A court order that has ruffled many feathers

The very essence of economic fraud -- decoding financial transactions pertaining to offshore entities/subsidiaries -- stands completely negated by this order, says Arjun Raghavendra M.

IMAGE: The Bombay high court. Photograph: PTI Photo

The Bombay high court order of October 17 in the case of the Adani group has far-reaching legal implications that threaten to jeopardise the evidence-gathering process of our law enforcement agencies and has the potential to destabilise many ongoing high-profile cases.

The writ petition pertains to the suspected over-invoicing of coal imports from Indonesia, being investigated by the Directorate of Revenue Intelligence (DRI).

The DRI has alleged that several entities, including the Adani group, through a maze of companies in different sovereign jurisdictions, have overvalued coal imports as compared to actual export value in Indonesia with the intention of siphoning off money abroad.

They also availed of higher power tariff compensation.

While coal consignments in about 1,300 vessels in this case were shipped directly to Indian ports from Indonesia, the documents were mostly routed through the Adani group’s subsidiary companies in Singapore, Dubai and Mauritius.

Following the group’s refusal to share information regarding subsidiaries, the DRI initiated procedures under the Mutual Legal Assistance Treaty (MLAT), requesting information from competent authorities in different countries to provide specified evidence.

According to the home ministry, India has MLATs -- a treaty for effective mutual cooperation and legal assistance -- with 39 foreign countries, the evidence obtained under which is admissible in any proceeding before a court of law in India.

To secure evidentiary information in this case, at the request of the DRI, the competent court in Mumbai initiated letters rogatory under MLAT to Singapore, United Arab Emirates, Hong Kong and British Virgin Islands.

This investigative process was challenged before the high court on two counts -- should DRI issue a letter rogatory under the Criminal Procedure Code after filing a first information report (FIR) before a magistrate, and if yes, has the agency validly commenced the investigation in this case?

The settled legal practice has been that investigations governed by special codes -- including  the Enforcement Directorate (ED), Prevention of Money Laundering Act; Narcotics Control Bureau (NCB), Narcotics Drugs and Psychotropic Substances Act; Serious Fraud Investigation Office, Companies Act; Wildlife Crime Control Bureau, wildlife protection laws and income tax investigations (income tax, benami and black money laws) -- do not require filing of FIRs/magisterial intervention for initiating investigations or issuance of letters rogatory.

Where the DRI investigates offences under the Customs law, a special statute also follows this rule.

In case of Customs law, discussed in the high court order, the legislative intent is apparent from the “Report of the select committee on the Customs Bill 1962” and the consequent Parliamentary proceedings, which make it clear that there is no requirement for magisterial intervention (non-cognisable offence) or filing of FIRs under the criminal code (cognisable offence) for commencing any customs investigation.

The letters rogatory were quashed by the high court because the DRI commenced investigation into a non-cognisable offence, as in the instant case, without obtaining permission from a magistrate, thereby bringing to a screeching halt the entire investigation.

By doing so, the court questioned the very integrity of the investigative process and further heavily relied upon a judgment of the Supreme Court in the Om Prakash case (2011) -- dealing with bailability in the context of arrest under Customs law -- which led to consequent amendments to the Customs law in 2012.

The court has grossly erred in failing to evaluate the larger substantive legal issue pertaining to the applicability of the Criminal Procedure Code for investigation under special statutes.

A simple interpretation of this order will mean that only police officers can investigate all the offences under special codes, which they are not authorised to under these statutes.

The very essence of economic fraud -- decoding financial transactions pertaining to offshore entities/subsidiaries -- stands completely negated by this order.

When the information pertaining to the subsidiary companies was denied, MLAT was the only available legal remedy for obtaining evidence.

Media reports have indicated non-cooperation by certain public sector banks in provision of documents pertaining to the financial transactions in this case.

Also, the order of the high court, Singapore, subsequently challenged in the Supreme Court there, allowing the sharing of the evidentiary information under MLAT with India, has lost focus in this chaos.

The extent to which this order of the Bombay high court will adversely impact the proceedings before the Supreme Court, Singapore, will be difficult to predict now.

This order will have a direct and drastic impact on all on-going investigations pertaining to over-invoicing of imported coal and, more significantly, on litigation before various forums on power tariff compensation.

The collateral damage emanating from this order poses a bigger question: What happens now to the information being processed in various sovereign jurisdictions across the world on letter rogatory requests initiated by the ED, NCB, Income Tax and other agencies, pertaining to high-profile cases?

This question is significant, especially when it is absolutely certain that the special laws do not mandate filing of FIRs or magisterial intervention for investigation or MLAT proceedings.

Will the DRI appeal against the order of the Bombay high court?

Your guess is as good as mine. Should the DRI appeal against this verdict? The answer is obvious!

Arjun Raghavendra M is an independent lawyer based out of Delhi and has previously worked with the Government of India.