Source: Supreme Court  

Why in News?

The Supreme Court refused to quash a corruption case involving a Rs. 6.13 crore loss to a bank, despite a settlement between the accused and the bank. Observing that economic offences impact public interest and the exchequer, the Court held that the Prevention of Corruption Act cannot be undermined by private settlements. 

• Justice Vikram Nath and Justice Prasanna B Varale held in the matter of Anil Bhavarlal Jain & Anr. v. The State of Maharashtra & Ors. 

What was the Background of Anil Bhavarlal Jain & Anr. v. The State of Maharashtra & Ors.? 

• The case involves Directors of M/s Sun Infrastructure Pvt. Ltd. and employees of State Bank of India (SBI). 
• In 2013, the company's directors obtained building permits and commencement certificates for specific survey plots. 
• SBI sanctioned a loan of Rs. 50 crores to the company on 15^th February 2014. 
• The company provided commercial land as collateral security through mortgage on 30^th October 2014. 
• Regular loan payments were made until 2017, after which the account was declared a Non-Performing Asset on 28th November 2017, with an outstanding amount of Rs. 23.86 crores. 
• SBI initiated recovery proceedings through the Debt Recovery Tribunal (DRT). 
• On 18th December 2019, the company and SBI filed consent terms before DRT for Rs. 15 Crores. 
• The company paid Rs. 20 lacs on 16th June, 2020, followed by the remaining Rs. 14.88 crores with interest, leading to loan closure under one-time settlement. 
• SBI subsequently filed a complaint with the Central Bureau of Investigation (CBI) alleging:  
  • Diversion of funds from another loan account (SICOM Ltd.) worth Rs. 25 Crores 
  • Unauthorized changes to building plans reducing collateral value 
  • Various irregularities in loan processing and documentation 
• CBI registered an FIR on 24th July, 2022, charging the accused under:  
  • Sections 409, 420, and 120B of Indian Penal Code 
  • Section 13(2) read with 13(1)(d) of Prevention of Corruption Act 
• A charge sheet was filed by CBI on 31th December, 2021. 
• The accused filed a petition before Bombay High Court seeking to quash the FIR and chargesheet under Section 482 of Criminal Procedure Code. 
• The High Court rejected their petition on 26th July, 2023, leading to the present appeal before the Supreme Court. 

What were the Court’s Observations? 

• The Court observed that settlements between parties cannot be used to quash criminal proceedings especially in cases involving corruption and public funds. 
• The Court stated that economic offenses stand on a different footing and have wider ramifications than other criminal offenses. 
• The Court noted that a substantial injury of Rs. 6.13 Crores was caused to the public exchequer through the bank's losses. 
• The Court emphasized that offenses under the Prevention of Corruption Act cannot be settled through private agreements due to their impact on society at large. 
• The Court distinguished this case from the Gian Singh judgment, noting that offenses involving moral turpitude under special statutes require different treatment. 
• The Court determined that economic offenses constitute a class apart as they affect the economy of the country as a whole. 
• The Court warned that if economic offenses are viewed lightly, it would shake public confidence and trust in the financial system. 
• The Court affirmed that the High Court was justified in not exercising its powers under Section 482 CrPC to quash the proceedings. 
• The Court held that consent terms recorded at DRT proceedings cannot erase the criminal nature of offenses involving corruption and public financial interests. 
• The Court maintained that cases involving substantial public interest and economic implications cannot be quashed merely on the basis of a settlement between parties. 
• The Court established that serious economic offenses or those potentially damaging institutional financial health should not be quashed even if the parties have reached a settlement. 
• The Court concluded that the continuation of criminal proceedings was necessary given the grave and substantial impact of such offenses on society. 

What is the Economic Offence? 

• Economic offences are crimes committed during the course of economic or business activities that cause financial harm and adversely impact the country's economic wellbeing and financial health. 
• These offences typically involve fraudulent activities such as tax evasion, money laundering, bank fraud, securities scams, corporate fraud, smuggling, and corruption that affect both public and private financial interests. 
• While there is no specific legislation in India that comprehensively defines economic offences, they are treated as a distinct category of crimes requiring special attention as first recognized by the 47th Law Commission of India (1972). 
• Economic offences are considered more serious than conventional crimes as they affect the entire economy and pose a serious threat to the financial health of the country while shaking public confidence in the financial system. 
• These offences often involve complex transactions, sophisticated methods, and significant amounts of public money, making them different from regular criminal offenses and requiring specialized investigation and prosecution approaches. 

What are the Legal Provisions Related to Economic Offences? 

• Prevention of Money Laundering Act (PMLA), 2002: 
  • Section 2(u): Defines "proceeds of crime" as property derived/obtained from criminal activity 
  • Section 3: Defines money laundering as direct/indirect attempts to:  
    • Indulge in 
    • Knowingly assist 
    • Be a party to 
    • Be involved in processes related to proceeds of crime 
• Companies Act, 2013: 
  • Section 447: Comprehensive definition of fraud including:  
    • Acts and omissions 
    • Concealment of facts 
    • Abuse of position 
    • Actions for unfair advantage 
    • Actions harming company/stakeholder interests 
• Indian Penal Code (IPC), 1860: 
  • Section 403: Criminal misappropriation (specifically used for bank fraud cases) 
• Code of Criminal Procedure, 1973: 
  • Section 438: Relates to powers of anticipatory bail in economic offense cases 
• Insolvency and Bankruptcy Code, 2016: 
  • Penalty provisions: Not less than INR 1 lakh, which may extend to INR 1 crore for fraudulent bankruptcy proceedings 
• Income Tax Act, 1961: 
  • Criminalizes tax evasion 
  • Income concealment 
  • Penalties for:  
    • Failure to furnish returns 
    • Non-compliance with notices 
    • Concealment of income particulars 
    • Concealment of fringe benefits 
• Customs Act, 1962: 
  • Regulates movement of goods in/out of country 
  • Provisions for confiscation of improperly imported goods 
  • Safeguards against smuggling 
• Fugitive Economic Offenders Act, 2018: 
  • Targets offenders who have left India to avoid prosecution 
  • Empowers Directors/Deputy Directors under PMLA 
  • Provides for attachment of properties 
• Other Specialized Laws: 
  • Central Excise Act, 1944: Punishment for excise duty evasion 
  • Insolvency and Bankruptcy Code, 2016: Penalties for fraudulent bankruptcy proceedings (INR 1 lakh to 1 crore) 
  • State-specific land grabbing laws (e.g., AP Land Grabbing Prohibition Act, 1982) 
  • SEBI Regulations, 1995: Against stock market manipulations 
  • Information Technology Act, 2002: Covers credit card fraud 
  • Transplantation of Human Organs and Tissues Act, 1994: Against organ trafficking 
  • Arms Act, 1959: Against arms trafficking 

Historical Landmark Cases: 

• Harshad Mehta Securities Scam (1992): 
  • First major financial fraud involving manipulation of banking system and stock market 
  • Led to loss of ₹4,000 crore through fake bank receipts and securities 
• Satyam Scandal (2009): 
  • Landmark corporate fraud case involving inflated revenues and fake invoices worth ₹14,000 crore 
  • Set precedent for corporate governance reforms in India 
• 2G Spectrum Scam (2011): 
  • Largest telecom scandal involving irregular allocation of spectrum licenses 
  • Resulted in ₹1.76 lakh crore loss and cancellation of 122 licenses 
• PNB Fraud Case (2018): 
  • Major banking fraud involving fake letters of credit worth ₹14,000 crore 
  • Highlighted vulnerabilities in banking system and led to stricter monitoring of large value transactions 

What are the Major Case Laws? 

• State of Maharashtra v. Dr. Praful B. Desai (2021): 
  • Supreme Court upheld conviction under Prevention of Corruption Act for accepting ₹20,000 bribe for medical college admission 
  • Court established that prosecution evidence was sufficient to prove offense beyond reasonable doubt 
• Union of India v. Videocon Industries Limited (2020): 
  • Delhi HC upheld NCLT's decision to initiate insolvency proceedings against Videocon for defaulting on ₹20,000 crore loans 
  • Court validated NCLT's discretion in initiating proceedings against companies involved in fund siphoning through shell companies 
• SEBI v. NDTV Limited (2020): 
  • Securities Appellate Tribunal upheld SEBI's ₹5 crore penalty on NDTV for violating disclosure norms 
  • Established precedent that non-disclosure of material loan agreements affecting share price constitutes violation 
• Rana Kapoor v. RBI (2020): 
  • Bombay HC upheld RBI's decision to restrict Yes Bank's former CEO from banking positions for one year 
  • Confirmed RBI's powers under Banking Regulation Act to take action against executives for underreporting bad loans and misleading investors 
• Gaurav Gupta v. Enforcement Directorate (2020): 
  • Delhi HC quashed ED's provisional attachment of assets worth ₹10 crore 
  • Established that ED must produce material evidence to support allegations before attaching assets under PMLA