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K.K. Kuda v. Chief Enforcement Officer, Enforcement Directorate And Another
Factual and Procedural Background
The first respondent issued a show-cause notice on 21-01-1994 under Section 51 of the Foreign Exchange Regulation Act, 1973 (FERA) to ANZ Grindlays Bank, its account-holder, and three bank officials. The notice alleged that between August and December 1991 non-convertible rupee funds amounting to ₹1.15 crore were wrongly credited to the non-resident (external) account of Dr P.K. Ramakrishnan in contravention of Sections 6(4) and 6(5) read with Section 49 of FERA, stating that this occurred with the officials’ consent, connivance, or negligence.
By a letter dated 10-07-2001, the respondent deleted the “consent” and “connivance” allegations, leaving only “negligence.” Nevertheless, an “opportunity notice” dated 12-05-2002 was followed by a criminal complaint on 29-05-2002 repeating all three allegations. On that very day the Additional Chief Metropolitan Magistrate, New Delhi, took cognizance under Section 56 of FERA and issued summons.
The appellant and other officials sought quashing of the complaint before the Delhi High Court (Crl. MC No. 5096 of 2006). On 02-09-2013 the High Court refused to quash the proceedings but restricted the prosecution to negligence alone. The present Supreme Court appeal challenges that order.
Legal Issues Presented
- Whether the criminal complaint, which reiterated “consent” and “connivance” despite their earlier deletion, should be quashed for suppression of material facts and for constituting an abuse of process.
- Whether, in the absence of supporting original documents and in light of the Magistrate’s alleged non-application of mind, the prosecution could validly continue solely on the ground of negligence.
Arguments of the Parties
Appellant's Arguments
- The respondent had formally dropped “consent” and “connivance” on 10-07-2001, yet the complaint still alleged them, amounting to suppression veri and suppression facti.
- The cause of action is composite and inseparable; it cannot be partly quashed. Continuing only on “negligence” would abuse the legal process.
- Invoking the sunset clause in Section 49 of FEMA, 1999 was arbitrary because the appellant’s reply to the opportunity notice was concealed from the Magistrate.
- No original documents accompanied the complaint; consequently the Magistrate lacked material to apply judicial mind before taking cognizance, rendering the summoning order invalid.
Respondents' Arguments
- The complaint comprises three distinct components; even if “consent” and “connivance” are excluded, prosecution can proceed on “negligence,” making High Court’s order sustainable.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court noted that despite withdrawal of “consent” and “connivance,” the complaint still contained those allegations, evidencing suppression and material omission, including failure to disclose the appellant’s reply to the opportunity notice. Moreover, none of the original documents relied upon were annexed, leaving unclear what evidence the Magistrate considered when taking cognizance on 29-05-2002.
The Court accepted that negligence could theoretically be prosecuted independently. However, given the criminal standard of proof and the defective initiation of proceedings, it found the continued prosecution untenable. Relying on these deficiencies—suppression of material facts, inclusion of withdrawn allegations, and absence of foundational documents—the Court concluded that cognizance had been taken on irrelevant considerations and that allowing the proceedings to continue would constitute an abuse of process.
Holding and Implications
Appeal Allowed; Complaint Quashed as Against the Appellant.
The Supreme Court set aside the Delhi High Court’s order and quashed Criminal Complaint No. 704 of 2002 pending before the Additional Chief Metropolitan Magistrate, New Delhi, insofar as it concerned the appellant. The decision terminates the criminal proceedings against the appellant; no wider legal precedent or doctrinal shift was articulated.
Chockalingam Nagappan, J.— Leave granted. This appeal is preferred against the judgment and final order dated 2-9-2013 passed by the High Court of Delhi in J.N Khanna v. R.K Rawal J.N Khanna v. R.K Rawal, 2013 SCC OnLine Del 3363, whereby the High Court dismissed the petition seeking to quash the complaint filed under Section 56 of the Foreign Exchange Regulation Act, 1973.
2. The first respondent herein issued show-cause notice dated 21-1-1994 under section 51 of fera, 1973 against ANZ Grindlays Bank, the account-holder and three bank officials for having credited non-convertible rupee funds of Rs 1,15,00,000 (rupees one crore and fifteen lakhs only) during the period August to December 1991 received from Moscow, into the non-resident (external) account of Dr P.K Ramakrishnan in contravention of sections 6(4) & 6(5) read with section 49 of fera, alleging that it had taken place with the consent, connivance of and attributable to the negligence on the part of the said officials. However, by the letter dated 10-7-2001 addressed to the appellant, the respondent ordered that charges relating to “consent” and “connivance” shall stand deleted from the show-cause notice dated 21-1-1994.
3. In the meanwhile, opportunity notice dated 12-5-2002, followed by complaint dated 29-5-2002, was filed under section 56 of fera, 1973 against the persons abovenamed for having credited non-convertible rupee funds into the non-resident (external) account of the person concerned, alleging contravention of Sections 6(4), 6(5) read with Section 49 of FERA having taken place with the consent, connivance of and attributable to the negligence of the officials and the Additional Chief Metropolitan Magistrate, New Delhi, took cognizance of the complaint for the offence under section 56 of fera on 29-5-2002 itself and issued summons to the accused. Challenging the same, the appellant herein and the other officials sought for quashing the complaint proceedings in their petition in Crl. MC No. 5096 of 2006, on the file of the High Court, Delhi. While the matter stood thus, the adjudicating authority passed the final order dated 14-5-2010 holding that the officials of the Bank have not consented or connived in the performance of the official duties and they were negligent. The High Court by the impugned order held that the prosecution of the accused persons shall be confined to the negligence on their part and not for they having consented or connived in the commission of the said offence. The said order is under challenge before us.
4. Mr C.A Sundaram, learned Senior Counsel appearing for the appellant, strenuously contended that the allegations of consent and connivance had been dropped by the respondent vide letter dated 10-7-2001, despite so, the complaint was lodged on the allegations of consent, connivance and negligence on the part of the officials of the Bank suppressing the facts and the respondent is guilty of suppressio veri and suppressio facto and on this ground itself, the complaint is liable to be quashed. It is his further contention that the complaint pertains to the allegations of consent, connivance and negligence on the part of the officials for having credited non-convertible rupee funds of the account-holder concerned and the cause of action disclosed therein is composite and inseparable and it cannot be quashed in part and continuance of the complaint proceedings on the allegation of negligence would tantamount to abuse of the process of law. He also contended that taking advantage of sunset clause under Section 49 of the Foreign Exchange Management Act, 1999, without disclosing the issuance of reply by the appellant to the opportunity notice, the respondent in an arbitrary and mechanical manner filed the complaint without enclosing a single original document and in the absence of any material, the learned Magistrate could not have applied his mind and taken cognizance and summoning order is bad in law.
5. Per contra, Mr V. Shekhar, learned Senior Counsel appearing for the respondents, contended that the complaint consists of three components and even eschewing the allegation of consent and connivance, the prosecution can be continued on the allegation of negligence and the impugned order is sustainable.
6. We carefully considered the rival submissions and perused the documents.
7. The crediting of non-convertible rupee funds into the non-resident (external) account of Dr P.K Ramakrishnan happened during the period August to December 1991. Three officials of ANZ Grindlays Bank were involved in it and show-cause notice was issued by Respondent 1 on 21-1-1994 to the Bank as well as the officials for contravention of Sections 6(4), 6(5) read with Section 49 of FERA, alleging that it had taken place with the consent, connivance of and attributable to the negligence on the part of the officials. It is true that the respondent by letter dated 10-7-2001 ordered that the charges relating to “consent” and “connivance” shall stand deleted from the show-cause notice. Though FEMA came into force on 1-6-2000, sunset clause under Section 49 of the said Act provided for filing of the complaints under FERA, 1973 till 31-5-2002. Taking advantage of it, Respondent 1 issued opportunity notice to all the three officials on 12-5-2002 and lodged the complaint on 29-5-2002. The Additional Chief Metropolitan Magistrate, New Delhi, on the same day took cognizance of the complaint for the offence under section 56 of fera and issued summons.
8. In spite of having dropped the allegations of “consent” and “connivance”, the respondent in their complaint levelled allegations of all the three components, namely, consent, connivance and negligence. The contention of the appellant that the cognizance was taken on irrelevant consideration, is to be countenanced. There was suppression and also material omission in non-mentioning of reply sent by the appellant to the opportunity notice, in the complaint. Further, to substantiate the averments in the complaint, not even a single original document was enclosed. It is not known as to, on what material the Additional Chief Metropolitan Magistrate applied his mind, while taking cognizance of the statutory offence. Though the allegation of negligence can be independently looked into, considering the standard of proof in criminal prosecution, we are of the view that, in the present case, the continuance of prosecution against the appellant is not tenable in law and the proceedings are liable to be quashed.
9. The appeal is allowed and the impugned order is set aside and the proceedings in Criminal Complaint No. 704 of 2002, on the file of the Additional Chief Metropolitan Magistrate, New Delhi, insofar as the appellant is concerned are quashed.
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