements can be used as
evidence. While doing so the Board has the powers of civil court for summoning the witness
and enforcing their attendance, discovery and production of books and accounts and issuing
commissions etc.502
During the pendency of investigation or even immediately after its commencement, if the
investigating officer has reasonable grounds to believe that the necessary documents or
records relevant for the case may be tempered with, then he has the power to enter, search
and seize such documents. However, such powers can be exercised only after attaining prior
permission of the Judicial Magistrate who has the jurisdiction to order seizure. 503 The Magistrate
shall order seizure after taking into account the application and hearing the
500
Section 11 C (3) of the Securities and Exchange Board of India Act, 1992.
501
502
Section 11 (3) of the Securities and Exchange Board of India Act, 1992.
503
investigating officer on the case. The books can be seized only when there is a case of insider
trading or fraudulent manipulations. The seized books etc. can be kept in the custody till the
conclusion of investigation if the investigating officer thinks it necessary. 504 The search and
seizure are to be conducted in accordance with the provisions mentioned in the Code of
Criminal Procedure, 1973 in relation to them.505
If a person has violated any of the provisions of the Act or the rules and regulations framed
there under, then monetary penalty can be imposed on him. He can also be criminally
prosecuted for the same. The prosecution can be launched in the Court of Session. However,
no court shall take cognizance of an offence committed under the Act except on a complaint
made by the Board.506 In 2012-13, the Board launched prosecution in 75 cases.507
The Act authorises that offences committed under the Act may be compounded before or
after the institution of proceedings by the court before which it is pending. 508 Any party who
wishes to compound the offence shall file an application before the Court where complaint is
pending with a copy addressed to the Prosecution Division, Enforcement Department of
Board’s Mumbai Office, which will forward the application to be placed before a High
Powered Committee. The terms recommended by the Committee shall be placed before the
court for passing orders, as it deems fit. 509 However, it has been clarified by Board that the
offences of insider trading, serious fraudulent and unfair trade practises should not be
compounded.
It is pertinent to note that although the Act was a right move in regulating the securities
market, but there have been many shortcomings as well. Firstly, the prosecution rate is low.
From the inception, till 2012-13, only 262 cases of Board have been disposed by the courts.
Out of these, 148 cases resulted in convictions and 59 cases were fully compounded. Thus,
the conviction rate is 56.4%. Secondly, the cases are prosecuted by regular criminal courts.
Thus, it takes years and years before the trial comes to an end. In the famous Ketan Parekh
504
Section 11C (10) of the Securities and Exchange Board of India Act, 1992.
505
Section 11 C (11) of the Securities and Exchange Board of India Act,
506
1992. Section 26 of the Securities and Exchange Board of India Act, 1992.
507
The Securities and Exchange Board of India, ‘Annual Report (2013)’, p. 144.
508
Section 24A of the Securities and Exchange Board of India Act, 1992.
509
Circular No. EFD/ED/Cir-01 issued by the Securities and Exchange Board of India dated 20 April 2007.
scam which was exposed in 2001, the CBI court convicted the accused in 2014. 510 Thirdly,
the punishments are not proportional to the gravity of offence as Katen Parekh, the
protagonist of the 1,250 crores scam was sentenced to imprisonment of two years and fine of
Rs. 50,000. Further, this order is of trial court against which appeal can be filed.
4.8 Investigation and Prosecution of Cartel Fraud
If cartels are formed as an anti thesis to competition in the market and to defraud the
consumers then such cartels have to stand the scrutiny of the Competition Act, 2002. The Act
in order to prevent anti competitive agreements and abuse of dominant position and to sustain
competition and ensure freedom of trade provides for the establishment of the Competition
Commission of India.511 Competition Commission of India is a body corporate having perpetual
succession. The head office of the Commission is at New Delhi. The Commission consists of a
chairperson and six members and became functional on 1st March, 2009. 512 The main duty of
the Commission is to regulate antitrust agreements in the country.
The Act provides for the establishment of the office of Director General. 513 The main function
of the office is to assist the Commission in conducting inquiries into contraventions made under
the Act. The Director General is assisted by Additional, Deputy, Joint and Assistant Director
General who work under the supervision of the Director General.
The Commission can conduct inquiry into any information regarding contravention of the
provisions of the Act. The information can be given either by a person or a consumer or a
trade association. The inquiry can also be initiated suo motto by the Commission or on a
reference made to it by the central government or state government or a statutory authority. 514
After initial inquiry if the Commission is of the opinion that there does not exist a prima facie
case then the matter is closed. However, if in the opinion of the Commission, a prima facie
510 Press Trust of India, “Stock Broker Parekh Sentenced to Two Years Rigorous Imprisonment by CBI Court”,
The Economic Times, 4 March 2014, p.5.
511
Section 7 of the Competition Act, 2002.
512
513
514
case exists then the matter is referred to Director General for further investigation. The
Director General has the same powers as are vested in civil court for the purposes of
summoning and requiring attendance of witnesses, discovery and production of documents,
receiving evidence on affidavits and issuing commissions.
After investigation, if the Commission finds that a person has entered an agreement in
contravention of the provisions of the Act, then it may order to discontinue such agreement or
modify it or may pass any other order as it deem fit. The Commission also has the power to
order interim orders restraining the party from carrying out an act until the conclusion of
inquiry. The orders passed by the Commission are appealable before the Competition
Appellate Tribunal established under the Act.
If the orders passed by the Commission or the Appellate Tribunal are not complied with, then
the person exposes himself to criminal liability. The jurisdiction to try such cases rests with
the Court of Chief Metropolitan Magistrate, Delhi. In cases where prosecution is initiated by
the Commission or Appellate Tribunal as the case may be, the Court can take cognizance
only if the complaint is filed by the Commission or any other officer authorised by it or an
officer authorised by the Tribunal respectively.
It is however reiterated that in antitrust cases, even when fraud is detected on the part of a
party then also civil penalties are imposed by the Commission. The party has a right to appeal
against these orders to the Appellate Tribunal. The court has no jurisdiction to try cases of
fraud and it is only when the orders of the Commission or the Tribunal is not complied with,
that the criminal case can be instituted. Moreover, the Director General does not have any
power of conducting search and seizure in order to effectively carry out investigation. The
Director General is clothed only with the powers of a civil court and do not have any powers
to compel production of documents.
4.9 Investigation and Prosecution of Offences of Fraud in Foreign Contributions
If a person receives foreign contributions in violation of Foreign Contribution (Regulation)

Act, 2010 then he shall be liable under the Act. The Act is administered through the FCRA
wing of the Foreigners Division in the Ministry of Home Affairs. The purpose of Foreign
Contribution (Regulation) Act, 2010 is to ensure that foreign contributions are not misused or
diverted for any interest which is detrimental to the country.
A monitoring unit of the FCRA wing has been designated to monitor the receipt and
utilisation of foreign contributions. The monitoring unit conducts inspection of books of
accounts and records maintained by the associations receiving foreign contributions. The
inspection is carried out if an association defaults in filing return or complaint as to mis-
utilisation or misappropriation is received or adverse report is received from any law
enforcement agency.
The inspecting officer has the power to enter any premises at any reasonable time for
conducting inspection. If during inspection, the inspecting officer has reasonable cause to
believe that the provisions of the Act or any law have been contravened, then he may seize
such records. The inspecting officer shall make a report of his findings. The findings are then
shared with the association who is then given an opportunity to submit his reply. After
examination of the report the monitoring unit decides that whether the violation should be
compounded, or sent to concerned investigation agency for further investigation, or that the
certificate of registration should be cancelled.
The CBI or the investigating agencies (Crime Branch) of the State Governments in which
cause of action arises are the designated agencies for investigating and prosecuting a person
for violation of Foreign Contribution (Regulation) Act, 2010. When the offence involves a
prima facie violation of less than Rupees one crore, then the case is referred to crime branch
of concerned state and when violation is more than Rupees one crore, the case is sent to CBI
for investigation and prosecution.515
If the investigation by these agencies reveals the commission of an offence prima facie, then
prosecution shall be launched. No court shall take cognizance of the offence except with the
previous sanction of central government or any officer authorised by it. 516 The central
government has notified that when investigation is done by CBI, the Union Home Minister is
515
Gazette Notification S.O. 2446 (E) dated 27 October 2011.
516
Section 40 of the Foreign Contribution (Regulation) Act, 2010.
authorised to give sanction and in cases where investigation is done by State Crime Branch,
then sanction is to be accorded by the Home Secretary of the concerned state government.
The Act empowers Central Government to compound offences committed before the
institution of prosecution.517 The Director or Deputy Secretary in charge of the FCRA wing of
Foreigners Division shall be the authority for compounding the offence. An application for the
same is to be made to the Secretary, Ministry of Home Affairs, New Delhi on a plain paper
along with a fee of Rupees One Thousand in the form of a demand draft or a banker’s cheque in
favour of the “Pay and Accounts Officer, Ministry of Home Affairs”, payable at New Delhi.
The following offences can be compounded before initiation of prosecution.518
Nature of Offence Quantum of Penalty

Acceptance of cheque or draft towards foreign Rupees 10,000/- or 2 per cent of the foreign
contribution by a ‘person’ without registration or contribution involved, whichever is higher.
prior permission of the Central Government even
in cases where the cheque or draft has not been
deposited in a Bank by the ‘person’.
Acceptance of cheque or draft by a ‘person’ Rupees 25,000/- or 3 per cent of the foreign
towards foreign contribution without registration contribution involved, whichever is higher.
or prior permission of the Central Government
and depositing the same in a Bank
notwithstanding non-utilisation of the amount of
the foreign contribution.
Acceptance of foreign contribution by a ‘person’ Rupees 1,00,000/- or 5 per cent of the foreign
without registration or prior permission of the contribution involved, whichever is higher.
Central Government and utilisation of the same
notwithstanding any inquiry which revealed that
the contribution received was not diverted
towards any purpose other than the objectives or
purpose for which the same was received,
utilisation of the contribution was as per the
objectives of receipt of the same and records of
receipt and utilisation have been kept properly.
517
Section 41 of the Foreign Contribution (Regulation) Act, 2010.
518
Gazette Notification S.O. 1976 (E) dated 26 August 2011.
178
Acceptance of foreign contribution in kind by a Rupees 10,000/- or 2 per cent of the foreign
‘person’ without registration or prior permission contribution involved, whichever is higher.
of the Central Government notwithstanding that
nothing adverse was reported after inquiry.
It is seen that there is no threshold limit for compounding of offences. This means that if a
person has defrauded for crores of rupees then he can get away by getting the offence
compounded and paying a meagre penalty. The small non-government organisations have to
undergo the complicated path of getting registered whereas the big fishes even if caught, get
away by paying a penalty which does not serve any cause. Moreover, at times the offence
committed under Foreign Contribution (Regulation) Act, 2010 may have roots into other
statues as well. E.g. if a government servant is getting foreign contributions without
following the due path, then it raises a suspicion of corruption or breach of trust. Therefore,
in such cases there is no provision for intimation to other agencies or coordination with them.
4.10 Investigation and Prosecution of Cyber Fraud
In today’s world of advancement in technology, cyber-crimes are increasing at an exorbitant

rate. A person who commits cyber fraud is liable under the Information Technology Act,
2000. The investigation of offences under the Information Technology Act, 2000 is done by a
police officer who is not below the rank of inspector. 519 The police forces in the states have
opened up special units known as cybercrime investigation cells. At some places, cybercrime
police stations have been established to deal with cybercrime specifically.
Besides police, CBI also has a Cybercrime Investigation Cell which helps in the investigation
of cybercrimes.520 Cybercrime Investigation Cell was established in the year 1999 as a part of
Economic Offences Division of CBI. It has a round the clock nodal point of contact to report
cybercrimes in India. The Cybercrime Investigation Cell investigates those offences which
require liaison with the state police forces. It also collects information on latest cases reported
519
Section 78 of the Information Technology Act, 2000. Earlier these offences could be investigated only by an
officer of the rank of Deputy Superintendent of Police. But in 2009 by an amendment the words
“DSP” were substituted by the word “inspector”.
520
Central Bureau of Investigation Manual, 2013, Chapter VIII.
179
in other countries and prepares a monthly cybercrime digest for the benefit of state police
forces.
The police officers conducting investigation under the Act have all the powers vested in them
by virtue of the Code of Criminal Procedure, 1973. Besides these powers, any police officer
not below the rank of inspector or any other officer authorized by the Central of State
Government has the power to enter any pubic place and search and arrest any person without
warrant who is reasonably suspected of committing an offence under the Act. Where a person
is arrested by an officer other than a police officer, then the officer shall without delay send
or take the arrested person to the officer in charge of the police station or magistrate having
jurisdiction in the case.
The cybercrimes are prosecuted by the public prosecutors or by the counsels of CBI
depending upon the agency which has investigated the crime. The Act provides that the
offences punishable with less than three years are compoundable. The person accused for an
offence may file an application for compounding before a court before which a trial is
pending. However, the court shall not compound the offence in those cases where the crime
is committed against a woman or a child below eighteen years or where the offence affects
the socio economic conditions of the country or where an accused is the second time offender
and therefore liable for enhanced punishment.521
The Information Technology Act, 2000 suffers from serious lacunas. Firstly, the cybercrimes
are prosecuted by the same set of prosecutors who deal with conventional crime. These
prosecutors do not have the required expertise to handle evidence related to computers.
Secondly, there are no separate set of courts to deal with cybercrimes. The judges due to their
traditional mindset are not able to appreciate the cyber evidence. Thirdly, cybercrimes are
many a times investigated by the police personnel who are neither trained nor equipped with
computer technology.
4.11 Investigation and Prosecution of Intellectual Property Fraud
521
Section 77 A of the Information Technology Act, 2000.
180
Intellectual property is the most valuable asset of humanity. Owners of intellectual property
rights are granted certain rights so that they can use their property without any disturbance
from others. However, if a person infringes the intellectual property of others then he shall be
criminally liable under the Copyrights Act, 1957; the Trademarks Act, 1999; the Patents Act,
1970 or the Geographical Indications of Goods (Registration and Protection) Act, 1999
depending upon the nature of intellectual right involved.
The intellectual properties are registered by various authorities established under the Acts.
The Government of India has appointed the Controller General of Patents, Designs and Trade
Marks which works under the Ministry of Commerce and Industry for the registration of
patents, designs and trademarks. The office of Controller General of Patents, Designs and
Trade Marks is located at Mumbai. The head office of the patent office is at Kolkata and its
branch offices are located at Chennai, New Delhi and Mumbai. The Trade Marks registry is
at Mumbai and its branches are located in Kolkata, Chennai, Ahmedabad and New Delhi.
The Design Office is located at Kolkata in the Patent Office. The Controller General
supervises the working of the Patents Act, 1970, the Designs Act, 2000 and the Trade Marks
Act, 1999. In order to protect the geographical indications of goods a Geographical
Indications Registry has been established in Chennai to administer the Geographical
Indications of Goods (Registration and Protection) Act, 1999 under the Controller General of
Patents, Designs and Trade Marks. In order to administer the Copyrights Act, 1957 the
Copyright Office has been established and there is Registrar of Copyrights.
The fraud of intellectual property is committed against an individual or firm or against the
government established registry. Whenever the offence is committed against the registry, the
court can take cognizance only when a complaint is made in writing by the registrar or an
officer authorised by him. When an intellectual property right is infringed the police have the
power to conduct investigation in the case. However, where the intellectual property right
violation has interstate ramifications then the same is investigated by the Economic
Offences Wing of CBI. All the intellectual property cases are triable by a court of
Metropolitan Magistrate or Judicial Magistrate First Class.522
522
Section 115(2) of the Trade Marks Act, 1999; Section 50 of the Geographical Indications of Goods
(Registration and Protection) Act, 1999 and Section 70 of the Copyrights Act, 1957.
181
4.12 Investigation and Prosecution of Environment Crime
The concern for environmental quality has become a top issue in recent days owing to its
degradation at a fast pace. In order to ensure sustainable development it is necessary to
preserve the environment. If a person pollutes the environment then he is liable under the
Water (Prevention and Control of Pollution) Act, 1974; the Air (Prevention and Control of
Pollution) Act, 1981 and the Environment (Protection) Act, 1986 together with the Rules
framed under these Acts. The Ministry of Environment and Forests is the nodal agency in the
Central Government for overseeing the environmental policies and programmes in India. One
of the mandates of the ministry is to prevent and control pollution. This mandate is supported
by the legislative Acts together with the policies framed by the ministry from time to time. 523
In order to achieve the objectives enshrined in the Acts the Pollution Control Boards were
established. The Pollution Control Boards are a two-tier system, the Central Pollution Control
Board at the central level and the State Pollution Control Boards at the state level.524
The Central Pollution Control Board performs functions which are laid down under the Water
(Prevention & Control of Pollution) Act, 1974, the Air (Prevention and Control of Pollution)
Act, 1981 and also enforces and implements Rules which are framed under Environment
Protection Act, 1986. The Central Pollution Control Board formulates general as well as
industry specific national minimum effluent and emission standards for various categories of
industries and also formulates industry specific environmental guidelines and comprehensive
documents. These standards are revisited from time to time based on development of new
pollution control technologies and their feasibility. 525 The Central Pollution Control Board is
also responsible for coordinating the activities of State Pollution Control Boards and various
523
National Conservation Strategy and Policy Statement on Environment and Development, 1992; National
Forest Policy, 1988; Policy Statement on Abatement of Pollution, 1992 and a National
Environment Policy, 2006.
524
Water boards were established under the Sections 3 and 4 of the Water (Prevention & Control of Pollution)
Act, 1974 in order to prevent water pollution. The boards later received the additional
responsibility to control air pollution under sections 3 and 4 of the Air Act, 1981. The boards
were then renamed as Pollution Control Boards under the provisions of the Environmental
Protection Act, 1986.
525
The Ministry of Environment and Forests, ‘Annual Report (2011-12)’, p. 114.
Pollution Control Committees and authorities constituted by the Government of India under
the Environmental Protection Act, 1986.526
The State Pollution Control Boards are responsible for maintaining and restoring the
wholesomeness of water; prevention and control of air pollution, formulation of standards in
consultation with Central Pollution Control Board; advising the state government in the
location of industry and prevention of environmental pollution; issuing consents for
establishment, and operation to industries.527
The boards are empowered to issue consent for establishment whenever a firm wants to
establish a new factory and also issue consent for operation of existing factories. They are
empowered to regulate, prohibit or order closure of any industry, operation or process. The
boards are also empowered to disconnect power or water supply or any other service and may
also issue directions to the concerned departments for enforcement of Board standards. Any
person who is aggrieved by the directions or orders of the board may appeal to National
Green Tribunal established under the National Green Tribunal Act, 2010.
The boards as well as the agencies established to control pollution have powers to obtain
information. They also have the powers of entry and inspection. They have the powers to
collect samples in order to analyse if the standard emissions rules are violated. Once the
samples are analysed and it is of the view that the standard emission norms are violated then
the agency or the board can give direction as to stoppage of water, electricity and closure.
The Water (Prevention & Control of Pollution) Act, 1974; Air (Prevention and Control of
Pollution) Act, 1981 and the Environmental Protection Act, 1986 impose criminal liability for
not following the directions issued by the concerned administrative agency and also impose
criminal liability for violating the emission standards. However, the court can take
cognizance of offence only when complaint is filed by the Central Government or any
authority or officer authorised in this behalf by that Government; or any person who has
given a sixty days notice of his intention to make a complaint, to the Central Government or
526
The Environment Pollution (Prevention and Control) Authority (EPCA) which was constituted under sub-
section (3) of Section 3 of the Environment Protection Act, 1986 on 29 January 1998 vide S.O.
No. 93(E) dated 29 January 1998 for the National Capital Region.
527
PM Prasad, “Environment Protection Role of Regulatory System in India”, Economic and Political Weekly,
2006, pp. 1278-1289, at p.1282.
the authority or officer authorised.528 No court inferior to that of Judicial Magistrate First
Class shall try offence punishable under the Act.
Over the years, the incidence of environmental crime has increased. The profits earned from
the environmental crimes are huge in comparison to the regulatory mechanisms and the
criminal penalties. The existing enforcement practices have not been able to effectively
combat environmental crime.
4.13 Investigation and Prosecution of offences relating to Black marketing and

Hoarding
If a person indulges in hoarding or black marketing he shall be liable under the Essential
Commodities Act, 1955. The central government or the state government may authorise any
officer of the state government to discharge duties under the Act as there is no single
regulator for the Act. The court shall take cognizance of the offences under the Act only
when a report constituting the facts of the case is made in writing by a person who is public
servant as defined under Section 21 of the Indian Penal Code, 1860; or by an aggrieved
person or by a recognised consumer association, whether such person is member of that
association or not.529
The Court while conducting trial shall presume culpable mental state on the part of the
accused. However, the accused can prove that he had no such mental state. 530 The Court can
order forfeiture of property used in commission of offence. 531 The Court while convicting a
company under the Act may order that the name of the company and such other particulars as
it thinks fit may be published in a newspaper or likewise.532
4.14 Investigation and Prosecution of Offences relating to Adulteration
528
Section 19 of the Environmental Protection Act, 1986; Section 43 of the Air (Prevention and Control of
Pollution) Act, 1981 and Section 49 of the Water (Prevention & Control of Pollution) Act, 1974.
529
Section 11 of the Essential Commodities Act, 1955.
530
Section 10 C of the Essential Commodities Act, 1955.
531
Section 7A of the Essential Commodities Act, 1955.
532
Section 10B of the Essential Commodities Act, 1955.
If a person adulterates food item then he is liable under the Prevention of Food Adulteration
Act, 1954 and the Drugs and Cosmetics Act, 1940. In order to carry the provision of the Act
effectively the central as well as state governments have been empowered to appoint
inspectors.533 The inspectors are clothed with the power to inspect any premises where any drug
or cosmetic is being manufactured or kept for sale or stocked and take samples of such drugs or
cosmetics.534 The inspectors can search any person or place or vehicle where they have reasons
to believe that any drug or cosmetic relating to crime is being secreted or kept and may seize
the same. They are also empowered to collect samples from such place according to the
prescribed procedure. The samples so collected are then sent to the analysts for analysis. 535 The
inspectors while exercising their powers of entry and inspection must follow the provisions of
the Code of Criminal Procedure, 1973. In addition to inspectors, private persons are also
authorised to get the article analysed on payment of prescribed fees. 536 The analysts after
analysing the sample shall give their report. If the report shows that the article is adulterated
then a prosecution can be filed against the erring person.
Under the Prevention of Food Adulteration Act, 1954 the prosecution can be instituted by the
Central Government or state government or by any other person authorised in this behalf. The
prosecution can also be instituted by the purchaser of the recognised consumer association if
they produce a copy of the report of the analyst along with the complaint. Such offences can
be tried by a court which is not inferior to that of Metropolitan Magistrate or Judicial
Magistrate First Class.537 The court shall try such offences summarily. 538 If during trial the court
is satisfied, on the basis of evidence adduced before it then any person who is the
533
Section 9 of the Prevention of Food Adulteration Act, 1954 and Section 21 of the Drugs and Cosmetics Act,
1940.
534
Section 10 of the Prevention of Food Adulteration Act, 1954 and Section 22 of the Drugs and Cosmetics Act,
1940.
535
Under Section 8 of the Food and Adulteration Act, 1954 public analysts are appointed. Under Section 20 of
the Drugs and Cosmetics Act, 1940 Government analysts are appointed.
536
According to Section 12 of the Prevention of Food Adulteration Act, 1954 any person who is purchaser of
article of food or recognised consumer association, whether the purchaser is a member of that
association or not are authorised to get the food analysed. According to Section 26 of the Drugs
and Cosmetics Act, 1940 any person or any recognised consumer association whether the person
is a member of that association or not are authorised to get the drug or cosmetic analysed.
537
Section 20(2) of the Prevention of Food Adulteration Act, 1954.
538
Section 16 A of the Prevention of Food Adulteration Act, 1954.
manufacturer, distributor or dealer is also concerned with the offence but has not been
impleaded, then the court has the power to implead such person. 539 No person is allowed to take
defence that he was ignorant of the nature and quality of the food sold by him. However, he
shall be deemed to have not committed the offence if he proves that he had purchased the article
from a licensed dealer in cases where license is prescribed and from other dealer with a
warranty in prescribed form and sold it in the same condition. If a court convicts an accused for
a similar offence again, then it can order publication of such information in relation to an
offender in a newspaper or in any other manner. 540 The court can also order forfeiture of such
articles of food in respect of which the offence has been committed.541
Under the Drugs and Cosmetics Act, 1940 the Court shall take cognizance of an offence only
when the prosecution is instituted by an inspector or a gazetted officer of central government
or state government authorised in writing or by the person aggrieved or a recognised
consumer association whether such person is a member of that association or not. 542 The
offences under the Act are triable by a Court of Sessions. 543 The central government or the
state government in consultation with the Chief Justice of High Court of the concerned state
can designate a Court of Session as a Special Court for trying a particular case or class of
cases under the Act.544 Such special courts shall be deemed to be a Court of Sessions. The
provisions of the Code of Criminal Procedure, 1973 shall apply to this court. The person
conducting the prosecution shall be deemed to be a Public Prosecutor. 545 If the court during trial
on the basis of evidence adduced before it is satisfied that the manufacturer of a drug or
cosmetic or his agent are concerned with the offence, but has not been charged, then the court
has the power to implead them.546 The object is to enable speedy trial of the guilty parties.547
539
Section 20 A of the Prevention of Food Adulteration Act, 1954.
540
Section 16(2) of the Prevention of Food Adulteration Act,
541
1954. Section 18 of the Prevention of Food Adulteration Act,
542
1954. Section 32(1) of the Drugs and Cosmetics Act, 1940.
543
Section 32(2) of the Drugs and Cosmetics Act, 1940.
544
Section 36 AB of the Drugs and Cosmetics Act, 1940.
545
Section 36 AD of the Drugs and Cosmetics Act, 1940.
546
Section 32 A of the Drugs and Cosmetics Act, 1940.
547
Bhagwandas v. Delhi Admn., (1975) 1 SCC 866.
The Court while convicting the accused can order forfeiture of property relating to
commission of offence.548
4.15 Sector Specific White Collar Crime
In addition to the above mentioned white collar crimes some sectors like insurance, telecom
etc. are prone to white collar crime. In order to regulate and prevent white collar crime in
these sectors financial regulators have been created by respective statues.
4.15.1 Investigation and Prosecution of Banking Fraud
The Reserve Bank of India is the apex monetary Institution of India and is also called as the
central bank of the country. The bank was established under the Reserve Bank of India Act,
1934 on the recommendations of Hilton Young Commission. The bank was originally started
as a shareholder’s bank but subsequently it was nationalised in 1949. The general
superintendence and direction of the bank’s affairs is vested in the Central Board of Directors. 549
The main objective of Reserve Bank is to regulate the issue of bank notes and keeping reserves
with a view to secure monetary stability in the country and generally to operate the currency
and credit system of the country to its advantage.550
The Reserve Bank of India performs the function of financial supervision over other banks
under the guidance of the Board for Financial Supervision. The Board was constituted in
November 1994 as a committee of the Central Board of Directors of the Reserve Bank of
India and practises consolidated supervision over commercial banks, financial institutions
and non-banking finance companies. One of the main functions of Board for Financial
548
Section 31 of the Drugs and Cosmetics Act, 1940.
549
According to Section 8 of the Reserve Bank of India Act, 1934 the Central Board of Directors shall consist of
(a) a Governor and not more than four Deputy Governors to be appointed by the Central
Government; (b) four Directors to be nominated by the Central Government, one from each of the
four Local Boards; (c) ten Directors to be nominated by the Central Government; and (d) one
Government official to be nominated by the Central Government. There are four local boards of
the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi. The local boards
consist of five members’ each appointed by the Central Government for a term of four years.
550
Preamble of the Reserve Bank of India Act, 1934.
187
Supervision is to overlook the frauds in banking sector. The Reserve Bank of India issues
master circulars and guidelines in order to combat bank frauds in India. Reserve Bank of
India is regulator for all the banks in the country and thus the entire institutional function of
providing finance comes under the regulatory oversight of the Reserve Bank of India.
There are a number of banks in the country. These banks in order to detect fraud have internal
control systems and procedures. All the banks have the system of internal audit of branches to
ensure compliance with bank procedures. The bank frauds as they fall under the provisions of
the Indian Penal Code, 1860 are investigated by the enforcement agencies like State Police,
CBI and Serious Fraud Investigation Office. The Reserve Bank of India has issued guidelines
for reporting fraud.551
In case of private sector banks (including foreign banks operating in India) the case is to be
investigated by the state police if the fraud is committed by outsiders on their own or with the
connivance of bank staff and the amount involved is more than Rupees one lakh and in case
fraud is committed by bank employees themselves and the amount involved is more than
Rupees ten thousand. In case where the amount involved exceeds Rupees hundred lakhs the
case is investigated by Serious Fraud Investigation Office.
In case of public sector banks the case is investigated by the following agencies:
 Where the amount involved is below Rupees one lakh the case is investigated by the
local police station.
 Where the amount involved is more than Rupees one lakh but less than Rupees three
hundred lakhs the case is investigated by the Economic Offences Wing or Criminal
Investigation Department (CID) of the state police.
 Where the amount involved is more than Rupees three hundred lakhs but less than
Rupees twenty five hundred lakhs the case is investigated by CBI. In cases where
staff involvement is prima facie evident case is investigated by the Anti Corruption
Branch of CBI and in cases where the involvement is not evident the case is
investigated by the Economic Offences Wing of CBI.
551
Master Circular No. RBI-2013-14 /88, DBS.FrMC.BC.No.1/23.04.001/2013-14 No. issued by Reserve Bank
of India dated 1 July 2013.
 Where the amount involved is more than Rupees twenty five hundred lakhs the case is
investigated by the Banking Security and Fraud Cell which is a specialised cell of the
Economic Offences Wing of the CBI for major bank fraud cases.
In order to curb the frauds perpetrated by the insiders in the banks the Government of India
has appointed Chief Vigilance Officer in banks. This Chief Vigilance Officer is of the rank of
General Manager and reports directly to the chairman or the Managing Director of the Bank.
The Chief Vigilance Officer maintains close coordination between the bank, Ministry of
Finance, CVC and the CBI. He scrutinises the audit reports and the complaints received from
CVC and initiates action where angle of vigilance is involved.
4.15.2 Investigation and Prosecution of Fraud in Commodities Market
The first organised futures market in India was established in 1875. During the two world
wars the commodities market grew at a faster pace. After independence in order to regulate
this market, the Forwards Contracts (Regulation) Act, 1952 was passed under which the
Forwards Market Commission was established. 552 The Forwards Market Commission’s
headquarter is at Mumbai and its regional office is at Kolkatta. The main aim of the
Commission is to protect the interests of stakeholders in the commodities market and ensure
fairness in trading in the market. The central government has the power to notify
commodities which shall be traded and which shall not be traded in the market. 553 At present
113 commodities including gold and silver are being traded in the commodities market. The
Commission issues certificate of registration to associations in order to carry out business in
forwards contract.
The commission in order to protect the interest of consumers limits the position as to trading,
limits price fluctuation and curbs excessive speculative activity through financial restraints. If
a person makes a false statement to the Commission or enters into any forward contract or
option in goods or trades without being a member of recognised association, then he shall be
criminally liable under the Act.
552
Section 3 of the Forwards Contracts (Regulation) Act, 1952.
553
Section 15 of the Forwards Contracts (Regulation) Act, 1952.
189
The Commission keeps close surveillance on illegal activities in forward markets and
communicates the intelligence received thereon, to the Economic Offences Wing of
concerned State police who are empowered to conduct investigation under the Act. The
police have the power to conduct search, seizure and prosecution in respect of the various
offences committed under the Act. However, in doing so they are assisted by the officers of
the Enforcement Division of the Commission.554
The offences committed under the Act are triable by the court of Judicial Magistrate First
Class. The Judicial Magistrate First Class may authorise by warrant any police officer who is
not below the rank of sub-inspector to enter and search any place where books or documents
related to the contravention under the Act are kept. Where such books are found, the entries
in the books shall be prima facie proof of transactions mentioned therein. The court while
convicting the accused can also order forfeiture of property in respect of which offence is
committed.555
Commodity markets touch the lives of all citizens of the country, either as producers or as
consumers. Hence effective regulation of these markets assumes greater significance. The
Commission should have high credibility and transparency in its functioning. They should be
responsive to any violation. However, so far the Commission has not proved very successful
as is evident from the latest NSEL scam in the forwards market. One of the main
shortcomings of the Commission is that it does not have any teeth or powers to take
corrective or punitive action.556
4.15.3 Investigation and Prosecution of Fraud in Insurance Sector
The insurance sector in India has grown steadily since independence and with liberalisation
the sector has been opened to private players along with upto 26% of foreign equity
participation. Fraud in the insurance sector has the capability of affecting the economic
stability of the country. It can be broadly divided into three categories namely policy holder
or claims fraud; intermediary fraud perpetrated by the intermediary or the agent and internal
554
The Forwards Market Commission, ‘Annual Report (2013)’, p. 45.
555
Section 21 A of the Forwards Contracts (Regulation) Act, 1952.
556
Arindam Mukherjee, “The Shah of Fraud: How his Political Connections Helped One Man Subvert it All”,
Outlook, 16 September 2013, p.8.
190
fraud perpetrated by the director/ manager of the insurance company. The principle statue
regulating the insurance sector in India is the Insurance Act, 1938 along with the Insurance
Regulatory and Development Authority Act, 1999.557 The Act of 1938 provided for the
institution of Controller of Insurance to act as a regulator. However, with the nationalisation
of the insurance industry the role of this institution diminished. 558 The era of liberalisation led
to the passage of the Insurance Regulatory and Development Authority Act, 1999. In order to
regulate and promote orderly growth of insurance and reinsurance sector the Insurance
Regulatory and Development Authority was set up559. The head office of Insurance
Regulatory and Development Authority is at Hyderabad.
Insurance Regulatory and Development Authority regulates the sector by issuing regulations
governing different aspects of the sector. It has laid down guidelines requiring the insurance
companies to have in place fraud monitoring framework so that the cases of fraud are
detected, monitored and reported to the enforcement agencies at the earliest. The insurance
companies are required to file a compliance certificate to that effect. The Insurance
Regulatory and Development Authority do not conduct investigation itself. Once the fraud is
detected and reported the case can be investigated either by the police or the CBI depending
on the nature of fraud.560
4.15.4 Investigation and Prosecution of Fraud in Pension Sector
Till recently only the government employees (which constitute 12% of working population)
were entitled to pension benefit and there was no social security system for other employees.
The defined benefit pension system was causing a lot of fiscal stress. To address this, the
Government of India introduced the National Pension System. This system is based on the
concept of defined contribution pension system. The scheme has been implemented to new
557
The other Acts in the field are the Life Insurance Corporation (LIC) Act, 1956; the Marine Insurance Act,
1963 and the General Insurance Business (GIB) (Nationalization) Act, 1972.
558
Statement of Objects and Reasons of the Insurance Regulatory and Development Authority Act, 1999.
559
Section 3 of the Insurance Regulatory and Development Authority Act, 1999.
560
Circular No. IRDA/SDD/ MISC/CIR/ 009/01/2013 issued by Insurance Regulatory and Development
Authority dated 21 January 2013.
191
entrants in the central government service and is also available on a voluntary basis to all
persons including self employed professionals and others in the unorganised sector. 561
With the introduction of this scheme, the database of pensioners will increase and thus the
vulnerability to fraud will also increase. Therefore, in order to regulate the new pension
system the Pension Fund Regulatory and Development Authority Act was passed in 2013
which mandated the establishment of Pension Fund Regulatory and Development
Authority.562 It was established by the Government of India on 23 rd August, 2003 through an
executive order. The authority protects the interests of those who have subscribed to pension
schemes and promote the orderly growth of pension sector. The authority has the power to
issue directions and impose civil liability.
Pension Fund Regulatory and Development Authority has the powers of conducting
investigation if there are reasonable grounds to believe that the activities of the pension fund
are being conducted in a manner detrimental to the interest of the subscriber or that any
intermediary or any person associated with the schemes of the pension fund has violated any
of the provisions of this Act or the rules or the regulations made or directions issued by the
authority.563 The investigating officer has the power to call any person to furnish information
or produce books or documents as considered necessary for investigation. The books or
documents can be kept in custody for a period of six months. The investigating officer can
ask for reproduction of books if required again. The investigating officer has the power to
examine any person on oath and record statements. If the investigating officer has reasons to
believe that the person who has been ordered to produce books will not do so, then it can
authorise an officer to conduct search and seize the required documents.564
The authority on the basis of information can pass directions or initiate criminal
prosecution.565 The offences committed under the Act are traiable by a Court of Sessions. No
court shall take cognizance of an offence under the Act except a complaint is made by the
561
The Standing Committee on Finance, Fortieth Report on the ‘Pension Fund Regulatory and Development
Authority Bill, 2011(2011)’, p. 35.
562
Section 3 of the Pension Fund Regulatory and Development Authority Act, 2013.
563
Section 16 of the Pension Fund Regulatory and Development Authority Act,
564
2013. Section 17 of the Pension Fund Regulatory and Development Authority
Act, 2013 565 Section 32 of the Pension Fund Regulatory and Development Authority
192
Act, 2013.
192
authority. However, the Central Government has the power to grant immunity from
prosecution. The person shall make an application for granting immunity before the filing of
prosecution proceeds. When the authority is satisfied that the person has made full disclosure,
it may make a recommendation to that effect to the Central Government. The Central
Government is not bound by the recommendation of the authority. However, the immunity
can be withdrawn if the person does not make true disclosure.566
4.15.5 Investigation and Prosecution of Fraud in Telecom Sector
The private sector was allowed to enter in the telecommunication sector in the era of
liberalisation. Therefore in order to regulate the service providers and promote orderly
growth of the sector the Telecom Regulatory Authority of India was established under the
Telecom Regulatory Authority of India Act, 1997.567 Telecom Regulatory Authority of India
regulates the telecom including broadcasting and cable services. 568 One of the main objectives
of the authority is to provide a fair and transparent policy environment which promotes a level
playing field and facilitates fair competition. It has been mandated to ensure compliance of the
terms and conditions of license, lay down the standards of quality of service to be provided
by the service providers and ensure the quality of service.569 This
objective is reached by issuing regulations, orders and directives on issues that come before
it.570
Telecom Regulatory Authority of India has the power to call any service provider to furnish
information relating to the affairs of the service provider. The authority can conduct inquiry
and also inspect account and other documents. 571 The authority may appoint an officer for the
said purpose. The authority can issue directions pursuant to it and anyone who violates it
566
Section 33 of the Pension Fund Regulatory and Development Authority Act, 2013.
567
Preamble of the Telecom Regulatory Authority of India Act, 1997.
568
The Government of India issued a Notification dated 9 January 2004 by which broadcasting and cable
services have been brought within the ambit of telecommunication services in terms of section
2(k) of the Telecom Regulatory Authority of India Act, 1997 as amended by the Telecom
Regulatory Authority of India Act (Amendment) Act, 2000.
569
The Telecom Regulatory Authority of India, ‘Annual Report (2012)’, p. 63.
570
Section 13 of the Telecom Regulatory Authority of India Act, 1997.
571
Section 12 (1) of the Telecom Regulatory Authority of India Act, 1997.
193
shall be criminally liable for the same. 572 The Court of Chief Metropolitan Magistrate or
Chief Judicial Magistrate of first class are authorised to try the offences under the Act.
However, no court shall take cognizance of an offence except a complaint is made by the
authority.573
4.15.6 Investigation and Prosecution of Fraud in Education Sector
Education plays an important role in shaping the future of the country and is essential for
country’s all round development both material and spiritual. 574 The education sector in India
was earlier controlled by the government. But after independence owing to the growth rate of
population the private players also started entering the arena of education. With the
unprecedented growth in the education sector the fraud in the sector has also increased.
The education sector in India can be divided into two limbs- school education and higher
education. The school education is primarily monitored by the state government along with
autonomous bodies like Central Board of School Education and State Boards which accord
affiliation to schools. Although fraud is prevalent in school education also, but the rate of
fraud is much higher in the sector of higher education. The higher education consists of
formal, professional and vocational education. The most common forms of fraud in higher
education are charging of capitation fee, donations, non issuance of receipts in respect of
payments made by or on behalf of students, admission to professional programmes of study
through non-transparent and questionable admission processes, low quality delivery of
education services and false claims of quality of such services through misleading
advertisements, engagement of unqualified or ineligible teaching faculty, forcible
withholding of certificates and other documents of students etc.575
The Ministry of Human Resource Development is the nodal ministry for regulating the
sector. In addition to it, a number of regulators are established to regulate sector specific
572
573
574
The Ministry of Human Resource and Development, ‘Annual Report (2012-13)’, p. 8.
575
Department Related Parliamentary Standing Committee on Human Resource Development, Two Hundred
Thirty-Sixth Report on the ‘Prohibition of Unfair Practices in Technical Educational Institutions,
Medical Educational Institutions and Universities Bill, 2010 (2011)’, p. 1.
higher education.576 These regulators regulate through the tool of recognition. They do not
have any framework for detection, monitoring or reporting of fraud. The existing law in the
country which prohibits and punishes malpractices in higher education is the offence of
cheating etc. under the Indian Penal Code, 1860 for which police has the power to conduct
investigation. Thus, at present there is no law which criminalise unfair practises in
institutions by providing criminal liability for such acts as such.
4.16 Conclusion
From the above discussion it can be safely concluded that the investigation of white collar
crimes is a horrendous task. The criminal justice system of the country has provided for the
criminality in white collar crimes. The mere existence of such laws has a symbolic impact on
the society. An effective enforcement mechanism is required to effectively combat white
collar crimes as a nation’s civilisation can be largely measured by the methods it uses in the
enforcement of criminal law. In India, investigation and prosecution of white collar crimes is
done by a plethora of agencies.
The investigation and prosecution of white collar crimes enumerated under the Indian Penal
Code, 1860 is done by Police or CBI. The Code of Criminal Procedure, 1973 which is the
bedrock of the Indian criminal justice system envisages police as the core investigation
agency. Under it Police has the jurisdiction to investigate all offences. Police is an agency
which exists at state level for investigation of crimes. The white collar crimes are generally
investigated by the Economic Offences Wing of police. CBI is a centralised agency having
different divisions to combat different forms of white collar crime. The powers of CBI are
concurrent and coextensive with the powers of state police. However, in order to avoid
576
The University Grants Commission established under the University Grants Commission Act, 1956 regulates
the formal education. Distance education and open education is regulated by the Distance
Education Council established under statute 28 of the Indira Gandhi National Open University
Act, 1985.576 The technical education is regulated by the All India Council for Technical
Education established under the All India Council for Technical Education Act, 1987. Besides
this the legal education is regulated by the Bar Council of India established under the Advocates
Act, 1961;576 the medical education is regulated by the Medical Council of India established under
the Indian Medical Council Act, 1956;576 the dental education is regulated by the Dental Council
of India established under the Dentists Act, 1948;576 architecture is regulated by the Council of
Architecture established under the Architects Act, 1972 etc to name a few.
duplication and keeping in view the limited resources of the agency an administrative
arrangement has been arrived at by CBI with the state police forces. The procedure of
investigation and the organizational structure; powers of these agencies have also been
discussed.
In addition to these basic agencies there are specialised agencies responsible for regulation,
investigation and prosecution of white collar crimes in particular sectors. These agencies are
created either by the statue or by the executive order of the concerned ministry. These
agencies have a limited role as they are responsible only for a particular genre of the species
of white collar crime. E.g. the CVC, the State Anti-Corruption Bureau, Lokpal, Income Tax
Department, Department of Central Excise and Customs, Serious Fraud Investigation Office,
Directorate Enforcement, Pollution Control Boards etc. Some of the sectors like insurance,
telecom, banking etc. are especially prone to fraud. Therefore regulators like Securities
Exchange Board of India, Reserve Bank of India, Insurance Regulatory and Development
Authority, Telecom Regulatory Authority of India etc. have also been discussed.
One of the important sovereign functions of the State is to prosecute the offenders and
violators of law. Under no form of government, prosecution is permitted to be conducted by
an agency, other than the State. The prosecution is conducted according to the procedure
mentioned in the Code of Criminal Procedure, 1973 and the agency responsible for
conducting prosecution is the public prosecutors appointed by the Centre and the State to
conduct prosecution. In cases where investigation is conducted by CBI, prosecution is
conducted by the Directorate of Prosecution of CBI. In other cases where investigation is
conducted by specialised agencies, the prosecution is carried out either by the departmental
officers or by the prosecutors appointed by the agency or else by the government appointed
public prosecutors.
Once the prosecution is over and the person is convicted for the crime, the main issue is the
quantum of punishment that has to be levied on the accused. This is the most important step
in the criminal justice system of the society as it reflects the society’s condemnation towards
that form of crime. In the next chapter, sentencing issues and policies are discussed in detail.
The chapter also comprises an analysis of the sentencing policies followed in other
jurisdictions in case of white collar crime and the provisions of forfeiting the property of
white collar criminal which is a useful tool for combating money crime.

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CHAPTER FOUR

INVESTIGATION AND PROSECUTION PROCEDURES AND AGENCIES

INVESTIGATION AND PROSECUTION PROCEDURES AND AGENCIES

4.2.2 Central Bureau of Investigation

4.2.3 Procedure of Investigation

4.2.4 Agency for Prosecution

In case of investigation by CBI, the prosecution is conducted by the Directorate of

4.2.5 Procedure of Prosecution

4.3 Investigation and Prosecution of Corruption Cases

4.3.1 Central Vigilance Commission

4.3.2 Central Bureau of Investigation

Whenever a complaint is received by CBI, it is verified. When the information discloses,

4.3.3 State Anti-Corruption Bureau

In order to inquire allegations of corruption, a new body known as Lokpal shall be

399 Section 14 of the Lokpal and Lokayuktas Act,

403 Section 25 of the Lokpal and Lokayuktas Act,

413 Section 25 of the Lokpal and Lokayuktas Act,

If the case is investigated by CBI, then prosecution is conducted by the Directorate of

4.3.6 Time for Sanction

4.4 Investigation and Prosecution of Tax Offences

Directorate General of Central Excise Intelligence (DGCEI) is the apex intelligence

4.4.1 Investigation and Prosecution of Income Tax Violations

4.4.2 Investigation and Prosecution for Central Excise Violations

4.4.3 Investigation and Prosecution for Customs Violations

4.4.4 Investigation and Prosecution for Service Tax Violations

4.4.5 Investigation and Prosecution for Central Sales Tax Violations

4.5 Investigation and Prosecution for Fraud by Companies

Serious Fraud Investigation Office is a multidisciplinary investigation agency where experts

• Where the size of the alleged fraud is estimated to be 50 crores or more; or

4.7 Investigation and Prosecution of Securities Fraud

4.8 Investigation and Prosecution of Cartel Fraud

4.9 Investigation and Prosecution of Offences of Fraud in Foreign Contributions

If a person receives foreign contributions in violation of Foreign Contribution (Regulation)

Nature of Offence Quantum of Penalty

4.10 Investigation and Prosecution of Cyber Fraud

In today’s world of advancement in technology, cyber-crimes are increasing at an exorbitant

4.11 Investigation and Prosecution of Intellectual Property Fraud

4.13 Investigation and Prosecution of offences relating to Black marketing and

4.14 Investigation and Prosecution of Offences relating to Adulteration

4.15 Sector Specific White Collar Crime

4.15.1 Investigation and Prosecution of Banking Fraud

4.15.2 Investigation and Prosecution of Fraud in Commodities Market

4.15.3 Investigation and Prosecution of Fraud in Insurance Sector

4.15.4 Investigation and Prosecution of Fraud in Pension Sector

4.15.5 Investigation and Prosecution of Fraud in Telecom Sector

4.15.6 Investigation and Prosecution of Fraud in Education Sector

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