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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

ACKNOWLEDGEMENTs
The success and final outcome of this project required a lot of
guidance and assistance from many people and I am
extremely fortunate to have got this all along the completion
of my project work. Whatever I have done is only due to such
guidance and assistance and I would not forget to thank them.
I would like to express profound gratitude and deep regards to
my teacher Dr. Qazi Usman, Faculty of Law, Jamia Millia
Islamia, for his exemplary guidance, monitoring and constant
encouragement thorough the course of assignment.
At last but not the least I want to thank my classmates who
treasured me for my hard work and encouraged me and
finally to the Almighty Shiva who made all the efforts possible
for me till the end.

Saksham Ahuja
IX Semester
Faculty of Law
Jamia Millia Islamia

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Table of Contents
Table of Cases

Abstract

1. Introduction

2. Objectives of the study

3. Hypothesis

4. Research Methodology

5. Genesis of White Collar Crimes

5.1 Indian Scenario

5.2 Mens Rea


5.3. Strict Liability

5.4. Vicarious Liability

5.5. Corporate Vicarious Liability

5.6. Theory of Corporate Personality

5.7 Realist Theory

6. Examples of Fraud done by Government


6.1. 2G Spectrum Scam
6.2. Coal Block Allocation Scam
6.3 Commonwealth Games Scam
6.4 The Satyam Scam
6.5 The Demat Scam
7. White Collar Crimes under Indian Statutes

7.1. Indian Companies Act, 2013

7.2 Indian Penal Code, 1860

8. Suggestions and Conclusion


9. Bibliography

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Table of Cases:

I. State of Maharashtra v. M.H. George, 1965 AIR 722 1965 SCR

II. Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa


Textiles Ltd & Anr, (2003) 11 SCC 405
III. Standard Chartered Bank v. Directorate of Enforcement, AIR 2005 SC 2622
IV. Coimbatore Spinning & Weaving Co. Ltd v. M.S Srinivasan (1959) 29 Comp.
Cases 97 (Mad).
V. State of Gujarat v. Mahesh KumarThakkar, AIR 1980 SC 1167
VI. State of Maharastra v. Chandrakant Solanki, 1995 Cri LJ 832(Mah)
VII. Kanwarjit Singh Kakkar v. State of Punjab and Anr, (2011) 6 SCR 895
VIII. State of Gujarat v. Mahesh Kumar Dheerajlal Thakkar, AIR 1980 SC 1167
IX. R. Sai Bharathi v. J. Jayalalitha, AIR 2004 SC 692.
X. Suraj Narian Chaube v State, AIR 1938 Bom. 565
XI. P.V. Narsimha Rao v. State, AIR 1998 SC 2120
XII. Som Parkash v. State of Delhi, AIR 1974 SC 989
XIII. Mohan Singh v. Bhanwarlal, AIR 1964 SC
XIV. Trilochan Singh v. Karnail Singh, AIR 1968 Punj. 416
XV. Common Cause v. Union of India and others, AIR 1996 SC.3081
XVI. K. Hashim v. State of Tamil Nadu, 2004(4) RCR (Criminal) 983 (SC).
XVII. Velayudham Pillai v. Emperor, AIR 1937 Mad. 711
XVIII. Khadim Hussain v. Emperor, AIR 1925 Lah. 22
XIX. Zamir Hussain v. Crown, AIR 1933 Lah. 34.
XX. Lachminiya Thakurian v. Emperor, 1950 Lah. 272
XXI. Ganga v. State, 1957 All LJ 283
XXII. Joti Prasad v. State of Haryana, AIR 1993 SC 1167
XXIII. CBI, New Delhi v. Abdul Karim Telgi & others, 2005 Cri LJ 2868 (Bom).
XXIV. Kharak Singh v. State of U.P., AIR 1963 SC 1295
XXV. Issar Das v. State of Punjab, AIR 1972 SC 1295
XXVI. Sunil Kumar v. State of Haryana, AIR 2012 SC 2430
XXVII. Rajiv Kumar Gupta v. State, 2006 Cri LJ 581
XXVIII. Sushil Kumar v. State of Haryana AIR 2010 P&H 1654
XXIX. Bhagiram Dome v. Abar Dome, (1965) Cri LJ 562
XXX. V.R. Dalal v. Yugendra Narang Thakkar, AIR 2008 SC 2793
XXXI. Onkar Nath Mishra v. State (NCT of Delhi), 2008(1) RCR (Criminal) 336
XXXII. Sudhir Shantilal Mehta v. CBI(2009) 8 SCC 1
XXXIII. R. Venkatkrishan v. CBI (2009) 11 SCC 737
XXXIV. Bagga Singh v. State of Punjab, 1996 Cri LJ 2883 (SC).
XXXV. Iridium India Telecom Ltd. v. Motorola Incorporated and Ors, 2011(1) SCC 74
XXXVI. M.N. Ojha & Ors v. Alok Kumar Srivastva & Anr., AIR 2010 SC 201
XXXVII. Ambarish Rangshashi Patnigere v. State of Maharashtra, 2011 Cr LJ 515
XXXVIII. Ramchandran v. State, AIR 2010 SC 1922
XXXIX. Parminder Kaur v. State of U.P., AIR 2010 SC 840

XL. Ponnuswamy v. State, 1995 Cri LJ 2658 (SC)


XLI. Bachan Singh v. State of Punjab, 1982 Cr LJ 32 (P&H)

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Abstract

The main aim of this assignment is to throw light on the laws which regulate white collar
crimes in India. The paper examines the advent of white collar and the history related with it.
During the span of this paper, an elaborate attempt has been made to understand white collar
crimes and their classification. Further, laws governing and regulating white collar crimes
have been discussed for a deeper understanding of the topic. In this article it is endeavoured
to address the intricacies involved in white-collar crimes. Analysis of white-collar crimes
will differentiate between individuals who steal, defraud and cheat in and out of an
occupational context and those who commit the variety of offences attributed to
business corporations. I will also be analyzing the corporate crimes and corporate

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criminal liability and the discrepancies, which flow along with it Finally, the assignment
is concluded by incorporating important suggestions given by eminent jurists and lawmakers.

Introduction

The present century is well known for the remarkable developments made in the field of
science and technology; simultaneously industry and commerce have also broadened the
wings of revolution world over. This Industrial Revolution abruptly changed the entire
social, economic and political structure of our society, to such extent that people
abandoned high cultural goals and socially approved techniques of achieving them,
because an overwhelming emphasis was made on achieving certain objectives, e.g.
political powers, monopolistic control over business and high economic status without
due regard to the question of whether they can be achieved by legally approved means or
not. Therefore, ethical standards and moral values were overlooked in favour of power,
money and material belongings.

Such circumstances have made the environment more conducive for the monstrous growth
of the newer form of criminality, particularly in developing countries like India.

Thus, all sorts of anti-social activities, i.e. frauds, corruption, adulteration of food items,
misappropriation and misrepresentations are now carried on a large scale by the upper
strata of society in the course of trade, commerce, industry among other professions.

Economic crimes in India, like elsewhere, are linked to several other offences, or even
organised crimes, having bearing on national security. Every day a greater degree of
sophistication is being noticed in the activities of the criminals indulging in these activities.
There is a growing recognition in the world that the economic offences are, many
times, part of other serious crimes posing serious threat to the security of the nation.
Problems such as international terrorism, narco-terrorism, money laundering, IPR violations,
cybercrimes, import of hazardous substances etc. continue to occupy centre stage as the
global threats.

In India, prevalent evil social practices also contribute to the increased ambit of socio-
economic offences wherein acts like child marriage, sati and dowry were being practiced and
continue to be practiced even though there are statutory prohibitions against the same. The
practice of the same discredit the ideals of the country and thus the social fibre on which the
state intends to progress.

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OBJECTIVES OF THE STUDY:

The objectives of the study are as follows:

To understand the origin of white collar crimes in society in general and in Indian
society particularly.
To look into the impact caused by white collar crimes with the help of case studies.
Variables in socio-economic and sentencing policy in India by using case study
method. To examine the perception of fairness of justice among the above mentioned
issues.
To assess the extent to which the law is applicable in socio-economic and
sentencing policy.

HYPOTHESIS

It is hypothesized that due to the rapid gap between different strata of society inter alia are
responsible for existing conditions for increase in the white collar offences and hence the
different classification and their separate sentencing policy. The different kinds under
various situation where these can be attempted and the sense of responsibility towards
their work force. Also, the criteria of the sentencing policy for the different offences.

RESEARCH METHODOLOGY

This research is primarily based on Doctrinal research. Doctrinal legal research, as


conceived in the legal research domain, is research about the prevailing state of legal
doctrines, legal rules, or legal principles. A legal scholar undertaking doctrinal legal research,
therefore, takes one or more legal propositions, principles, rules or doctrines as a
starting point and focus of his study.

I have cited and took help from numerous principles, rules or doctrines in statutory
instrument(s), judicial opinions thereon, discussions thereof in legal treatises,
commentaries, textbooks, encyclopaedias, legal periodicals, and debates, if any, that took

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place at their formative stages. Thereafter, an attempt has been made to analyse them and a
conclusion is formulated accordingly.

LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Genesis of White Collar Crimes

The Socio-Economic Offences have been incepted since times immemorial, but
remained dormant until the beginning of World War II, However, according to Prof. Albert
Morris the first paper entitled "Criminal Capitalists" on the subject was presented by
Edwin C.Hill before the International Congress on the Prevention and Repression of
Crime at London in 1872. Prof. Morris himself had drawn the attention of
criminologists towards this newer form of criminality in 1934.1 Nevertheless, the statue of
this newer form of criminality was for the first time shaped by a well-known criminologist
Prof. Edwin H. Sutherland in 1939. Sutherland described these newer crimes as White
Collar Crimes.

Nevertheless, the statue of this newer form of criminality was for the first time shaped by a
well known criminologist Prof. Edwin H. Sutherland in 1939. Sutherland described these
newer crimes as White Collar Crimes.2

The whole address was aimed to shatter the conventional and stereotyped images of
the criminals as grown and brought up on the dark side of a town, and the belief that
the epicentre of the overall Crime problem was that of the lower Strata of the society.

He defined white-collar crime as crimes committed by a person of respectability and high


social status into the course of his occupation. Subsequently, he modified his earlier
definition of white-collar crime as:

crimes committed by a person of the upper socio-economic class who violates the criminal
law in the course of his occupational activities and Professional activities

In his work, he challenged the traditional image of the criminals and the predominant
etiological theories of crimes of his days. The white collar criminals, he identified were
often middle aged men of respectability and high Social Status and his definition of white

1 Barners and Teeters: New Horizens in Criminology (3rd ed.), Prentice Hall, New
Delhi, 1966, p.41

2 Sutherland: White Collar Crimes, Holt, Rinehart and Winston, New York, 1949, p. 12.

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collate Crimes established Status, Occupation and Organization as Central features. He was
of the opinion that White-Collar criminals were often found in the affluent
neighbourhoods, and they were all well respected in the community. Sutherland opined that
the conceptions and notions of crime in his days were not so satisfactory or rather to say were
misleading and incorrect which were mainly based on the biased samples of criminals
and their criminal behaviours.

The two world wars badly affected the whole set-up of our community at large, resulting in
the sudden upsurge of many problems. One of the major problems was the scarcity of the
essential things and a mounting demand, for them. The people occupied in trade (i.e.
businessmen) started to take advantage of the war situation; thereby avarice and rapacity
developed among them, which accelerated the growth of the newer form of criminality in a
substantial way. For instance, the big business corporations of America as noticed by
Sutherland indulged in the commission of various white collar crimes, which are as follows:
Promulgating false or misleading advertising, illegal exploitation of employees,
mislabelling of goods, violation of weights and measures statutes, conspiring to fix prices,
selling adulterated food stuffs and evading corporate taxes etc.3
The policy of Laissez-faire or non-interference of the State in the material pursuits of the
individuals and associations created an atmosphere of extreme business competitiveness for
monopolistic advantages; which resulted in the multiplicity of the socio-economic offences
beyond recognition, especially in the industrial countries. Thus unbridled capitalism posed a
serious threat to the social welfare.

However, the State in its turn did no longer remain a silent spectator to the victimization and
sufferings of the general masses. It began to realize the dangers inherent in unrestricted
capitalism, so the governments in different countries decided to come out with welfare
schemes for improving the living standards of the common masses and bringing about social
and economic justice In the society by putting an effective check on the nefarious activities
(socio-economic offences) of many categories of anti-social elements so as to preserve the
morality, and protect the public health, and material welfare of the community as a whole.
Today, the State being a Welfare State tends to control a vast number of means of production
and distribution of goods and material services, etc. Therefore the activities of the State

3 ibid

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multiplied to a greater extent. But unfortunately the heavy responsibility of the State over
burdened its administration, which led to the inefficient functioning of the governmental
machinery. In addition to the above, some incompetent, dishonest and unscrupulous persons
made their way into various public services. Both the aforesaid factors became fertile grounds
for the expansion of socio-economic offences, e.g. bribery, corruption, favouritism and
nepotism in public services and among persons in high authority, Trafficking in licences,
permits and quotas, embezzlement, misappropriation and frauds relating to public property,
and violation of specifications in public contracts, etc.
The absence of a precise definition of White Collar crime has plagued Criminologists to
analyze and interpret the concept of White Collar crime in their own manner.
Subsequently it was very much advent that for some scholars, it was really very hard
to accept Position as primordial factor. For that very reason today there exists profound
disagreement over the precise definition of White Collar crime.

White Collar Crimes may be divided into Occupational Crime and Organizational Crime
but in common parlance there exists 10 popular types of White Collar Crimes as:

1. Bank Fraud- To engage in an act or pattern of activity where the purpose is to defraud
a bank of funds.
2. Blackmail- A demand for money under threat to do bodily harm, to injure property or
to expose secrets.
3. Bribery- When money, goods, services or any information is offered with intent to
influence the actions, opinions and decisions of the taker, constitutes bribery.
4. Cellular Phone Fraud- Unauthorized use or tampering or manipulating cellular phone
services.
5. Embezzlement- When a person, who has been entrusted with the money or property,
appropriates it for his or her own purpose.
6. Counterfeiting- Copies or imitates an item without having been authorized to do so.
7. Forgery- When a person passes false or worthless instruments such as cheque or
counterfeit security with intent to defraud.
8. Tax-Evasion- Frequently used by the middle-class to have extra-unaccounted money.
9. Adulteration - Adulteration of foods and drugs.
10. Professional crime - Crimes committed by medical practitioners, lawyers in course of
their Occupation.

These crimes are committed by people of high status in society such as doctors, advocates,
chartered accountants, government officials and not by hardcore criminals for e.g. Thieves,
robbers, dacoits, murders, rapists, etc means of crimes differ from the traditional crimes as

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fraud, misrepresentation, adulteration, malpractices, irregularities etc. These crimes are


committed by means of deliberate and planned conspiracies without any feelings and
sentiments. When socio-economic crimes are committed people tend to tolerate them
because they themselves indulge in them and they themselves often identified with those
who do so.

1. Originally white-collar crimes meant to describe middle and upper class, business
persons who committed crimes in normal course of their work. But now bit refers
to a wide variety occupationally oriented violations committed by persons in any
class.
2. The victims of socio economic offences are normally the entire community, society or
even the entire nation besides the individuals.
3. These crimes do not involve or carry with them any stigma while the traditional
crimes carry a stigma with them involving disgrace and immorality.
4. These crimes constitute a separate category because the control of such crime
involves the protection and preservation of the general health and economic
system of the entire society against the exploitation and waste.

Indian Scenario

By turning the pages of History, it is learnt that India was the land of believers, where trust,
honesty, truth and benevolence were prevailing in the processes of life, and decision making
policy. But after the British emerged victorious in the war of succession to the Mughal rule,
adverse changes began to appear in the social and economic structure of this country. 4 In
1717 the Mughal Emperor issued a Royal farman, which granted the freedom to East India
Company to import and export its goods in Bengal without paying taxes. That farman also
gave a right to the company for issuing dastaks (passes) for the movement of its goods. This
farman provided conducive circumstances for the servants of the British company to commit
economic offences. Bipan Chandra observes:

4N.M. Tripathi, Mahesh Chandra: Socio-Economic Crimes, Bharat Laws, Bombay, 1979, p.
68

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...the power to issue dastaks(Passes) for the company's goods was misused by the company's
servants to evade taxes on their private trade.5
In this way the newer form of criminality emerged in India, and the socio-economic offences
gradually started to develop. It is more evident from the statement made by Lord Clive,
I shall only say that such a sense of anarchy, confusion, bribery, corruption and extortion
was never seen or heard of in any country but Bengal; nor such and so many fortunes
acquired in so unjust and rapacious a manner...6

The second phase of socio-economic offences started with the freedom and partition of India.
At the time, when India won freedom, it was suffering from the scarcity of everything
including an administrative machinery, because when the Britishers left India it was too
difficult to setup immediately an efficient and honest administrative machinery. Further
because of partition the crowd of refugees reached India from Pakistan. It created economic
problem and social disorganization. In this way the commerce and social structure of India
was hit badly. All these causes paved a fertile ground for the wide spread of Socio-Economic
Offences in India. The third phase came through rapid industrial development and
urbanization, where socio-economic offences got much more chance for their growth and
development. Thus for knowing the extent of the emergence of socio-economic offences in
this country, it is required to make a reference to the list prepared for socio-economic
offences by the Santhanam Committee though the list is not comprehensive.

The categories of socio-economic offences noted by that committee are as follows:


(1) Offences calculated to prevent or obstruct the economic development of the country and
endanger its economic health;
(2) Evasion and avoidance of taxes lawfully imposed;
(3) Misuse of their position by public servants in making of contracts and disposal of public
property, issue of licenses and permits and similar other matters;
(4) Delivery by individuals and industrial and commercial undertakings of goods not in
accordance with agreed specifications in fulfillment of contracts entered into with public
authorities;

5 Irfan Habib, Essays in Indian History: Towards a Marxist Perspective, 1st Ed., Anthem Press, 2002,
p. 211

6 ibid

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(5) Profiteering, black marketing and hoarding;


(6) Adulteration of food stuff and drugs;
(7) Theft and misappropriation of public property and funds; and
(8) Trafficking in licenses and permits etc.7
Besides the above offences there are many others e.g. smuggling, violation of foreign
exchange regulation, bank frauds, offences in medical and legal profession and corruption in
politics, etc.
The Government of India after the appointment of the Santhanam Committee had appointed
the Wanchoo Committee on 2nd of March, 1970. The duty of this committee was to focus
its attention on the problem of black money which is accumulated through violation of
foreign exchange regulation, black marketing and hoarding etc. That committee made
valuable suggestions for certain amendments in statutes dealing with Socio-Economic
Offences. The suggestions of those committees led the Indian legislature to enact more laws,
e.g. The Foreign Exchange Regulation Act 1973; The Smuggling and Foreign Exchange
Manipulators Act 1976; The Control of Foreign Exchange and Prevention of Smuggling Act
1974; and Criminal Procedure Code 1973 etc. Similarly Law Commission of India had
suggested many changes in the statutes dealing with socio-economic offences, so as to make
the punishments more stringent for punishing the socio-economic offenders.

Besides the above mentioned Acts, some main enactments which deal with socio-economic
offences are as follows:

- The Prevention of Corruption Act

- The Prevention of Food Adulteration Act

- The Prevention of Immoral Traffic (Amendment) Act, 1986

- The Drugs and Cosmetics Act

7 Santhanam Committee Report, pp. 53-54, http://lawcommissionofindia.nic.in/1-


50/report29.pdf, last accessed on 1/11/2015

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- The Essential Commodities (Amendment) Act

- The Dowry Prohibition Act

- The Narcotic Drugs Psychotropic Substances Act

- The Standard of Weights and Measures Act

- The Customs Act

- The Drug (Control) Act

- The Income Tax Act

- The Anti-Corruption Laws (Amendment) Act

White collar Crimes and Socio-Economic Offences

The Law Commission of India in its 47 th Report has meticulously articulated the inter-
relationship between white-collar crime and socio-economic offences in the following words:

"White-collar crime, one may, describe it as committed in the course of one's occupation by a
member of the upper class of society, A manufacturer of drugs who deliberately supplies
substandard drugs is, for example, a white collar criminal. So is if a big corporation guilty of
fraudulent evasion of tax. A person who illegally smuggles (for his personal use) costly

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television sets, is not a white-collar criminal in the above sense, there being no connection
between his occupation and the crime committed by him. Nor is the pensioner who submits a
false return of income. But all of them are guilty of socio-economic offences which affect the
health or material welfare of the community as a whole, and not merely the individual victim.
Similarly, economic offences are those which affect the countrys economy and not merely the
wealth of an individual victim.8

Hence, unlike white-collar crime socio-economic offences shouldn't necessarily be


committed in connection of one's occupation. In white collar crime nexus between the
offending act and occupation should be established, whereas in socio-economic offences
there is no such requirement. What is required is that the offence should be committed against
either or both the health or material welfare of the community or against the economic
interest of the country in question and in both cases the individual victim is not in issue, but
that of the community or society at large. Nor is the status of the tort-feasor.9

It could therefore, be submitted that socio-economic offences does not only extend the scope
of the subject matter of white-collar crime, as conceived by Sutherland and as appreciated by
others,10 but is also of wider import.

It could therefore, be submitted that socio-economic offences does not only extend the scope
of the subject matter of white-collar crime, as conceived by Sutherland and as appreciated by
others11, but is also of wider import.

a. Socio-economic offences

8 47th report of the Law Commission, http://lawcommissionofindia.nic.in/1-50/report47.pdf, last


accessed on 28.10.2016

9 ibid

10 P.S. Atchuthen Pillai, criminal law, pp. 30-31 (N.M. Tripathi Private Limited, Bombay, 1995).

11 Donald L Newman, Marshall B. Clinard, Gilbert Geis, WihelmAubert, Richard Quenney, Paul W.
Tappan are, but the few.

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b. White -collar crimes

c. Offences of strict liability.

Mens Rea

Next to actus rea, the second essential ingredient in crime is mens rea. Legal "mens
rea" has been defined by Glanville Williams in the following manner:

"It refers to the mental element necessary for the particular crime and this mental
element may be either intention to do the immediate act or bring about the consequence or
(in some crimes) recklessness as to such act or consequences. These two concepts hold the
key to the understanding of a large part of criminal law some crimes require intention and
nothing else will do, but committed either intentionally or recklessly. Some crimes require
particular kinds of intention or knowledge. 12

As a result the maxim actus non facit reum nisi mens sit rea13 is rightly regarded as
one of the most important common law principles of criminal liability. Yet mens rea
presents a highly abstract and subjective principle. Nonetheless, it has attained a high
degree of moral authority, since it enjoys support from the soundest theoreticians. In
addition to this, it also has historical authority due to the mass of case laws built
over the past centuries. Inquiries made over the last two centuries made it possible to
identify four in-built principles deeply integrated in the concept of mens rea. For vivid
exposition, they are described briefly as follows14:

1. The malice principle: the essence of malicious conduct is conduct wrongfully


directed at a particular interest (personal, say, or proprietary)", whether or not that one
foresaw that harm to interest suffered by the victim would result.
2. The proportionality principle: Where [one] acts maliciously towards [another] and
causes worse harm than anticipated, the greater the injury intentionally done to
[the victim], the greater the crime for which [the offender], may be criminally

12 P.S. AtchuthenPillai, criminal law, pp. 30-31 (N.M. Tripathi Private Limited, Bombay, 1995).
Chapter 2 83

13 Which may be translated as "an act does not make a man guilty of a crime unless his mind is also
guilty" (6th Block's Law Dictionary).

14 Jeremy Horder, "Two Histories and Four Hidden Principles of Mens Rea", Law Quarterly Review, pp. 95-
119 (Vol. 113, January, 1997).

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liable respecting the harm done must not be disproportionate to the harm intended, if
criminal liability for the harm done is to be justified.
3. The labeling principle: when a particular kind of criminal wrong can also be
reflected in morally significant label, such as" murder", it may be right to
recognize circumstances in which the wrong has been committed, but the label is not
deserved. Conversely, there may be circumstances in which one wishes to use a more
stigmatic label for a more serious manifestation of an identical wrong.
4. The indirect malice principle : where [an offender] wrongfully aims his conduct at
one kind of interest, and., invades another kind of interest, his conduct in
invading that other interest is not to be regarded as malicious unless he foresaw the
invasion as possible outcome of his conduct.

As the saying has it "The stone belongs to the devil when it leaves the hand that threw it",
for an action may have multiple consequences and these consequences belong to
the original action as an integral part of it. As regards the state of .mind, malice
principle is not just a principle of culpability that competes with the
correspondence principle in the minds of criminologist when thinking about criminal
culpability, as indeed, it is and true.

While dealing with mens rea, it would be convenient to group the various crimes
into four classes; Crimes in which,

a. The mens rea is found on an intention to commit an illegal act (general intention).

b. A particular intention is required (e.g. burglary is under English Law house breaking

by night with intent to commit felony.

c. Negligence will suffice (e.g; management of vehicles in public streets).

d. The requirement of mens rea is abandoned (i.e. abducting a girl under 16 from
her parents, though the girl is believed to be above 16. It is the last category, which is a
matter of interest for our purpose. Under certain circumstances a state may prohibit by
statutes the doing of certain acts, irrespective of considerations of mens rea.

STRICT LIABILITY

The underlying principle or justification of such an approach may be found in what Roscoe
Pound has said:

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The good sense of courts has introduced a doctrine of acting at one's peril with respect to
statutory crimes which express the needs of society. Such statues are not means to punish the
vicious will, but to put pressure upon the thoughtless and inefficient to do their whole duty, in
the interest of public health or safety or morals.

The liability created is qualitatively different form that attached to ordinary offences
requiring the element of mens rea. Strict liability is now well recognized by case-law
and extensive literature. So much so that it has been said that strict liability has been with us
"so long that it has become accepted as a necessary evil". The observation of the Privy
Council made in this respect would bring home the entire conceptual framework:

Where the subject matter of the statute is the regulation for the public welfare of a
particular activity statutes regulating the sale of food and drink are to be found
among the earliest examples. It can be and frequently has been inferred that the
legislature intended that such activities should be carried out under the conditions of strict
liability. The presumption is that the statute or statutory instrument can be effectively
enforced only if those in charge of the relevant activities are made responsible for seeing
that they are complied with when such a presumption is to be inferred, it displaces the
ordinary presumption of mens rea. Thus seller's of meat may be made responsible for seeing
that the meat is fit for human consumption and it is no answer for them , to say that
they were not aware that it was polluted.

In short, there are cases wherein intention to commit a breach of the statute need not
be shown. The breach in fact is enough.

The entire argument relating to the displacement of mens rea has been beautifully
recapitulated in the Supreme Court of India in its decision of State of Maharashtra v. M.H.
George.15

In this case, the accused was prosecuted for bringing into India prohibited quantity of gold in
violation of the prohibition i.e., the Foreign Exchange Regulation Act 1947 which lays
an absolute embargo upon persons who, without permission of the Reserve Bank, bring or
send to India any gold. As a matter of fact the accused, Mr. M.H. George was a

15 1965 AIR 722 1965 SCR

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

passenger from Zurich to Manila in Swiss plane. Upon landing in Bombay Twenty-four
kilos bars of gold was found on his person, which he had not declared.

The holding of the majority was that "mens rea in the sense of actual knowledge that the act
done is contrary to law is not an essential element under Sec.8 (1) read with Sec.23 (1A) of
the Foreign Exchange Regulation Act, 1947. There was an agreement on the point
that unless the statute in question, either clearly or by necessary implication rules out mens
rea as a constituent part of a crime an accused should not be found guilty of an offence,
unless he has got a guilt mind. They declared that "(A) absolute liability is not to be lightly
presumed, but has to be clearly established". However, in the case at hand, "the language of
the statute and relevant notifications", their Lordship held that "there is no scope for the
invocations of the rule that besides the mere act of voluntarily bringing gold into India
any further mental condition is postulated as necessary to constitute an offence of the
contravention referred to in Sec.23 (1A)".

It is further asserted that:

The Act is designed for safeguarding and conserving foreign exchange which is essential to
the economic life of a developing country. The very object and purpose of the Act and
its effectiveness as an instrument for the prevention of smuggling would be entirely
frustrated, if a condition were to be read into Sec. 8 (I) or Sec.23 (1A) of the Act
qualifying the plain words of the enactment that the accused should be proved to
have knowledge that he was contravening Chapter 2 54 the law before he could be
held to have, contravened the provisions.16

However, in the subsequent decision of the Supreme Court, it was held that the accused, who
was apprehended for storing excess quantity of food grains in the belief that his application
for license will be granted, was found not guilty on the ground that storage of grain
under a bona fide belief could not be said to be international contravention.

A number of decisions of the Supreme Court of India, however, point to the fact that there is
an initial presumption in favour of the need to read mens rea in all penal statutes, but it has to
be ascertained whether the presumption is overborne by the language of the enactment read in
the light of the objects and purposes of the said statute. Whether the enforcement of the law

16 SubhaRao. J. in his dissenting opining stated mens rea is an essential ingredient of a offence, but
his may be rebutted by express word or by necessary implication. But the mere fact that the
object of a statute is to promote welfare or to eradicate grave social evil in itself is not enough.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

and the attainment of its purpose would not be rendered futile is one other consideration that
has to be taken a fortiori. Conversely, where it cannot be said that the object of the Act would
be defeated, if mens rea is read into it, as an ingredient, courts should indeed be
slow to dispense with it.

Striking illustration of modification of the ordinary rule regarding mens rea is to be


found under the prevention of food Adulteration Act , wherein it is provided that:

"It shall be no defense in a prosecution for offence pertaining to the sale of any adulterated or
misbranded article of food to allege merely that the vendor was ignorant of the
nature, substance or quality of the food sold by him or that the purchaser having
purchased any article for analysis was not prejudiced by the sale".

Having said this about strict liability, the train of logic requires, at least the treatment of the
main features of vicarious liability. First and foremost, vicarious liability is an aspect of strict
liability in the sense that such a person ought not to have been held answerable to
what he himself has not done.

VICARIOUS LIABILITY
in the law of tort, in criminal law, a master is not held vicariously liable for the act
of his servants or agent on the principle of respondent superior . This doctrine or maxim
holds that a master is liable in certain case for the wrongful acts of his servants and a
principal for those of his agents. Where the legislature has found it to lay down an absolute
prohibition to hold liable the employer for the employee and the principal for his agent for the
acts of the latter, so long as such act is done in the course of employment or in
discharge of the delegated responsibility, respectively, then the maxim qui facit per
alium, facit per se applies. Under this doctrine the employer may be convicted, although
he is not in any way morally culpable. It is in pursuance to this principle that Indian Penal
code under section 154 and 155 holds a master criminally liable for acts committed by his
agents or servants.

The doctrine of vicarious liability is often times invoked under special enactments.
The peculiar characteristics and the rationale, which prompted the enactment of vicarious
liability, have been nicely enunciated by Lord Devlin in the following manner:

The first distinguishing mark of quasi-criminal law then is that a breach of it does not mean
that the offender has done anything morally wrong. The second distinguishing mark is

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

that the law frequently does not care whether it catches the actual offender or not.
Owners of goods made liable for the acts of their agents even if they have expressly forbidden
the act, which caused the offence. This sort of measure can be justified by the
argument that it induces persons in charge of an organization to take steps to see that the
law is enforced in respect of things under their control.

Exactly the same doctrine applies to companies, which are found in and around the
same circumstances.

CORPORATE VICARIOUS LIABILITY

A corporation is a legal entity incorporated by law for preserving perpetual succession


of certain rights. A corporation is, in other words, a group of human beings authorized by law
to act as legal unit. It is endowed with legal personality and it has a name and seal of its own.
Nonetheless, a corporation is not, owning to its peculiarity, put on the same level as a natural
person with respect of criminal liability for its deeds. 17

At one time in the past, it was believed that penal liability could not be fasten onto
a corporation, principally because it does not act in and for its own self i.e. it has no mind and
body of its own, so as to form the necessary guilty mind to commit a crime. "A corporation
has neither a body to be killed, nor a spirit to be dammed". Secondarily, since a corporation
can only act through its resolution at a meeting, and since any resolution for doing a criminal
act should necessarily be Ultra Vires, consequently then there could not be a situation where a
corporation would be subjected to criminal liability.

Owing largely to increase in the rate of industrialization, the immunity a corporate entity has
enjoyed so far from criminal liability is waning. Partly, it was to bring such legal entities as
companies within the ambit of criminal law that attempt was made to make
distinction between offences of nonfeasance and offences of misfeasance.18

Accordingly, in case of the latter, the individual tort-feasor was to be held liable.

17 K.D. Gaur, Criminal Law, Cases & Materials, pp. 28-229 (2 nd Ed., N.M. Tripathi
Private Limited, 1985).

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Further development has recently taken place, whereby the rule that makes the acts
of directors are treated as those of the company. Conversely, the acts of the. company are also
being treated now-a-days as those of all its directors, Hence, every director or officer
shall thus be guilty of that offence, unless he proves that it was committed without his
consent or that he has exercised all due diligent towards preventing the commission of such
offences.

The principle thus highlighted by the law commission of India has been vividly reflected in
section 179(I) of The Prevention of Food Adulteration Act, 1954.

"Where an offence under this Act has been committed by a company":

(a),(i) the person, if any, who had been nominated under-section (2) to be in charge of, and
responsible to, the company for the conduct of the business of the company (the
persons responsible), or

(ii) where no person has been so nominated, every person who at the time the
offence was committed was in charge of, and was responsible to the company for the
conduct of the business of the company; and.

(b). the company; shall be deemed to be guilty of the offence and shall be liable to
be proceeded against and punished accordingly.

Provided that nothing contained in this sub-section shall render any said person liable to any
punishment provided in this Act if he proves that the offence was committed without
his knowledge and that he exercised all due diligence to prevent the commission of
such offences"

Although, stipulation by way a Proviso (which is uncommon) to the effect that such offender
would not be held liable, if he proves that the offence was committed without his knowledge
and that he exercised all due diligence to prevent the commission of such offence would have
the actual effect of allowing entrance through the backdoor what you have ousted in
broad day light from the living room.

18 Non-feasance means that the total omission or failure of an agent to


act upon the performance of some district duty or undertaking which he has
agreed with this principal; misfeasance means the improper doing of an act
which the agent might lawfully do; malfeasance is the doing of an Act which
ought not to do at all.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

From the scheme of section 17 of the Act, one learns that the person in charge of
the company must be prosecuted along with the company under this section.

To wind up our discussion made so far, it would be well in point to recapitulate the following
essential points around which our argument has been spinning.

a. White-collar crime is endemic to industrial society and as such Sutherland's definition


which state that white-collar crime is "a crime committed by a person of respectability and
high social status, in the course of his occupation" is very much true to this date. The fact that
these crimes are characteristically violations of trust, either by duplicities or
misrepresentation placed in a person by virtue of this occupational norms and high position in
the society is the crucial point of departure.

b. White-collar crime differs from conventional criminal in five ways:

1. in origin
2. in determination of responsibility, or intent,
3. in criminology and penal philosophy
4. in enforcement, trial procedure and sanction applied.

Of these attributes of white-collar crime it is the last one that would require a degree
of appreciation in order to have a picture of the overall nature of white-collar crimes.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Key: a. Socio-economic offences


b. White collar crimes
c. Offences of strict liability
i. Status of offenders ;
ii. Disqualification of mens rea
In the diagram shown above, mens rea is represented by (ii) signifying the intersectional
point where the three circles, i.e. White collar crime, socio-economic offences and offence of
absolute liability find their common denominator. The determining factor in the same is the
criminal intent, i.e. mens rea.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Theory of Corporate Personality

According to this theory corporations as nothing more than collectives of individuals.


In this an individual first commits the offence; the responsibility of that individual is
then imputed to the corporation.

Realist theory

According to these theory corporations have an existence, which is to some extent


independent of the existence of its members. Here, the responsibility of corporation is
primarily. In my opinion realist theory looks more convincing and practically applicable.
One of the argument which sustains the presumption that corporate can be held criminally
liable is that in many cases it is the corporation itself, through its policies or practices, that
has done wrong and prosecution and punishment should be directed at the real wrongdoer. In
many cases there is no individual who, alone, has committed a crime. It is the conjunction
of the practices of several individuals, all-acting in compliance with a company's
sloppy or non-existent procedures that have caused the harm. Alternatively, in many
cases companies have complex structures with responsibility buried at many different layers
within the corporate hierarchy making it difficult, if not impossible, to determine where the
true fault lies.

There is no controversy when fine is only punishment given under any statute. There is also
no lie when statute entrusts the court with discretion to inflict fine or imprisonment, as
in this case court shall inflict only fine on company. Because a company being a Juristic
person cannot obviously be sentenced to imprisonment as cannot suffer imprisonment.
Judicial controversy lies in that situation when statute prescribes mandatory imprisonment
with fine as a punishment for an offence. In 2003 Supreme Court in Assistant
Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr.19
took the view that since an artificial person like a company could not be physically
punished to a term of imprisonment, such a section, which makes it mandatory to impose
minimum term of imprisonment, cannot apply to the case of artificial person.

19 (2003) 11 SCC 405

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

However, the Apex Court in 2005 in Standard Chartered Bank v. Directorate of


Enforcement20 in majority decision of 3:2 expressly overruled the Velliapa Textiles case21
on this issue. K.J Balkrishanan, J. in majority opinion held

We hold that there is no immunity to the companies from prosecution merely because the
prosecution is in respect of offences for which punishment prescribed is mandatory
imprisonment. We overrule the views expressed by the majority in Velliappa Textiles on this
point.

Another category of serious white collar crime is government fraud, which is an


unlawful act that deliberately rid the government of funds through trickery. When the
government gets fiddled, taxpayers pay the price. Procurement and contractor fraud are
examples of costliest government fraud. In Identity theft the criminal use the personal
information of another in order to commit fraud. Crooks of this type of crime have to face
heavy penalties if trapped. Insurance fraud is very common in which offender forged
claims to an insurance company, personal injury and property damage claims that are
overstated in order to collect extra reimbursements. Mail fraud is committed by using Postal
Service or any private or commercial interstate mail carrier, such as Mailboxes, etc.
Money laundering is a felony in which lawbreakers hide the resource and objective of
illegitimately acquired funds. Public corruption is an act of violating the public official's duty
of faith towards his or her society. Anyone who is elected, appointed, hired, or employee
of a constituency of citizens commits crime on the state, or local level when an official
takes favourable decision in exchange of offered some value. Securities fraud is
committed by white collar criminal such as corporations, broker-dealers, analysts, and
private investors when the executor intentionally deceives investors for financial profits. The
culprit of tax evasion deliberately and illegally avoids paying mandatory taxes to the
government. Telemarketing fraud fall under white collar criminal in which wrongdoer
make some plan that uses telephone contact to fraudulently rid its victims of funds or
assets. The most regular type of telemarketing frauds are prize offers and sweepstakes,
magazine sales, credit card sales.

20 AIR 2005 SC 2622

21 (2003) 11 SCC 405

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Examples of Fraud done by Government

Although there are countless examples of how ruling governments have made mockery of the
existing system and cheated the exchequer of millions or in some cases even billions of
rupees. But, here only a few of those scams will be discussed for academic purposes on virtue
of their being biggest rip-offs in history of independent India.

2G Spectrum Scam

In the year 2008, the Telecom Ministry under Mr. A. Raja issued 122 Licenses of the 2G
Spectrum to 85 companies including many new Telecom Companies with little or no
experience in the telecom sector, at a price set in the year 2001. Compared to the year 2001
and the year 2008 the demands for Mobile Phones and the related services have increased by
more than 20 times.22 Such improper allocations of the 2G Spectrum Technology caused
heavy loss to the Government of India. One thing to be noted is that the loss of Rs. 1.76
Lakh Crore we hear, is the revenue that the Government would have generated had it done
proper auction of the spectrum frequencies rather than it being a loss in literal terms.
Nevertheless, the exchequer is 1.76 lakh crore less than what it should have been.

According to the Audit Report of The Comptroller and Auditor General of India, the Audit
authority to the accounts and the activities of the Government of India, had pointed out in its
Audit Report that:-

The Process of allocation of the 2-G-Spectrum Licenses did not reflect the correct
values,

And there was no proper auction and

The entire process of allocation was flawed

And benefiting selected companies.

Out of 122 Licenses issued 85 had been given to ineligible and inexperienced
companies and
22 As per survey in 2001 there were only 4 million subscribers as compared to
350 million in 2008.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

The Telecom Ministry deviated its own guidelines and changed the cut-off date for
applicants enabling some selected companies to get unfair advantage in getting the
licenses and

The entire process of allocation lacked transparency and was undertaken in an


arbitrary, unfair and inequitable manner.

Several companies got the 2G-Spectrum Licenses by: deliberately suppressing facts,
disclosing incomplete information, submitting fictitious documents and using
fraudulent means.

According to the Audit Report of the CAG the following companies are ineligible for the
2G-Spectrum Licenses:-

Units of Unitech Ltd which are not fulfilling the eligibility conditions including the
required Share Capital, received licences in the year 2008 and now operates services
in a joint venture with Norways Telenor.

Loop Telecom,

Videocon Telecommunications,

S Tel Ltd.

Swan Telecom, which has since been partly acquired by the UAEs Etisalat , was
given licences even though a unit of No. 2 telecoms firm Reliance Communications
held over 10% of equity, a violation of rules.

The Government has been following system of auction based on first come, first serve
policy ever since 1994 in the process of allocation of resources this has been recently
affirmed by the Supreme Court through its Advisory Jurisdiction (Special Reference No.1 of
2012, 27th September 2012). This was blatantly violated. There was a cut-off date till which
the interested companies could apply for licenses citing their particulars and other requisites.
This date was preponed arbitrarily and the website of the Department of Telecommunications
(DoT) stated that those who applied between the time 15:30hrs till 16:30hrs would be given
the licenses. So the companies like Unitech and Swan, who allegedly had a tip-off regarding

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

the same amendment to the procedure, kept their documents ready in line, and eventually got
the licenses.

Both Unitech and Swan Telecommunications are companies without any prior experience
and of these, Swan Telecommunications could not even fulfil the eligibility criteria. But
still, both were preferred.

Coal Block Allocation Scam

The coal scam, or whats popularly called the coalgate, first came to light when Indias audit
watchdog, The Comptroller and Auditor General of India, raised the issue of inadequacies in
the allocation of coal blocks from 2004 onwards. It created a political storm, as the loss to the
exchequer was initially pegged at over Rs. 10 lakh crore. The final report scaled it down to
Rs. 1.86 lakh crore.

CAGs criticism was that though the government had decided to allot coal blocks through a
system of competitive bidding, what it ended up following was a method that was opaque and
subjective. Further, its point was, there was no legal impediment in introducing a more
transparent process. Last year, the Supreme Court ruled that coal blocks allocated by the
government between 1993 and 2010 were illegal.

Timeline of Coal Trail:

March 2012 CAGs draft report accuses govt of inefficient allocation of coal blocks
in 2004-2009; estimates windfall gains to allottees at Rs 10.7 lakh crore.

May 29, 2012 Prime Minister Manmohan Singh offers to give up his public life if
found guilty in the scam. Two days later, CVC directs a CBI enquiry

November 25, 2014 CBI informs a special court that it was not permitted to question
former Prime Minister Manmohan Singh. The investigating agency also said it wasn't
necessary.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

December 17, 2014 Special court ordered the CBI to examine former Prime Minister
Manmohan Singh.

January 20, 2015 CBI records the statement of former Prime Minister Manmohan
Singh.

March 11, 2015 Special court summons former Prime Minister Manmohan Singh,
Kumar Mangalam Birla and P.C. Parakh as accused.23

Commonwealth Games Scam

The XIX commonwealth game which is reported as the largest international multi-sport event
was held in Delhi from 3 to 14 October 2010. In 21 sports and 272 events a total of 6081
athletes from commonwealth nations and dependencies participated in the mega event.
Despite of all the success and the appreciation received worldwide by the media across the
globe. One thing which equally grabbed the attention of all is the corruption and the
irregularities in the organization of the games, the commonwealth games was severely
criticized by many social activists and politicians as a large amount of money was spent in
these games despite the fact that India has one of the worlds largest concentration of poor
people.

The organizing committee and the games officials were alleged for doing corruption at
various levels of organization, delays in the construction of games venues, infrastructural
compromise, possibility of terrorist attack and many more.24

23 http://www.thehindu.com/news/national/whats-the-coal-scam-
about/article6983434.ece, (last visited on 28.10.2016)

24http://news.bbc.co.uk/sport2/hi/commonwealth_games/delhi_2010/9028263.stm, http:/
/www.bloomberg.com/news/2010-09-22/delhi-faces-filth-security-fears-bridge-collapse-at-
commonwealth-games.html, http://www.news.com.au/newstest2/archive-old-assets/delhi-
on-terror-alert-for-commonwealth-games-closing-ceremony/story-e6frfkyi-
1225938435194#ixzz2AtFO051J (last visited on 28th October, 2016)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Central vigilance commission in his report released on 28 th July 2010 showed irregularities in
14 CWG projects25, in total 129 works in 71 organizations have been inspected 26.The detailed
preliminary findings included the award of work contracts at higher prices, poor quality
assurance and management, and work contracts awarded to ineligible agencies.27

Prime Minister Manmohan Singh had on October 25 appointed a high-level committee to


look into alleged corruption and managerial lapses in conduct of the mega sporting event, the
main findings of the report are as follows:

OC intentionally delayed overlays contracts by not providing estimates for the 630
crores overlay contracts.
OC could have saved Rs. 138 crore in overlays if it had negotiated for the overlays
contracts.
Chairman (Suresh Kalmadi) appointed Loyalists in Key positions, particularly a
large number from Pune including a railway guard.
Employees and consultants and advisors were hired on criteria other than merit.
Candidates with questionable background were accommodated, especially at
senior positions with decision-making powers.
Chairman approached Government for an additional Rs. 900 crore in August 2010
when there was no need for additional funds.
The Organizing Committee kept misrepresenting a revenue neutral position to
justify extravagant spending.
Chairman spent Rs. 5.06 crores on a reckless exercise of patronage to send people
unrelated with sports to the Bejing Olympics on a pleasure trip.
Consultants, including Shashi Tharoor, were hired at terms dictated by them.
Contract for timer board issued by Lalit Bhanots office without informing
technology consultant or technology head.
Chairman kept the Executive Board in the dark about detrimental aspects of
SMAM contracts.28

25http://articles.economictimes.indiatimes.com/2010-07-28/news/27600167_1_senior-cvc-official-
cwg-projects-games-projects (last visited on 28th October, 2016)

26 http://www.cvc.nic.in/cwgclrf3072010.pdf (last visited on 28th October, 2016)

27 http://www.cvc.nic.in/cwgpress2972010.pdf (last visited on 28th October, 2016)

28 http://www.sportzpower.com/?q=node/13915/pdf (last visited on 28th October, 2016)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Taking a major step in the investigation Central bureau of Investigation (CBI) on 25 th April
2011 by arresting former CWG organizing committee chairman Suresh Kalmadi in the Time
Scoring Result (TSR) case29 , under section 120-B and 420 of IPC.CBI filed the first
chargsheet on 20 May 2011 alleging kalmadi as the main accuse in the TSR system contract
to a Swiss firm. In the charge sheet CBI named two companies and eight people along with
the organizing committee former chairman Lalit Bhanot and former Director General
VK Verma as accused,30 charged under the section 13(1) (d) of the Prevention of Corruption
Act and under various sections of IPC.

The investigation revealed that officials of the OC had conspired with private persons for
awarding the contract at an excessive net cost of about 157.62 crore(US$27 million) as
compared to a net bid of Spain-based company for
approximately 62.01 crore(US$11 million).

This resulted in a loss of about 95.60 crore (US$16 million)by wrongly eliminating all
competitors of Swiss-based company.

The other case involved in this scam is the case of Queens Baton relay in which it was
alleged in the CBIs FIR that in relation to the QBR held on October 29, 2009, the OC
awarded the work of transportation to the AM Car and Van Hire Ltd at exorbitantly high rates
without following the standard tender process.31 After completing investigations, CBI filed its
second charge-sheet (after the charge-sheet in TSR case) in a special CBI court in Delhi. The
CBI named OC officials T S Darbari, Sanjay Mohindroo, Jeychandran and London-based
businessman Ashish Patel and his two companies AM Car n Van Hire and AM Films. The
chargesheet alleged that OC members conspired to award contracts of local transportation
and others to Patels companies at excessive rates during the event held in London in 2009.32

29 http://www.moneycontrol.com/news/current-affairs/kalmadi-arrested-by-cbicwg-scam-
case_538069.html (last visited on 28th October, 2016)

30 http://www.ndtv.com/article/india/cwg-scam-cbi-files-first-chargesheet-against-suresh-kalmadi-8-
others-107198 (last visited on 28th October, 2016)

31http://articles.timesofindia.indiatimes.com/2011-08-09/india/29867663_1_standard-tender-process-
chargesheet-suresh-kalmadi (last visited on 28th October, 2016)

32 http://news.outlookindia.com/items.aspx?artid=772380 (last visited on 28th October, 2016)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

On 23rd august 2012 the CBI registered a new case related to hiring of the Switzerland-based
consultant, Event Knowledge Services (EKS), for providing venue development support
services to the OC. Later, the Rs 70 crore contracts were extended to include venue
development programme management and facilitation support. Based on
Shunglu Committees findings, CBI registered an FIR against Suresh Kalmadi,
Lalit Bhanot and AK Mattoo.33 CBI sources revealed in July 2012 that the probe against
alleged corruption in construction of Barapullah Flyover and grant of Bail-out Package to
EMAAR MGF is likely to be closed in the absence of substantiating evidence. 34 As the
inquiry progressed on 3rd February 2013.

The Delhi high court framed charges against Kalmadi, who was sacked as CWG Organising
Committee (OC) chairman, and the other accused, also including OC Secretary General
Lalit Bhanot, for the offences punishable under the IPC and Prevention of Corruption Act for
allegedly causing a loss of over Rs 90 crore to the exchequer.35

THE SATYAM SCAM

Satyam scam has been the greatest scam in the history of the corporate world of the
India. The case of Satyam accounting fraud has been dubbed by the media as Indias
Enron. In order to evaluate and understand the severity of Satyam fraud, it is
important to understand the factors that contributed to the unethical decisions made
by the companys executives. Therefore, it is necessary to examine in detail the rise of
Satyam as a competitor within the global IT services market-place. In addition, it is also
helpful to evaluate the driving-forces behind Satyams decisions under the leadership of
Mr. Ramalinga Raju(Chairman). Finally, attempt may be made to draw some broad
conclusions and to learn some lessons from Satyam fraud.

33http://articles.timesofindia.indiatimes.com/2012-08-24/india/33365493_1_games-workforce-
venue-development-eks (last visited on 28th October, 2016)

34 http://www.indianexpress.com/news/cwg-scam-cbi-may-close-barapullah-emaar-cases/973511/0 (last visited


on 28th October, 2016)

35http://zeenews.india.com/news/nation/cwg-scam-court-frames-charges-against-suresh-kalmadi-9-
others_827012.html (last visited on 28th October, 2016)

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The company was formed in 1987 in Hyderabad (India) by Mr. Ramalinga Raju. The firm
began with 20 employees and grew rapidly as a global business. It offered IT and
business process outsourcing (BPO) services spanning various sectors. Satyam was as
an example of Indias growing success. Satyam won numerous awards for innovation,
governance, and corporate accountability. In September 2008, the World Council for
Corporate Governance awarded Satyam with the Global Peacock Award for global
excellence in corporate accountability.

Unfortunately, less than five months after winning the Global Peacock Award, Satyam
became the centerpiece of a massive accounting fraud.

On January 7, 2009, Mr. Raju disclosed in a letter, , to Satyam Computers Limited Board of
Directors that he had been manipulating the companys accounting numbers for years.

Mr. Raju claimed that he overstated assets on Satyams balance sheet by $1.47
billion. Nearly $1.04 billion in bank loans and cash that the company claimed to own
was non-existent. Satyam also underreported liabilities on its balance sheet. Satyam
overstated income nearly every quarter over the course of several years in order to meet
analyst expectations. Global auditing firm, PricewaterhouseCoopers (PwC), audited
Satyams books from June 2000 until the discovery of the fraud in 2009. Several
commentators criticized PwC harshly for failing to detect the fraud (Winkler, 2010).
Indeed, PwC signed Satyams financial statements and was responsible for the numbers
under the Indian law.

One particularly troubling item concerned the $1.04 billion that Satyam claimed to
have on its balance sheet in non-interest-bearing deposits. According to accounting
professionals, any reasonable company would have either invested the money into an
interest-bearing account, or returned the excess cash to the shareholders. The large
amount of cash thus should have been a red-flag for the auditors that further
verification and testing was necessary. Furthermore, it appears that the auditors did not
independently verify with the banks in which Satyam claimed to have deposits

Investigations into Satyam scam by the Crime Investigation Department (CID) of the
State Police and Central agencies have established that the promoters indulged in nastiest
kind of insider trading of the companys shares to raise money for building a large

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

land bank. According to the SFIO findings, promoters of Satyam and their family members
during April 2000 to January 7, 2009 sold almost 3.9 crore shares collecting in Rs 3029.67
crore. During this course, the founder ex-chairman RamalingaRaju sold 98 lakh shares
collecting in Rs 773.42 crores, whereas, his brother Rama Raju, sold 1.1 crore shares
pocketing Rs 894.32 crores.

The CBI is also in the course of investigating the CEOs overseas assets. There were
also several civil charges filed in the U.S. against Satyam by the holders of its ADRs.
The investigation also implicated several Indian politicians.

Numerous factored contributed to the Satyam fraud. The independent board members
of Satyam, the institutional investor community, the SEBI, retail investors, and the
external auditornone of them, including professional investors with detailed
information and models available to them, detected the malfeasance.

The following is a list of factors that contributed to the fraud: greed, ambitious corporate
growth, deceptive reporting practices lack of transparency, excessive interest in
maintaining stock prices, executive incentives, stock market expectations, nature of
accounting rules, ESOPs issued to those who prepared fake bills, high risk deals that
went sour, audit failures (internal and external), aggressiveness of investment and
commercial banks, rating agencies and investors, weak independent directors and audit
committee, and whistle-blower policy not being effective.

It is widely accepted that corporate entities of all sizes across the world are
susceptible to accounting scandals and frauds. Undoubtedly, various types of frauds and
scams reduced the creditability of financial information that investors use in making
decisions. It was also a contributing factor to the recent financial crisis and it threatened the
efficiency, liquidity and safety of both debt and capital markets.

THE DEMAT SCAM

Industries and finance sector always tried to tap the primary market during a boom. Mobilize
the financial resources through Public Issues and IPOs. In 2004-05, more than
Rs.24,000 crores have been mobilized from the primary market through Public Issues and
IPOs.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

It is a tragedy on the part of the Indian regulators that the scam is going on since
August 2004. Banks finance so-called Public Issue applications without even asking them to
open a bank account. It is Bharat Overseas Bank, Citibank and others gave IPO finance of
hundreds of crores of Rupees to a single person such as Roopalben-Syndicate in the
name of tens of thousands of fictitious applicants/names. There were various other
people who created fictitious DEMAT accounts and used the same.

Financiers with an intention to defraud, lent money to agents who created thousands of
fictitious individual bank and DEMAT accounts with the same address. The agent
then applied for a companys IPO in the quota earmarked for small investors through
multiple applications from these fictitious account holders. Once the shares were
allotted to the fictitious investors, the agent transferred them into the financiers
account, after deducting commission valued in the form of the allotted shares.

There were various factors which led to the occurrence of the scam, which are as follows:

With the revival of primary market, investors demanded for quality IPOs. The
allotment to application ratios was low. In such cases multiple applications
were rampant.

Banks colluded by opening the benami accounts and funding the unscrupulous agents.
It was a failure of the banking system- they failed to follow RBIs Know Your
Customer guidelines (KYC) before opening accounts.

Larger subscriptions for issues ensured a better price for the shares of
companies in the book building process.

Few case studies:

1. IDFC IPO Scam, the story of greed and related system failure (15 -22 July, 2005): In July
2005, IDFC came out with its public issue of 403.6 mn equity shares of Rs. 10 each at a
price of Rs. 34 per equity share. Out of the total shares, 141.3 mn were reserved for
small individual investors. RoopalbenPanchal and associates, Ahmedabad, opened
thousands of fictitious benamidemat and bank accounts bearing the same address with
Karvy Stock Broking Ltd. This syndicate had as many as43,982 applicants representing
17.3% of the total applications of the retail portion of the IDFC IPO. These fictitious

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

accounts received IPO allotment of about 11.7 mnshares or ~8.3% of total retail
portion of shares. SEBI Action- Roopalben and five other members of the Panchal family
were found guilty of cornering shares meant forretail individual investors in 18 IPOs during
the period 2003-2006 using multiple and fictitious demat accounts. They were barred from
accessing the securities market for a period of three months. In February 2011, SEBI
directed them to disgorge the unlawful gains they made, amounting to Rs 24 crore
and also pay simple interest at 10% for five years from 2005 to 2010 (Rs 12 crores)- a
total of Rs 36 crore.

2. Jet Airways IPO: Rs. 1899.3 crores (Feb 18-24, 2005): Jet Airways made an IPO
issue size of 17.2 mn shares of Rs.10 each. Of the total issue, 25% or ~4.3 mn shares were
reserved for retail investors. The key operators involved used 1,186 fictitious accounts
to corner 20,901 shares which were equal to 0.5% of the total number of shares
allotted to retail investors.

WHITE COLLAR CRIMES UNDER INDIAN STATUTES

Indian Companies Act, 2013

Introduction

A Company is basically a form of business organization and it runs according to the business
traits and commercial practices. Being a sub system of the economic-social system
operating in the society, it affects and is affected by the economic and cultures of the society.
The concept of social responsibilities of companies is now so widely accepted that it is rare to
bear any view expressed to contrary. Even those who stoutly defend companys primary
object to make profits agree that the profit-making should be pursued in a socially
responsible way, by which they usually mean that it should be done for the well being of
their employees giving due regards to public, its shareholders and keeping paramount also the
national interest. The Companies Act 2013, guarantees several rights to investors and also
regulates the affairs of a company with a view to ensure efficient functioning of a company
so that investors may receive their due returns of the capital invested by them and
their rights and interests are adequately protected. Investors are the real owners of a company
but the power of management of the company is vested in the Board of Directors.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

There are chances to abuse of power like committing fraud, by few directors of the
company. As we know that there is close nexus between corporate governance and ethics but
conflicts between these two are also bound to occur. Corporate fraud, an inevitable
incident occurring, in recent, is an aggravated form of corruption in corporate world. It is
difficult to prevent and to catch such white collar crimes. Such incidents reduce the interest
and trust in corporate investments and in turn reduce the confidence on the government.
The Companies Act empowers the Central Government with the right to investigate the
affairs of the company, especially in cases of an alleged fraud or even in the oppression of the
minority shareholders.

Fraud in Companies Act, 2013

The Companies (Amendment) Act, 201536 is a harbinger of positive trends in the ease of
doing business for Indian companies. Prior to the new Companies Act, 2013 Fraud was
largely seen as a broad legal concept. The old Companies Act already provides punishment
for fraud in various sections but the new Act has come with more specific and clear
provisions relating to fraud and fraud reporting. The scope and coverage is very wide unlike
Companies Act, 1956. Auditors have always had an important role to play in enhancing the
credibility of the financial information. With the introduction of section 143(12) of the
Companies Act, 2013, the Central Government is apparently seeking the support of the
auditors in bringing in greater transparency and discipline in the corporate world to protect
the interests of the shareholders as also the public, at large. The increasing rate of white collar
crimes demands stiff penalties, exemplary punishments, and effective enforcement of law
with the right spirit.

Persons Covered for Reporting on Fraud under Section 143(12) of the Companies Act, 2013:

36 The Companies (Amendment) Bill received the assent of the President on the 25 th May, 2015 and
published in official Gazette of India on 26th May, 2015 and became THE COMPANIES
(AMENDMENT) ACT, 2015. This Act shall come into force on 26th May, 2015.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

The reporting requirement under Section 143(12) is for the followings:

Statutory Auditors of the company and also equally applies to the:


Cost Accountant in practice, conducting cost audit under Section 148 of the Act;
and
to the Company Secretary in practice, conducting secretarial audit under Section
204 of the Act
Branch Auditor appointed under Section 139 to the extent it relates to the
concerned branch
Internal Auditor

Person not included in the requirement to report Fraud:

The provisions of Section 143(12) do not apply to other professionals who are rendering
other services to the company. For example, Section 143(12) does not apply to auditors
appointed under other statutes for rendering other services such as tax auditor appointed for
audit under Income-tax Act; Sales Tax or VAT auditors appointed for audit under the
respective Sales Tax or VAT legislations

Fraud covered Under Section 143

It includes only fraud by officers or employees of the company and does not include fraud by
third parties such as vendors and customers.

Definition of Fraud:

Fraud has been defined in section 447(1) of the Act as:

Fraud in relation to affairs of a company or any body corporate, includes any act,
omission, concealment of any fact or abuse of position committed by any person or any other
person with the connivance in any manner, with intent to deceive, to gain undue advantage
from, or to injure the interests of, the company or its shareholders or its creditors or any
other person, whether or not there is any wrongful gain or wrongful loss.

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Wrongful gain means the gain by unlawful means of property to which the person gaining
is not legally entitled and wrongful loss means the loss by unlawful means of property to
which the person losing is legally entitled.

It is the first time that the Act defines fraud and also imposes civil and criminal liability on
the fraudster for non-compliance.

Fraud is also defined in Section 17 of Indian Contract Act, 1872 as follows:

Fraud means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agents, with intent to deceive another party thereto his agent,
or to induce him to enter into the contract;

(1) the suggestion as a fact, of that which is not true, by one who does not believe it to be
true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declares to be fraudulent.

There are three types of investigation mentioned in the Companies Act 2013

1. An investigation into the affairs of the Companies.37

37 section 210 of the Companies Act, 2013

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

2. An investigation into companys affairs in other cases.38

3. An investigation into the ownership of the Companies.39

The Central Government is empowered to appoint inspectors to investigate either on its own
if it is of the opinion that such investigation is required on the report of the Registrar or
Inspector under section 208 or in public interest or on the request of the company on the basis
of a special resolution or on the Direction of the court/tribunal or from such members of
the company having requisite number of shares as specified in section 213 of the
Companies Act, 2013.

The Central Government has also set up the Serious Fraud Investigation Office
(SFIO) in the ministry of corporate affairs, a specialized, multi-disciplinary organization to
deal with serious cases of corporate fraud. This was also a major recommendation made by
the Naresh Chandra Committee which was set up by the government on 21 st August
2002 on corporate governance. Headquarters of this office is located in New Delhi,
with field offices located in major cities throughout India. The SFIO is headed by a
director not below the rank of a Joint Secretary to the Government of India having
knowledge and experience in dealing with the matters relating to corporate affairs and
also consist of experts from various disciplines.40

The SFIO will only deal with investigation of corporate frauds characterized by:

a) Complexity and having inter- departmental and multi-disciplinary ramifications.

b) Substantial involvement of public interest in terms of monetary misappropriation or in


terms of number of persons affected and

38 S. 213

39 S. 216

40 S. 211

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

c) The possibility of investigations leading to or contributing towards a clear


improvement in systems, law of procedure.41

The other experts are appointed by the Central Government from amongst persons of ability,
integrity and experience in the field of banking, Corporate Affairs, Taxation, Forensic
audit, Capital Market, Information Technology, Law, or Other fields as required.

Role of Serious Fraud Investigation Office (SFIO)

SFIO, in following circumstances, investigate into the affairs of a company when the Central
Government assigns

(a) on receipt of a report of the Registrar or inspector under section 208 where further
investigation into the affairs of the company is necessary;

(b) on intimation of a special resolution passed by a company that its affairs are
required to be investigated;

(c) in the public interest; or

(d) on request from any Department of the Central Government or a State Government,

Director of SFIO, may designate such number of inspectors, as he may consider


necessary for the purpose of such investigation and such investigating officer have the
power of the inspector according to section 217 of the Act7. Hence, inspectors may also be
empowered to investigate the affairs of -

(a) any other body corporate which is, or has at any relevant time been the
company's subsidiary company or holding company, or a subsidiary company of its holding
company;

(b) any other body corporate which is, or has at any relevant time been managed by
any person as managing director or as manager, who is, or was, at the relevant time, the
managing director or the manager of the company;

41 S. 212(1)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

(c) any other body corporate whose Board of Directors comprises nominees of the
company or is accustomed to act in accordance with the directions or instructions of
the company or any of its directors; or

(d) any person who is or has at any relevant time been the company's managing director or
manager or employee, he shall investigate into and report on the affairs of the other
body corporate or of the managing director or manager, in so far as he considers that
the results of his investigation are relevant to the investigation of the affairs of the
company.42

The case shall not be investigated by other departments when assigned to SFIO

In order to bring integrity and acceleration in investigation in serious corporate frauds, when
any case has been assigned by the Central Government to the SFIO for investigation under
this Act, no other investigating agency of Central Government or any State Government
shall proceed with investigation in such case in respect of any offence under this Act and in
case any such investigation has already been initiated, it shall not be proceeded further
with and the concerned agency shall transfer the relevant documents and records in respect
of such offences under this Act to SFIO.

The company and its officers and employees, who are or have been in employment of the
company, shall be responsible to provide all information, explanation, documents and
assistance to the investigating officer as he may require for conduct of the investigation.
SFIO shall conduct the investigation in the manner and follow the procedure provided in
chapter XIV of the Companies Act, 2013 and submit its report to the Central Government
within such period as may be specified in the order.

Power of SFIO to arrest the accused

Director, Additional Director or Assistant Director of SFIO, if authorized by Central


Government by general or special law, may arrest such person, who is found guilty of
cases of fraud as mentioned above. Every person arrested shall, as soon as possible, be
intimated the ground of arrest and within twenty-four hours, be taken to a Judicial Magistrate
or a Metropolitan Magistrate, as the case may be, having jurisdiction; provided that the

42 S. 219

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

period of twenty-four hours shall be excluded the time necessary for the journey from the
place of arrest to the Magistrate's court. 43

No person accused of any offence under those sections shall be released on bail or on his own
bond unless :

1. the Public Prosecutor has been given an opportunity to oppose the application for
such release; and

2. where the Public Prosecutor opposes the application, the court is satisfied that there
are reasonable grounds for believing that he is not guilty of such offence and that he is not
likely to commit any offence while on bail.

A person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be
released on bail, if the Special Court so directs. The Special Court shall not take cognizance
of any offence except upon a complaint in writing made by

1. the Director, Serious Fraud Investigation Office; or


2. any officer of the Central Government authorised, by a general or special order
in writing in this behalf by that Government.

Submission of Investigation Report by SFIO

Submission of Interim Investigation Report- the Central Government if so directs, the


SFIO will submit an interim report to the Central Government within stipulated time. This
report may contain the preliminary findings related with seriousness, wrongdoers of the fraud
etc.

Submission of final Investigation Report- SFIO shall submit the detail and final
investigation report, on completion of the investigation to the Central Government. A
copy of the investigation report may be obtained by any person concerned by making an
application in this regard to the court. On receipt of the investigation report, the Central
Government will, after examination of the report

43 S. 212(6)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

(and after taking such legal advice, as it may think fit), may direct the SFIO to
initiate prosecution against the company and its officers or employees, who are or
have been in employment of the company or any other person directly or indirectly
connected with the affairs of the company.

The investigation report filed with the Special Court for framing of charges shall be deemed
to be a report filed by a police officer under section 173 of the Code of Criminal Procedure,
1973. In case SFIO has been investigating any offence under this Act, any other
investigating agency, State Government, police authority, income-tax authorities having any
information or documents in respect of such offence shall provide all such information or
documents available with it to the SFIO.

The SFIO will also share any information or documents available with it, with any
investigating agency, State Government, police authority or income tax authorities,
which may be relevant or useful for such investigating agency, State Government,
police authority or income-tax authorities in respect of any offence or matter being
investigated or examined by it under any other law.44

Criminal Liabilities of Company in cases of Fraud

The following corporate activities have been regarded as fraud and kept under the category of
cognizable as well as non-bailable offences and punishable under section 447 of the
Companies Act, 2013:

(a) Furnishing False or incorrect information during registration of company- If any


person furnishes any false or incorrect particulars of any information or suppresses any
material information, of which he is aware in any of the documents filed with the Registrar in
relation to the registration of a company .45

44 S. 212(17)

45 S. 7(5)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

(b) Incorporation of company by fraudulent means- Any company incorporated by


furnishing any false or incorrect information or representation or by suppressing any material
fact or information in any of the documents or declaration filed or made for
incorporating such company, or by any fraudulent action.46

(c) Untrue or Misleading Prospectus- When a prospectus issued, circulated or distributed


includes any statement which is untrue or misleading in form or context in which it is
included or where any inclusion or omission of any matter is likely to mislead.47

(d) Inducing a person to enter into financial matter- Any person who, either
knowingly or recklessly makes any statement, promise or forecast which is false,
deceptive or misleading, or deliberately conceals any material facts, to induce another
person to enter into, or to offer to enter into

any agreement for, or with a view to, acquiring, disposing of, subscribing for or
underwriting securities; or
any agreement, the purpose or the pretended purpose of which is to secure a profit to
any of the parties from the yield of securities or by reference to fluctuations in
the value of securities; or
any agreement for, or with a view to obtaining credit facilities from any bank
or financial institution.48

(e) Any person who makes or abets making of an application in a fictitious name to a
company for acquiring, or subscribing for, its securities; or makes or abets making of
multiple applications to a company in different names or in different combinations of his
name or surname for acquiring or subscribing for its securities; or otherwise induces directly
or indirectly a company to allot, or register any transfer of, securities to him, or to any other
person in a fictitious name.49

(f) If a company with intent to defraud issues a duplicate certificate of shares.50

46 S. 7(6)

47 S. 34

48 S. 36

49 S. 38(1)

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

(g) Without prejudice to any liability under the Depositories Act, 1996, where any depository
or depository participant, with an intention to defraud a person, has transferred shares.51

(h) If any officer of the company knowingly conceals the name of any creditor
entitled to object to the reduction; knowingly misrepresents the nature or amount of
the debt or claim of any creditor; or abets or is privy to any such concealment or
misrepresentation as aforesaid.52

(i) When the auditor of the company has acted fraudulently or abetted or colluded in
any fraud by, or in relation to, the company or its directors or officers, such auditor
are held liable for fraud and may be removed from office.53

(j) Where business of a company has been or is being carried on for a fraudulent or
unlawful purpose, or if the grievances of investors are not being addressed, every
officer of the company who is in default shall be held liable for fraud.54

(k) if after investigation it is proved that the business of the company is being
conducted with intent to defraud its creditors, members or any other persons or
otherwise for a fraudulent or unlawful purpose, or that the company was formed for
any fraudulent or unlawful purpose; or any person concerned in the formation of the
company or the management of its affairs have in connection therewith been guilty of fraud,
then, every officer of the company who is in default and the person or persons concerned in
the formation of the company or the management of its affairs shall be held liable of
fraud.55

(l) Furnishing false statement mutilation, destruction of documents- Where a person


who is required to provide an explanation or make a statement during the course of

50 S. 46(5)

51 S. 56(7)

52 S. 66(10)

53 S. 140(5)

54 S. 206(4)

55 S. 213

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

inspection, inquiry or investigation, or an officer or other employee of a company or


other body corporate which is also under investigation,

(i) destroys, mutilates or falsifies, or conceals or tampers or by unauthorised way removes,

or is a party to the destruction, mutilation or falsification or concealment or tampering or

unauthorised removal of, documents relating to the property, assets or affairs of the

company or the body corporate;

(ii) makes, or is a party to the making of, a false entry in any document concerning the

company or body corporate; or

(iii) provides an explanation which is false or which he knows to be false.56

(m) Fraudulent application for removal of name- Where it is found that an application
by a company under sub-section (2) of section 248 has been made with the object of evading
the liabilities of the company or with the intention to deceive the creditors or to
defraud any other persons, the persons in charge of the management of the company
shall, notwithstanding that the company has been notified as dissolved

(i) be jointly and severally liable to any person or persons who had incurred loss or damage
as a result of the company being notified as dissolved; and

(ii) be punishable for fraud as per section 447.57

(n) Fraudulent conduct of business- If in the course of the winding up of a company, it


appears that any business of the company has been carried on with intent to defraud creditors
of the company or any other persons or for any fraudulent purpose, the Tribunal, on
the application of the Official Liquidator, or the Company Liquidator or any creditor
or contributory of the company, may, if it thinks it proper so to do, declare that any

56 S. 229

57 S. 251

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

person, who is or has been a director, manager, or officer of the company or any persons
who were knowingly parties to the carrying on of the business in the manner aforesaid
shall be personally responsible for fraud.58

(o) False Statement59-any return, report, certificate, financial statement, prospectus, or


other document required by, or for the purposes of any of the provisions of this Act or the
rules made there under, any person makes a statement,

(i) which is false in any material particulars, knowing it to be false; or

(ii) which omits any material fact, knowing it to be material.

Punishment for Fraud

It is worth to discuss here the punishment of various fraud prescribed by the Companies Act,
2013. The Act prescribes punishment for following frauds-

(a) any person who is found to be guilty of fraud, shall be punishable with imprisonment for a
term which shall not be less than six months but which may extend to ten years and
shall also be liable to fine which shall not be less than the amount involved in the fraud, but
which may extend to three times the amount involved in the fraud.60

(b) where the fraud in question involves public interest, the term of imprisonment shall not be
less than three years.

(c) giving false statement in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the purposes of any of
the provisions of this Act, shall be punishable as per section 447.61

(d) giving intentionally false evidence upon any examination on oath or solemn
affirmation, authorised under this Act; or in any affidavit, deposition or solemn
affirmation, in or about the winding up of any company or otherwise in or about any

58S. 339

59 S. 448

60 S. 447

61 S. 448

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

matter arising under this Act, shall be punishable with imprisonment for a term which
shall not be less than three years but which may extend to seven years and with fine
which may extend to ten lakh rupees.62

(e) punishment where no specific penalty or punishment is provided 63- If a


company or any officer of a company or any other person contravenes any of the
provisions of this Act or the rules made there under, or any condition, limitation or
restriction subject to which any approval, sanction, consent, confirmation, recognition,
direction or exemption in relation to any matter has been accorded, given or granted,
and for which no penalty or punishment is provided elsewhere in this Act, the company and
every officer of the company who is in default or such other person shall be
punishable with fine which may extend to ten thousand rupees, and where the
contravention is continuing one, with a further fine which may extend to one thousand
rupees for every day after the first during which the contravention continues.

(f) punishment in case of repeated default- If a company or an officer of a company


commits an offence punishable either with fine or with imprisonment and where the
same offence is committed for the second or subsequent occasions within a period of three
years, then, that company and every officer thereof who is in default shall be punishable with
twice the amount of fine for such offence in addition to any imprisonment provided for that
offence.64

Evaluation of the role of SFIO

62 S. 449

63 S. 450

64 Section 451

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

SFIO is a specialist organisation that investigates only the most serious type of
corporate frauds. It has been empowered by the Companies Act, 2013 to investigate all the
matters pertaining to frauds occurred in any company where the investors lost their hard
earned money. An inspector can examine on oath any person involved in the fraud and may
thereafter be used in evidence against him. In this work of inspector, the officers of the
Central Government, State government, police or statutory authorities shall provide
assistance to him. They enjoy all the powers as are vested in a civil court under the Code of
Civil Procedure, 1908,while trying a suit in respect of the following matters, namely65:

(i) the discovery and production of books of account and other documents, at such
place and time as may be specified by such person;

(ii) summoning and enforcing the attendance of persons and examining them on oath; and

(iii) inspection of any books, registers and other documents of the company at any place.

Here, it is worth to mention that investigation proceedings are not judicial


proceedings but only investigatory and quasi-judicial in nature 66. If any director or
officer of the company disobeys the direction issued by the Registrar or the inspector, the
director or the officer shall be punishable with imprisonment which may extend to one
year and with fine which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees.

If a director or an officer of the company has been convicted of an offence under section
217, the director or the officer shall, on and from the date on which he is so convicted, be
deemed to have vacated his office as such and on such vacation of office, shall be disqualified
from holding an office in any company.

The notes of examination of the person as mentioned above are to be taken down in writing
and to be read over to, or by, and signed by, the person examined, and may thereafter be used
in evidence against him. If any person fails without reasonable cause or refuses

(i) to produce to an inspector or any person authorised by him in this behalf any book or

paper which is his duty to produce; or

65 Section 217(5)

66 Coimbatore Spinning & Weaving Co. Ltd v. M.S Srinivasan (1959) 29 Comp.
Cases 97 (Mad).

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(ii) to furnish any information which is his duty to furnish; or

(iii) to appear before the inspector personally when required to do so or

(iv) to answer any question which is put to him by the inspector in pursuance of that; or

(v) to sign the notes of any examination referred to;

he shall be punished with imprisonment for a term which may extend to six months and with
fine which shall not be less than twenty-five thousand rupees but which may extend
to one lakh rupees, and also with a further fine which may extend to two thousand rupees for
everyday after the first during which the failure or refusal continues.67

Satyam Computers Scam was investigated by the SFIO in record three months of time. This
scam of worth Rs.7,200 crore and caused loss of Rs. 14,162 crore (approx.) to its investors in
2009, has happened with the help of audit firm PricewaterhouseCoopers which is big
blow for corporate governance in India. The role and liability of Independent director were
also held suspicious. Satyam Computer Services Ltd was founded in 1987 by B.Ramalinga
Raju. The company offers information technology (IT) services spanning various sectors, and
was also listed on the New York Stock Exchange and Euronext. Satyam's network has
covered 67 countries across six continents. The company employed 40,000 IT professionals
across development centers in India, the United States, the United Kingdom, the United Arab
Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan, Egypt and Australia. It
was serving over 654 global companies, 185 of which were Fortune 500 corporations.
Satyam has strategic technology and marketing alliances with over 50 companies.

Apart from Hyderabad, it has Bhubaneswar, and Visakhapatnam. SFIO questioned the
independent directors and found that allegedly at the behest of the chairman and other top
executives of the IT giant.

SFIO concluded had no knowledge about the falsification of accounts and overstated
profits that happened development centers in India at Bangalore, Chennai, Pune, Mumbai,
Nagpur, Delhi, Kolkata, that the Independent directors of Satyam were not involved in
the multi-crores accounting fraud in the IT company and were kept in the dark by the
chairman.

67 S. 217(8)

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SFIO has also investigated Deccan Chronicle Holding Ltd (DCHL) loan default case of
Rs. 1,230 crore (approx).68 This is Hyderabad based company, which owns the English
dailies Deccan Chronicle and Asian Age, was under probe for alleged financial irregularities
and failure to repay loan during 2009-11. In a report to the ministry, the SFIO has pointed to
violations of several provisions of the Companies Act, 1956. The SFIO report has
confirmed that the money was availed by the company's management from various
banks through sale of non-convertible debentures and other commercial papers. Later,
DCHL declared itself sick and registered with the Board for Industrial and Financial
Reconstruction (BIFR). Although the BIFR has accepted the company's plea under the Sick
Industries Act, the move does not deter DCHL's lenders from taking action against the
company under the Securitisation Act.

The famous Saradha Chit Fund scam of West Bengal is, now, being investigated
by the SFIO. The investigation was ordered by the Corporate Affairs Ministry, in
2013, following huge public outcry over the scam that duped hundreds of gullible investors
by running fraudulent money- pooling schemes in the garb of chit funds. More than 60
companies, most of them from the eastern states of the country, which are believed to have
cheated the public of their money, are being probed by SFIO. In its interim report, SFIO
had said that companies under the scanner indulged in serious financial mismanagement
besides siphoning off the funds by their promoters, who exploited regulatory gaps. 69
There has been proliferation of innovative financial products in the market due to
technological advancement and extensive use of the internet to market such products to
investors.

It has been observed that SFIO has no power to settle cases on its own. It deals
with investigation of corporate frauds characterized by complexity and having inter-
departmental, multi- disciplinary ramifications and also having substantial involvement
of public interest in terms of monetary misappropriation or in terms of number of persons
affected. It submits the detail and final investigation report, on completion of the
investigation to the Central Government.

68 The Hindu, Hyderabad, Jul 09, 2013. (last visited on 30 th October, 2016)

69 The Hindu, New Delhi, April 20, 2014. (last visited on 30 th October, 2016)

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The Central Government, after examination of the report (and after taking such legal advice,
(as it may think fit), may direct the SFIO to initiate prosecution against the company and its
officers or employees, who are or have been in employment of the company. In U.K., the
Serious Fraud Office

(SFO) is an independent department which investigates and also prosecutes serious and
complex fraud and corruption cases. SFO is the principal enforcer of new UK bribery
Act, 2010 which has been designed to prevent fraud and to encourage good corporate
governance in that country. Therefore, it is suggested that, in India, SFIO should also be
given power of, at least, imposing penalties on such company involved in fraud. This
will provide speedy relief to investors and also reduce the burden of the court, up to certain
extent.

It is concluded that SFIO is performing well to find out the corporate frauds, during
recent time which reflects the good corporate governance in our country. Minister of
State for Corporate Affairs Nirmala Sitharaman has informed the Lok Sabha on 25 th
July, 2014, in a written reply that corporate frauds worth more than Rs 10,800 crore
have been detected by SFIO during its probes in nearly three-and-half years. It has
completed probes in 78 cases of corporate frauds since 2011-12 till June-end of this year.
Now, Market Research and Analysis Unit (MRAU) has been set up in SFIO to analyse media
reports relating to financial frauds and for conducting market surveillance of such
corporate. In order to strengthen MRAU's functioning, an expert committee was
constituted and on the basis of its recommendations a forensic lab with appropriate
technology and skilled technical manpower has been set up in SFIO. This will,
certainly protect the investors interest and will also bring back the confidence of
investors in Indian capital market.

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Indian Penal Code

Introduction
It is true that both crime and criminal are looked upon with hatred by all sections of the
society, but it is also true that the study and research of the law of crime has always been one
of the most attractive branches of jurisprudence since the early years of human civilization. In
fact the law of crime has been as old as the civilization itself. Wherever people organised
themselves into groups or associations, the need for some sort of rules to regulate the
behaviour of the members of that group inter-se has been felt, and its infraction was
inevitable. There was no criminal law in uncivilized society and everymen was liable to be
attacked in his person or property at any time by anyone. The attacked either succumbed or
over powered his opponent. A tooth for a tooth, an eye for an eye, a life for a life was the
forerunner of criminal justice at that time. As the time advanced, the injured person agreed to
accept compensation, instead of killing each other adversary. Subsequently, a sliding scale
came into existence for satisfying ordinary crimes. Crime has also increased with the
advancement of the society. Now with the advancement of science and technology newer
form of criminality has arisen, known as white collar crime. The notion of white collar crime
was first introduced in the field of criminology by Prof Edwin H. Sutherland in 1939.He
defined white collar crimes as crime as a crime committed by persons of respectability and
high social status in the course of their occupation.70The main categories of white collar
crimes are bribery and corruption, food and drug adulteration, counterfeiting, forgery, tax
evasion, cyber-crimes etc. White collar crimes are not a new phenomenon in our country. The
Indian Penal Code 1860 is the earliest comprehensive and codified criminal law of India.

70 Edwin H. Sutherland, White Collar Crime 14 (1949)

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It also deals with many white collar crimes and punishment is provided for bribery and
corruption,71counterfeiting of coins and government stamps72, of offences relating to weights
and measures,73offences relating to adulteration of food stuffs and drugs 74,misappropriation of
public property and criminal breach of trust75, cheating76, forgery and offences relating to
documents77and counterfeiting of currency78.

PUBLIC SERVANT UNLAWFULLY ENGAGING IN TRADE

Faith is reposed in a public servant and if public servants are allowed to engage in trade they
would not be able to devote their undivided attention to their official work. Moreover they
may take unfair advantage over other traders of their official position for the advancement of
their trade. So keeping this aspect in mind S.168 of the Code provides:

whoever, being a public servant, and being legally bound as such public servant not to
engage in trade, engages in trade, shall be punished with simple imprisonment for a term
which may extend to one year, or with fine, or with both.79

Trade in its wider sense covers every kind of trade, business, profession, occupation, calling
or industry. According to Oxford Dictionary80:

71 Sections 168, 169, 171B, 171C, 171E, 171H of Indian Penal Code, 1860.

72 Ibid sections 230 263

73 Ibid sections 264 267

74 Ibid sections 272 -276

75 Ibid sections 403 409

76 Ibid sections 415 420

77 Ibid sections 463 489

78 Ibid sections 489A 489D

79 Section 168 of the Indian Penal Code, 1860

80 Arnold Fischer,Oxford Advanced Learners Dictionary 245 (1985).

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Trade means the act or process of buying, selling, or exchanging commodities, at either
wholesale or retail, with in a country or between countries.

The Supreme Court in State of Gujarat v. Mahesh KumarThakkar81has held that trade in
its narrow sense means exchange of goods for goods or for money with object of making
profit and in its widest sense means any business with a view to earn profit. The Court
ruled that where a tracer in the office of Sub-Divisional Soil Conservation Office took earned
leave and during that period of leave obtained training as an Electrical Signal Maintainer
from the railway administration, it was held that he cannot be convicted under section168 of
the Indian Penal Code, 1860as he has not engaged himself in any trade even though he was
receiving stipend from the railways during the period of his training.

Similarly, in State of Maharastra v. Chandrakant Solanki 82, the Supreme Court has held
that engagement as agent of insurance company on commission basis does not amount to
engaging in trade within the meaning of section 168 of the Code. The commission does not
include profits because commission is an amount settled beforehand which goes to the person
who brings business to the company, whereas profits are whatever the company finally earns
after deducting all expenditure and it goes to the company. Thus, where the accused was
working as Inspector on probation in National Insurance Company, engaged him by running
two insurance companies and received agents commission, it cannot be said that he engaged
himself in trade.

The Supreme Court of India in Kanwarjit Singh Kakkar v. State of Punjab and Anr,83has
held that the demand or receipt of fee by a medical professional for extending medical help
by itself cannot be held to be an illegal gratification as the amount so charged is towards
professional remuneration. So the offence u/s.168, IPC cannot be said to have been made out
as the treatment of patients by a doctor cannot by itself be held to be engagement in a trade.

81 AIR 1980 SC 1167. See also Motilal and Ors.v. The Government of Uttar Pradesh and Ors,.AIR 1951 All
257, JagmohanSahu and Anr. v. State of Orissa1977 Cri LJ 1394 (Ori), Niranjal Shankar Golikari v. The Century
Shipping and Mfg Co. Ltd., AIR 1967 SC 1098, Girish v. State of KarnatakaILR 1994 Kar. 439

82 1995 Cri LJ 832(Mah)

83 (2011) 6 SCR 895

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However, the said act may fall within the ambit of misconduct to be dealt with under the
Service Rules.

Similarly, in State of Gujarat v. Mahesh Kumar Dheerajlal Thakkar,84the Supreme Court


has held that private practice cannot be termed as trade as accepting of fee does not
involve profit making, which is an essential ingredient of the term trade.

So we may conclude that if public servants were allowed to engage in trade they would not
be able to devote their undivided attention to their official work.

PUBLIC SERVANT UNLAWFULLY BUYING OR BIDDING FOR PROPERTY

Under Section 169 of Indian Penal Code,1860, public servant is prohibited from unlawfully
buying or bidding for property. This section is an extension of section168 of the Code. The
scope of the section is limited to property sold by a public servant in his official capacity.
This is based on the principle that, as he is placed in an advantageous position over the other,
he might influence the sale in his favour. But if the sale is unconnected with the official
position of the public servant, he is not prohibited from purchasing or bidding for the
property, and the section is not attracted. For instance, purchase of an impounded pony by a
police officer,85 and of a buffalo belonging to a District Board at an auction by a member of
board were neither covered by this section. 86 It would be profitable for us to reproduce the
language of S.169 of the Code which runs as under:

Whoever, being a public servant, and being legally bound as such public servant, not to
purchase or bid for certain property, purchases or bids for that property, either in his own
name or in the name of another, or jointly, or in shares with others, shall be punished with
simple imprisonment for a term which may extend to two years, or with fine, or with both;
and the property, if purchased, shall be confiscated.87

84 AIR 1980 SC 1167

85 Rajkristo Biswa(1871 ) 16 WR(Cri) 62.

86 Suraj Narian Chaube v State,AIR 1938 Bom. 565.

87 Section 169 of the Indian Penal Code, 1860.

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The Supreme Court of India in R. Sai Bharathi v. J. Jayalalitha88,has held that under section
169 of Indian Penal Code, 1860 public servant is prohibited from unlawfully buying or
bidding for property but such prohibition must flow from enacted law or rules/regulation
framed there under. No executive order could be considered such a law. Hence code of
conduct framed by Governor laying guidelines for conduct of ministers have no statutory
force and are not enforceable in court of law. As such Chief Minister is not legally prohibited
from purchasing land belonging to government owned company. The charge under sections
169 of Indian Penal Code, 1860 is therefore liable to fail.

BRIBERY

Bribery is an act of giving money or gift giving that alters the behavior of the recipient.
Bribery constitutes a crime and is defined by Blacks Law Dictionary89 as the offering, giving,
receiving, or soliciting of any item of value to influence the actions of an official or other
person in charge of a public or legal duty. Bribery as used in Encyclopedia Americana 90 is
said to be voluntary receiving or giving anything of value in payment for an official act done
or to be done and that it is not confined to judicial officers or other persons concerned in the
administration of justice, but it extends to all officers concerned with the administration of
the Government Executive, Legislative and Judicial and under the approximate circumstance
military. The Supreme of Court of India has observed that bribe is not charity but shrewd
business. Bribe is given not only to get things unlawfully done but also to get lawful things
done promptly.91With the coalition governments coming into power during 1990s instability
of government have become a common phenomenon in India. As a result of this, the anti-
defection law instead of being an inhibitor of floor crossing became an opportunity for
elected members to make quick money.

88 AIR 2004 SC 692.

89 Henry Campbell Black, Blacks Law Dictionary 39 (1968)

90 Drake De Kay,Encyclopedia Americana 205 (1968)

91 Som Parkash v. State of Delhi AIR 1974 SC 989

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In P.V. Narsimha Rao v. State92,Sibu Soren & Suraj Mandal took money to save the
Narsimha Rao Government from toppling. Political leader would tend to maintain their
political parties financially sound and at the same time insure themselves and their families
against uncertainties of future. This led to increasing nexus between politicians and organized
criminal.
Section 171-B which deals with bribery runs as under-
(1) Whoever
(i) gives a gratification to any person with the object of inducing him or any other
person to exercise any electoral right or of rewarding any person for having exercised any
such right; or
(ii) accepts either for himself or for any other person any gratification as a reward for
exercising any such right or for inducing or attempting to induce any other person to
exercise any such right; commits the offence of bribery:

Provided that a declaration of public policy or a promise of public action shall not be
an offence under this section.
(2) A person who offers, or agrees to give, or offers or attempts to procure, a gratification
shall be deemed to give a gratification.

(3) A person who obtains or agrees to accept or attempts to obtain a gratification shall be
deemed to accept a gratification, and a person who accepts a gratification as a motive for
doing what he does not intend to do, or as a reward for doing what he has not done, shall be
deemed to have accepted the gratification as a reward. Section 171 B of Indian Penal
Code,1860 defines bribery as giving or acceptance of a gratification either as a motive or
reward to any person, to induce him to stand or not to stand as a candidate or to withdrew
from the contest or to vote or not to vote at an election. It also include offer or agreement to
give or offer and attempt to procure a gratification, as explained in section 7 of the Prevention
of Corruption Act,1988, includes an offer of gratification. It is not restricted to pecuniary
gratification or to gratification estimable in money.93
It was further pointed out that unless there is such give and take policy amongst the political
parties, the political alliance which is now necessary to form a coalition government is not
92 AIR 1998 SC 2120

93 Mohan Singh v. Bhanwarlal, AIR 1964 SC

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possible. When one party on its own cannot get majority in the house, coalition government
is the only alternation. Judged in the light of these circumstances, it was held that the
statement does not amount to bribery.

PUNISHMENT FOR BRIBERY


Bribery is a very serious offence and has been made punishable under S.171E of the Code
which runs as under-
Whoever commits the offence of bribery shall be punished with imprisonment of either
description for a term which may extend to one year, or with fine, or with both.
Provided that bribery by treating shall be punished with fine only.
Explanation: Treating means that form of bribery where the gratification consists in food,
drink, entertainment, or provision.
The Supreme Court in Mohan Singh v. Bhanwarlal,94considered the meaning of the term
gratification by referring to the explanation to Section 123(1)(b) of the Representation of
People Act,1951 and observed that gratification, even by the above explanation is not
restricted to pecuniary gratification or gratification estimated in money and it includes all
forms of entertainment and all forms of employment for reward barring bona-fide election
expenses. Thus the term gratification may be taken to mean, something valuable which is
calculated to satisfy a persons aim, object or desire, whether or not that thing is estimable in
terms of money.

94 AIR 1964 SC 1366

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The Supreme Court in Trilochan Singh v. Karnail Singh95 has evolved two tests to check
out as to what would amount to an act of bribery. The first test is to see whether the
gratification is calculated to satisfy a persons aim, object or desire and secondly, whether the
gratification would be of some value, even if the value is not estimable in terms of money.
The gratification need not merely be of value to the person offered, but also to anybody else.
The gratification need not be offered directly by the candidate himself. Even if an agent, on
the instigation of the candidate, offers any such gratification, it will be sufficient to invoke the
section.
Why bribery by treating is punishable with fine only? That should also be made punishable
with imprisonment to deal with heavy hands with the menace of bribery. So the section
should be amended.

ILLEGAL PAYMENT IN CONNECTION WITH AN ELECTION


Money has always been a factor in politics and election. But the amount of money spent in
pursuit of public office today has brought new dimensions to an old problem. Elections
involve money and power, and unchecked power and money can lead to corruption.
To tackle the problem of illegal payment at election section 171-H of the Code provides:
Whoever without the general or special authority in writing of a
candidate incurs or authorizes expenses on account of the holding of any public meeting, or
upon any advertisement, circular or publication, or in any other way whatsoever for the
purpose of promoting or procuring the election of such candidate, shall be punished with fine
which may extend to five hundred rupees.
Provided that if any person having incurred any such expenses not exceeding the amount of
ten rupees without authority obtains within ten days from the date on which such expenses
were incurred the approval in writing of the candidate, he shall be deemed to have incurred
such expenses with the authority of the candidate.
This section makes illegal payments in connection with an election not authorized by a
candidate as an offence punishable with fine. It is interesting to note that the punishment not

95 AIR 1968 Punj. 416

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exceeding five hundred rupees seems to be totally inadequate in the present day. Similarly
expenses incurred of not more than ten rupees as stated in the proviso clause does not make
any sense now-a-days. So the section must be amended.
The Supreme Court in Common Cause v. Union of India and others,96has expressed its
view relating to election expenditure, that expenditure incurred by a political party or by
anybody or association or an individual (other than the candidate and his election agent) in
furtherance of election prospects of a candidate will be excluded from the expenditure
incurred by a candidate if, and only if, that expenditure has been shown in the account of the
party/body/association/individual concerned and that account has been duly audited and
submitted to the Income Tax authorities.
Otherwise, such expenditure shall be presumed to be that of the candidate.
COUNTERFEITING OF COINS AND GOVERMENT STAMPS
The Reserve Bank of India is the governing body that issue currency notes and coins in India.
Counterfeiting of currency and government stamps is one of the organized white collar
crimes which have assumed serious proportions globally. It not only causes serious setbacks
to the worlds economy but also jeopardizes the genuine business transactions.
Nowadays, the counterfeiting of currency notes is done with the help of modern equipment
such as colour scanners, colour copiers and printers, as well as by offset process. Chapter XII
of Indian Penal Code,1860 from sections 230 to 263-A deals with offences relating to coins
and government stamps. A person is said to counterfeit who causes one thing to resemble
another thing, intending by means of that resemblance to practice deception, or knowing it to
be likely that deception will thereby be practiced.97
In K. Hashim v. State of Tamil Nadu,98it was held by Court that if one thing resembles
another thing and if that is so and if resemblance is such that a person might be deceived by
it, there will be presumption of the necessary intention or knowledge to make the thing
counterfeit, unless the contrary is proved. It would be profitable for us to discuss in detail the
provisions of Indian Penal Code, 1860 dealing with the offence of counterfeiting of coins and
government stamps.99

96 AIR 1996 SC.3081

97 Section 28 of Indian Penal Code, 1860

98 2004(4) RCR (Criminal) 983 (SC).

99 Sections (230-263A) Indian Penal Code, 1860

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COUNTERFEITING INDIAN COINS


The Code has severally penalized the counterfeiting of Indian coin and in this regard section
232 of the Code provides that whoever counterfeits, or knowingly performs any part of the
process of counterfeiting Indian Coin, shall be punished with imprisonment for life, or with
imprisonment of either description for a which may extent to ten years, and shall also be
liable to fine.
The Supreme Court in Velayudham Pillai v. Emperor,100has held that one of the basic
elements of counterfeiting is intention to practice deception or practicing resemblance with
knowledge that this resemblance is likely to result deception. Therefore, any act by which
deception cannot be intended or any act from which likely result of deception cannot be
deduced cannot amount to deception. So when there is no intention to circulate the coin and
the offender only puts a counterfeit coin in the house of his enemy, the act cannot amount to
an offence under Section 232.

MAKING OR SELLING INSTRUMENTS FOR COUNTERFEITING


INDIAN COIN
Under Section 234 of the Code preparation to commit a crime has been made punishable. It
would be beneficial for us to reproduce the language of section 234 of the Code which runs
as under
Whoever makes or mends, or performs any part of the process of making or mending, or
buys, sells or disposes of , any die or instrument, for the purpose of being used, or knowing
or having reason to believe that it is intended to be used, for the purpose of
counterfeiting[Indian coin], shall be punished with imprisonment of either description for a
term which may extend to seven years, and shall also be liable to fine
POSSESION OF INSTRUMENTS OR MATERIALS FOR THE
PURPOSE OF USING THE SAME FOR COUNTERFEITING
Mere possession of instrument and materials capable of counterfeiting coins is no offence.
Possession of such instrument should be with the intention of counterfeiting coins and the

100 AIR 1937 Mad. 711

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same is punishable with imprisonment of either description for a term which may extend to
three years and shall also be liable to fine and if the coin to be counterfeited is Indian coin,
shall be punished with imprisonment of either description for a term which may extend to ten
year and shall also be liable to fine.101
The Supreme Court in Khadim Hussain v. Emperor,102convicted the accused of an offence
under this section, because he was having in his possession three dies and some
instruments for the purpose of counterfeiting coins. He was a goldsmith by occupation and
the instruments found with him were for his work as a goldsmith. The Dyes were deficient
and complete counterfeiting coin could not be struck from them either singly or combined. It
was held by the Supreme Court that it could not be inferred from the mere possession of the
dyes incapable of striking a complete coin that the accused intended to manufacture coins.
The onus of proving the fitness of the material for the purpose of counterfeiting coin is upon
the prosecution.
Similarly, in Zamir Hussain v. Crown,103it was held that under section 235 only the person
who is in possession can be convicted. The other person who is living with him and against
whom all that can be said is that they knew or were in a position to know that there were
instruments and materials for counterfeiting in the house cannot be held guilty of this offence.
Upholding the above view in Lachminiya Thakurian v. Emperor,104it was held that mere
fact that the wife knew that certain instruments and materials are in the possession of her
husband and also the place where those implements and materials were to be found does not
necessarily indicate that she herself is in subordinate possession or in any kind of possession
of them.
DELIVERY OF INDIAN COIN POSSESSSED WITH KNOWLEDGE THAT IT IS
COUNTERFEIT

101 Ibid. Section 235

102 AIR 1925 Lah. 22

103 AIR 1933 Lah. 34.

104 1950 Lah. 272.

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Delivery of Indian coin to another with the knowledge of its being counterfeit is a very
serious offence and same is punishable with ten years imprisonment and with fine. 105The
offence under section 240 has the following essential ingredients:
(1) That the accused fraudulently or with intent that fraud may be committed was possessed
of counterfeit coins;
(2) That the accused had the knowledge at the time when he became possessed of it that it
was a counterfeit coin;
(3) That the delivery of the Indian coin was made with the knowledge it was counterfeit.
The Honble Court in Ganga v. State,106has held that particular knowledge about the coin
being counterfeit is not necessary to be established by positive evidence. The circumstances
might indicate on which a reasonable presumption could be raised that the accused ought to
have known at the time when he became possessed of the coin that they were counterfeit.
COUNTERFEITING GOVERNMENT STAMPS
Sections 255 to 263A of Indian Penal Code provides punishment for offences relating to
stamps issued by government. Counterfeiting of Government stamps has been made
punishable by section 255 of the Code which provides that
whoever counterfeits, or knowingly performs any part of the process of counterfeiting, any
stamp issued by Government for the purpose of revenue, shall be punished with
[imprisonment for life] or with imprisonment of either description for a term which may
extend to ten years and shall also be liable to fine.
Explanation A person commits this offence who counterfeits by causing a genuine stamp of
one denomination to appear like a genuine stamp of a different denomination.

SALE OF COUNTERFEIT GOVERNMENT STAMP


Sale of counterfeit Government stamp has been made an offence under section 258 of the
Code. It would be profitable for us to reproduce the language Section 258 of the Code which
runs as under-
Whoever sells, or offers for sale, any stamp which he knows or has reason to believe to be a
counterfeit of any stamp issued by Government for the purpose of revenue shall be punished

105 Section 240 of the Indian Penal Code, 1860

106 1957 All LJ 283

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with imprisonment of either description for a term which may extend to seven years, and
shall also be liable to fine.
In a landmark judgment of Joti Prasad v. State of Haryana,107 the accused were charged
under sections 254, 255, 258, 467, read with section 120-B of the Code and charges levelled
against them were that they had conspired to do the illegal act of counterfeiting of
government stamps but trial court acquitted them all. On appeal to High Court confirmed the
acquittal of all except the appellant who was convicted under section 258 and 259 of the
Indian Penal Code on the ground that being a stamp vender he had knowledge or at least
reason to believe that the stamps he was selling were counterfeit. On appeal to Supreme
Court his plea that he purchased stamps from the treasury was rejected as he neither produced
register maintained by him nor made any efforts to summon the treasury records, and
conviction was upheld.

HAVING POSSESSION OF COUNTERFEIT GOVERNMENT STAMPS


The Indian Penal Code,1860 makes possession of counterfeit government stamp a crime.
This, in other words makes preparation to commit a crime a punishable offence. It would be
beneficial for us to reproduce the provisions of section 259 of the Code which provides that
whoever has in his possession any stamp which he knows to be a counterfeit of any stamp
issued by Government for the purpose of revenue, intending to use, or dispose of the same as
a genuine stamp, or in order that it may be used as a genuine stamp, shall be punished with
imprisonment of either description for a term which may extend to seven years, and shall also
be liable to fine

USING AS GENUINE A GOVERNMENT STAMP KNOWN TO BE A COUNTERFEIT


Section 260 of the Code prohibits using a counterfeit government as genuine. It says that
whoever uses as genuine any stamp, knowing it to be counterfeit of any stamp issued by
Government for the purpose of revenue, shall be punished with imprisonment of either
description for a term which may extend to seven years, or with fine, or with both. The

107 AIR 1993 SC 1167

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Supreme Court in a landmark judgment of CBI, New Delhi v. Abdul Karim Telgi &
others,108where Telgi along with other co-accused Abdul Gafoor Mujahid, Anand G Thorat,
Sachin, Munna and Ashfaq had floated a company, M/S Prime Services, located at Nehru
Place during 1997-98 for unauthorized trading and selling counterfeit stamps or non- judicial
stamps in various parts of Delhi and adjoining areas. The accused had caused huge loss to the
State exchequer by selling the counterfeit stamp papers. Telgi was held guilty under Sections
420 (cheating), 258 (sale of counterfeit government stamp), 259 (having possession of
counterfeit government stamp), 260 (using as genuine a government stamp known to be a
counterfeit) and 120-B (criminal conspiracy) of the IPC. The Court upheld Abdul Karim
Telgi's seven-year imprisonment in the multi-crore scam.
In Kharak Singh v. State of U.P.109, it was observed, that Article 21 means not merely the
continuance of a persons animal existence, but right to the possession of his organs, his arms
and legs etc. It cannot be argued that health is not a part of life when possession of all organs
of body is protected by the fundamental right to life. Taking issue of food adulteration very
seriously the Apex Court in Issar Das v. State of Punjab, 110observed that:
Adulteration of food is a menace to public health and the Statute had been enacted with the
aim of eradicating that anti-social evils and for ensuring purity in the articles of food.
Similarly, recently in Sunil Kumar v. State of Haryana,111it was held by the Supreme Court
that adulteration of food is a menace to society and perpetrators cannot be let off lightly.
Taking seriously the bad effect on public health the court held that benefit of the Probation of
Offenders Act 1958 cannot be given to the accused.

The Consumer Protection Act,1986, the Prevention of Food Adulteration Act,1954, the Food
Safety and Standard Act,2006, are enacted to prevent these offences which affect the public
health. The constant rise in price and cost of living has made the consumer cost conscious.

108 2005 Cri LJ 2868 (Bom).

109 AIR 1963 SC 1295

110 AIR 1972 SC 1295

111 AIR 2012 SC 2430

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The unscrupulous traders take advantage of the situation and provide adulterated articles of
food, drinks or drugs etc. at a cheaper rate and earn huge profits.112
They even do not hesitate to add poisonous constituents to articles of food and drinks which
are injurious to health. A number of deaths are reported every year due to consumption of
spurious liquor or food poisoning.113
Despite the stringent provisions in the Indian Penal Code,1860 the Prevention of Food
Adulteration Act,1954, the Food Safety and Standards Act, 2006 the menace of adulteration
still subsists and laws have failed to eradicate this evil.

The Code prohibits adulteration of such food or drink which is intended for sale. It would be
relevant for us to reproduce the language of section 272 of the Code which reads as under:
Whoever adulterates any article of food or drink, so as to make such article noxious as food
or drink, intending to sell such article as food or drink, or knowing it to be likely that the
same will be sold as food or drink, shall be punished with imprisonment of either description
for a term which may extend to six months, or with fine which may extend to one thousand
rupees, or with both.
The mixing of harmful ingredients in food or drink shall be punished under Section 272 of
the Indian Penal Code, 1860. Mere adulteration with harmless ingredients for the purpose of
getting more profit is not punishable under this section e.g. mixing water with milk or ghee
with vegetable oil as the state of article is not noxious nor has it become in a state unfit for
being consumed as food or drink.
The Supreme Court in Rajiv Kumar Gupta v. State,114where Rajnigandha Pan Masala was
found containing magnesium carbonate, a banned substance but the company had given
incorrect assertion in newspaper advertisement and also in application made for grant of
license that Rajnigantha Pan Masala does not contain magnesium carbonate.
It was held that since it would not be done without the knowledge and permission of
directors, thorough investigation in the case would be in the public interest. So the
proceedings against the directors of the company were refused to be quashed.

112 KD Gaur, Criminal Law and Criminology, 285(2003)

113 Ibid.

114 2006 Cri LJ 581

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The sale of noxious food or drink is an offence under the Code and in this regard it would be
beneficial for us to reproduce the language of section 273 of the Code which reads as under:
Whoever sells, or offers or exposes for sale, as food or drink, any article which has been
rendered or has become noxious, or is in a state unfit for food or drink,
knowing or having reason to believe that the same is noxious as food or drink, shall be
punished with imprisonment of either description for a term which may extend to six months,
or with fine which may extend to one thousand rupees, or with both
The section has following three important ingredients:

1. Selling or offering for sale as food or drink of some article.


2. Such article must have become noxious or must be in a state unfit for food or drink.
3. The sale or exposure must be made with knowledge or reasonable belief that the article is
noxious as food or drink.
Section 272 punishes adulteration of food or drink, section 273 penalizes the sale of
adulterated articles. So selling toddy in which germs are geminated is punishable under
Section 273 of the Code.115
The necessary ingredients of Section 273 of Indian Penal Code 1860 are that the offender
should know or should have reason to believe that the commodity to be sold is noxious. The
word "noxious" as stated in Advanced Law Lexicon by P. Ramanatha Aiyar 116,when used in
relation to article of food is to means that the article is poisonous, harmful to health or
repugnant to human use.
Adulteration of drugs has been considered a serious offence at all times. Keeping in mind the
gravity of this offence the Code provides that whoever adulterates any drug or medical
preparation in such a manner as to lessen the efficacy or change the operation of such drug or
medical preparation, or to make it noxious, intending that it shall be sold or used for, or
knowing it to be likely that it will be sold or used for, any medicinal purpose, as if it had not
undergone such adulteration, shall be punished with imprisonment of either description for a
term which may extend to six months, or with fine which may extend to one thousand rupees,
or with both.117Under this section adulteration of drug is punished.

115 Sushil Kumar v. State of Haryana AIR 2010 P&H 1654

116 P. Ramanatha Aiyar, Advanced Law Lexicon,34(2009)

117 Section 274 of the Indian Penal Code, 1860

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The purpose of this section is to preserve the purity of drugs for medicinal purpose. It is not
necessary that such adulteration of drugs should become noxious to life, it is sufficient if the
efficacy of a drug is lessened. Section 275 of the Code deals with punishment for selling of
adulterated drugs. It would be profitable for us to reproduce the language of section 275 the
Code which runs as under:
Whoever, knowing any drug or medical preparation to have been adulterated in such a
manner as to lessen its efficacy, to change its operation, or to render it noxious, sells the
same, or offers or exposes it for sale, or issues it from any dispensary for medicinal purposes
as unadulterated, or causes it to be used for medicinal purposes by any person not knowing
of the adulteration, shall be punished with imprisonment of either description for a term
which may extend to six months, or with fine which may extend to one thousand rupees, or
with both.
This section not only prohibits the sale of an adulterated drug but also its issue from any
dispensary. However, it may be found that sale of adulterated drug is also an offence under
the Drugs and Cosmetic Act, 1940. Adulterated drugs have been defined in Section 17A of
Drugs and Cosmetic Act. It reads as follows:
A drug shall be deemed to be adulterated if it consists in whole or in part of any filthy putrid
or decomposed substance.
Section 27 of the Drugs and Cosmetic Act, 1940 provides whoever, himself or by any person
on his behalf sells or exhibits or offers for sale or distributes any drug deemed to be
adulterated under Section 17-A or spurious under Section 17-B or which when used by any
person for or in the diagnosis, treatment, mitigation or prevention of any disease or disorder
is likely to cause his death or is likely to cause such harm on his body as would amount to
grievous hurt within the meaning of Section 320 of Indian Penal Code, solely on account of
such drug being adulterated or spurious or not of standard quality as the case may be, shall be
punished with imprisonment for a term which shall not less than five years but which may
extend to a term of life and with fine which shall not be less than ten thousand rupees,
therefore, the area of operation of Section 275 is co-extensive with Section 27 read with
Section 17-A of the Drugs and Cosmetic Act. There is no question of any repeal by
implication because the Drugs and Cosmetic Act, 1940 declared that the provisions of the Act
shall be in addition to and not in derogation of the Dangerous Drugs Act 1930
and any other law for the time being in force.118

118 Section 2 of the Drugs and Cosmetic Act, 1940.

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MISAPPROPRIATION OF PUBLIC PROPERTY AND CRIMINAL BREACH OF


TRUST
Sections 403 to 409 of the Indian Penal Code 1860 deal with the offences of dishonest
misappropriation of property and criminal breach of trust.
DISHONEST MISAPPROPRIATION OF PROPERTY
Misappropriation means the intentional, illegal use of the property or funds of another person
for one's own use or other unauthorized purpose, particularly by a public official, a trustee of
a trust, an executor or administrator of a dead person's estate, or by any person with a
responsibility to care for and protect another's assets (a fiduciary duty) 119. Section 403 of the
Indian Penal Code 1860 deals with offence of dishonest misappropriation of property. It
provides that:
whoever dishonestly misappropriates or converts to his own use any movable property,
shall be punished with imprisonment of either description for a term which may extend to two
years, or with fine, or with both.
Dishonesty is an essential ingredient of the offence and the Code provides that whoever does
anything with the intention of causing wrongful gain to one person or wrongful loss to
another person, is said to do that thing "dishonestly."
The Supreme Court in Bhagiram Dome v. Abar Dome,120has held that under Section 403
criminal misappropriation takes place when the possession has been innocently come by, but
where, by a subsequent change of intention or from the knowledge of some new fact which
the party was not previously acquainted, the retaining become wrongful and fraudulent.
CRIMINAL BREACH OF TRUST
The offence of criminal breach of trust has been defined under section 405 of the Code which
reads as under:
Whoever being in any manner entrusted with property or with any dominion over property,
dishonestly misappropriates or coverts to his own use that property, or dishonestly uses or
disposes of that property in violation of any direction of law prescribing the mode in which
such trust is be discharged, or of any legal contract, express or implied, which he has made
touching the discharge of such trust, or wilfully suffers any other person so to do, commits in
criminal breach of trust.

119 Gerald N. Hill and Kathleen T. Hill.,The People's Law Dictionary 122 (2005)

120 (1965) Cri LJ 562

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The gist of the offence of criminal breach of trust as defined under section 405 of the Indian
Penal Code, 1860 is dishonest misappropriation or conversion to own use, another
persons property. The essential ingredients of the offence of criminal breach of trust are as
under:
(1)The accused must be entrusted with the property or with dominion over it,
(2)The person so entrusted must use that property, or;
(3)The accused must dishonestly use or dispose of that property or wilfully suffer any other
person to do so in violation,
(a) of any direction of law prescribing the mode in which such trust is to be discharged, or;
(b)of any legal contract made touching the discharge of such trust.
The Supreme Court of India in V.R. Dalal v. Yugendra Narang Thakkar,121has held that the
first ingredient of criminal breach of trust is entrustment and where it missing, the same
would not constitute a criminal breach of trust. Breach of trust may be held to be a civil
wrong but when mens rea is involved it gives rise to criminal liability also.122
In criminal breach of trust if the misappropriation is for a temporary period it would
constitute a criminal breach of trust.123
PUNISHMENT FOR CRIMINAL BREACH OF TRUST
Section 406 of the Code provides punishment for the offence of criminal breach of trust
which reads as under:
Whoever commits criminal breach of trust shall be punished with imprisonment of either
description for a term which may extend to three years, or with fine, or with both.
The Supreme Court in Onkar Nath Mishra v. State (NCT of Delhi),124has held that in the
commission of the offence of criminal breach of trust two distinct parts are involved. The first
consists of the creation an obligation in relation to property over which dominion or control is
acquired by accused. The second is a misappropriation or dealing with property dishonestly
and contrary to the terms of the obligation created.

121 AIR 2008 SC 2793

122 Sudhir Shantilal Mehta v. CBI(2009) 8 SCC 1

123 R. Venkatkrishan v. CBI (2009) 11 SCC 737

124 2008(1) RCR (Criminal) 336

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CRIMINAL BREACH OF TRUST BY PUBLIC SERVANT OR BY BANKER,


MERCHANT OR AGENT
The acts of criminal breach of trust done by strangers is treated less harshly than acts of
criminal breach of trust on part of the persons who enjoy special trust and also in a position to
be privy to a lot of information or authority or on account of the status enjoyed by them, say
as in the case of a public servant. In respect of public servants a much more stringent
punishment of life imprisonment or imprisonment up to 10 years with fine is provided. This
is because of special status and the trust which a public servant enjoys in the eyes of the
public as a representative of the government or government owed enterprises. The Code
provides that whoever, being in any manner entrusted with property, or with any dominion
over property in his capacity of a public servant or in the way of his business as a banker,
merchant, factor, broker, attorney or agent, commits breach of trust in respect of that property,
shall be punished with imprisonment for life, or with imprisonment of either description for a
term which may extend to ten years, and shall also be liable to fine.125
The persons having a fiduciary relationship between them have a greater responsibility for
honesty as they have more control over the property entrusted to them, due to their special
relationship. Under this section the punishment is severe and the persons of fiduciary
relationship have been classified as public servants, bankers, factors, brokers, attorneys and
agents.
In Bagga Singh v. State of Punjab,126the appellant was a taxation clerk in the Municipal
Committee, Sangrur. He had collected arrears of tax from tax-payers but the sum was not
deposited in the funds of the committee after collection but was deposited after about 5
months. He pleaded that money was deposited with the cashier Madan Lal a co-accused who
had defaulted the same. But the cashier proved that he had not received any such sum and
was acquitted by lower court. Mr. Bagga Singh had not obtained a receipt from the cashier for
passing the money to him. It was held that there was no practice to pass on money to the
cashier without obtaining receipt and the accused clerk had not obtained any such receipt.
Therefore the mere fact that the co-accused cashier was acquitted was not sufficient to acquit
accused in the absence of any proof that he had discharged the trust expected of him. As such
the accused was liable under section 409 of Indian Penal Code,1860.
125 Section 409 of the Indian Penal Code, 1860.

126 1996 Cri LJ 2883 (SC).

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CHEATING
According to Oxford Advanced Learner's Dictionary127:
Cheating means to trick somebody or make them believe something which is not true or to
act in a dishonest way in order to gain an advantage, especially in a game, a competition, an
exam, etc.
Sections 415 to 420 of Indian Penal Code, 1860 deals with the offence of cheating. In most of
the offences relating to property the accused merely got possession of thing in question, but
in case of cheating he obtains possession plus property in it.
Section 415 of Indian Penal Code defines the offence of cheating. The main ingredients of
cheating areas under-
(i) deception of person
(ii) fraudulent or dishonest inducement of any person to deliver any property to any person.
(iii) to consent to the retention thereof by any person or to intentionally induce that person to
do or omit to do if he was not so deceived.
The Supreme Court of India in Iridium India Telecom Ltd. v. Motorola Incorporated and
Ors.,128has held that deception is necessary ingredient under both parts of section.
Complainant must prove that inducement has been caused by deception exercised by accused.
It was held that non-disclosure of relevant information would also be treated a
misappropriation of facts leading to deception
PUNISHMENT FOR CHEATING
Section 417 of the Code provides punishment for the offence of cheating which reads as
under:
Whoever cheats shall be punished with imprisonment of either description for a term which
may extend to one year, or with fine, or with both
This section punishes simple cases of cheating.
The Supreme Court in M.N. Ojha & Ors v. Alok Kumar Srivastva & Anr.,129has held that
where the intention on the part of the accused is to retain wrongfully the excise duty which
127 Turnbull, Joanna, Oxford Advanced Learners Dictionary234 (2010)

128 2011(1) SCC 74

129 AIR 2010 SC 201

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the State is empowered under law to recover from another person who has removed non-duty
paid tobacco from one bonded warehouse to another, they are held guilty under this section.

CHEATING AND DISHONESTLY INDUCING DELIVERY OF PROPERTY


Whoever cheats and thereby dishonestly induces the person deceived to deliver any property
to make, alter or destroy the whole or any of a valuable security, or anything which is signed
or sealed, and which is capable of being converted into a valuable security, shall be punished
with imprisonment of either description for a term which may extend to seven years, and
shall also be liable to fine.130
In Ambarish Rangshashi Patnigere v. State of Maharashtra,131where the accused got
himself nominated to Engineering College against State government quota through a fake
certificate. The court ruled on the evidence produced and held that order of acquitting the
accused was liable to be set aside.
FORGERY
The business world relies heavily on the production and exchange of legitimate documents to
express legal rights and obligations, prove important facts, and exchange vital information.
When these documents are falsified in any way, this is known as forgery. Forgery is any act
involving the making, altering or possessing of illegitimate or false documents which are
intended to deceive or defraud another person or organization.132Forgery can involve the false
making of anything handwritten, type written, computer generated, printed or engraved from
scratch that is intended to defraud. Forgery can also involve significant material alteration of
a genuine document.
Forgery is commonly committed in order to defraud the government or a business, to
accomplish identity theft or the falsification of ones identity. Chapter XVIII of Indian Penal
Code,1860 deal with offences relating to documents and to property marks. Before discussing
the gravity of this crime we must look at the definition of forgery given under the Code. It
would be profitable for us to reproduce the language of section 463 which reads as under:
Whoever makes any false document or false electronic record or part of a document or
electronic record, with intent to cause damage or injury], to the public or to any person, or to

130 Section 420 of the Indian Penal Code, 1860

131 2011 Cr LJ 515

132 Cormac McKeown, Andrew Holmes, Collins English Dictionary 683 (2009)

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support any claim or title or to cause any person to part with property, or to enter into any
express or implied contract, or with intent to commit fraud or that fraud may be committed
commits forgery
The Supreme Court of India in Ramchandran v. State,133has held that to constitute an
offence of forgery document must be made with dishonest or fraudulent intention. A person is
said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise.
PUNISHMENT FOR FORGERY
Whoever commits forgery shall be punished with imprisonment of either description for a
term which may extend to two years, or with fine or with both.134
The Supreme Court of India in Parminder Kaur v. State of U.P.,135has held that mere
alteration of document does not make it a forged document. Alteration must be made for
some gain or for some objective.
COUNTERFEITING OF CURRENCY
Sections 489A, 489B, 489C and 489D were introduced in order to provide more adequately
for the protection of currency notes and bank notes from forgery.136
Under the Indian Penal Code 1860, which was passed prior to the existence of paper currency
in India, currency notes were not protected by any special provisions, but merely by the
general provisions, applying to the forgery of valuable securities. Before these sections were
introduced charges for forging currency notes had to be preferred under Section 467 and for
making or possessing counterfeit plates under Section 472.
COUNTERFEITING CURRENCY NOTES OR BANK NOTES
Counterfeiting of currency notes or bank notes is a very serious offence and has been severely
punished by the Code under section 489-A which provides that whoever counterfeits or
knowingly performs any part of the process of counterfeiting, any currency note or bank note,
shall be punished with imprisonment of either description for a term which may extend to ten
years and shall also be liable to fine. Section 489-A provides punishment for counterfeiting of
knowingly performing any part of the process of counterfeiting any currency note or bank
note. To bring home an offence under section 489-A the prosecution has to prove that the

133 AIR 2010 SC 1922

134 Section 465 of the Indian Penal Code, 1860.

135 AIR 2010 SC 840

136 Inserted by Currency Notes Forgery Act, 1899

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relevant note in question is allegedly a currency note or bank note and the accused
counterfeited it or knowingly performed any part of process of counterfeiting it. The offence
under section 489A is cognizable, non-bailable and non-compoundable and triable by Court
of Session.
The Supreme Court of India in Ponnuswamy v. State137, where the accused was charged to
having in possession of the forged currency notes which he has used in purchasing the paddy
from the complainant. On being asked as to wherefrom he had obtained the said currency
notes he could not furnish a satisfactory explanation. It was held that conviction of the
accused under section 489-A was proper.
Using as genuine, forged or counterfeit currency-notes or bank notes138
Section 489-B relates to using as genuine forged or counterfeiting currency notes or bank
notes. It would be profitable for us to take a look at the language of section 489-B of the
Code which reads as under:
Whoever sells to, or buys or receives from, any other person, or otherwise traffics in or
uses as genuine, any forged or counterfeit currency-note or bank-note, knowing or having
reason to believe the same to be forged or counterfeit, shall be punished with[imprisonment
for life], or with imprisonment of either description for a term which may extend to ten years,
and shall also be liable to fine
This section resembles ss. 239, 241, and 258 of the Code. It provides against trafficking in
forged or counterfeit notes. Selling or buying or receiving or otherwise using as genuine any
forged or counterfeit currency notes or bank note is an offence under section 489-B provided
the delinquent knows or having reason to believe the same to be forged or counterfeit, uses it.
The knowledge or reason to believe are the mens rea for the offence U/S. 489-B.
The Supreme Court of India in K. Hasim v. State of Tamil Nadu,139has opined that the
object of enacting this section is to stop the circulation of forged notes, by punishing all
persons who knowing or having reason to believe the same to be forged do any act which
could lead to their circulation.
POSSESSION OF FORGED OR COUNTERFEIT CURRENCY NOTES OR BANK
NOTES

137 1995 Cri LJ 2658 (SC)

138 Added by Act 12 of 1899, sec. 2

139 2005 Cri LJ 143 (SC)

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Possession of forged or counterfeit currency notes or bank note has been made punishable by
the Code.

It would be beneficial for us to reproduce the language of Section 489-C of the Code which
reads as under:
Whoever has in his possession any forged or counterfeit currency-note or bank-note,
knowing or having reason to believe the same to be forged or counterfeit and intending to use
the same as genuine or that it may be used as genuine, shall be punished with imprisonment
of either description for a term which may extend toseven years, or with fine, or with both.
The Supreme Court in Bachan Singh v. State of Punjab,140has held that mere possession of
forged or counterfeit currency notes or bank notes does not make one guilty under this
section. The accused must have the knowledge or he must have reason to believe that the
same is forged or counterfeit. He must have the intention to use the same as genuine or that it
may be used as genuine.

140 1982 Cr LJ 32 (P&H)

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CONCLUSION
The forgoing discussion makes it clear that due to the advancement of science and technology
newer form of criminality known as white collar crime has arisen. The concept of white
collar crime introduced in the field of Criminology by Edwin H. Sutherland in 1939. Many
of the present day laws were enacted prior to the coining of the word white collar crime.
But the dimensions of white collar crimes being so wide that subsequent to analyzing the
provisions of above mentioned statutes, we may conclude that certain offences under each of
them are closely linked with white collar crimes such as corruption, bribery, among others,
having regard to the special circumstances under which they are committed and which have
now become dominant feature of certain powerful sections of modern society. The
punishment prescribed for white collar crimes under these laws have proven to be inadequate
on certain occasions. The specific Acts dealing with white collar crimes and the provisions of
other laws should be harmoniously interpreted to control the crisis posed by white collar
crimes.
It is absolutely imperative to increase cooperation between the worlds law
enforcement agencies and to continue to develop the tools, which will help them
effectively counter global economic crime. Tracing the money trail, including the
origin of funds, combating money laundering through reduction of bank secrecy and
seizure of assets are issues of paramount importance. Putting in place legislation on
forfeiture and confiscation of properties acquired through criminal activities and
sharing of available technology on the subject would be a step in the right direction.
Extradition is one of the most important tools used for bringing transnational fugitives
to justice and extraditable crimes include unlawful seizure of aircraft; unlawful acts
against the safety of civil aviation; crimes against internationally protected persons;
common law offences like murder, kidnapping, hostage taking; and offences relating to
firearms, weapons, explosives and dangerous substances, etc. when used as a means to
perpetrate indiscriminate violence involving death or serious injury, or serious damage to
property. However, it is also an area that poses the greatest problems. A large number of

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countries have not entered into extradition treaties and even where such treaties exist,
they are mostly embroiled in complicated procedures leading to undue delay in extradition.
There is a need for simplifying procedures and expediting the process.
Preventing, detecting, investigating, and prosecuting economic crimes must become a
priority, in order to lessen their impact on the economy and the publics confidence.
Law enforcement, as it stands now, is in danger of slipping further behind the highly
sophisticated criminals. New resources, support for existing organizations, e.g. The National
Fraud Center, The National White Collar Crime Center, The Internet Fraud Council,
and The Economic Crime Investigation Institute, and innovative solutions are needed
to control this growing problem in America and the world. This is not to say that the
focus should be entirely on economic crime to the detriment of investigation and
prosecution of violent crime. Certainly, it would not be in societys best interest to have
violent crime increase, while economic crime decreases. However, it has often been
questioned and argued whether the psychological and financial impact of economic crime on
its victims is as great or greater in many instances as violent crime. Rather, higher priority
must be given to the provision of necessary resources and the passage of relevant
legislation to counter the near-epidemic impact of economic crime on American society
and the world.
This can only be accomplished with the cooperation of the private, public, and international
sectors. All stakeholders must be more willing to exchange information on the effect
economic and cyber crime has on them and the methods they are using to detect and prevent
it. No single sector holds all the resources, tools or solutions. In fact, in many
instances, industry has more resources than government, but must be motivated and
authorized to partner and communicate. All parties must be willing to work together to
effect change in existing laws and regulations and to promulgate new initiatives. The
victims need to follow the lead of the criminals and organize themselves, so that the
organized bad guys are not operating in a lawless environment, where culpability is at a
minimum.

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BIBLIOGRAPHY
Primary Sources
Legislations

1. Constitution of India, 1950


2. Code of Criminal Procedure, 1973
3. Criminal Law (Amendment) Act, 2005
4. Indian Penal Code, 1860
5. The Foreign Exchange Management Act, 1999

6. The Prevention of Corruption Act, 1988

7. The Prevention of Food Adulteration Act, 1954

8. The Prevention of Immoral Traffic (Amendment) Act, 1986

9. The Drugs and Cosmetics Act, 1940

10. The Essential Commodities (Amendment) Act, 1955

11. The Standard of Weights and Measures Act, 1976

Secondary Sources
Books

1. Chandrashekharan Pillai, K.N., R.V. Kelkar's Criminal Procedure, 6th Ed., Eastern
Book Company, 2012
2. C.H. Whitebread, Criminal Procedure: An analysis of Constitutional cases and
concepts, 1st ed., Oxford University Press, Oxford, 1986
3. K.D. Gaur, Criminal Law, Cases & Materials, 2nd Ed., N.M. Tripathi Private Limited,
1985
4. Sutherland: White Collar Crimes, Holt, Rinehart and Winston, New York, 1949
5. N.M. Tripathi, Mahesh Chandra: Socio-Economic Crimes, Bharat Laws, Bombay,
1979

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LAWS REGULATING WHITE COLLAR CRIMES IN INDIA

Articles

1. Dr. Minal H. Upadhyay, White-Collar Crime in India, February, 2014


Available at: http://raijmr.com/wp-content/uploads/2014/03/2_4-8-Dr.-Minal-H.-
Upadhyay.pdf
2. G. Nagarajan; Dr. J. Khaja Sheriff, White Collar Crimes In India ,Vol.1 Issue 9,
September 2012, ISSN 2277 3630 Dr. Manmohan Singh, Administration of Justice on
Fast Track, (2007) 4 SCC J-9
3. Janak Raj Jai, Exposures: White Collar Crimes, Indian Political Scene
4. R.T. Naylor, Professor of Economics, McGill University, Economic And Organized
Crime: Challenges for Criminal Justice

Online Articles

1. www.thehindu.com/news/national/whats-the-coal-scam-about/article6983434.ece
2. http://www.caclubindia.com/articles/co-act-2013-fraud-fraud-reporting-20480.asp

3. http://www.sportzpower.com/?q=node/13915/pdf
4. http://www.moneycontrol.com/news/current-affairs/kalmadi-arrested-by-cbicwg-
scam-case_538069.html
5. http://www.ndtv.com/article/india/cwg-scam-cbi-files-first-chargesheet-against-
suresh-kalmadi-8-others-107198

Websites

1. https://indiankanoon.org/
2. http://legalpundits.indiatimes.com/_nl_january_2006.html
3. http://shodhganga.inflibnet.ac.in
4. www.thehindu.com
5. http://lawcommissionofindia.nic.in/1-50/report47.pdf
6. www.caclubindia.com

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