TaxTMI 
TaxTMI 
2017 (1) TMI 1804
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....tioners in Crl.P.No.157 of 2017 are Accused Nos.10, 7 & 4 in Crime No.263 of 2016. As the lis in all the petitions is one and the same, all the five criminal petitions are heard together to pronounce common order. The facts in Crl.P.No.155 of 2017 are dealt with for better appreciation of the case. A-9 is M/s Musaddilal Gems and Jewels Private Limited Company represented by its Directors Mr. Nitin Gupta, A-1 and Mr. Seera Mallesh A-6. A-8 is M/s Musaddilal Jewellers (P) Ltd represented by A-3, Mr. Nikhil Gupta, Director. M/s Vaishnavi Bullion (P) Ltd, A-10 is represented by its Directors Mr. Narenderji Gellaboina and Mrs. Vinutha Bolla, A-7 & A-4 respectively. The three companies M/s Musaddilal Gems and Jewels (P) Ltd (A-9), M/s Musaddilal Jewellers (P) Ltd (A-8) and M/s Vaishnavi Bullion (P) Ltd (A-10) are engaged in trade and business of diamonds, gold, silver, bullion and jewellery at various places in Hyderabad. On 11.12.2016, Depty Director of Income Tax (Investigation), Unit II(2), Hyderabad, lodged a compliant before the Station House Officer, Jubilee Hills Police Station against the Directors of the three companies alleging that the Directors of those companies hav....
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....g the same as genuine business by raising around 5200 cash advance receipts on 08.11.2016 and subsequent sale invoices. The Directorate has initiated enquiries against the above two companies under the provisions of the Income Tax Act, 1961. The investigation disclosed the following facts: 1. M/s Musaddilal Gems and Jewels Private Limited had deposited an amount of Rs.57.85 crores on 10.01.2016 (24.8 crores), Rs.27.2 crores on 11.01.2016 and Rs.5.85 crores on 15.11.2016 in State Bank of India A/c No.32895770198, Industrial Finance Branch, Punjagutta, Hyderabad through their staff namely Mr. Narssingh, Basha, etc. M/s Musaddilal Gems and Jewels Private Limited had claimed that Rs.57.85 crore was received from 3100 customers towards cash advance for bullion on 08.11.2016 from 9 PM onwards. M/s Musaddilal Gems and Jewels Private Limited had claimed that they delivered the bullion during the period between 08.11.2016 and 11.11.2016 to the customers who paid cash advances on 08.11.2016. 2. M/s Vaishnavi Bullion Private Limited, Hyderabad had deposited an amount of Rs.40 crore in Axis Bank A/c No.916020066093266, Jubilee Hills, Hyderabad through their staff namely Ma....
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.... to be mandatorily obtained for transactions below Rs.2 lakh. Out of 5200 customers, the Deputy Director of Income Tax has collected declarations from 65 customers on 08.11.2016. Even those declarations of 65 customers does not contain the complete address, ID proof of such customers. The biometric attendance of the employees of these companies revealed that all the employees of these companies had left the office during 7:00 PM to 7:30 Pm on 08.11.2016. Though, the business premises of the above two companies is covered by CCTV surveillance system, no CCTV footage is available for 08.11.2016. The Deputy Director of Income Tax stated that CCTV recording is overwritten after every 72 hours and suspected that the CCTV footage was erased by the management of the above companies. The residences having CCTV in the lane approaching the premises were identified and the CCTV footage of 08.11.2016 of one of the neighbours was obtained. A perusal of the CCTV footage pertaining to the night of 08.11.2016 shows that there was no movement of any person/vehicles in the said lane. In view of the material collected, the Deputy Director of Income Tax came to the conclusion that the companies hav....
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....s, diamonds, pearls and also ornament designers, makers, dealers, importers and exporters of precious and semiprecious metals, stones and also in the business of bullion trading in accordance with law. Therefore, very registration of crime without ascertaining facts is an illegality committed by the Station House Officer. It is also contended that the Deputy Director of Income Tax conducted survey in the business premises of the petitioners on 01.12.2016 and seized the hard disk of CCTV footage and other relevant documents of the business and initiated proceedings under Income Tax Act. With regard to the allegation of depositing of high denomination of Rs.500/- and Rs.1000/- notes, after demonetization is not an illegal act, the petitioners deposited the amount as per the accounts maintained by them in various banks, but the Station House Officer registered crime against the petitioners without any basis. The allegation against the petitioners that they caused huge loss to the government exchequer in the form of direct taxes to be collected on such unaccounted income of Rs.100 crore, for which the Deputy Director of Income Tax already initiated proceedings under Income Tax Ac....
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.... on merits of the case. In pursuance of the interim order dated 15.12.2016, the Investigation Officer has issued 41-A notice on 18.12.2016 along with 41 questionnaire. The petitioners have appeared before the Investigation Officer and signed the register. Also the petitioners have given reply to all 41 questions on 20.12.2016, question wise by cooperating with the investigation in all means. But, the Investigation Officer has affixed Section 41-A Cr.P.C. notice on 21.12.2016 to the business premises, as if the petitioners are not cooperating. It is finally contended that any of the allegations made in the complaint would not attract any of the offences and the petitioners are extending their utmost cooperation for completion of investigation. Therefore, the petitioners are entitled to be enlarged on bail in the event of their arrest. The petitioners are apprehending their arrest in connection with the above crime and in the event of their arrest, it would cause incalculable loss to their reputation in the society, being a bullion merchant and expressed their readiness and willingness to produce sufficient sureties to the satisfaction of this Court, as directed by the Court in the e....
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.... the documents and forged several documents like receipts, evidencing receipts of sale consideration by conspiring with each other for wrongful gain and deposited huge amount of demonetized currency notes in various banks, referred supra. It is stated in the counter affidavit that the petitioners deposited Rs.24.8 crores on 10.11.2016, Rs.27.2 crores on 11.11.2016 and Rs.5.85 crores, totalling to a sum of Rs.57.85 crores in State Bank of India A/c No.32895770198, Industrial Finance Branch, Punjagutta, Hyderabad through their staff. Similarly, the petitioners deposited Rs.40 crores in the newly opened A/c No.916020066093266 in the Axis Bank, Jubilee Hills, Hyderabad on 10.11.2016 pertaining to M/s Vaishnavi Bullion Private Limited, Hyderabad and thus depositing such huge amount by creating advance cash receipts in the names of various persons who are total 5200 in number is nothing but a fraud against the State. It is further stated in the counter affidavit that, during the course of investigation, out of 5200 fictitious customers, only 9 customers were examined namely Md Azam, Md Jaleel, Annaram Pentaiah, ` Lalitha Jayalaxmi, RVNVR Panduranga Rao, G. Chandrashekar Goud, Palla....
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....nearthed a serious crime affecting the State economy, committed by the petitioners, creating fake customers and fabricating and forging various documents, depositing huge amounts which affects the State economy and it is a serious offence of forgery etc. It is stated in the counter affidavit that A-2, A-11 and A-13 paid an amount of Rs.5 crores towards Pradhan Manthri Garib Kalyan Yojna as part payment of Income Tax Penalty. Later, on the contrary, A-13 Mr. Neel Sunder of M/s Ashta Lakshmi Gold Bullion confessed that he has accumulated an amount of about Rs.28 crores from his known persons including his own amount and colluded with A-1 to A-12 for exchanging the amount in the wake of demonetization. Later, A-2, A-11 and A-13 submitted retraction affidavits to the Income Tax Department for refund of money or adjustment in future, contending that they deposited the money in the name of three firms namely M/s Musaddilal Gems & Jewels Private Limited, M/s Musaddilal Jewels Private Limited and M/s Vaishnavi Bullion Private Limited. Thus, the entire material collected during investigation disclosed that they fraudulently created several documents by forging, fabrication etc, to avoid ....
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....o enlarge the petitioners on bail in the event of their arrest, in the above crime. Sri K. Pratap Reddy, learned Public Prosecutor for the State of Telangana contended that the petitioners involved in a serious crime by avoiding payment of income tax by forgery, fabrication of various documents which will have serious effect on the economy of the State. That apart, the entire material collected during investigation including the statements recorded by the police during investigation under Section 161(3) and payment of Rs.5 crores as Income Tax and penalty to Pradhan Manthri Garib Kalyan Yojna is itself suffice to conclude that the petitioners created fake customers and fake receipts in all cash advance for purchase of bullion on various dates to cause huge loss to the economy of the State and when the petitioners involved in such serious offences, they are disentitled to claim pre-arrest bail and prayed to dismiss the petitions. During enquiry in this matter, Justice Suresh Kumar Kait who was dealing with these matters earlier, issued direction to the Deputy Director of Income Tax (Investigation) to appear before the Court in person on 23.01.2017. In obedience of the directio....
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....allegedly concealed the unaccounted income and taking advantage of demonetization, created certain documents by forgery, fabrication, etc, to convert alleged black money into white and also paid part of tax as penalty, but retracted from the said payment and requested to adjust the same towards future tax liability. Here, the complainant made a serious allegation that the petitioners committed fraud, but how fraud is committed is not explained. Moreover, those allegations made in the complaint would not constitute prima facie offence punishable under Section 420, since there is no fraudulent, dishonest inducement of any person. Thus, I find no material prima facie to conclude that the petitioners did commit an offence punishable under Section 420 I.P.C. The other offence allegedly committed by the petitioners is punishable under Section 468 IPC, i.e. forgery for purpose of cheating. Whoever commits forgery, intending that the document or electronic record forged shall be used for the purpose of cheating. Here, the Investigating Agency examined 9 customers out of 5200 by names Md Azam, Md Jaleel, Annaram Pentaiah, Lalitha Jayalaxmi, RVNVR Panduranga Rao, G.Chandrashekar Goud, Pal....
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....and the punishment prescribed for the offence is same as punishment of forgery i.e. two years of imprisonment or fine or both. As discussed above, the petitioners prima facie forged a document i.e. receipts and vouchers claiming that they received advance amount for sale of bullion from 5200 customers and the statements of 9 persons whom the Investigating Agency examined would prima facie establish that the petitioners used a forged document as genuine for the purpose of depositing the demonetized high value currency notes worth Rs.500/- and Rs.1000/- with effect from 08.11.2016 from 08:00 PM. Therefore, there is prima facie material against the petitioners for the offences punishable under Section 471 I.P.C. The fourth offence allegedly committed by the petitioners is punishable under Section 474 I.P.C which deals with punishment for possessing a document i.e. forged record of the Court or public document or forgery of valuable security, knowing it to be a forged and knowing it to be used as genuine. But here, the petitioners did not commit any forgery of record of the Court, public record or valuable security. Therefore, the alleged offences committed by the petitioners wou....
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....n 212 I.P.C. The other offences allegedly committed by the petitioners are punishable under Sections 109 & 120-B r/w 34 I.P.C. Section 109 deals with punishment of abetment if the act abetted is committed in consequence and where no express provision is made for its punishment. Here, the petitioners being the Directors of the three companies stated supra, forged the signatures of various fake customers, more particularly, the signatures of the fake customers whom the Investigating Agency examined. Further more, the petitioners used those documents to claim receipt of advance, cash consideration for sale of bullion from 5200 persons at a single premises within a span of 3 ½ hours without any security or assistance of the police force, even to count such huge cash either manually or by machines, it is impossible, consequently it cannot be believed prima facie and they also abetted the concerned staff members to falsify the accounts allegedly and it would fall within the ambit of Section 109 I.P.C Section 120-B I.P.C deals with punishment of criminal conspiracy. Section 120-A I.P.C defined criminal conspiracy as follows: When two or more persons agree to do, or cause t....
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....ount, the maximum value of specified bank notes as may be deposited shall be Rs.50,000/- Further, directed the banks to send by email or fax to the Controlling Officer about exchange of Rs.500/- & Rs.1000/- demonetized notes at the closure of the business of the bank on each day starting from 10.11.2016 in the prescribed proforma given in the Gazette Notification. Taking advantage of the clause, the learned Senior Counsel Sri Vedula Venkata Ramana contended that when there is no limit on deposit the demonetized currency notes, the deposit made by the petitioners is not a violation of the norms or guidelines issued by the Reserve Bank of India. Even otherwise, it would not amount to an offence punishable under any of the provisions of the Indian Penal Code. No doubt, there is no limit for depositing the demonetized currency notes, but subject to compliance of Know Your Customer (KYC) norms. Moreover, it is not the contention of the State that the petitioner committed any offence under the Income Tax Act, but committed a serious offence of forgery, fabrication, falsification of accounts and criminal conspiracy. Therefore, the said guideline is of no assistance to claim any immunit....
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....nches referred supra by fabricating certain documents, forged the signatures of fake customers and falsified the accounts for wrongful gain i.e. for converting the black money into white, taking advantage of the guidelines issued by the Reserve Bank of India. Therefore, he lodged a complaint in those circumstances, but not otherwise. Even according to the petitioners, evasion of tax is punishable under the provisions of Income Tax Act and the maximum punishment is two years of imprisonment or fine, invocation of the provision of Indian Penal Code is nothing but circumventing the provisions of Income Tax Act and resorting to take action against the petitioners by the police under the provisions of Income Tax Act by abuse of process of the Court. The Income Tax Department also during investigation, under the provisions of Income Tax Act examined one S. Mallesh, Director & Accounts Head of Musaddilal Gems & Jewels Private Limited and M/s Vaishnavi Bullion Private Limited on 01.12.2016 and 02.12.2016. According to his statements, in those two companies, there were no regular business transactions and no employees were engaged and those companies were not opened on 08.11.2016 and tha....
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....rs by the Deputy Director of Income Tax with the Police, Central Crime Station, Hyderabad for the alleged offences is not an illegality, since the Deputy Director of Income Tax who received information about commission of an offence by the petitioners gave information to the police to enable them to set the law into motion. Hence, lodging a complaint by the Deputy Director of Income Tax with the police is not an illegality. On this ground, the petitioners cannot claim an anticipatory bail. The second contention raised before this Court is that the petitioners are only Directors of the company and if the three private limited companies have committed any offence under the provisions of Indian Penal Code, the person who is dealing with day-to-day business alone is responsible for the acts of the company under the penal provisions, but not other Directors. No doubt, this contention is supported by the law laid down by the Apex Court in Sunil Bharti Mittal((2015) 4 Supreme Court Cases 609) case, where the Apex Court while dealing with the corporate liability discussed about the liability of the Directors and held as follows: "It is abundantly clear from the above that the p....
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....etrated the commission of an offence on behalf of the company can be made as an accused along with the company, if there is sufficient evidence of his active role coupled with criminal intent. The second situation, in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision, there is no quarrel about the law declared by the Apex Court in Sunil Bharti Mittal((2015) 4 Supreme Court Cases 609) case. But, obviously, it is difficult to record prima facie satisfaction of this Court that the individual Directors of the three companies has played active role coupled with criminal intent at this stage, as the investigation in the case is at foetus stage. If, I record any such finding at this stage, it is nothing but prematurely expressing opinion. Therefore, before completion of investigation, I am unable to express any opinion as to the liability of the other Directors, since it is for the Investigating Agency to find out whether other Directors are participating effectively in the day-to-day affairs of the company or not. Therefore, basing on the law declared by the Apex Cour....
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....h consideration after 08:30 PM on 08.11.2016 to find out the truth in the transactions. If the petitioners are enlarged on bail in the event of their arrest in connection with the above crime, the petitioners being rich and reputed business personalities in Hyderabad City, may influence those customers and such interference cannot be ruled out. Similarly, there is every possibility of interfering with the investigation and tampering of evidence, if a pre-arrest bail is granted to these petitioners. Learned Senior Counsel contended that for grant of prearrest bail under Section 438 Cr.P.C, certain principles have been laid down by the Apex Court and at best, the Courts are bound to follow the guidelines laid down by the Apex Court in Bhadresh Bipinbhai Sheth(2016) 1 Supreme Court Cases 152) case. The Apex Court only reiterated the 10 guidelines laid down in Siddharam Satlingappa Mhetre vs State Of Maharashtra(AIR 2011 SC 312) which are as follows: i. The nature and gravity of the accusation and the exact role of the accused must be properly comprehended before arrest is made; ii. The antecedents of the applicant including the fact as to whether the accused has p....
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....k as to how the Court can exercise its judicial discretion in a petition filed under Section 438 Cr.P.C. Section 438 Cr.P.C deals with direction for grant of hail to person apprehending arrest and it reads as follows: (1) When any person has reason to believe that he may be arrested on an accusation of having committed a non- bailable offence, he may apply to the High Court or the Court of Session for direction under this section; and that Court may, if it thinks fit, direct that in the event of such arrest, he shall be released on bail. (2) When the High Court or the Court of Session makes a direction under sub-section (1), it may include such conditions in such directions in the light of the facts of the particular case, as it may thinks fit, including- (i) a condition that the person shall make himself available for interrogation by a police officer as and when required: (ii) a condition that the person shall not, directly or indirectly, make any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to any police officer; (iii) a condition that the per....
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....e tampered with and "the larger interests of the public or the state" are some of the considerations which the court has to keep in mind while deciding an application for anticipatory bail. Therefore, anticipatory bail can be granted even in serious cases like economic offences and States should have no consideration for grant or refusal of grant of anticipatory bail, as there can be no presumption that the wealthy and the mighty will submit themselves to trial and that the humble and the poor will run away from the course of justice, any more than there can be a presumption that the former are not likely to commit a crime and the latter are more likely to commit it. Therefore, while dealing with the application for grant of pre-arrest bail or anticipatory bail, the Court must take into consideration the guidelines issued in Gurbaksh Singh Sibbia(AIR 1980 SC 1632) case. Though, according to the judgment of the Supreme Court, even in economic offences, the Court can grant anticipatory bail, subject to satisfaction of other grounds. In Siddharam Satlingappa Mhetre(AIR 2011 SC 312) case, the Apex Court carefully analyzed the principles in various judgments and considering the law o....
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....n that unless free hand was given to investigating agency, particularly, in light of allegations made against the petitioners, the petitioners cannot be enlarged on bail. In the present case on hand, the petitioners filed W.P.No.43777 of 2016 and obtained interim order from the Court not to arrest them. This Court directed them to appear before the Investigating Agency, fixing specific date and time, but the Government Pleader for Home before the Court complained that they are not cooperating to complete the investigation. Thereby, the petition was disposed of with a specific direction to follow the procedure under Section 41-A. Even in the present petition, Justice Suresh Kumar Kait when the matter was heard, granted interim anticipatory bail for the time being. But, during hearing, the learned Public Prosecutor complained that the petitioners are not cooperating for completion of investigation. Apart from that, the petitioners paid Rs.5 crores towards tax and penalty, but after obtaining interim order, they filed an affidavit retracting their earlier request and demanded to adjust towards future tax liability. In such a case, if such conduct of the petitioners and totality of ....
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....gadda Prasad v. Central Bureau of Investigation(AIR 2013 SC 2821). Following the judgment of the Apex Court in State of Gujarat v. Mohanlal Jitamalji Porwal and another((1987) 2 SCC 364), the Supreme Court arrived at a conclusion in Nimmagadda Prasad(AIR 2013 SC 2821) case. In Mohanlal Jitamalji Porwal9 case, the Apex Court made a serious observation for considering bail for a serious economic offence and held in paragraph 5 as follows: "...............The entire Community is aggrieved if the economic offenders who ruin the economy of the State are not brought to books. A murder may be committed in the heat of moment upon passions being aroused. An economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest." In the p....
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....d societal interest, the Court must take into consideration the impact of such serious crime, both on the society at large and on the economy of the State. The Central Government demonetized high value currency notes only in the interest of society to unearth the black money, but, on account of relaxations, the petitioners wanted to scuttle the very purpose,convert their black money into white by illegal means i.e. by forgery, fabrication of accounts, etc, by creating fake customers. In such case, the balance will tilt towards the interest of the society at large. In Gurpal Singh v. State through C.B.I(1999(49)DRJ193 referring the case in V. Nandanan Vs. DIG of Police (Crime), Hyderabad & another(1986 Cri.L.J. 1052), held that anticipatory bail is not to be granted as a matter of course in all cases where the applicant has reason to believe that he may be arrested on an accusation of having committed a non-bailable offence. Grant or refusal of such bail must depend upon variety of circumstances, the cumulative effect of which must enter the judicial verdict. The power under the Section has to be exercised sparingly and in exceptional cases using the discretion on the facts....
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....ld greatly harm the investigation and would impede the prospects of unearthing all the ramifications involved in the conspiracy. Public interest also would suffer as a consequence. Relying on all the above judgments, the Delhi High Court in Gurpal Singh(1999(49)DRJ193) case held as follows: "In the present case, allegations of conspiracy and financial irregularities involving the funds of the bank have been made. The petitioner in collusion with Mr. K. S. Bains and some other persons is alleged to have or is suspected, which cannot be said at this stage to be wholly baseless or motivated, to have derived personal benefits for himself and also for Mr. K. S. Bains by committing financial irregularities and to helping JBML etc. wrongfully and causing loss to the bank. Public interest is involved. In these circumstances, if anticipatory bail is granted, it will thwart investigation and thereby prejudice the case of the prosecution and it may not be possible to unearth fully the gravity of the conspiracy, resultant financial loss to the bank, financial gains, if any, derived by the bank's officers and other companies involved. It will hamper investigation and thereby pub....