Harshad S. Mehta Vs. Union of India and another

Criminal Appln. No.1886 of 1992

29th July, 1992

Respondent Counsel: P R. Namjoshi (for No. 1), M.K. Patwardhan with N.M. Patwardhan for Directorate of Enforcement, .

Criminal P.C. (1973),S. 438

Cases Cited:
1992 Cri LJ 2761 : (1992) 4 JT l19 : AIR 1992 SC 1795 : 1992 AIR SCW 2012 (Ref. to) [Para 6]
1980 Cri LJ 1125 : AIR 1980 SC 1632 : (Ref.to) [Para 6]
(1957) 352 US 330 : 1 Law Ed 2d 376 Groban's Case [Para 6]


ORDER :-This is an application for anticipatory bail under S.438 of the Code of Criminal Procedure, 1973 - hereinafter referred to as the "Code".

2. On 31st May 1992, the premises said to be those of a person named Niranjan Shah were searched by officers of the Income-tax Department. In the course of this search, the officers came across a large number of documents showing questionable deals by various persons. Some of the documents evidenced violations under the Foreign Exchange Regulation Act, 1973 - hereinafter referred to as the "FERA". Niranjan Shah made himself scarce immediately after the search of his premises which had taken place on 31st May 1992. The petitioner came to be arrested on 4-6-1992 by the CBI in what is now commonly referred to as the scam of the century. Since that time he is in custody and the custody has been continued from time to time. The last occasion when the petitioner was produced before the Special Court was on 17-7-l992 and the Judge presiding over the said Court is said to have given an indication that the petitioner's detention could not be continued indefinitely, for indefinite detention would amount to punishment even before the offences allegedly committed by the petitioner had been established. Petitioner has three brothers named Ashwin, Sudhir and Hitesh. The Financial Express, an organ of the Express Group of Newspapers, on July 2, 1992 came out with a write-up captioned "Dragging feet over probe on scam funds flight". Shortly stated, the write-up accused the Directorate of Enforcement of deliberately delaying investigation into FERA violations committed by the petitioner. The write-up referred to certain statements made by Niranjan Shah. In that statement, certain names were mentioned and two of these were of "Bhai" and "Bindu". That night Ashwin, Hitesh and Sudhir, the brothers of the petitioner, were rounded up and interrogated. The next day, an Officer of the Directorate of Enforcement or Enforcement Directorate submitted an application to an Additional Chief Metropolitan Magistrate, Esplanade, Bombay. A copy of that application is at Ex. B. It speaks of the search carried out by the Income-tax Department at the residential and office premises of Niranjan Shah, the coming across of various documents including computer floppy discs and computer print-outs and the scrutiny of these showing foreign exchange transactions by Niranjan Shah and others. One of the names mentioned in the print-out was "Mehta H." This according to the application, stood for the petitioner. The print-out indicated petitioner's having dollar and sterling accounts under the title of "Mehta H." Niranjan Shah - it was said- had arranged funds abroad for several persons including Ashwin, Hitesh and Sudhir. Niranjan Shah was a close associate of the petitioner and other members of his family. Petitioner's brothers had acquired foreign exchange from time to time under arrangements made through Niranjan Shah. Statements of these brothers were recorded under S. 40 of FERA on 2-7-1992. In these statements, the persons interrogated had chosen to come out with denials. Niranjan Shah could not be interrogated as he had decamped. The accounts discovered were in codes and could not be ascertained. The brothers of the petitioner were produced before the Magistrate with a request that they be dealt with in accordance with law. The learned Magistrate remanded Ashwin, Sudhir and Hitesh to judicial custody. On 6-7-l992, there was another application for an extension of 14 more days to facilitate further investigation. The last sentence of the application moved on 6-7-1992 recited:-

"Also I pray that no bail may be granted to them at this juncture as they are likely to influence the witnesses and as such may hamper collection of further vital corroborative evidence."

There was a second remand. On 14-7-1992, the petitioner's brothers were directed to be released on bail by the Magistrate. The Magistrate has imposed certain conditions upon petitioner's brothers and one of them is that they will attend the office of the Enforcement Directorate daily from 3.00 to 5.00 p.m. until further orders. The said brothers have attended the office of the Enforcement Directorate and are being interrogated. On 2nd July 1992 they had been so interrogated. But there was no interrogation from 3rd till 14th July 1992.

3. It is not clear whether the petitioner while in custody has been questioned or not in regard to violations under FERA. However, certain extracts from the proceedings pending against him before the Special Court have been made available. These give the indication that some questioning of the petitioner vis-a-vis the FERA violations has taken place. The remand application moved on 3-7-l992 speaks of the investigation having made progress in tracing foreign accounts of the petitioner and his relations. There is also a reference to the identification of petitioner's associates and accomplices abroad. In the order passed by the Special Court on 3-7-1992 there is a reference to the investigation unearthing the possibility of the existence of foreign accounts. It is said that the continued interrogation and investigation has led to traces of foreign accounts.

4. The application under consideration speaks of petitioner and his family being in the lime-light since the last week of April 1992. It is said that all the Government agencies such as the RBI, the CBI and the Income-tax Department have been looking into the affairs of the petitioner and his family. The alleged FERA violations on the part of the petitioner came to light on or about 4th of June 1992. No attempt had been made by the Enforcement Directorate to contact the petitioner. This was despite the fact that the Enforcement Directorate had in its custody documents purporting to show the part played by the petitioner's brothers in various foreign exchange deals. No search had been carried out at the residence and/or office of the petitioner. On 2nd July 1992, Ashwin and Hitesh had gone to the CBI office though no summons had been issued to either of them. Sudhir Mehta who was then suffering from high fever and mild typhoid was resting at home but was taken by Officers of the Enforcement Directorate. Despite a lengthy questioning petitioner's brothers had denied any involvement in respect of offences punishable under the FERA. Despite their denials the three brothers were arrested and produced before a Magistrate on 3rd July 1992. Till 13th July 1992 they were remanded to custody. The abrupt and unexpected action taken by the Enforcement Directorate was probably on account of the article appearing in the Financial Express mentioned above. Faced with this article, the Enforcement Directorate decided to demonstrate that they were not dragging their feet. Petitioner while in custody had been repeatedly questioned, not only in respect of offences investigable by the CBI but also those allegedly falling under the FERA. Even otherwise, there was no restriction upon the Directorate to question the petitioner in respect of offences punishable under the FERA while he was in custody at the instance of the CBI. The inaction of the Enforcement Directorate throughout this period i.e. from 4th June 1992 till date, was proof that they knew of petitioner's innocence vis-a-vis the FERA violations. Even otherwise, he had not and would not refuse to be questioned in relation to the FERA offences as and when required by the Enforcement Directorate. What petitioner objected to was concoction of a device to continue his custody indefinitely under the guise of questioning him for alleged violations of different enactments. This would be to continue his detention indefinitely. He was willing to subject himself to any reasonable terms and conditions so as to secure anticipatory bail.

5. The Union of India which is the first respondent to this case represented through counsel appearing for the CBI as also the Enforcement Directorate disputes the charge of bad faith levelled against them by the petitioner. It was not true to say that the Enforcement Directorate had been goaded into action consequence to insinuations made

in the article of the Financial Express, a copy of which article is at Ex. A. The petitioner was in CBI custody in relation to offences referred to in what is known as the "Jankiraman report". The report is so named after the Deputy Governor of the RBI who was commissioned by the RBI to look into the financial bunglings referred to as the 'great scam'. The Jankiraman report was the basis for the CBI to take action to arrest and interrogate the petitioner. During the period the petitioner was in custody at the instance of the CBI, the Enforcement Directorate could not question him for the FERA violations. This was because though the FERA gave the power to interrogate a suspect and record statements of such suspect, the same would not be of any use being hit by Sections 25 and 26 of the Indian Evidence Act, 1872. The CBI may have touched upon the FERA violations in the course of their questioning of the petitioner, but this was casually so. An indepth interrogation was necessary and that could be done only by the Officers of the Enforcement Directorate who were well versed in the nature and mode of violations of the FERA. Every investigating agency had a different field of specialisation and the CBI could not deputise for the Enforcement Directorate in the matter of unravelling violations of the FERA. The custody of the petitioner was required not with a view to harass or terrorise him but with a view to unearth material. There existed some pointers to the commission of offences under the FERA by the petitioner. This was in the shape of the print-outs recovered from the premises of Niranjan Shah, enquiries made with one Java at Dubai and the statement of one Bindu, the sister of Niranjan Shah who was said to have stated in plain terms that she had passed on a sum of 8,500 Dollars to the petitioner while he was in London for and on behalf of Niranjan Shah. To extract more information pursuant to those leads, it was necessary to question the petitioner at length. The offer of the petitioner to subject himself to an interrogation while on bail would serve no purpose for he would then be in a position to think up answers which he had to give not to speak of the advice, which he may receive from his advisers in different fields. If liberty of a citizen was important, equally important was that offences perpetrated against the State and its economy were properly investigated and the culprits prosecuted. The request for anticipatory bail should be turnd down and the Enforcement Directorate allowed to do its duty as prescribed by the statute.

6. The points that arise for determination can be deferred for the present. This is to attend to a question of Mr. Desai representing the petitioner whether justice is to be denied to his client because the print-media has already convicted him? The answer must be a resounding 'NO'. Courts dispense justice and justice does not lie in giving the imprimatur to a media-generated sensation if not dis-information. Mr. Desai has referred to a caution addressed by the apex Court to those manning judicial offices in Gurbaksh Singh v. State of Punjab reported in AIR 1980 SC 1632 : (1980 Cri LJ 1125). Said the Court on that occasion (para 15):-

"Judges have to decide cases as they come before them mindful of the need to keep passions and prejudices out of their decisions."

Therefore the first caution which I address myself to is the need to eschew the passion and prejudices generated by a media out for a salacious copy. Every case has to be decided on its own merits and everyone who comes before a Court of law in the capacity of a suspect is entitled to his rights. This requires looking over a case straight in the face. What is the case against the petitioner? He is supposed to have committed offences punishable under Sections 8, 9 and 14 read with 56 of the FERA. These offences are non-cognizable vide Section 62. Section 61(2)(ii) disables a Court from taking cognizance of an offence punishable under S. 56 except upon a complaint in writing made by various authorities including the Director of Enforcement. That the FERA requires offences punishable under the enactment to be investigated and prosecuted by its own set of officers or personnel is evident from many other sections of the enactment. Section 35 empowers an Officer of the Enforcement Directorate to arrest a

person where he has reason to believe that any person in India or within the Indian customs waters has been guilty of an offence punishable under the Act. Section 36 empowers an Officer of the Enforcement to stop and search any aircraft or vehicle or any animal or vessel for the purposes of locating documents which will be useful or relevant to any investigation or proceeding under the Act. Section 37 empowers an Officer of the Enforcement not below a certain rank to search any place if he has reason to believe that any documents useful for and relevant to any investigation or proceeding under the Act are secreted in it and seize such documents. Section 38 confers the power of seizure, Section 39 the power to examine persons and Section 40 to summon and record the evidence of persons and production of documents. The power under S. 40 of the Act is conferred upon a Gazetted Officer of the Enforcement Directorate. Subsection (4) of this section provides that an investigation or proceeding referred to in the preceding three sub-sections shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code. Section 45 does empower a Police Officer not below the rank of a P.S.I. to enter any place and search and arrest without warrant any person therein who is reasonable suspected of having committed an offence punishable under Section 8 of the Act. But the power of the Police Officer is short-lived, for the next Section 46 indicates that where any foreign exchange or any other goods are seized and suspected to have been stolen etc. Such foreign exchange or goods have to be sent to the nearest Officer of Enforcement or the nearest Officer of the Customs. This analysis is sufficient to indicate the primacy of the Enforcement Directorate in the matter of detection, investigation and prosecution of offences and offenders suspected to have violated the law in relation to foreign exchange. Mr. Desai has referred to a judgment of Kotwal, J. delivered on 25th January 1985 in Criminal Application No. 121 of 1985 and Bail Application No.112 of 1985 together with Criminal Revision Application No. 29 of 1985. The factual position in that case was that Officers of the Enforcement Directorate had arrested the petitioners of those cases in July or August 1984. Afterwards they came to be released on bail. In the course of the investigation conducted by the Enforcement Directorate they had come across certain documents which were forgeries for the purposes of commission of a fraud vis-a-vis foreign exchange. After this on receipt of information from the Enforcement Directorate the CBI wanted to take over the petitioners for further interrogation vis-a-vis the offences outside the FERA. The petitioners naturally protested and the protest appears to have been affirmed by the learned judge, who said :-

"Now, what is of interest is that it is not as if that the alleged offences under the Indian Penal code came to be enveloped in the entire transaction of which the Enforcement Officers could not have been awarded. But on the contrary, the very first remand application in the month of July or August 1984 vis-a-vis the allegations under the FERA makes it clear the existence of the offences under the Indian Penal Code. In fact, the allegations levelled against the petitioners and even the investigation directed by the Enforcement Officers, made the existence of the offences under the Indian Penal Code transparent. In fact, documents having been forged and a conspiratorial agreement are the foundation of the entire allegations and further it does appear that both the offences under both the Acts are practically blended together on the factual aspect and of which the Enforcement Officers were fully aware. It is clear that sufficient opportunity was given to the Enforcement Officers to have the custody of the accused for the purpose of investigation. However, necessary factual data was collected by them and what is important is that the interrogation of the accused and the seizure of documents are common to all these offences and both the investigations. Having regard to the course of events, liberty of the petitioners cannot be jeopardised in this manner only in this hope, especially when in the first round, all the necessary steps have been taken to attach the documents. Having regard to all these reasons, in my opinion, it will be highly improper to keep these petitioners in custody and as such they are entitled to bail."

The observations of the learned Judge are not entirely inapplicable to this case. Petitioner while in custody at the instance of the CBI has been questioned and in this questioning some traces of offences punishable under the FERA have become evident. But as of now the leads which have been noticed have not been fully explored. Consequently, it is not as if the full magnitude of the affair has come to light. I very much doubt whether the petitioner could have been questioned for FERA violations by the Enforcement Directorate having regard to petitioner's custody being at the instance of the CBI, and in respect of matters other than offences falling under the FERA. Perhaps, a way out could have been found out by seeking permission of the Special Court to question the petitioner vis-avis violations under the FERA. But that has not been done and this omission cannot be looked upon as evidence of negligence or knowledge on the part of the Enforcement Directorate that of whatever else the petitioner may have been guilty, he had not done anything rendering him liable to punishment under Section 56 of the FERA. Probably, the restraints placed by the Enforcement Directorate on itself may be actuated by a desire not to give the petitioner an opportunity to complain later of having been subjected to an indiscriminate interrogation for the extraction of all manner of confessions from him. But even if indolence was the reason, and, going further a taunt of the Financial Express was the motivating factor, I do not see how that would justify the request for anticipatory bail. From the leads obtained by the search of Niranjan Shah's premises and the questioning of Bindu and Panchal, it cannot be said that the Enforcement Directorate has no reason to subject the petitioner to any questioning. In fact, Mr. Desai very frankly concedes that his client cannot object to the Enforcement Directorate wanting to subject the petitioner to an interrogation. Learned Counsel's objection is to the Enforcement Directorate seeking and obtaining the privilege of interrogation while keeping the petitioner in custody. In other words, custodial interrogation is what the Counsel objects to. Now, custodial interrogation however reprehensible it may sound in practice is something which every investigating agency has to take recourse to Custodial interrogation may suffer from a number of vices and the matter cannot be better put than in the words of Mr. Justice Black in Groban's case (1957) 352 US 330 : I Law Ed 2d 376, Says the learned Judge-

"Secret inquisitions are dangerous things justly feared by free man everywhere. They are the breeding place for arbitrary misuse of official power. They are often the beginning of tyranny as well as indispensable instruments for its survival. Modern as well as ancient history bears witness that both innocent and guilty have been seized by officers of the state and whisked away for secret interrogation or worse until the groundwork has been secretly laid for their inevitable conviction. While the labels applied to this practice have frequently changed, the central idea wherever and whenever carried out remains unchanging-extraction of "statements" by one means or another from an individual by officers of the state while he is held incommunicado."

The apex Court's response when faced with reliance on the above is to be found in Poolpandi v. Superintendent, Central Excise (1992) 4 JT (SC) 119 : (1992 Cri LJ 2761). Sharma J. speaking for the Court said (at p. 2766 of Cri LJ) -

"We do not share the apprehension as expressed above in the minority judgment in connection with enquiry and investigation under the Customs Act and other similar statutes of our country. There is no question of whisking away the persons concerned for the cases before us for secret interrogation, and there is no reason for us to impute the motive of preparing the groundwork of false cases for securing conviction of innocent persons, to the officers of the state duly engaged in performing their duty of prevention and detention of economic crimes and recovering misappropriated money justly belonging to the public."

Mr. Desai submits that anticipatory bail must be granted to a person who is entitled to regular bail under Section 437 of the Code.

This submission has the support of the verdict in Gurbaksh Singh's case (1980 Cri LJ 1125) (SC) (supra). In fact, the Law Commission which had occasion to comment on Section 438 observed in its report (at p. l129 of Cri LJ) :

"The necessity for granting anticipatory bail arises mainly because sometimes influential persons try to implicate their rivals in false cases for the purpose of disgracing them or for other purposes by getting them detained in jail for some days. In recent times, with the accentuation of political rivalry, this tendency is showing signs of steady increase. Apart from false cases, where there are reasonable grounds for holding that when a person accused of an offence is not likely to abscond or otherwise misuse his liberty while on bail, there seems no justification to require him first to submit to custody, remain in prison for some days and then apply for bail."

The second part of the observation supports learned Counsel's submission. The offences ascribed to petitioner are not punishable with life imprisonment and it is not seriously contended that he is likely to tamper with the evidence or abscond. That there is a possibility of his tampering or absconding is of course there as it is in all cases irrespective of the person who is in the dock. But we have to go by normal presumptions and having regard to the commitments of the petitioner in India it does not appear likely that he will abscond. The chances of his tampering with the witnesses also are not very strong. Nonetheless, the public interest lies in giving the Enforcement Directorate a full and proper opportunity to question the petitioner vis-a-vis the leads that it has obtained. These leads consist in print-outs obtained from a search of Niranjan Shah's premises. Bindu and Panchal have been questioned. The latter is an employee of Niranjan Shah and what he is supposed to have said is indicative of the petitioner being involved in violations of the restrictions imposed upon transactions in foreign exchange. Bindu is reported to have said that she had passed on 8,500 Dollars at the instance of Niranjan Shah to the petitioner while he was in London. The print-outs may be containing some other information and this being in code or a language with which only experts are conversant, requires interrogation of the petitioner. Interrogation while he is at liberty will not serve any useful purpose for the petitioner can then take recourse to stonewalling tactics and keep the game going indefinitely. As against this if he is in custody the Officers of the Enforcement Directorate will be better able to force him to concentrate on the issues and put pointed questions to him and extract relevant information. The technique of interrogation also involves confrontation either with a person or documents and that is possible, and at least more effective, when the person being interrogated is in custody. Liberty of the citizen is desirable but also desirable is the need to detect, investigate and prosecute those guilty of any offence, not excluding economic offences.

7. To sum up, the fact that petitioner has been in custody since 4-6-1992 at the behest of the CBI, that some information in relation to the FERA violations has come to light as a result of the CBI interrogation and that he is ready to subject himself to a custodyless interrogation by the Enforcement Directorate Officers, has to be weighed against the requirements of the FERA authorities to interrogate and effectively do so a complicated and complex web of offences falling under the FERA. As always, it is the public interest which shall prevail and the request for anticipatory bail by the petitioner has to be turned down. The application fails and is hereby rejected.

Application Rejected