Holding

The convictions under s.120‑B read with s.193 IPC and s.277 IT Act cannot be sustained because the statements were not made in a judicial proceeding under s.40 FERA, the prosecution failed to prove their voluntariness, the Income‑Tax Tribunal’s exoneration nullifies the criminal basis, and no conspiracy linking all accused was established.

Summary

The Enforcement Directorate seized Rs.4,28,713 in 1966 and recorded statements from appellants K.T.S. Mohammed and M. Jamal Mohammed under Section 39 of the Foreign Exchange Regulation Act (FERA). Both appellants later retracted those statements, claiming they were obtained under duress, and the Income‑Tax Officer recorded further statements from them in a tax assessment proceeding. They were prosecuted for perjury under IPC s.193 and for false statements under Income‑Tax Act s.277, with the prosecution also alleging a conspiracy involving a third appellant, Amanullah. The Supreme Court held that the statements were not made in a "judicial proceeding" as contemplated by s.40 FERA, that the prosecution failed to prove voluntariness, and that the Income‑Tax Tribunal’s finding that the money did not belong to the first appellant negated the basis for criminal liability; moreover, there was no evidence of a common conspiracy. Consequently, the convictions and sentences were set aside and the fines refunded.

Issues considered

The statements recorded under Section 39 of FERA – whether they qualify as a 'judicial proceeding' for the purposes of IPC s.193 perjury.
Whether a prosecution for perjury can be sustained when the statements were allegedly obtained by inducement or threat and later retracted.
The admissibility of statements recorded by the Enforcement Directorate in a separate criminal proceeding under the Income‑Tax Act s.277.
The effect of the Income‑Tax Appellate Tribunal's finding that the appellant was not the owner of the seized money on the criminal charges under s.193 IPC and s.277 IT Act.
Whether the conspiracy charge under s.120‑B IPC read with s.193 IPC and s.277 IT Act can be sustained against all three appellants.
The propriety of joining the third appellant and other accused in a single trial – misjoinder of charges and parties.
The applicability of the limitation period under CrPC s.468 to the offences alleged.

Legislation cited

Code of Criminal Procedure, 1973s. 195, s. 223, s. 309, s. 34, s. 340, s. 468
Foreign Exchange Regulation Act, 1973s. 39, s. 40
Income Tax Act, 1961s. 136, s. 139(2), s. 175, s. 177, s. 277, s. 69-A
Indian Evidence Act, 1872s. 24
Indian Penal Code, 1860s. 120-B, s. 193, s. 228

Subjects

perjuryFERAjudicial proceedingconspiracyincome taxfalse statementmisjoindergazetted officerSection 39 FERASection 40 FERASection 277 IT ActSection 120-B IPC

Judgment

K.T.M.S. MOHD. AND ANR. A
v.
UNION OF INDIA

APRIL 28, 19112

(S. RATNAVEL PANDIAN AND M. FATHIMA BEEVI, JJ.J B

Indian Penal Code, 1860 :

S.193--Perjury-Prosecution for-lnculpatory statement given to officer
of Enforcement department under s.39 of FERA subsequently retracted stating
it as involuntary and obtained by inducement and threat-Allegation of false C
statement given later to I.T.0.-Prosecuting authority to apply its mind as to
whether inculpatory statement was voluntary and, not obtained by inducement
·and threat and whether it was given in a judicial proceeding-Prosecution tC'
be taken only if expedient in the interest of justice.
D
S.120-B--Conspiracy-Can be infe"ed from direct or circumstantial
evidence-Agreement between conspirators need not be directly proved.

Foreign Exchange Regulation Act, 1973:

Ss.39, 40-'Judicial proceeding'-Statement must be recorded by a E
Gazetted Officer to bring it within the ambit of 'iudicial proceeding'.

Nature of proceedings-Quasi criminal-Statements falling within the
ambit of Judicial proceeding' to be examined only quo the provisions of the
FERA and not with reference to I. T. Act.
F
Evidence Act, 1872

S.24-Statement recorded by Enforcement Officer under FERA in ex-
ercise of power as a Custom Officer--Evidentiary value of-Whether bar to
admissibility would apply@statement is obtained·by inducement and threat.
G
Income Tax Act, 1961

S.277~alse statement in verijication-Assessee found in posses~ion of
a large sum of money-lnculpatory statement to officer of Enforcement
Dire.ctorate subsequently retracte~Statement to LT.O. in assessment
proceedings deny(i.i~ .connection with money seized-l'rosecution for .giving H
879
880 SUPREME COURT REPORTS (1992) 2 S.C.R.

A false statemen~ecision of Income Tax Appellate Tribunal in assessment
proceedings exonerating assessee and .holding that money did not belong to
him and s.69 had no application-Whether can be considered while deciding
criminal liability.

Code of Criminal Procedure, 1973
B
Ss. 195, 34<>-0iminal proceedings for giving false evidence in assess-
ment proceedings-Courts to take care and caution before taking action
against deponent-Result ofproceedings under I. T. (f.ct to be given due regard.

C S.223-Misjoinder of charges and misjoinder of parties-Accused joint-
ly charged of having conspired to commit offence ·under ·I. T. Act.~oint
Trial-No specific allegations or acceptalJle evidence to connect different
accused with activities of each other-Whether amounted to a mere ir-
regularity or occasioned f aifure of justice.

D The Enforcement Directorate, Madras, OD receipt or infonnation
that appellant-I was engaged in illegal disbursement of money, raided his
premises on 19.10.1966 and recovered a sum of Rs. 4,28,713. On the same
day appellant-I and his brother-in-law appellant-2 were interrogated by
Enforcement Officers. Appellant-I in his statement Ext. P. 39 admitted
that he received a sum of Rs. 6 lakh from a person of Bombay on the
E
previous day for being dis.bursed to various parties; that Rs. 48,000 were
paid to accused No. S and Rs. ·so,ooo to another person; and that the
amounts were disbursed in compliance of instructions received from ·
abroad. Appellant-2 in his statement Ext. P. 40 admitted the receipt of the
amount by appellant-I and disbursement of the sum in compliance of bis
F instructi9ns. Accused No. S, when examined, admitted the receipt of Rs.
49,000 for being disbursed as per the details given in certain sheets of
paper available with him.

On 20.10.1966 both the appellants sent their retraction to the deputy
G Director of Enforcement Direct.orate through their Advocate stating that
their statements Ext. P. 39 and P. 40 were not voluntary but obtained under
threat and force and were bereft·oftrutb.

The Income-Tax · Officer, on coming to know of the raid, issued
summons to appellant-I who was an assessee and recorded bis statement
H (Ext. P. 3) on 16.11.1966. Appellant-I denied or having any connection with
K.T.S. MOHD. v. U.0.1. 881

the cash of Rs. 4,28,780 recovered from his premises and reiterated that A
the statement by the Enforcement Officer was taken under force. Appel-
lant-2 also gave a similar statement Ext. P. 73 on 11.1.1974. Accused No.
5 also denied to have received any money.

Meanwhile the appellant in Criminal appeal No. 6.12 of 1990 (third
appellant) who was related to appellants 1 and 2, sent a letter (Ext. P. 41) B
to the Enforcement Officer claiming the money seized as belonging to him
and explaining that he was neg~tiating with some film producers for
financing fil,n production and the seized amoulit included the sale
proceeds or his mother's jewels as also bis father's money and, therefore,
the same be returned to him. Proceedings under the Income-Tax Act were C
initiated against him also. He submitted his return of income for the year
1967-68 showing the business income as Rs. 4,000 and a sum of Rs. 2,79,000
·~·
representing the cost of Jewels belonging to his mother (accused No. 4).
His claim was, however, rejected.

The Income-tax Officer treated the sum of Rs. 6 fakh as the income D
of appellant-1 from undisclosed sources and assessed him accordingly.

A complaint against the three appellants and accused Nos. 4 and 5
was filed alleging that they conspired to give false statements in the
proceedings under the Income-tax Act and to fabricate false evide~ce and E
thereby committed offences punishable under s. 120-8 read with s. 193
IPC, under s. 120-B IPC read with s. 277 of the Income Tax Act and under
s.193 (simplicitor) of Indian Penal Code. The appellants 1 and 3 were also
indicted under s. 277 of the Income Tax Act.

Appellant-1 challenged the assessment order and the matter twice F
went before the Income-tax Appellate ,Tribunal which in both the rounds
of litigation held that the department bad failed to show that the assessee
was the owner of the money, and that the evidence only indicated that the
assessee had been engaged for disbursing the money belonging to a third
party. It set aside the assessment order and ultimately decided the matter· G
in favour of appellant-1.

In the meantime the proceedings initiated on the basis of the
Criminal Complaint, led to the trial of the three appellants and accused
No. 5. Accused No. 4 had died during the proceedings. The Trial Court
convicted the three appellants of the offences levelled against them and H
882 SUPREME COURT REPORTS c1m1 2 s.c.R.
A sentenced each· of them to undergo imprisonment till the rising of the
Court for each of the offences and to pay a total fine of Rs. 2,000, Rs. 600
and Rs. 1,500 respectively holding that they had been detained under
c'OFEPOSA in respect of the amount seiud and bad undergone the ordeal
of enquiries and trial for a considerable length of time. It, however, ·
acquitted accused No. S.
B
The first appellate court and the High Court upheld the judgment
of the trial Court.

In the appeals to this Court it was contended on behalf of the
C appellants that (1) the evidence adduced in the case did not constitute the
requisite ingredients to make out a case punishable under the charge
levelled against all the three appellants; (2) the statements of .appellants
1 and 2 Exts. P. 39 and P. 40 recorded by the Enforcement Officers cannot
be said to have been recorded in a judicial proceeding as contemplated by
D s.40, but fell only within the meaning of s. 39 of FERA and therefore could
not form the basis for initiating a criminal case of perjury; (3) the
statements Ext. P. 39 and P. 40 being recorded under the FERA could not
be made use of for prosecuting the deponents of those statements in a
separate and independent proceeding under the Income-Tax Act; (4) in
view of the specific findings of the Income-Tax Appellate Tribunal that the
E appellant- 1/assessee was not the owner of the money seized and Section
69-A of the Income-Tax Act bad no application to the facts of the case,
. appellants 1 and 2 could not be held liable under s.193 IPC and under s.
277 of the Income-Tax Act: (6) the evidence available on record was not
sufficient to put the third aJ.>pellant in a joint trial along with appellants
F 1 and 2 under the conspiracy charges as well as for recording the convic-
tion under sections 193 IPC and 277 I.T. Act especially when the third
appellant consistently took an uniform stand and when it was not the case
of the Department that the amount seized was taxable amount in the hands
of the third appellant.

G Allowing the appeals and setting aside the conviction and sentence
of the appellants, this court,

HELD : 1.1. The convictions recorded by the courts below under
Section 120-B read with Section 193 IPC and Section 193 IPC (simplicitor) ~
H as against the appellants cannot be sustained.·[p. 902 F-G]
K.T.S. MOHD. v. U.0.1. 883

1.2. The complainant has stepped into the shoe of the Enforcement A
Directorate, and assumed the authority under the FERA and levelled a
charge stating that the appellants 1 and 2 by sending the letter of retrac-
tion on 20.10.66 denying their earlier statements dated 19.10.66 have made
themselves liable to be convicted under Section 193 IPC. [pp.902 GH, 903A]

1.3. The trial court eommitted an error in not only covicting appel- B
lants 1 and 2 for sending the letter of retraction dated 20.10.66 but also,
holding appellant-3 and accused Nos. 4 and S as being parties to a
~onspiracy for causing a letter dated 20.10.66 to be sent to the Enfos;cement
Directorate. [p. 903 AB]

1.4. Since the High Court, without adverting to the important intri-
c
cated questions of law involved in the case and examining them in the
proper perspective has disposed of the revisions in a summary manner,
·its orders warrant an interference. [p. 909 DE]

2.1. Necessary care and caution are to be taken before initiating a D
criminal proceeding for perjury against the deponent of contradictory
statements ia,i judicial proceeding. [p. 901 B-C]

K Kamnakaran v. T. V. Eachara Wanier and Another, [1978) 1 SCC
18, referred to.
E
r 2.2. The mere fact that a deponent has made contradictory state-
ments at two different stages in a judicial proceeding is not by itself always
sufficient to justify a prosecution for perjury under section 193 IPC but it
must be established that the deponent has intentionally given a false
statement in any stage of the 'judicial proceeding' or fabricated false F
evidence for the purpose of being used in any stage of the judicial proceed-
ing. And such a prosecution for perjury should be taken only if it is
expedient in the interest of justice. [p. 901 CD]

3.1. Every investigation or proceeding under s. 40 of FERA is deemed
to be a judicial proceeding by a legal fiction embodied in its sub-section G
(4) though the -proceedings are neither in nor before any Court at that
stage. But there is no such deeming provision under s. 39 of FERA bringing
every investigation or proceeding in its ambit as "a judicial proceeding"
within the meaning of Ss. 193 and 228 of the Indian Penal Code.
[p. 896 F-H} H
884 SUPREME COURT REPORTS [1992) 2 S.C.R.

A 3.2. The exercise of the power under section 40 of FERA to summon
persons to give evidence and produce documents must satisfy the condition
that the officer acting under that section should be a gazetted officer of
Enforcement because every person summoned by such an officer to make
a statement under Section 40(1) is under a compulsion to state the truth
on the pain of facing prosecution. [p. 896 AB]
B
Pushpdevi M. Jatia v. M.L. Wadhawan, (1987) 3 SCC 367, referred to.

3.3. The statem!lnts Exts. P. 39 and P. 40 were recorded only in
exercise of the powers under s. 39 of the FERA and the prosecution has
not established that those statements were recorded by any gazetted officer
. ........-
c
of the Enforcement under the provisions of s. 40 of the FERA bringing
them within the meaning of'judicial,proceeding' so as to make use of them ___.,
as the basis for fastening the makers of those statements with the ..,
criminality of the offences under s. 193 and/or s. 228, IPC on the ground
that the deponents of those statements have retracted from their earlier
D statements in a subsequent proceeding which is deemed to be 'a judicial
proceeding'.,·[pp. 901 E-F;,,897 A]

3.4. Even if statements E~s. P. 39 and P. 40 fall within the mischief
of section 40 of the FERA, there is absolutely nothing on record to show
that either the sanctioning authority or the prosecuting authority applied
E
its mind even subjectively and found that the appellants 1 and 2 gave their
earlier inculpatory statements voluntarily but not under any inducement,
coercion, threat or promise; that the deponents have intentionally gave a
false statement before the I.T.O. at the subsequent stage within the ambit
of s. 193 IPC and that it was expedient in the interest of justice to initiate
F the criminal proceedings for perjury. [p. 901 FGJ

4. The proceedings under the FERA are quasi-criminal in character.
It is pellucid that the ambit, scope and intendment of these two _Acts are
entirely different a,nd dissimilar. Therefore, the significance of a state~ent
G recorded under the provisions of FERA during the investigation or
proceeding under the said Act so as to bring them within the meaning of
judicial proceeding must be examined only quo the provisions of the FERA
but not with reference to the provisions of any other alien Act or Acts such
as I.T. Act. [p. 898 BC]

H Subba Rao v. /. T. Commr., AIR 1956 SC 604 = [1956} SCR 577; Mis
K.T.S. MOHD. v. U.0.1. 885

~ Pannalal Bmjraj v. Union of India, AIR 1957 SC 397 = (1957) SCR 233 A
and Shanti Prasad Jain v. The Director of Enforcement, (1963) 2 SCR 297,
referred to.

5.1. Even if the officers of the Enforcement intend to take action
against the deponent of a statement on the basis of his inculpatory
--{ statement which has been subsequently repudiated, the officer concerned · B
must take both the statements together, give a finding about the nature of
the repudiation and then act upon the earlier inculpatory one. But to bisect

--
the two statements and make use of the inculpat~ry statement afone by
passing the ot~er cannot be legally permissible because admissibility,
reliability and the evidentiary value or the inculpatory statement depend C
on the bench mark of the provisions of the Evidence Act and the general
y criminal law. (898 F-GJ

5.2. The voluntary nature of any statement either made before the
Customs Authorities or the officers of Enforcement under the relevant
provisions or the respective Acts is a sine quo non to act on it for any D
purpose and if the statement appears to have ' been obtained by any .
inducement, threat, coercion or by any improper means, that statement
must be rejected brevi manu. However, merely because a statement is
retracted, it cannot be recorded as involuntary or unlawfully obtained. It
is for the maker of the statement who alleges ind~cement, threat, promise E
r etc. to establish that such improper means has been adopted. But if the
maker of the statement fails to establish his allegations of inducement,
threat etc. against the officer who recorded the statement, the authority·
while acting on the inculpatory statement of the maker is not completely
relieved of bis obligations in at least subjectively applying its mind to the
subsequent retraction to hold that the inculpatory statement was not F
extorted. [p. 899 D-G]

~ Vallabhdas Liladhar v. Asstt. Collector of Customs, AIR 1965 SC 481
= [1965) 3 SCR 854 and P. Rustomji v. State of Maharashtra, AIR 1971 SC
[1087] = [1971] SCR (Suppl.) 35, referred to. G
5.3. The authority or any Court intending to act upon the inculpatory
statement as a voluntary one should apply its mind to the retraction and
/'- reject the same in writing. [p. 899 GH]

R.oshan Beevi v. Joint Secretary to the Govt. of Tamil Nadu, Public H
886 SUPREME COURT REPORTS [1992) 2 S.C.R.

A Deptt. etc., (1983) Law Weekly (Crl.) 289 = (1984) 15 ELT 289, referred to.
,>.
5.4. The l.T.O. erred in not taking into consideration the letter of
retraction sent by both the appellants through their lawyer on 20.10.1966
alleging that "they were coerced to sign statements by using bodily force
and threatening with causing injuries to them and they signed the state-
B ments fearing danger to their life and body". [p. 902 DE] ,._
6.1. Though a criminal court has to judge the case before it inde·
pendently on the materials placed before it, there is no legal bar in giving

c
due regard to the result of the proceedings under l.T. Act, and it is one of
the major factors to be considered and the resultant finding in the said
proceeding will have some bearing in deciding the criminal prosecution in
appropriate cases. [p. 905 C-FJ
---
-(

--""(
Uttam Chand v. l.T.O. (1982) 133 ITR 909, r. Jayappan v. S.K.
Perumal, [1985) 1 SCR 536, referred to.
D
6.2. In view of the findings of the Tribunal that the amount of Rs. 6
lakh was not owned by the first appellant and that s. 69(a) dealing with
the unexplained money etc. has no application to the facts of the case; the
appellants cannot be held to be liable for punishment under s. 120-B IPC
read with s. 277 I.T. Act and s. 277 (simplicitor) of the I.T. Act as the very
E basis of the prosecution is completely nullified by the order of the
Tribunal, which fact can be given due regard in deciding the question of ---(
the criminal liability of appellants 1 and 2. fpp. 905 F-H; 906 A]

7.1. An agreement between the conspirators need not be directly
F proved, and the offence of conspiracy can be established. by either direct
or circumstantial evidence and s. 193 will come to play only when the court
is satisfied that there is reasonable ground .to believe that two or more
persons have conspired to commit an offence or an actionable wrong.
[p. 907 AB]
Bhagwan Swarup and Ors. v. State of Maharashtra, AIR 1965 SC 682
G
= [1964) 2 SCR 378, referred to.
7.2. It was not stated that the individual acts of appellants 1 and 2
and that of the third appellant were due to any conspiracy among all the
three. On the other hand, the offence said to have been committed by the
H third appellant is specificall)· attributed only to him.[p. 907 DJ
K. T.S. MOHD. v. U.0.1. 887

7.3.Appellants 1 and 2 did not state that the amount seized belonged A
to the third appellant nor can it be said that they knew that the third
appellant intentionally fabricated false evidem:e or wilfully made a false
return before the Income-Tax Officer. The evidence direct or circumstan-
tial is very much lacking to bring all the three appellants and other two
accused under the charge of conspiracy. [pp. 907 GH; 908 AB]
B
8. The third appellant could not be put on a joint trial along with
appellants 1 and 2 and others under the charge of conspiracy, and his
conviction under this charge bas to f~il. Besides, in his case no question
of evading the tax would arise. The Department itself stated that the money
recovered did not belong to him. [pp. 908 C~ GH; 909 Al C
)
9.1. Even assuming that the third appellant made himself liable to
)r· be punished under s. 193 IPC ands. 277 of Income-Tax Act (simplicitor),
inasmuch as he was put in a joint trial with appellants 1 and 2 for
conspiracy of the said offences without any speicific allegation or accept-
able evidence to connect him with the activities of appellants 1 and 2, there D
is a clear misjoinder of charges which includes misjoinder of parties also.
[p. 909 AB)
9.2. In the facts and circumstances of the case, the misjoinder of
charges cannot be said to be a mere irregularity. A failure of justice has
in fact been occasioned since all the courts below have clubbed all the E
allegations levelled against all the three appellants and two other accused
together as if all the offences were committed in the course of the same
transaction pursuant to a conspiracy which is neither supported ·by the .
allegations in the complaint nor by any evidence as required under the
law. Hence, the conviction under s. 193 IPC and s. 277 of Income-tax Act
(simplicitor) have also to be set aside. [p. 909 BD] F
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No.
631of1990.

From the Judgment and Order dated 12.7.1984 of the Madras High
Court in Criminal Revision Case No. 229 of 1981. G
WITH

Criminal Appeal No. 632 of 1990

C.V. Vaidyanathan and A.T.M. Sampath for the Appellant. H
888 SUPREME COURT REPORTS (1992) 2 S.C.R.

A K.T.S. Tuls~ Addi. Solicitor General (NP) and Ashok Bhan for the
Respondent. >-
The Judgment of the Court was delivered by

S. RAtNAVEL. PANDIAN, J. The Criminal Appeal No. 631/90 is
B directed by the two appellants namely, K.T.S. Mohammed and M. Jamal
Mohammed and Criminal Appeal No. 632/90 is directed by Amanullah
Quareshi. All the three appellants are challenging the correctness of the
common order made by the High Court of Madras in Criminal Revision
Case Nos. 229/81 and 239/81 respectively dismissing the "revisions and
C confirming the judgment of the lower Appellante Court made in Cr. A.
Nos. 221 and 2i2 of 1980 which in turn affirmed the judgment of the trial
Court convicting and sentencing the appellants under the provisions of the
---
-r
Indian Penal Code and the Income-tax Act (hereinafter referred to as 'the
I.T. Act').

D The facts leading to the prosecution case are well set out in the
judgments of the Courts below. Nevertheless, we think it necessary to
recapitulate the basic matrix, though not in details, in order to enable us
· · to give our own reasons for the fmdings which we will be arriving at.

. The first appellant who is the brother-in-law of the second appellant
E received a cash of Rs. 6 lakhs, brought by a person from Bombay for
distributing the said amount to various persons as per the instructions
received from a person at Singapore. While he was engaged in the said
illegal transaction, the Enforcement Directorate, Madras raided his

F
premises at No. 34, Appu Maistry Street, Madras-1 on 19.10.66 and
recovered a sum of Rs. 4,28,713 and certain documents in coded language
....
relating to the disbursement of the cash. After the search, the first appel-
lant K. T.M.D. Mohammed was interrogated by Shri Amritalingam, Enfor-
cement Officer ·of Madras (PW 4) and the second appellant, Jamal
Mohammed was interrogated by Shri Pancheksharan, Enforcement Officer
on 19.10.66 and their statements were recorded under Exhs. P 39 and P
G 40. The first appellant under Exh. P 39 has admitted that he received a
sum of Rs. 6 lakhs from a person of Bombay on the previous day-for being
d~sbursed to various parties, and that Rs. 50,000 and Rs. 48,000 were paid
to one Baskaran alias Kannan and Angappan of Sarathy & Co. respectively
and the amounts were disbursed on receipt of instructions from one Gop~I --\ .
H of Singapore whose full address he did not know. The second appellant" in
K.T.s: MOHD. v. U.0.1. [PANDIAN, J.) 889

his statemcut £xh. P 40 has admitted the receipt of the amount by the first A
appellant and the disblirsement of, Rs. 50,000 to Bhaskaran and Rs. 40,000
to Angappan as instructed by the first appellant in compliance of the
instructions received from Singapore.

The Enforcement Officers conducted a further search at the
premises of Sarathy and Co., and discovered a cash amount of Rs. 48,100 B
and three bank drafts. Angappan when examined admitted the receipt of
Rs. 49,000 for being disbursed as per the details given in certain sheets of
paper available with him.

On 20.10.66, both the appellants sent their retraction. to the Deputy C
Director of Enforcement Directorate thr:ough their Advocate stating that
) their statements recorded under Exhs. P j9 and P 40 on 19.10.66 were not·
voluntary statements but obtained under threat and force and the facts
stated therein were not correct.

While it was so, the Income-tax Officer, Karaikudi (PW 1) on coming D
to know about the raid, issued summons to the first appellant who was then
an assessee within his jurisdiction and recorded a statement Exh. P 3 from
him on 16.11.66. The first appellant denied of having any connection with
the cash of Rs. 4,28,718 said to have been recovered from his premises and
reiterated that the statement by the Enforcement Officers was taken from E
him under force. The second appellant also gave a similar statement under
Exh. P 73 on 11.1.74 before PW 8 when examined after eight years. The
appellant in Criminal Appeal No. 632/90, namely, Amanullah who was
arrayed as accused No. 3 (hereinafter referred as 'third appellant') sent a
letter under Exh. P 41dated4.11.66 to the Enforcement Officers claiming
the money seized as belonging to him and explaining that he was negotiat- F
ing with some film producers for financing film production and the seized
amount included a sum of Rs. 2,79,000 being the sale proceeds of his
mother's jewels and Rs. 70,000 being his father's money and therefore the
""'-""'( said amount should be returned to him. Thereafter, the third appellant
gave a statement before the Enforcement Officers on 22.12.66 reiterating G
what he has stated in his letter dated 4.11.66.

In view of the subsequent developments; proceedings were initiated
against the third appellant under the provisions of the l.T. Act. The third
appellant submitted his return of income for the years 1967-68 to the
Income-tax Officer accompanied by statements showing the business in- H
890 SUPREME COURT REPORTS (1992) 2 S.C.R.

A come at Rs. 4,000 and that a sum of Rs. 2,79,000 was realised by him by
sale of rubies and jewels belonging to his mother, Smt. A.M. Safia who was
arrayed as accused No. 4 in the complaint. PW 8 on enquiry found that the
third appellant was not in affluent position and as such he could not have
accumulate(j such huge sum and that his statement about the sale of the
family jewels was false.
B
After rejecting the claim of the third appellant, the amount of Rs. 6
lakhs said to have been received by the first appellant has been treated as
the income. of the first appellant from some undisclosed sources and the
. first appellant was assessed under the relevant provisions of the I.T. Act.
C According to the 'Complainant, all the appellants have conspired together
to give false evidence at all stages of the procee~ under the I.T. Act
· and to fabricate false evidence intending that the same might cause the
Income-tax Officer to arrive at an erroneous opinion touching the nature
and source of the sum of Rs. 4,28,713 which is alleged to have been
D recovered from the first appellant and that all the appellants thereby have
· committed the offences punishable under Section 120-B IPC read with Sec.
193 IPC, under Section 120-B read with Section 2n of the I.T. Act and
under Section 193 (simplicitor} of Indian Penal Code and in addition the
appellants 1and3 were indicted under Section 277 (simplicitor) of the Act.

E On the above allegations, the Income-tax Officer, Central Circle,
XIV, Madras filed the criminal complaint before the Chief Judicial
Magistrate, Egmore in C.C. No. 356 of 1977 on his file which proceed~
have culminated to these appeals.

F Be that as it may, we would like to refer certain proceedings before
the Income-tax Authorities which are very much relevant for the disposal
of these appeals.

The Income-tax Officer on the basis of the statement of the first ;---
appellant given before the Enforcement Authorities found that the amount !
G of Rs. 6 lakhs was the income from other sources of the assessee (the first
appellant) and that the explanation given by him was not satisfactory and '-.
included that amount in his taxable income. The Appellate Assistant
Commissioner agreed with the ITO but the Income-tax Appellate Tribunal
held that the department had not brought any material to show that the
H assessee was the owner of the money in question and that the evidence only
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] ""891

indicated that the assessee had been engaged for disbursing the money not A
~ belonging to him but belonging to a third party. On the above finding, the
Tribunal set aside the assessment order and referred the case back to the
ITO to make a fresh a5sessment. But the ITO again made the same type
of assessment. The first appellant took his statutory appeals under the Act
and ultimately went before the Tribunal once again which by its order
B
dated 12.5.1980 allowed the appeal of the assessee namely the first appel-
--(
lant and dismissed the cross objection of the department. In the meantime,
the criminal proceedings against these three appellants were initiated in
January 1977. To. substantiate the case, the prosecution examined 12 wit-
' nesses and marked Exhs. P 1 to P 87. The appellants did not examine any
"'-
witness but filed Exhs. D 1 to D 4. The Trial Court accepting the evidence c
) adduced by the prosecution, convicted and sentenced the appellants by its
judgment.which was confirmed in C.A. Nos. 221 and 222 of 1980 on the
-y- file of the Vth Additional Judge, Madras. In the result, the three appellants
stood convicted under Sections 120-B read with Sec. 193 IPC and Sec. 277
of the l.T. Act besides under Sections 193 IPC and appellants No. 1 and
D
3 separately under_Section 277 of the l.T. Act. But coming to the question
of sentence, the trial court taking into consideration of the fact that the
appellants were detained under COFEPOSA in respect of the amount
seized and they have also undergone the ordeal of enquiries and the trial
for a considerable length of time sentenced each of them to undergo
imprisonment till the rising of the Court for each of the offences and to E
pay a total fine of Rs. 2,000, Rs. 600 and Rs. 1,500 repectively with the
1---
default clause.

Being aggrieved by the judgment of the first appellate court confirm-
ing the judgment of the trial court, two revisions were filed before the High
F
Court as aforementioned. The High Court for the reasons mentioned in its
order confirmed the judgment of the first appellate court and dismissed
the revisions. Hence these two appeals.
'
-~

Mr. A.T.M. Sampath, the learned counsel appearing on behalf of the
appellants assailed the impugned order of the High Court raising multiple G
questions of law the core of which is formulated hereunder:

1. The evidence-' both oral and documentary- produced by
the complainant does not constitute the requisite ingredients
to make out a case punishable under the charges levelled H
892 SUPREME COURT REPORTS (1992) 2 S.C.R.

A against all the three appellants.
>-
2. In view of the specific findings of the Income-tax Appellate
Tribunal in its order Exh. D 4 (enclosed as Annexure 'J' to the
appeal papers) that the assessee is not the owner of the money
seized, that "any other conclusion of ownership will only be
B perverse and uncalled for" and that "so Section 69-A of the
Income~tax Act has no application to the facts of the case",
appellants 1 and 2 on the basis of Exhs. P 36 and P 40 cannot
be held to have intentionaQ.y resiled from their earlier stand
when subsequently examined by the Income-tax Authorities
c thereby making themselves liable to be punished under Section ~

193 IPC for perjury and under Section 277 of the I.T. Act for --(-
making false statements in verification.
·~
3. The accusation made in the notice issued to the first appel-
lant dated 8.5.70 by the lncome~tax Officer, Karaikudi stating
D "On 19.10.66 you have admitted in your statement before the
Enforcement Directorate that the amount belongs to
....................................... Subsequently on 28.2.67 you have sent a
letter to this office wherein you had denied ownership of the
amount above" is factually incorrect because at no point of time,
E the first appellant as pointed out by the Income-tax Appellate
Tribunal had admitted the ownership of the amount. Therefore,
the very basis of the notice for launching the prosecution under ---~
Section 193 IPC and 277 of the l.T. Act is absolutely unsus-
tainable.

F 4. The statements recorded from appellants 1 and 2 under Exhs,
P 39 and P 40 by the Officers of the Enforcement Directorate
fall only within the meaning of Section 39 of FERA and those
.statements, therefore, cannot be made use of for initiating a
criminal case of perjury in the absence of any legal fiction
bringing the investigatio~ or proceeding as a judicial proceed·
G
ing within the meaning of Sections 193 and 228 IPC as con-
templated under Section 40 (4) of FERA.

5. The Income-tax Officer in exercise of his power under
Section 136 of 1.T. Act cannot make use of the statements
H recorded by the Enforcement Directorate (an independent
..
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 893

authority) under the provisions of the special Act-namely, A
A_
FERA, for prosecuting the deponents of those statements in a
separate and independent proceeding under another special
Act namely the I.T. Act on the ground that the deponents have
retracted their statements given before the authorities of the
Enforcement Directorate.
B
6. If any criminal proceeding is 'initiated under FERA against
the appellants 1 and 2 on the strength of their statements Exhs.
P 39 and P 40 recorded under Section 39 of FERA and
......_ appellants herein would partake the characteristic of an ac-
cused or become an accused of an indictable offence, and c
) therefore, on a mere denial, normally, the appellants should
not be subjected to face the grave charge of perjury, unless
y such a serious action is warranted.

7. The third appellant cannot be held to have committed the
D
offences charged merely because he has failed to establish his
consistent rightful claim of the amount of Rs. 4,28,713 as being
the sale proceeds of his mother's jewels.

8. The Courts below ought to have seen that Exh. P 18, the
income-tax returns filed by the third appellant was accepted on E
'y enquiry and though reopened belatedly it still stands incom-
I plete in spite of several years.

-- 9. The evidence available on record is not sufficient to put the
third appellant in a joint trial along with appellants 1 and 2
under the conspiracy charge as well as for recording the con-
viction under Section 193 IPC and 2771.T. Act especially when
F

the third appellant has consistently taken an uniform stand and

- --:-- when it is not the case of the Department that the amount of
Rs. 4,28,713 was taxable amount in the hands of the third
appellant. G

10. The cognizance of the offence under Sections 120-B read
with 193 and 193 (simplicitor) was taken beyond the period of

>· limitation, prescribed under Section 468 of the Code of
Criminal Procedui:e. H
•

894 SUPREME COURT REPORTS [1992} 2 S.C.R.

A Before pondering over the above contentions, we would like to make
reference to certain salient facts for proper understanding and apprecia-
,A
tion of the issues involved.

The Officers of the Enforcement Directorate conducted the raid and
seized the amount on 19.10.66 on which day itself the statements under
B
Exhs. P 39 and P 40 were recorded from the appellants 1 and 2 by the
Officers of the Enforcement Directorate. On the very next day i.e. on >-
20.10.66 both the appellants sent their retraction to the Director of Enfor-

-
cement through their Advocate stating that the statements were involuntary
and bereft of truth. While it was so, the ITO of Karaikudi recorded the
c .
statement of the first appellant on 16.11.66. Meanwhile, the third appellant
sent a letter to the Enforcement Officers claiming that he was the owner ·(
of the said amount of Rs. 4,28,713 and asked for the return of the same.
On 22.12.66 the third appellant gave a statement before the Enforcement --..(
Officers explaining how the said amount came into his possession. But that
D explanation was not accepted. In view of the above developments, proceed-
ings were taken against the third appellant under the provisions of the I.T.
Act. The third appellant on 1.3.67 submitted his return of income on
27.2.67 for the assessment year 1967-68 accompanied by a statement show-
ing the business income at Rs. 4,000. The fourth accused before the trial
Court who died during the proceedings gave a sworn statement on 2.5.67
E before the ITO stating that she gave a cash amount of Rs. 70,000 to the
third appellant and also one necklace studded with red stones and two ~,

bangles studded with blue stones besides some ornaments. The statement
of the fourth accused was also not accepted, The fifth accused (since
acquitted) gave a statement on 11.8.70 before the ITO denying the receipt
F of any amount from the appellants 1 and 2 on 18.10.66. Thereafter, appel-
.....
lants 1 and 3 gave separate statements on 27.2.71 and 4.11.71 respectively.
The se.cond appellant gave his statement. before the ITO on 11.1.74
repudiating his earlier statement dated 19.10.66 (Exh. P 40) and stated that
the said statement was obtained under duress. On the basis of the above
statements and subsequent correspondence, it is stated that appellants Nos.
G 1 to 3 and accused No. 5 have committed the offenees punishable under
Section 120-B read with 19~ IPC and 120-B IPC read with 277 of the I.T.
:.--·

-
Act.

The tri~ 1~ourt after having considered the allegations of the com- --(
,/
H plaint, indicted the accused inclusive of the appellants thus: \
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.) 895

The first and second appellants wilfully ca~ the Advocate's fetter A
A dated 20.10.66 with a false statement; that they, thereafter gave separate
statements dated 16.11.66 and 11.1.74 respectively before the ITO repudiat-
ing their earlier statements given before the Enforcement Officers and that
they thereby, have committed an offence punishable under Section 193
IPC. Similarly, the third appellant not only by fabricating a letter dated
~ 10.10.66, but also by filing a false affidavit dated 23.3.67 and thereafter by B
making a false statement before the ITO on 4.11.71 has made himself liable
to be punished under Section 193 IPC. In addition, accused No.1 has
committed an offence under Section 277 of the I.T. Act by delivering a
letter to the ITO on 27.2.71 containing a false statement that his statement
under Exh. P 39 was not true and obtained under duress. Accused No. 3 C
has also col}lllii,tttd siinilar offence under Section 277 of the I.T. Act by
_ ~deilv~iin.{ to the ITO a ~alse sta~ement dated 13.6'. claiming t~e
)--- amount of Rs. 4,28,713 as belongmg to him; Accused No. 5 has made him
, liable for the offence under Section 277 by delivering a false statement to
the ITO on 11.8.70 denying the receipt of a sum of Rs. 50,000 on 18.10.66. D

Be that as it may, a perusal of the entire records show that a gist of ·
the allegations levelled against these appellants is that the appellant No. 1
disowned his ownership of the amount contrary to the version in Exh. P 39
and the appellant No. 2 has repudiated the statement given under Exh. P
40 and that the appellant No. 3 made a false claim and that, thus, all the E
'r three appellants. did so only in pursuance of a conspiracy.
I

-- Though a specific ground is taken in the appeal grounds that Exhs.
P 39 and P 40 are clearly relatable to the provisions of Section 39 of FERA
and that no other statement was taken on oath, the respondent namely the
Union of Indian represented by the Commissioner of Income-tax, Central
Circle, Madras has not filed any counter denying that plea. Therefore, we
F

are constrained to hold that Exhs. P 39 and P 40 were recorded by the
officers of the Enforcement in exercise of the power conferred under
Section 39 of the Act.
G
Section 39 of FERA empowers the Director of Enforcement or any
other Officer of Enforcement authorised by the Central Government in this
behalf, (i) to require any person to produce or delive'r any document
relevant to the investigation or proceeding and (ii) to examine any person
acquainted with the facts and circumstances of the case. Section 40 of H
896 SUPREME COURT REPORTS {1992] 2 S.C.R.

A FERA qualifies the officers stating that the officer of Enforcement em-
powered to summon any person to give evidence and produce documents
must be a gazetted officer.

The exercise of the power under Section 40 of FERA to summon
persons to give evidence and produce documents must staisfy the condition
B that the officer acting under th.at Sectior. shoilld be a gazetted officer of
Enforcement which is similar to Section 108 of the Customs Act. That is
so because every person summoned by a gazetted officer .of Enforcement
to make a statement under sub section 1 of Section 40 is under a compul-
sion to state the truth· on the pain of facing prosecution in view of sub-sec-
tion 4 thereof. To say in other words, if the officer exercising the powers
c under Section 40 is not clothed with the insignia of a gazetted post, there
is no sanctity attached to the statements recorded under Section 40 (1) of
FERA.

This Court in Pushpdevi M. Jatia v. M.L. Wadhawan (1987] 3 SCC
D 367 while dealing with the intent of Section 40 of FERA held as follows:

"All that is required by Section 40 (1) of the FERA is that such
officer recording the statement must be holding a gazetted post
of an officer of Enforcement in contradistinction to that of an
Assistant Officer of Enfo~cement which is a non-gazetted post."
E

In our opinion, the expression 'gazetted officer of Enforcement'
appearing in Section 40 (1) must take its colour from the
F context in which it appears and it means any person appointed
to be an officer of Enforcement under Section 4 holding a
gazetted post."

Every investigation or proceeding under Section 40 is deemed to be ~- ~
G a judicial proceeding by a legal fiction embodied in Sub-section 4 of that
Section though the proceedings are neither in nor before any Court at that
stage. But there is no such deeming provision under Section 39 of FERA
bringing every investigation Of proceeding in its ambit as "a judicial
proceeding" within the meaning of Sections 193 and 228 of the Indian Penal
Code. When it is so, as rightly pointed out by Mr. A.T.M. Sampath, the "'\
H statements recorded under Exhs. P 39 and P 40 cannot be brought as
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 897

having been recorded in 'a judicial proceeding' so as to make use of them A
as .the basis for fastening the makers of those statements with the
criminality of the offences under Sections 193 and/or 228 of the Indian
Penal Code on the ground that the deponents of those statements have
retracted from their earlier statements in a subsequent proceeding which
is deemed to be 'a judicial proceeding'.
B
It is pertinent to note in this connection that in the manner of
recording a statement under Section 40 of FERA there are no safeguards
as in the case of recording a statement of an accused.under Section 164 of
the Criminal Procedure Code by a Magistrate. Nevertheless, before receiv-
ing that statement in evidence and making use of the same against the C
maker, it must be scrutinised to find out whether that statement was made
or obtained under inducement, coercion, threat, promise or by any other
improper means or whether it was voluntarily made. There are a catena of
decisions of this Court that the statements obtained from persons under
the provisions of FERA or the Customs Act, should not be tainted with
any illegality and they must be free from any vice. In the present case, we D
have to hold as pointed out ibid that the statements under Exhs. P 39 and.
P 40 were recorded only under Section 39 but not under Section 40 of the
FERA.

Needless to emphasise that the FERA and the I.T. Act are two E
separate and independent special Acts operating in two different fields.

This Court in Subba Rao v. /. T. Commr., AIR 1956 SC 604 = [1956]
SCR 577 has pointed out:

"The Indian Income-tax Act is a self-contained Code exhaustive F
of the matters dealt with therein, and its. provisions shown an
intention to depart from the common rule, qui facit per alium
,._____
-
facit per se."
-- '
Further, in Mis Pannalal Binjraj v. Union of India, AIR 1957 SC 397 G
[1957] SCR 233 it has been observed thus:

"It has to be remembered that the purpose of the Act is to levy
Income-tax, assess and collect the same. The preamble of the
Act does not say so in terms it being an Act to consolidate and
amend the law relating to income-tax and super tax but that is H
898 SUPREME COURT REPORTS (1992) 2 S.C.R..

A the purpose of the Act as disclosed in the preamble of the First
Indian Income tax Act of 1886 (Act II of 1886). It follows,
therefore, that all the provisions contained in the Act have been
designed with the object of ac~eving that purpose."

Coming to the FERA, it is a special law which prescribes a special
B procedure for investigation of brea~hes of foreign exchange regulations.
Vide Shanti Prasad Jain v. The Director of Enforcement, (1%3) 2 SCR 297.
The proceedings under the FERA are quasi-criminal in character. It is
pellucid tha~ the ambit, scope and intendment of these two· Acts are
entirely different and dissimilar.
c Therefore, the significance of a statement recorded under the
provisions of FERA during the investigation or proceeding under said Act
so as to britig theni within the meaning of judicial proceeding must be
examined only quo the provisions of the FERA but not with reference to
the provisiollS of any other alien Act or Acts such as I:T. Act.
D .
If it is to be approved and held that the authorities under tlie l.T.
Act can launch a prosecution for perjury on the basis of a statement
recorded by the Enforcement Officer. then on the same analogy the Enfor-
cement authority can also in a given situation launch a prosecution for
perjury on the basis of any inculpatory statement recorded by the Income-
E
tax Authority, if repudiated subsequently before the Enfqrcement
authority. In our opinion, such a course cannot be and should not be legally -~
permitted.

Leave apart, even if the officers of the Enforcement intend to take
F action against the deponent of a statement on the basis of his inculpatory
statement which has been subsequently repudiated, the officer concerne~
must take both the statements together, give a finding about the nature of
the repudiation and then act upon the earlier inculpatory one. If on the
other hand, th~ officer concerned bisect the two statements and make use
G of the inculpatory statement alone conveniently bypassing the other such a
stand cannot be .a legally permissible because admissibility, reliability and
the evidentiary value of the statement of the inculpatory statement depend
on the bench mark of the provisions of the Evidence Act and the general
criminal law.

H Next we shall pass on to examine 'the admissibility and evidentiary 1.
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 899

value of a statement recorded by an Enforcement authority in exercise of A
his power as in the case of a customs officer.
"""'
- This Court in Vallabhdas Liladhar v.Asstt. Collector of Customs, AIR
1%5 SC 481 = (1%5] 3 SCR 854 while dealing with the question of
admissibility of the statements made· before the Custoµis Officers held,
B
"Section 24 would however apply, for customs authorities !llUSt be taken to
~ be persons in authority and the statements would be inadmissible in a
criminal trial if it is proved that they were caused by induceme~/threat or
promise." In a subsequent decision l'~ Rustomji v. State of Maharashtra,
AIR 1971 SC (1087] = (1971] SCR (Suppl.) 35 wherein ~his Court while
......._ answering a question as to whether Section 24 of the Evidence Act is or is c
) not a bar to admissibility in evidence of a statement made by a person to
Custom Officers in an enquiry under Section 108 of the Customs Act held,
')--. "In order to attract the bar, it has to be such· an inducement, threat or
promis~ which should lead the accused to suppose that 'by making it he
would gain any advantage or avoid any evil of temporal nature in reference
to the proceedings against him."
D

We think it is not necessary to recapitulate and recite all the
decisions on this legal aspect. ·But suffice to say that the core of all the
decisions of this Court is to the effect that the voluntary nature of any
statement made either before the Custom Authorities or the officers of E
Enforcement under the relevant provisions of the respective Acts is a sine
quo non to act on it for any purpose and· if the statement appears to have
been obtained by any inducement, threat, coercion or by any improper

..... means that statement must be rejected brevi manu. At the same time, it is
to be .noted .that merely because a statement is retracted, it cannot be F
recorded as involuntary or unlawfully obtained. It is only for the maker of
the statement who alleges inducement, threat, promise etc. to establish that
such improper means has been adopted. However, even if the maker of the
~
statement fails to establish his allegations of inducement, threat etc. against
the officer who recorded the statement, the authority while acting on the
inculpatory statement of the maker is not completely relieved of his obliga- G
tions in at least subjectively applying its mind to the subsequent retraction
to hold that the inculpatory statement was not extorted. It thus boils down
that the authority or any Court intending to act upon the inculpatory
statement as a voluntary one should apply its mind to the retraction and
.'r reject the same in writing. It is only on this principle of law, this Court in H
900 SUPREME COURT REPORTS (1992) 2 S.C.R.

A several decisions has ruled that even in passing a detention order on the
basis of an inculpatory statement of a detenu who has voilated the
provisions of the FERA or the Customs Act etc. the detaining authority
should consider the subsequent retraction and record its 'opinion before
accepting the inculpatory statement lest the order will be vitiated. Refer-
ence may be made to a decision of the full Bench of the Madras High
B Court in Roshan Beevi v. Joint Secretary to the Govt. of Tamil Nadu, Public
Deptt. etc., [1983] Law weekly (Crl.) 289 = [1984] 15 ELT 289 to which
one of us (S. Ratnavel Pandian, J.) was a party.

In this context, reference may be made to Section 340 of the Code
C of Criminal Procedure under Chapter XXVI under the heading "Provisions
as to certain offences affecting the administration of justice". This section (
confers an inherent power on a Court to make a complaint in respect of
an offence committed in or in relation to a proceeding in that Court, or as
the case may be, in respect of a. document produced or given in evidence
D in a proceeding in that Court, if that Court is of opinion that it is expedient
in the interest of justice that an enquiry should be made into an offence
referred to in clause (b) of sub-section (1) of Section 195 and authorises
such Court to hold preliminary enquiry as it thinks necessary and then
make a complaint tliereof in writing after recording a finding to that effect
as comtemplated under sub-section (1) of Section 340. The words "in or in
E relation to a proceeding in that Court" show that the Court which can take
action under this section is only the Court operating within the definition
of Section 195 (3) before which c:>r in relation to whose proceeding the
offence has been committed. There is a word of caution inbuilt in that
provision itself that the action to be taken should be expedient in the
interest of justice. Therefore, it is incumbent that the power given by this
F
Section 340 of the Code should be used with utmost care and after due
consideration. The scope of Section 340 (1) which corresponds to Section
476 (1) of the old Code was examined by this Court in K Karunakaran v.
T. V. Eachara Worrier and Another, (1978] 1 SCC 18 and in that decision, it -~
has observed:
G
"At an enquiry held by the Court under Section 340 (1), Cr.P.C.,
irrespective of the result of the main case, the only question is
whether a prima facie case is made out which, if unrebutted,
may have a reasonable likelihood to establish the specified
H offence and whether it is also expedient in the interest of justice
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 901

to take such action. A
A
,..
··············································································································
....... .... ........ .... ........ .... ............ ........ The two pre-conditions are
that the materials produced before the High Court make out
a prim a f acie case for a complaint and secondly that it is
expedient in the interest of justice to permit the prosecution B
~·
under Section 193 IPC."

The above provisions of Section 340 of the Code of Criminal Proce-
dure are alluded only for the purpose of showing that necessary care and
....... caution are to be taken before initiating a criminal proceeding for perjury
c
against the deponent of contradictory statements in a judicial proceeding.
)
,... The mere fact that a deponent has made contradictory statements at
two different stages in a judicial proceeding-is not by itself always sufficient
to justify a prosecution for perjury under Section 193 IPC but it must be
established that the deponent has intentionally given a false statement in D
any stage of the 'judicial proceeding' or fabricated false evidence for the
purpose of being used in any stage of the judicial proceeding. Further, such
a prosecution for perjury should be taken only if it is expedient in the
interest of justice.

The facts of the present case when examined in the light of the above E
proposition of law, it can be safely concluded that the statements Exhs. P
)'---
I 39 and P 40 were recorded only in exercise of the powers under Section
39 of the Act and that the prosecution has not established that those
statements were recorded by any gazetted officer of the Enforcement
..... under the provisions of Section 40 of the FERA for bringing them within
F
the meaning of 'judicial proceeding'. Even assuming for the sake of argu-
ments that those statements fall within the mischief of Section 40 of the
FERA, there is absolutely nothing on record to show that either the
sanctioning authority or the prosecuting authority applied its mind even
~ subjectively and found that the appellants 1 and 2 gave their earlier
inculpatory statements voluntarily but not under any inducement, coercion, G
threat or promise; that the deponents have intentionally gave a false
statement before the ITO at the subsequent stage within 'the ambit of
Section 193 IPC and that it was expedient in the interest of justice to
initiate the criminal proceedings for perjury.

The statements Exhs. P 39 and P 40 were recorded on 19.10.66 from H
902 SUPREME COURT REPORTS (1992) 2 S.C.R.

A appellants 1 and 2 as repeatedly pointed out above only under the
provisions of FERA. But the subsequent two statements recorded by the
Income-tax Officer from the first and the second appellants on 16.11.66•
and 11.1.74 respectively were in exercise of the-powers under the provisions
of the I.T. Act. It is not the case of the prosecution that these two
appellants gave any inculpatory statement before the ITO and thereafter
B retracted. In fact, the appellants 1 and 2 have retracted their earlier
statements even on the very next day which retraction was not taken note
of by the ITO. On the other hand, the ITO, Central Circle, XIV, Madras
in his reply letter sent on 8th March 1972 addressed to- the first appellant
has stated as follows:
c
"The statement made by you before the Income-tax Officer on
16.11.66, that is long after statement was made before the
Officer of the Enforcement Directorate, immediately after the
seizure, and the statement was IW;lde before the Income-tax
Officer to get over the difficult situation of having to explain
D the source for the sum of Rs. 6,00,000." ·

The above statement unambiguously shows that the ITO has not
. taken into considerion of lhe letter of retraction sent by both the appellants
through their lawyer even on 20.10.66 alleging that "they were coerced to
E sign statements by vsing bodily force and threatening with causing injuries
to them and they signed the statements fearing danger to their life and
body." It may be stated in this connection, that only the Enforcement
Officer, namely, Shri Amritalingam who recorded the statement from the
first appellant alone has been examined as PW 4 and the other Enforce-
F ment Officer, Shri Panchaksharam who recorded the statement from the
second appellant has neither been cited as a witness in the complaint nor
appears to have been examined before the Court.

Hence for all the reasons stated supra, we hold that the convictions -~
G recor<led by the Courts below under Sections 120-B read with 193 IPC and
193 (simplicitor) as against the appellants 1 and 2 cannot be sustained. It
is very surprising and shocking to note that the complainant has stepped
into the shoe of the · Enforcement Directorate, and appears to have as-
sumed the authority under the FERA and levelled a charge stating that the
appellants 1 and 2 by sending the letter of retraction on 20.10;66 denying
lI their earlier statements dated 19.10.66 hav~ made themselves liable to be
KT.S. MOHO. v. U.0.1. [PANDIAN, J.] 903

,,...i, convicted under Section 193 IPC (vi~e paragraph 25 (i) of the complaint). A
Still more shocking, the Trial Court has not only convicted the .
appellants 1 and 2 for sending the letter of retraction dated 20.10.66 but
also found the third appellant and accused Nos.. 4 and 5 as having been
parties to a- conspiracy for causing a letter dated 20.10.66 to be sent to the
Enforcement Directorate. B

The next question for consideration relates to the prosecution under
Section 277 of the I.T. Act.

In the notice issued by the ITO, Karaikudi dated 8.5.70 asking the C
) first appellant to appear before him, the ITO has stated as follows:

"Thus in your statement before the Enforcement Directorate
you have o\vned the amount whereas before the Income-true
authorities you have denied ownership of the amount."
D
It transpires from the notice that the consistent case of the prosecu-
tion is that the entire amount of Rs. 6 lakhs was owned by the first appellant
and that the said amount was assessable in-the hands of the first appell.ant
as his income from other sources. The matter, as we have indicated earlier,
canie before the Tribunal twice. In the first instance, the Tribunal observed E
that the evidence iridicated that the assessee had been engaged only in
disbursing the money not belonging to him but belonging to some third
party and on that basis, the Tribunal set aside the assessment and referred
the case back to the ITO to make a fresh assessment. But ITO again made
the same· type of assessment which once again came before the Tribunal.
It was under such circumstances, the Tribunal by its order dated 12.5.80 F
held as follows:

"But the error they committed was in thinking that assessee is
also not the owner of the money......... ~ ....................... The asses-
see has said that he is only a distributor of some other's money. G
This explanation is quite satisfactory. It is not a cock and bull
story or of imagination ..........................................The only con-
clusion possible in the case is that the assessee is not the owner
but only a person in possession of others' money and that he
is only a distributor of those amounts on commission basis. The
possession of the assessee is certainly not as owner but only as H
904 SUPREME COURT REPORTS [1992] 2 S.C.R.

A a distributor of the money belonging to others. That conclusion
~
is the only possible conclusion in the case. Any other conclusion
of ownership by assessee will only be perverse and uncalled for.
So Section 69A of the Income-tax Act, 1961 has no application
to the facts on the case. The appeal of the assessee has to be
allowed and cross objections dismissed."
B
This finding has not been challenged and it reached its finality. A ~
close reading of the order of the Tribunal shows that the first appellant has
been exonerated completely from the speci!ic case of the ITO that he is
the owner of the entire amount of Rs. 6 lakhs. Therefore, now the point
c that arises for consideration is whether the conviction recorded by the ........
subordinate Courts as affirmed by the High Court under Sections 120-B -{
read with 277 and 277 I.T. Act are or are not liable to be set aside in the
light of the judgment of the Tribunal.
~
Mr. ATM Sampath very strenuously contended that the convictions
D recorded by the subordinate Courts as affirmed by the High Court under
Sections 120-B read with 277 and 277 I.T. Act are liable to be set aside in
the teeth of the judgment of the Tribunal completely exonerating the
appellants from the liability of the income-tax. We shall examine this
contention and dispose of the same in the ratio of decisions of this Court
in P. Jayappan v. S.K Pernmal, [1985] 1 SCR 536.
E
In that case, the following dictum has been laid down:

"The criminal court no doubt has to give due regard to the
result of any proceeding under the Act having a bearing on the
question in issue and in an appropriate case, it may drop the .......
F proceedings in the light of an order passed under the Act. It
does not, however, mean that the result of a proceeding under
the Act would be binding on the criminal court. The criminal
court has to judge the case independently on .the evidence
~
placed before it."
G
In the penultimate paragraph of the same judgment, the following
obsenlation was made: ....
"It may be that in an approriate case the criminal Court may
adjourn or postpone the hearing of a criminal case in exercise --1,
H of its discretionary power under Section 309 cf the Code of
K.T.S. MOHD. v. U.0.1. {PANDIAN, J.) 905

Criminal procedure if the disposal of any proceeding under the A
Act which has a bearing on the proceedings before it is im-
minent so that it may take also into consideration the order to
be passed therein. Even here the discretion should be exercised
judicially and in such a way as not to frustrate the object of the
criminal proceedings. There is no rigid rule which makes ·it
necessary for a criminal court to adjourn or postpone the
B
hearing of a case before it indefinitely or for an unduly long
period only because some proceeding which may have some
bearing on it is pending else."

The above principle of law laid down by this Court gives an indica- C
tion that the result of the proceedings under the LT. Act is one of the major
factors to be considered and the resultant finding in the said proceeding
will have some bearing in deciding the criminal prosecution in appropriate
cases.

It may not be out of place to refer to an observation of this Court in D
Uttam Chand v. I. T.O., [1982] 133 ITR 909 wherein it was observed that
the prosecution once initiated may be quashed in the light of a finding
favourable to the assessee recorded by an authority under the Act sub-
sequently in respect of the relevant assessment proceedings. · But in
Jayappan's case, it has been held that the decision in Uttam Chand's case E
is not an authority for the proposition that no proceedings can be initiated
at all under Section 276 (c) and Section 277 as long as some proceeding
under the Act in which there is a chance of success of the assessee is
pending. Though as held in Jayappan's case that a criminal Court has to
judge the case before it independently on the materials placed before it,
there is no legal bar in giving due regard to the result of the proceedings F
under LT. Act.

In the present case, on two occasions, the Tribunal has held that the
~· amount of Rs. 6 lakhs was not owned by the first appellant. In Exh. D 4,
the Tribunal has further held that Section 69 (a) dealing with the unex-
plained money etc. has no application to the facts of the case. Taking this G
finding of the Tribunal into constitution, we are constrained to hold that
the appellants cannot be hdd to be liable for punishment under Section
120-B read with 277 and 277 (simplicitor) of the LT. Act as the very basis
of the prosecution is completely nullified by the order of the Tribunal
which fact can be given due regard in deciding th.e question of the criminal H
906 SUPREME COURT REPORTS [1992] 2 S.C.R.

A liability of the appellants 1 and 2.

Now coming to the case of the third appellant, it is his specific case
throughout that the entire amount of Rs. 4,28,712 belonged to him. It
appears from paragraphs 70 and 71 of the judgment of the trial court that
the third appellant filed a suit in O.S. No. 62/71 on the original side of the
B High Court of Madras agaisnt the Enforcement Directorate claiming the
said amount but that suit was dismissed. Exh. P 87 is the certified copy of
the judgment. While it was so, PW 2 who was then the Income-true Officer,
City Circle, Madras during 1967-68 issued a letter dated 2.2.67 enclosing a
notice under Section 139 (2) of the I.T. Act and also another notice under
c Sections 177 and 175 of the Act- both relating to the assessment years ........
1967-68-which notices are marked as Exhs. P 14andP15.He was further --(
directed to file his return of income wtthin a week of the receipt of Exh.
~-
P 15. The third appellant's plea for extension of time was rejected. The
third appellant, thereafter, filed bis statement in verification accompanied
D by a signed statement claiming exemption of the sum of Rs. 4,28,713 as
non-taxable on the ground ·that the said amount represented the sale
proceeds of his mother's jewels etc.

The allegations in the complaint on the basis of which the charges
were framed against the third appellant are that he along with the first and
E the second appellants conspired to fabricate false evidence and to file a
false statement on oath before the ITO thereby making himself liable under
Sections 120-B read with 193 IPC and 120-B r~ad with 277 l.T. Act and
that he also committed offences punishable under Section 193 IPC and 277
of l.T. Act (simplicitor). On the allegations of the complaint, in our
F considered opinion, the third appellant could not be jointly indicated for
the above conspiracy charges since the first and the second appellants are
stated to have cospired (i) by sending the letter of retraction dated 20.10.66
and (2) by giving a false statement before the ITO retracting their earlier
statements given before the Enforcement Officers which are not the case
qua the third appellant. The allegations against the third appellant are that
G he along with appellants 1 and 2 conspired (i) to cause false entries in the
account books of M/s Precious Stone Trade Company and (ii) to wilfully ...
make false statement before the ITO on 4.11.71.

A careful- perusal of the complaint leaves an impression that it has
H been ill-drafted and the necessary ingredients to make, out a case for
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 907

conspiracy are not brought out in .the complaint. It is true that in case of A
~ conspiracy, an agreement between the conspirators need not be directly
proved but it can also be inferred form the established facts in the case.
As pointed out by this Court in Bhagwan Swarup and Ors v. State of
Maharashtra, AIR 1965 SC 682 = [1964) 2 SCR 378 that the offence of
conspiracy can be established either by direct evidence or by circumstantial
evidence and this section will come to play only when the Court is satisfied B
-..f. that there is reasonable ground to believe that two or more persons have
conspired to commit an offence or an actionable wrong, that is to say, there
~hould beprimafacie evidence that a person was a party to the ~nspiracy.

.....
)-
The charges levelled in the complaint in paragraphs 25 (i) (ii) and (iii) read
that the first and the second appellants by sending the letter through their
lawyer on 20.10.66 committed an offence under Section 193 IPC and that
c
they, thereafter, individually committed an offeni;e under Section 193 IPC
'}'- by retracting their earlier statements given before the Enforcement
Authorities. Under Paragraph 25 (iv), (vi) and (vii) of the complaint, the
third appellant is stated to have caused false entries to exist in the a~unt
books of M/s Precious Stone Trading Company and then wilfully made a D
false statement in verification before the Income-tax Authority accom-
panied by a false statement. Nowhere, it is stated that the individual acts
of appellants 1 and 2 and that of the third appellant were due to any
conspiracy among all the three. On the other hand, the offence said to have
been committed by the third appellant is specifically attributed only to him.
So the question is whether any conspiracy could be inferred under these E
)-· circumstances. In our opinion, on the facts of the case, no such inference
could be drawn for the simple reason that the appellants 1 and 2 were
interrogated by the Enforcement Authorities on 19.10.66 and they sent
their letter of retraction through their advocate on the very next day i.e. on
20.10.66 and that the ITO, Karaikndi has recorded the retraction statement F
of the first appellant even on 16.11.66. It was only thereafter the third
appellant sent his letter to the Enforcement Authorities claiming the
controversial amount on 22.12.66. The charges levelled against appellants
t-<- 1 and 2 are only on the basis of their retractions made through their lawyer
on 20.10.66 and by their subsequent statements. In the letter dated 20.10.66,
the appellants 1 and 2 have not stated that the amount belonged to the G
third appellant. Similarly, it is not the case of the prosecution that t.he first
appellant by his statement dated 16.11.66 explained the amount as belong-
ing to the third appellant. Nor is it the case of the prosecution that the
'f- second appellant came forward by his statement recorded in the year 1974
which is the basis for prosecuting him for perjury stating that the amount
H
908 SUPREME COURT REPORTS [1992] 2 S.C.R.

A belonged to the third appellant. Therefore, no agreement to commit the
offence punishable under Sections 193 IPC or 277 LT. Act can be said to _)..
have been hatched among all the three appellants. Further, it is neither the
case of the complainant nor could it be said that the appellants ·1 and 2
knew that the third appellant intentionally fabricated faise evidence or
wilfully made a false return before the ITO. Merely because the third
B appellant happens to be related to the first appellant and claimed that
amount as owner thereof, no irresistible inference can be safely drawn that }-
there was a conspiracy among all the three appellants and the accused Nos .
.4 and 5. Moreover, t!te evidence, direct or circumstantial is very much
lacking to bring all the three and the other two accused under the charge
C of conspiracy. Hence the third appellant cannot be put on a joint trial along
with appellants 1 and 2 and others under the charge of conspiracy. There-
fore, the conviction of the third appellant under the conspiracy charge has .-{
to fail.

It is pertinent to note, in this connection, that the trial court in
D . paragraphs 87 and 88 of its judgments, after· finding appellant No. 3 guilty
of the c0nspiracy charge along with appellants 1 and 2, A 4 (since dead)
and A 5 punishable under Sections 120-B read with 193 IPC and 120~B
read with 277 I.T. Act has acquitted the fifth accused (Bhaskar alias
Kannan) of all the 'charges in paragraph 89 of its judgment. This contradic-
tory fmding of the trial court has not been noted either by the appellate
E court or by the High Court. r

The next question that arises for cosideration is whether the third ~
appellant can be convicted for the offence under Sections 193 IPC and 277
of the l.T. Act (simp~citor). The third appellant has not voluntarily sub-
F mitted any return before the ITO but only on receipt of a notice from the ....
ITO. No doubt, this will not absolve the criminal liability of the third
appellant if the ingredients to constitute the offences under these two
sections are established and the trial of the case is not vitiated by any
illegality. ~

G Section 277 of the I.T. Act in general seeks to the penalise one who
makes a false statement in order to avoid his tax. liability. In the present
case, the Revenue has not come forward that the money represents the
income of the third appellant liable to be taxed but on the other hand it is
the case. of the ITO that it is not the third appellant's money at all.
H Moreove~, a cursory reading of the penal clause proposes to impose ~
K.T.S. MOHD. v. U.0.1. [PANDIAN, J.] 909

punishment depending upon- the quantum of tax sought to be evaded. Here A
no question of evading the tax will arise. Even assuming, that the third
appellant has made himself liable to be punished under Sections 193 and
277 (simplicitor) of the 1.T. Act, inasmuch as he has been put in a joint
trial with the appellants 1 and 2 for the conspiracy of the said offences
without any specific allegation or acceptable evidence to connect the third B
appellant with the activities of the appellants 1 and 2, there is a Clear
misjoinder of charges which includes misjoinder of parties also. In the facts
and circumstances of the case on hand, the misjoinder of. charges cannot
be said to be a mere irregularity. In our :dmsidered opinion by the joint
trial with misjoinder of charges, as pointed out by Mr. A TM Sampath, a
failure of justice has in fact been occasioned since all .the Courts below C
have clubbed all the allegations levelled against all the three appellants and
two other accused (A 4 and A 5)together and considered the same as if
all the offences were committed in the course of the same transaction
pursuant to a conspiracy which is neither supported by the allegations in
the complaint nor by any evidence as required under the law. Hence, the D
conviction under Sections 193 IPC and 277 of 1.T. Act (simplicitor) also
have to be set aside.

The High Court, without adverting to the above important intricated
questions of law involved in this case and examining them in the proper E
perspective has disposed of the revisions in a summary manner and hence
the impugned orders warrant an interference. Since we ·are inclined tc;>
-,-.- allow all these appeals mainly on the various questions of law which we
/
have discussed in the preceding part of this judgment, we feel it unneces-
sary to deal with the other questions raised in the appeal.
F

In the upshot, for the discussion made above, we allow the appeals
b';'. setting aside the convictions and sentences as affirmed by the High
'Court and acquit the appellants of all the charges. The fine amount, i .
already paid is directed to be refunded to the appellants.

c
Both the appeals are allowed accordi1v'
-&Y·

R.P.
Appeals allowed.