1
HIGH COURT OF MADHYA PRADESH
PRINCIPAL SEAT AT JABALPUR
DIVISION BENCH
Criminal Revision No.1422/2008
Ajoy Acharya, aged 56 years, s/o
Lt. Shri M.C. Acharya, r/o D-II/7,
Cornwallis Road, Subramaniam
Bharti Marg, New Delhi.
versus
State Bureau of Investigation
Against Economic Offences,
Bhopal.
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For the Petitioner: Shri Amit Prasad, advocate.
For the Resp./State: Shri S.K. Rai, Government Advocate.
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PRESENT: HONOURABLE SHRI JUSTICE RAKESH SAKSENA
HONOURABLE SHRI JUSTICE M.A. SIDDIQUI
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Date of hearing: 08/08/2011
Date of Judgment: 29/08/2011
ORDER
Per: Rakesh Saksena, J
Petitioner has filed this revision against the order dated 11.4.2008,
passed by Special Judge (Prevention of Corruption Act), Bhopal, in Special Case
No.07/2007, rejecting the application filed by him under Section 239 of the
Code of Criminal Procedure seeking discharge from the offences punishable
under Sections 420, 120B of the Indian Penal Code and Section 13(1)(d) read
with Section 13(2) of the Prevention of Corruption Act, 1988.
2. The State Economic Offence Investigation Bureau, Bhopal, on 24.7.2004
registered a case at Crime No.25/2004 in respect of the offences punishable
under Sections 409, 420, 467, 468 and 120B of the Indian Penal Code against
the following office bearers of Madhya Pradesh State Industrial Development
2
Corporation (for brevity ‘MPSIDC’), a Government Company registered under
the Companies Act, 1956:-
(i) Rajendra Kumar Singh, the then Chairman
(ii) Ajay Acharya, the then Director
(iii) J.S. Ramamurthy, the then Director
(iv) M.P. Rajan, the then Managing Director
(v) Narendra Nahta, the then Chairman
(vi) S.R. Mohanty, the then Managing Director
and against the beneficiary Chairmen/Directors of 42 other companies.
On 6.8.2004, prosecution added Section 13(1)(d) read with Section
13(2) of the Prevention of Corruption Act, 1988 (for brevity ‘Act’) also.
3. In short, the accusations against the Chairpersons and the Directors of
MPSIDC are that they were involved in a conspiracy to defraud MPSIDC to the
tune of crores of rupees and to misappropriate the surplus fund and in
pursuance thereof, they passed resolution on 19.4.1995 knowing fully well that
it was illegal and unauthorized act and, thereafter, continued to act upon it and
in the process, also misappropriated additional sum of Rs.517 crores, secured
as debt, by disbursing the entire money of MPSIDC, to various companies as
loans in the name of Inter Corporate Deposits (ICDs), even without obtaining
reasonably sufficient collateral security for repayment thereof.
4. As per charge sheet, M.P. Adyogik Vikas Nigam (MPAVN), which was
renamed as MPSIDC was constituted to promote industrialization in the State
of Madhya Pradesh and to provide financial assistance to Industrial Units in the
State. The State Cabinet in a meeting held on 28.1.1994 appraised the
activities of the Corporation as well as its financial status. A decision was taken
to stop MPSIDC from financing the industries any further. For the sake of
convenience resolution of the Cabinet Meeting is reproduced as under:-
3
“Audyogik Vikas Nigam bhavishya me vittiya
sahayata band kare tatha vrahad avam
madhyam udyogon ko protsahan aur pradesh
me udyogon ko buniyadi suvidhaon ke vikas ka
karya prabalta se karen.”In accordance with the Cabinet decision the Board of Directors of MPSIDC at
its 225th meeting held on 31.1.1994 passed a resolution to stop the financial
assistance forthwith. The corresponding agenda-note prepared by the
Company Secretary Pankaj Dubey is reproduced as under:-
“That, after the review of performance, the Cabinet
took the decision that in view of the recent
liberalization on measures taken by the Government
of India in respect of the economy and the Industry,
the RBI approval to the All India Financial Institutions/
Banks to sanction projects up to Rs.50 crores, the
lowering of interest rate by the Banks, the comfortable
CRR and SLR of the Banks and consequent enhanced
liquidity, the considerably enhanced degree of
professional and commercial orientation requiring
financing under the changed economic scenario, there
is no justification for MPSIDC to engage in financing
and it should be stopped forthwith. The Cabinet also
noted that the performance of MPSIDC in respect of
its financial operations had been rather unsatisfactory
and has resulted in an adverse portfolio situation and
evidenced by the asset classification as on 31.03.1993
whereby approx 60% of the loan account were in sub-
standard/doubtful/loss category.”Acting upon the Cabinet decision, Department of Commerce and
Industry, Government of M.P., also issued a circular No.F-20/1/94/11/B dated
3.3.1994 requiring all the departments/institutions concerned including
MPSIDC to discontinue financial assistance to industries and also to
concentrate on development of basic infrastructure amenities to the large as
well as medium scale industries in the State.
However, pursuant to a conspiracy hatched for defrauding the MPSIDC,
the Board of Directors, in utter contravention of the policy decision taken by
the Cabinet, consequent resolution and the circular dated 3.3.1994, passed a
resolution at its 229th meeting held on 19.4.1995, authorizing M.P. Rajan, the
4then Managing Director, to invest surplus funds of MPSIDC in Inter Corporate
Deposits (ICDs), Fixed Deposits (Fds) or in any other form, and also to decide
the period of investment and rate of interest from time to time. This resolution
was also violative of (a) the Memorandum and Article of Association of MPSIDC
and (b) the provisions of sub-section (1)(e) and sub-section(4) of Section 292
of the Companies Act, 1956, which imposed restrictions and conditions on the
exercise by the Board of Directors of powers to advance loans. Moreover, in
the 32nd Annual General Meeting of the MPSIDC held on 21.8.1998, the limit of
financial assistance to the companies was enhanced from Rs.3.00 crores to
Rs.15.00 crores, without obtaining any approval from the State Government,
as contemplated under sub-clause (ii) of Article 110 of the Memorandum of
Association.
At the 240th meeting of the Board of Directors held on 30.11.1998, M.P.
Rajan, the then Managing Director, was able to get the borrowing capacity of
MPSIDC increased from 175 crores to 500 crores on the ground that a total
amount of Rs.173.72 crores had already been borrowed whereas by the end of
the financial year, investment (presumably by way of ICDs) was expected to
reach their limit of Rs.500 crores. By way of this resolution, the Managing
Director was authorized to secure loans as well as to invest the amount thus
obtained. This resolution was passed without prior approval of the State
Government as required under Clauses 57, 58 and 60 of the Memorandum of
Association, despite the fact that the Cabinet had already disapproved the
activity of financing/funding by MPSIDC.
Under aforesaid resolution dated 30.11.1998, a total amount of
Rs.511.57 crores was collected by M.P. Rajan and other Directors of MPSIDC
as per the following details:-
5 S.No. Particulars of lending Institution Amount (Rs.) 1. Indian Industrial Development Bank 150.00 crores 2. Mumbai District Co-operative Bank 110.00 crores 3. Bonds of MPSIDC (14.4%) 81.61 crores 4. Bombay Mercantile Co-operative Bank Ltd. 75.00 crores 5. Apex Urban Bank of Maharashtra and Goa. 55.00 crores 6. Syndicate Bank (Overdrafts) 12.00 crores 7. Subordinate Units of the Corporation and other 27.96 crores Corporations of M.P. Total 511.57 croresDuring the period from 1995 to 2002, all the accused named above,
under the garb of the resolution dated 19.04.1995, distributed, even without
taking adequate security for repayment, crores of rupees by way of ICDs to as
many as 42 companies and thus, caused wrongful gain to the Directors of
these Companies and corresponding wrongful loss to the MPSIDC.
M.P. Rajan was relieved of the charge from the post of Managing
Director on 20.1.2000. However, at its 243rd meeting held on 25.5.2000 under
the Chairmanship of Narendra Nahta, a decision was taken to continue with the
financing by way of ICDs ignoring the adverse comments recorded in the
Financial Status Report.
The Comptroller and Auditor General of India, in his report pertaining to
the financial year ending 31st of March, 2000, also noted that while investing
the surplus amount in the ICDs, the Board of Directors neither formulated
policies/procedures/guidelines nor followed the directions issued by the
Reserve Bank of India in this regard. It was also pointed out that conferment
of power on the Managing Director to make loans without fixing the maximum
limit of deposits was contrary to the provisions of Companies Act.
Reserve Bank of India, while observing that under Section 45-I(a) of the
Reserve Bank of India Act, 1934, registration of MPSIDC as a non-banking
6financial institution (NBFI) was a pre-condition for the purpose, also raised
objection to the investment of surplus money in the ICDs. In the wake of the
objection, the Board of Directors, at its 251st meeting, resolved to apply for the
registration and, accordingly, on 6.11.2002, the then Dy. General Manager of
MPSIDC forwarded the corresponding proposal to the RBI. In turn, the RBI
issued a notice to show cause not only against proposed rejection of the
registration application but also against prosecution for the offence punishable
under Section 58B(4A) of the RBI Act of 1934 for functioning as a NBFI right
from 19.4.1995 without ensuring that as on 31.12.2002, the Net Owned Fund
(NOF) ought to have been Rs.200 lacs whereas the balance sheet reflected
that as on 31.3.2002, NOF was minus Rs.9415.29 lacs. Ultimately, the RBI, not
being satisfied with the explanation tendered on behalf of MPSIDC in its reply
dated 30.7.2003, proceeded to reject the registration application vide its order
dated 18.3.2004.
5. On the basis of above facts, the cognizance against the petitioner as
well as other accused persons had been taken upon charge sheet being filed
by the Economic Offence Investigation Bureau, Bhopal. A supplementary
charge sheet was also presented by the Bureau on 31.3.2010 against the
Directors and Promoters of other companies, who obtained benefits as a result
of acts and conducts of the office bearers of MPSIDC.
6. According to prosecution, by the conduct of the Directors of the MPSIDC
M/s Archana Airways Ltd. obtained illegal financial benefit of Rs.5.50 crores.
Since the petitioner by corrupt and illegal means alongwith other accused
persons helped the aforesaid company to obtain pecuniary advantage and
made the Government to suffer heavy pecuniary loss, he was liable to be
prosecuted for the offences under Sections 420, 120B of the Indian Penal Code
and Section 13(1)(d) read with Section 13(2) of the Act. The petitioner, at the
7time of commission of the offence, was Director of MPSIDC and also
Commissioner of Industries of M.P. Government, but, at the time of filing of
charge sheet, he was not occupying the said office and instead was posted as
Financial Adviser (Acquisition) to the Ministry of Defence, Government of India,
at Delhi, therefore, a charge sheet was filed without obtaining sanction under
Section 19 of the Act and also sanction under Section 197 of the Cr.P.C.
7. Petitioner filed an application under Section 239 of the Code of Criminal
Procedure for being discharged on the ground of absence of sanction to
prosecute him by the concerned Government and also on the ground that from
the accusation leveled against him, no commission of offence was disclosed
against him, however, in view of the proposition laid down by the Apex Court
in the case of Prakash Singh Badal and another vs. State of Punjab
and others-(2007) 1 SCC 1 and in the facts and circumstances of the case
the same was dismissed by the impugned order, aggrieved whereby, the
petitioner has filed this revision.
8. Shri Amit Prasad, learned counsel for the petitioner, submitted that the
petitioner is a Government servant belonging to Indian Administrative Service,
still continuing in Government service and was Additional Secretary in the
Department of Defence Production, Government of India. Since petitioner was
an officer of the Indian Administrative Service, the President of India was the
appointing as well as dismissing authority. Even if he was encadred to State of
M.P., or proceeded on deputation to any organization, or the Central
Government, he was not removable from his service save with the sanction of
Central Government. He submitted that in view of the provisions of Article 320
(3)(c) of the Constitution of India, on all the disciplinary matters affecting a
person serving under the Government of India or the Government of a State in
the civil capacity, the Union Public Service Commission or the State Public
8Service Commission as the case maybe, should be consulted. All India Services
were included in the Union List of VIIth Schedule of the Constitution.
Therefore, the competent authority for according sanction for the prosecution
of the petitioner was the Central Government. It did not make any difference
that he was employed in connection with the affairs of the State or on
deputation in Central Government. The petitioner was only a nominee Director
on the Board of MPSIDC by virtue of his posting as Industries Commissioner.
He was not getting any remuneration or salary or fees from the MPSIDC. He
continued to be in Indian Administrative Service. It was part of his official duty
to attend the Board meeting, once a notice was received from the MPSIDC.
Learned counsel submitted that the ratio of the Apex Court decision rendered
in case of Prakash Singh Badal’ (supra) was not applicable to the
petitioner.
9. Apart from the question of sanction, learned counsel for the petitioner
submitted that the decision taken at the Cabinet Review Meeting and the
meeting of the Board dated 31.1.1994, which adopted the decision of Cabinet
meeting clearly showed that the ‘financial assistance’, as discussed in the said
meetings, pertained only to project finance. While business of Project Finance
was stopped, the expenditure continued to create a compelling situation for
MPSIDC to generate profits on its own without there being any line of
business. In these prevailing circumstances, the Agenda was circulated in the
229th Board Meeting of MPSIDC to be held on 19.4.1995. In the said meeting ,
the important phrases viz. “availability of surplus funds”; “to be given to
reputed companies”; “for a period of 3-6 months”; “could be called back at the
time of need”; “interest rates higher than 8.5% and 15.5%” were explained in
detail. The agenda also provided that it was within the powers of the Board to
give Inter Corporate Deposits. The Board Resolution was subsequently
9confirmed in 230th Board Meeting, which was attended by Shri K.Shanker
Narain, Member on the Board and also the Principal Secretary, Commerce and
Industries. The Company Secretary Shri Pankaj Dubey, was responsible for
ensuring the legal compliance of Board Minutes, yet no proceeding was
initiated against him by the prosecution. The prosecution adopted ‘pick and
chose’ policy in discriminatory manner. Prosecution committed error in inter-
relating the transactions of “Project Finance” , “Term Loan”, “Inter Corporate
Deposits (ICDs)”. Counsel further submitted that there was no allegation in the
charge sheet that there was any kind of secrete meeting between petitioner
and the beneficiaries of ICDs or other co-accused persons. It was not said by
the prosecution that out of the proceeds of ICDs, some kick-back was given to
the petitioner, or that petitioner desired to extend favour to any particular
person. Sitting on the board of MPSIDC was a part of extension of his duty as
Industries Commissioner by virtue of his official duty. As such, the petitioner
was also entitled for the protection in accordance with Section 197 Cr.P.C..
Even if there was bonafide mistake or error in decision making, petitioner was
not liable to be prosecuted on the charge of corruption in the absence of any
dishonest or malafide intention on his part.
10. Shri S.K. Rai, learned Government Advocate, on the other hand,
submitted that it was a situation where at the relevant time the petitioner was
holding the office of a public servant as Industries Commissioner and also the
Director of the Board of MPSIDC. The allegation against him pertained to his
office of Director of the Board only and not as Industries Commissioner. For
the purpose of this case, the petitioner ceased to be in the office of MPSIDC or
even the Industries Commissioner as soon as he relinquished the said office.
At the time when charge sheet was filed, he was on deputation with the Union
Government as Additional Secretary to the Department of Defence Production.
10In this situation, in view of the law laid down by the Apex Court in Prakash
Singh Badal (supra), no sanction was required for taking cognizance against
him, since the office, which, as a public servant, the petitioner abused, was
different than his present assignment of deputation. The offence under
Section 13(1)(d) read with Section 13(2) of the Act is the time-related offence.
Placing reliance on the decision of Prakash Singh Badal (supra), learned
Government Advocate submitted that the question relating to sanction under
Section 197 Cr.P.C. Was not necessarily to be considered as soon as the
complaint was lodged. This question might have arisen at any stage of the
proceeding, and question whether the sanction was necessary or not might
have to be determined from stage-to-stage. Apart from it, the offence of
cheating under Section 420 IPC or for that matter offences relatable to
Sections 467, 468, 471 and 120-B IPC, by their very nature not be regarded as
having been committed by any public servant while acting or purporting to act
in discharge of official duty. In such case, the official status was an
opportunity for commission of the offence. Learned Government Advocate
further submitted that despite the decision of the Cabinet Review Meeting
dated 28.1.1994 and Board Meeting dated 31.1.1994 where the decision
relating to discontinuance of Project Finance was taken, deliberately, the
petitioner, who was present in the Board Meeting dated 19.4.1995 alongwith
other Directors, passed resolution and engaged in the activities of financing on
the pretext and the name of Inter Corporate Deposits due to which MPSIDC
suffered heavy losses. The Board Resolution dated 19.4.1995 empowering the
Managing Director to give Inter Corporate Deposits was in violation of the
provisions of Section 292(1)(e) read with Section 292(4) of the Companies Act
and also in violation of the Memorandum and Articles of Association.
11. Perusal of the charge sheet indicates that on 28.1.1994, in the meeting
11of Cabinet, petitioner Ajoy Acharya was present. In the meetings of the Board
held on 31.1.1994, 27.7.1994 and 19.4.1995 also petitioner was present as a
Director. It is apparent that he knew fully well that Cabinet categorically
issued directions for discontinuance of the Financial Assistance, yet, as a
Director, he, by abusing his post in connivance of others, co-operated in
passing the resolution about making Inter Corporate Deposits. To prove
conspiracy, there cannot always be a direct evidence. Existence of a
conspiracy can be inferred mostly by the circumstances. In fact, because of the
difficulties in having direct evidence of criminal conspiracy, once reasonable
ground is shown for believing that two or more persons have conspired to
commit an offence then, anything done by anyone of them in reference to their
common intention after the same is entertained becomes, according to Section
10 of the Evidence Act, relevant for proving both conspiracy and the offences
committed pursuant thereto (Noor Mohammad Mohd. Yusuf Momin v.
The State of Maharashtra-AIR 1971 SC 885).
12. Merely because Company Secretary, whose role was to ensure the legal
compliance of the Board Minutes, was present in all the meetings, but was not
prosecuted, did not exonerate the petitioner of his conduct of allowing the
agenda to be passed in 229th Meeting. It is not necessary that all the
conspirators must know each and every detail of the conspiracy as long as they
are co-participators in the main object of the conspiracy. There may be so
many devices and techniques adopted to achieve the common goal of the
conspiracy and there may be division of performances in the chain of actions
with one object to achieve the real end of which every collaborator be
interested……………even if some steps are resorted to by one or two of the
conspirators without the knowledge of the others it will not affect the
culpability of those others when they are associated with the object of the
12conspiracy (Yash Pal Mittal v. State of Punjab, AIR 1977 SC 2433).
13. As a director, petitioner also appears to have acted in contravention of
the provisions of Section 292(1)(e) and sub-section (4) of the Companies Act,
1956. The relevant provision of Section 292 is quoted hereunder:-
“292. Certain powers to be exercised by Board only at
meeting.-(1) The Board of directors of a company shall exercise the
following powers on behalf of the company, and it shall do so only by
means of resolutions passed at meetings of the Board:-(a) ................ (b) ................ (c) ................ (d) ................ (e) the power to make lonas:[Provided that the Board may, by a resolution passed at a meeting,
delegate to any committee of directors, the managing director, [***]
the manager or any other principal officer of the company or in the
case of a branch office of the company, a principal officer of the
branch office, the powers specified in clauses (c), (d) and (e) to the
extent specified in sub-sections (2), (3) and (4) respectively, on such
conditions as the Board may prescribe:(2) Every resolution delegating the power referred to in clause
(c) of sub-section (1) shall specify the total amount [outstanding at
any one time] up to which moneys may be borrowed by the delegate.(3) Every resolution delegating the power referred to in clause
(d) of sub-section (1) shall specify the total amount up to which the
funds may be invested, and the nature of the investments which may
be made, by the delegate.(4) Every resolution delegating the power referred to in clause
(e) of sub-section (1) shall specify the total amount up to which loans
may be made by the delegate, the purposes for which the loans may
be made, and the maximum amount of loans which may be made for
each such purpose in individual cases.”It is apparent by the above provisions that powers of the Board of Directors of
Company have been restricted in the matter of advancing loan by putting
limitation on it. In the instant case, no specific or definite guidelines were
formulated. Apart from it, since the Financial Assistance by the MPSIDC was
expressly discontinued by the Cabinet decision, no investment, advancement of
loan or deposits ought to have been made by the Directors of the Board of
13MPSIDC, except with the prior permission of the State Government. While
appraising the financial transactions of the MPSIDC on 31 st March 2000
Comptroller and Auditor General (CAG) observed that while taking decision of
making Inter Corporate Deposits in the month of April 1995 the Board neither
ascertained its policies, procedure and relevant guidelines, nor followed the
directions issued by the Reserve Bank of India and delegated all the powers for
taking all the relevant decisions in making deposits. Until the maximum limit of
deposit was not ascertained, the delegation of powers in this regard was
against the proviso of the Companies Act.
14. It was also brought to notice that the Industrial Development
Corporations of all States were recognized as “Non-Banking Financial
Institutions (NBFI)” after the 1997 amendment in the Reserve Bank of India
Act, 1934 (Chapter III-B). As such, MPSIDC ought to have been registered as
‘Non-Banking Financial Institution (NBFI)’ with the Reserve Bank of India under
the provisions of Section 45-I-A. On occasion, the objections in this regard
were raised by the Auditors of the MPSIDC. In the year 2003, Reserve Bank of
India, Bhopal, also issued a show cause notice to MPSIDC for working as NBFI
without getting registered under the provisions of Reserve Bank of India Act,
1934.
15. It has come on record that by making Inter Corporate Deposits number
of companies including MPSIDC suffered heavy losses. The argument advanced
by the learned counsel for the petitioner that Economic Offences Bureau chose
to prosecute Directors/Chairman of only those companies, who made default
and left out those who returned the money, does not incur any benefit to
petitioner. It is always open for the investigating agency and the court to see
and summon those who appear involved in the commission of offence at
different stages of investigation and the trial.
14
16. Placing reliance on the case of Soma Chakravarty v. State through
CBI-(2007) 5 SCC 403, learned counsel for the petitioner submitted that the
courts although may take strict view of an offence where a fraud is alleged
against a public servant, but only because it is found to have been committed,
the same by itself may not be sufficient to arrive at a conclusion that all the
officers who have dealt with the files at one point of time or the other would
be taking part in conspiracy thereof or would otherwise be guilty for aiding or
abetting the offence. It is necessary to deal with the individual acts of criminal
misconduct for finding out a case therefor. It was also observed by the Apex
Court that the court also should have considered the question having regard to
the ‘doctrine of parity’ in mind.
17. In the instant case, there is evidence on record that in the Cabinet
Meeting in which the Financial Assistance was decided to be stopped and in
the Board Meeting in which the said decision was adopted by resolution, the
petitioner was present. All the Directors and the Managing Directors were
sought to be prosecuted. In these circumstances, it cannot be held that the
petitioner was discriminated and or he was not connected with the said
transaction.
18. The submission made by the learned counsel for the petitioner that the
Inter Corporate Deposits (ICDs) cannot be equated with Financial Assistance,
which was prohibited by the Cabinet, cannot, at this stage, be accepted, since
it would be a matter of evidence to be appreciated during the trial. As
commonly known, an Inter Corporate Deposit is essentially a short term
assistance provided by one corporate with surplus fund to another in need of
funds. It is an assistance given by cash-rich company to low rated cash and
starved company unable to get a loan. Unsecured loan, but may be co-
lateralized sometime for weaker companies to get benefit of credit
15enhancement. Interest rates are higher than bank rate. The risk premium is
also added in ICDs. It is considered as the last resource as a source of
finance. In our opinion, at this stage it cannot be held that Inter Corporate
Deposits did not amount to Financial Assistance.
19. Without critically scrutinizing and meticulously examining the evidence
and material on record at this stage, it seems to us that the act and conduct of
the petitioner cannot be described merely as an error of judgment and that he
did not abuse his position in passing the resolution of making Inter Corporate
Deposits (ICDs) in contravention of the decision taken in the Cabinet Meeting.
At this stage, the proposition laid down by the Apex Court in case of State of
Madhya Pradesh v. Sheetla Sahai and others-(2009) 8 SCC 617 does
not render any help to petitioner.
20. Learned counsel for the petitioner next submitted that without obtaining
the previous sanction, prosecution under the provisions of Prevention of
Corruption Act could not be launched against the petitioner. He could not be
prosecuted for the other offences also in the absence of sanction by the
appropriate government under Section 197 Cr.P.C. Since the petitioner was a
member of Indian Administrative Service and was nominated as Director of the
Corporation by the Governor because of his being Commissioner of Industries,
Government of M.P., no cognizance against him in view of Section 19 of the
Act and Section 197 of the Cr.P.C. could have been taken in the absence of
sanction from the Central Government. Learned counsel referred various
articles of the Constitution of India viz. Article 77(3), 311(2)(a), 312(2), 320(3)
(c) and the Entry No.70 of the Union List of VIIth Schedule of the Constitution
of India. Learned counsel submitted that since the nomination of the
petitioner as Director was merely an extension of a service, it could not be held
that he was not a public servant. Even his being on deputation with the Union
16Government as Additional Secretary, Department of Defence Production, was
an incident of a service/employment. Since the petitioner continued to be in
the employment of the Union Government, he could not be said to have
ceased to hold the office. Placing reliance on the decision of the Apex Court
rendered in Balakrishnan Ravi Menon v. Union of India-(2007) 1 SCC
45, learned counsel contended that the petitioner could have been held to
have not holding the said office if he might have retired, superannuated,
discharged or dismissed, but it was not the case of the prosecution. He further
submitted that for prosecution of the petitioner sanction under Section 197 of
the Code of Criminal Procedure was also essential since the conduct attributed
to the petitioner purported to be in the discharge of his official duty. The
protection to public servant under Section 197 Cr.P.C. is available even after he
ceased to hold the office. It is not disputed that MPSIDC is a Government
Company. Since petitioner was Commissioner, Industries, he was nominated
as a Director by the Governor in exercise of powers conferred by Clause 89(3)
of the Memorandum of Articles of Association of the Company. Clause 89(3)
provides as under:-
“89(3). The tenure of all Directors including Chairman and
excluding Managing Director shall be for the period as fixed or
determined by the State Government from time to time. The
Managing Director shall retire on his ceasing to hold the office of
the Managing Director. A retiring Director shall be eligible for
reappointment.”Clause 89(4) provides as under:-
“89(4). The Governor shall have the power to remove any
Director appointed and nominated by him including the Chairman
and the Managing Director from Office at any time in his absolute
discretion.”Clause 91 provides about the payment of salary and allowances to Director.
Clause 91 reads as under:-
17
“91. The Directors appointed shall be paid such salary and
allowances subject to the provisions of Section 309 of the Act, as
may from time to time be determined by the Governor, subject to
the provisions of Section 314 of the Act.”21. From the above provisions in the Memorandum and Articles of
Association of the Company it is apparent that the Governor had power to
remove any Director appointed and nominated by him from the “Office” at any
time in his absolute discretion. It is also apparent that a Director was to be
paid salary and allowances subject to the provisions of Section 309 of the
Companies Act and as may be determined by the Governor from time to time.
22. Learned counsel for the petitioner contended that the petitioner, as a
Director, never received any payment or allowances from the Corporation,
therefore, he could not be said to be a person in the service or pay of a
Government Company. We are unable to accept the submission advanced by
the learned counsel. Since the Directors were entitled for the salary and
allowances, merely by the fact that they chose not to receive the same cannot
change the nature of their service. In a similar situation, the Apex Court while
explaining the term ‘office of profit’ in reference to Articles 102, 103(2) of the
Constitution of India held that an ‘office of profit’ is an office, which is capable
of yielding a profit or a pecuniary gain. The question whether a person holds
an office of profit is required to be interpreted in a realistic manner……….for
deciding the question as to whether one is holding an office of profit or not,
what is relevant is whether the office is capable of yielding a profit or
pecuniary gain and not whether the person actually obtains monitory gain. If
the ‘pecuniary gain’ is ‘receivable’ in connection with the office then it becomes
an ‘office of profit’, irrespective of whether such pecuniary gain is actually
received or not.
23. Approving the ratio of the decision rendered by the Apex Court in case
18of R.S. Nayak v. A.R. Antulay-AIR 1984 SC 684, the Apex Court in
Prakash Singh Badal (supra) held that the relevant date with reference to
which a valid sanction is sine qua non for taking cognizance of an offence
committed by a public servant as required by Section 19 is the date on which
the court is called upon to take cognizance of the offence of which he is
accused (Para 16). Where the act performed by the public servant under the
colour of office is for the benefit of the officer or for his own pleasure Section
19(1) of the Act will come in. Therefore, Section 19(1) is time and offence
related (Para 20 & 21). The contention as advanced in that case that even if
the offending act is committed by a public servant in his former capacity and
even if such a public servant has not abused his subsequent office, still such a
public servant needs protection of Section 19 (1) of the Act throughout, as long
as he continues to be in public employment, and that the judgment of the
Supreme Court in R.S. Nayak’s case (1984) 2 SCC 183 holding that the
subsequent position of the public servant to be unprotected was erroneous,
was held to be clearly untenable as Section 19(1) of the Act was held to be
time and offence related (Para 23 & 24).
24. In Prakash Singh Badal (supra), the Apex Court with approval
quoted in para-23 of the decision rendered in R.S. Nayak’s case as under:-
“23. Offences prescribed in Ss. 161, 164 and 165, I.P.C. and
S. 5 of the 1947 Act have an intimate and inseparable relation
with the office of a public servant. A public servant occupies
office which renders him a public servant and occupying the
office carries with it the powers conferred on the office. Power
generally is not conferred on an individual person. In a
society governed by rule of law power is conferred on office or
acquired by statutory status and the individual occupying the
office or on whom status is conferred enjoys the power of
office or power of flowing from the status. The holder of the
office alone would have opportunity to abuse or misuse the
office. These sections codify a well-recognized truism that
power has the tendency to corrupt. It is the holding of the
office which gives an opportunity to use it for corrupt motives.
Therefore, the corrupt conduct is directly attributable and
flows from the power conferred on the office. This
19interrelation and interdependence between individual and the
office he holds is substantial and not severable. Each of the
three clauses of sub-section (1) of S.6 uses the expression
‘office’ and the power to grant sanction is conferred on the
authority competent to remove the public servant from his
office and S.6 requires a sanction before taking cognizance of
offences committed by public servant. The offence would be
committed by the public servant by misusing or abusing the
power of office and it is from that office, the authority must
be competent to remove him so as to be entitled to grant
sanction. The removal would bring about cessation of
interrelation between the office and abuse by the holder of
the office. The link between power with opportunity to abuse
and the holder of office would be severed by removal from
office. Therefore, when a public servant is accused of an
offence of taking gratification other than local remuneration
for doing or forebearing to do an official act (S.161, I.P.C.) or
as a public servant abets offences punishable under Sections
161 and 163 (S.164, I.P.C.) or as public servant obtains a
valuable thing without consideration from person concerned in
any proceeding or business transacted by such public servant
(S.165, I.P.C.) or commits criminal misconduct as defined in
Section 5 of the 1947 Act, it is implicit in the various offences
that the public servant has misused or abused the power of
office held by him as public servant. The expression ‘office’ in
the three sub-clauses of Section 6(1), would clearly denote
that office which the public servant misused or abused for
corrupt motive for which he is to be prosecuted and in respect
of which a sanction to prosecute him is necessary by the
competent authority entitled to remove him from that office
which he has abused. This interrelation between the office
and its abuse if severed would render S.6 devoid of any
meaning. And this interrelation clearly provides a clue to the
understanding of the provision in S.6 providing for sanction by
a competent authority who would be able to judge the action
of the public servant before removing the bar, by granting
sanction, to the taking of the cognizance of offences by the
Court against the public servant. Therefore, it unquestionably
follows that the sanction to prosecute can be given by an
authority competent to remove the public servant from the
office which he has misused or abused because that authority
alone would be able to know whether there has been a
misuse or abuse of the office by the public servant and not
some rank outsider.”It is true that in Balakrishnan Ravi Menon (Supra) it was observed that in
case where the person is not holding the said office as he might have retired,
superannuated, be discharged or dismissed then the question of removing
would not arise. In that case, the situation was that at the time of alleged
offence, the petitioner was appointed by the Central Government, however, he
demitted his office after completion of five years’ tenure. Therefore, at the
20relevant time, when the charge sheet was filed, the petitioner was not holding
the office of Chairman of Goa Shipyard. Hence, there was no question of
obtaining the sanction of the Central Government. In the present case, when
the offence was alleged to have been committed by the petitioner, he was
holding the office of Director of MPSIDC and or the Commissioner of Industries
in the cadre of Government of M.P.. However, when charge sheet was filed,
petitioner had ceased to hold that office and was on deputation as Additional
Secretary in the Department of Defence Production, Government of India.
Here it is relevant to note that the accusation against the petitioner was of
abusing the office of Director MPSIDC, which is a Government Company. Apart
from it, when he went on deputation, his cadre was changed and he ceased to
hold the “office”, which was said to have been abused or misused by him. In
these circumstances, it cannot be held that the proposition laid down by the
Apex Court in case of R.S. Nayak (supra) was limited only in the cases where
the person demitted the office by retirement, superannuation, dismissal etc.
25. In Prakash Singh Badal (supra), the Apex Court considered the above
aspect as under:-
“23. The main contention advanced by Shri Venugopal, learned
Senior Counsel appearing for the appellant is that a public servant
who continues to remain so (on transfer) has got to be protected
as long as he continues to hold his office. According to the
learned counsel, even if the offending act is committed by a public
servant in his former capacity and even if such a public servant
has not abused his subsequent office still such a public servant
needs protection of Section 19(1) of the Act. According to the
learned counsel, the judgment of this Court in R.S. Nayak case
holding that the subsequent position of the public servant to be
unprotected was erroneous. According to the learned counsel,
the public servant needs protection all throughout as long as he
continues to be in the employment.24. The plea is clearly untenable as Section 19(1) of the Act is
time and offence related.”26. Learned counsel for the petitioner placed on record an Office
Memorandum issued by the Government of India, Ministry of Personnel, Public
21Grievances & Pensions, Department of Personnel & Training, New Delhi, and
submitted that even according to the guidelines issued by the Ministry to
investigating agencies, it is apparent that while holding different posts on
transfer or promotion, a civil servant cannot be treated as holding different
“Offices” within the meaning of relevant sections of the Prevention of
Corruption Act. The only office held by him is that of the member of the
service to which he belongs as a civil servant, irrespective of the post held on
transfer/promotion etc. The requirement of Sanction under Section 19 of the
said Act continues to be applicable so as the officer continues to be a member
of civil service. For reference, the said Memorandum is quoted as under:-
No.107/13/2007-AVD.I
Government of India
Ministry of Personnel, Public Grievances & pensions
Department of Personnel & Training
***
North Block, New Delhi
Dated: June 27, 2008OFFICE MEMORANDUM
Sub: Sanction for prosecution u/s 19(1) of the P.C. Act.
Section 19 of the Prevention of Corruption Act,
1988, ……………………………………….:“19 (1) ……………………………………..
(a) ………………………………
(b) ……………………………..
(c) ………………………………
(2) …………………………………………..
2. Hon’ble Supreme Court, in the case of R.S. Nayak vs. A.R. Antulay
(1984) 2 SCC 183, while interpreting the corresponding provisions of
22Prevention of Corruption Act, 1947, in regard to requirement of a sanction
in a case where the accused public servant had ceased to hold the office
which he is alleged to have misused or abused, though holding another
office at the time when the Court is called upon to take congnizance of an
offence, held that upon a true constructionof Section 6 of P.C. Act, 1947,
it is implicit therein that sanction of that competent authority alone would
be necessary which is competent to remove the public servant from the
office which he is alleged to have been misused or abused for corrupt
motive and for which a prosecution is intended to be launched against him.
It held that if the accused has ceased to hold that office by the date the
Court is called upon to take cognizance of the offences alleged to have
been committed by such public servant, no sanction under Section 6 would
be necessary despite the fact that he may be holding other office on the
relevant date which may make him a public servant as understood in
Section 21. The Hon’ble Court further held that some earlier judgments
to the effect that if a public servant ceases to hold the earlier office
abused by him but continuous to be a public servant by holding another
office, sanction of the competent authority to remove him from latter
office is required, as not laying down correct law and cannot be accepted
as making a correct interpretation of Section 6 of the Prevention of
Corruption Act, 1947 (corresponding to Sec. 19 of Prevention of
Corruption Act, 1988).
3. These issues again came up before the Hon’ble Supreme Court in
the cases of Prakash Singh Badal and Another vs. State of Punjab
2006(13) SCALE 54, K. Karunakaran Vs. State of Kerala 2006 (13) SCALE
88 and in the case of Lalu Prasad Yadav Vs. State of Bihar 2006 (13)
SCALE 91. The Hon’ble Supreme Court endorsed the above propositions in
the R.S. Nayak case and did not agree that the views expressed in R.S.
Nayak vs. A.R. Antulay case are not correct or that the said decision
should be taken as per incuriam or that it was a case of “causus omissus”.
4. A question has been raised whether the ration of above cited
judgments is applicable to civil servants who, while being member of a
service or cadre, hold different posts on transfer or promotion etc. at
different points of time in the course of their service. A perusal of the
various judgments shows that in these cases, the litigating parties were
political personalities who held offices like Chief Minister or MP or MLA
etc. at different points of time and, therefore, though they were public
servants in terms of Section 21 of the IPC while holding such offices, they
were treated as holding different ‘offices’ at the time of taking of
cognizance of the offence than one held and allegedly abused by them in
respect of which the prosecution is sought to be launched. It is in the
context of the nature of public offices held by the public figures involved
in the above cases that the issues relating to public servant holding
plurality of offices, or holding another office as a public servant etc.
arose. These judgments did not discuss the case of a civil servant, who as
a member of service/cadre holds different positions/posts on transfer or
promotion in the course of his career in Government service. The issue
whether holding of these different posts amounts to holding different
23
‘offices’ within the meaning of the relevant Sections of Prevention of
Corruption Act was also not before the Hon’ble Court in the above cited
cases.
5. The question raised has been examined in consultation with the
Ministry of Law & Justice. It is, hereby clarified that while holding
different posts on transfer or promotion, a civil servant can not be
treated as holding different ‘offices’ within the meaning of the relevant
Sections of the said Act. The only office held by him is that of member
of the service to which he belongs as a civil servant, irrespective of the
post held on transfer/promotion etc. Therefore, the requirements of
seeking sanction of the competent authority under Section 19 of the
Prevention of Corruption Act continues to be applicable so long as the
officer continues to be a member of civil service and the protection under
Section 19(1) of Prevention of Corruption Act cannot be said to have been
taken away only on the consideration that at the time the officer holds
charge of another post on transfer or promotion, than one alleged to have
been abused. All the investigating agencies may, therefore, ensure that
for seeking prosecution of a civil servant, they obtain sanction of the
competent authority under Section 19(1) of Prevention of Corruption Act
before the Court is called upon to take cognizance of an offence under
Section 7,10,11,13 of Prevention of Corruption Act.
(VijayKumar)
Under Secretary to the Government of India
To,
1. All Ministries/Departments.
2. All State Governments/Union Territories.
After perusal of the above Memorandum, we are of the view that the
interpretation of the various decisions given by the Ministry cannot be accepted
in view of the observation made by the Apex Court in case of Prakash Singh
Badal (supra) in para23 and 24 of the decision
27. In Prasar Bharti v. Amarjeet Singh-(2007) 9 SCC 539, Supreme
Court observed that there exists a distinction between “transfer” and
“deputation”. “Deputation” connotes service outside the cadre or outside the
parent department in which an employee is serving. “Transfer”, however, is
limited to equivalent post in the same cadre and in the same department.
28. Regarding applicability of Section 197 Cr.P.C. with respect to
24
prosecution of the officers of the Government companies or public
undertakings, the Supreme Court in Case of Mohd. Hadi Raja v. State of
Bihar and another-(1998) 5 SCC 9 in para 26 and 27 held as under:
“26. Therefore, It will not be just and proper to bring such
persons within the ambit of Section 197 by liberally construing the
provisions of Section 197. Such exercise of liberal construction
will not be confined to the permissible limit of interpretation of a
statute by a court of law but will amount to legislation by court.
27. Therefore, in our considered opinion, the protection by way
of sanction under Section 197 of the Code of Criminal Procedure is
not applicable to the officers of Government companies or the
public undertakings even when such public undertakings are
“State” within the meaning of Article 12 of the Constitution on
account of deep and pervasive control of the Government.”
We, however, need not dilate on the above aspect as in the instant case the
petitioner already ceased to hold the office, which was alleged to have been
abused by him. Even he ceased to hold the office of Commissioner, Industries
in the Government of M.P., when charge sheet against him was filed in the
Special Court and the court took cognizance of the offence.
29. As far as Section 197 of the Cr.P.C. is concerned, it is not disputed that
the requirement of sanction under this provision cannot be dispensed with
even after the public servant ceased to hold or demit the office. The relevant
portion of Section 197 of the Cr.P.C. Iis reproduced as under:
“197. Prosecution of Judges and public servants.- (1)
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 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;
(b) …………….
30. Since after the changes introduced in Section 197 Cr.P.C. by adding
25
words ‘when any person who is or was a Judge or Magistrate or a public
servant’ it can no longer be held that the essentiality of the sanction under
Section 197 Cr.P.C. for a public servant was not a condition precedent for his
prosecution for an offence alleged to have been committed by him while acting
or purporting to act in the discharge of his official duty. In a decision of M.P.
High Court in V.P. Sheth v. State of M.P.-2000 CRI.L.J. 1767 in view of
the observation of the Apex Court in case of Harihar Prasad vs. State of
Bihar (1972) 3 SCC 89 it had been held that “as far as offence of criminal
conspiracy punishable under Section 120B r/w Section 409 of the Penal Code is
concerned and also Section 5(2) of the Prevention of Corruption Act are
concerned, they cannot be said to be of the nature mentioned in Section 197
of the Code. It is no part of duty of a public servant while discharging his
official duty, to enter into a criminal conspiracy or to indulge in criminal
misconduct. Want of sanction under Section 197, Cr.P.C. is, therefore, no bar
to a prosecution under Section 120B r/w Section 409 of the Penal Code.”
31. In an appeal against the said judgment, the Apex Court in V.P. Sheth
v. State of M.P. and another-(2004) 13 SCC 767 observed that “in our
view the question whether sanction under Section 197 of the Criminal
Procedure Code is required or not depends upon the facts and circumstances
of the case. We, therefore, set aside that portion of the impugned judgment
which holds that no sanction is required under Section 197 of the Criminal
Procedure Code. We leave this question open to be urged after evidence is
recorded.”
32. The Apex Court again in case of Prakash Singh Badal (supra) held
that the offence of cheating under Section 420 or for that matter offences
relatable to Sections 467, 468, 471 and 120-B can by no stretch of imagination
by their very nature be regarded as having been committed by any public
26
servant while acting or purporting to act in discharge of official duty. In such
cases, official status only provides an opportunity for commission of the
offence.
33. In view of the above proposition laid down by the Apex Court, the view
taken by the trial court that no sanction under Section 197 of the Code of
Criminal Procedure was required for taking cognizance against the petitioner
cannot be held to be erroneous.
34. As far as the reference made by the learned counsel for the petitioner to
the provisions enshrined in the Articles 77, 311, 312, 323(C) and the Entries 70
of the Union List of VIIth Schedule of the Constitution of India is concerned, it
is not disputed that the petitioner was a member of All India Services,
therefore, all the disciplinary matters affecting his service needed consultation
with the Union Public Service Commission and Union Government, but, as
discussed hereinabove, the question before this Court pertained to the criminal
prosecution of the petitioner for the abuse of the office of MPSIDC as Director
and the cognizance for that being taken by the Court against him when he
already ceased to hold that office.
35. In view of the above factual situation and the well settled position of the
law that Section 19(1) of the Act is time and offence related and the protection
to public servant under Section 19(1) is not to be extended for the criminal act
performed by him under the colour of the office for public servant’s own
pleasure and that the offence of cheating under Section 420 and Section 120B
of the Indian Penal Code, by nature, be regarded as having been committed by
the public servant while acting or purporting to act in discharge of his official
duty, we find that the learned Special Judge committed no error in dismissing
the application filed by the petitioner under Section 239 of the Code of Criminal
Procedure.
27
36. Accordingly, the order dated 11.4.2008 passed by the Special Judge
(Prevention of Corruption Act), Bhopal, in Special Case No.07/2007 is affirmed.
The revision stands dismissed.
37. It is however observed that nothing observed by us in this order shall
affect or prejudice the case of petitioner in the trial.
(RAKESH SAKSENA) (M.A. SIDDIQUI)
JUDGE JUDGE
Shukla
28
HIGH COURT OF MADHYA PRADESH
PRINCIPAL SEAT AT JABALPUR
DIVISION BENCH
Criminal Revision No.1422/2008
Ajoy Acharya
versus
State Bureau of Investigation Against Economic Offences, Bhopal
ORDER
For consideration
(Rakesh Saksena)
JUDGE
/08/2011
Hon’ble Shri Justice M.A. Siddiqui
JUDGE
__/08/2011
POST FOR /08/2011
(Rakesh Saksena)
Judge
__/08/2011